Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Alyssa Royse
I accidentally caught the last half of the series premiere of SharkTank last night. If you don’t know what Shark Tank is, it is a realityTV show in which entrepreneurs who believe that they have the next BigIdea pitch in front of 5 Angels. I then proceeded to have nightmares.
I do not miss pitching!
Icaught three pitches last night, and they were all very different.Without discussing the merits of any of the businesses (though I may dothat in another post) there were at least four very important lessonslearned that I will pass on to you.
1. DO NOT RISK YOUR FINANCIALHEALTH ON A STARTUP. The first pitch that I caught was by a man who hadput two mortgages on his home, spent his 401k, his kids’ college fundsand accrued a ton of credit card debt. On one hand, it is greatdedication to an idea. However, it also put his family at risk anddelivered him to this very important pitch on a track record offiscally irresponsible decisions.
It is fine to live a simplelife, live scrappy, even live hand-to-mouth for a while, but do notrisk it all. Especially if you have a family that depend solely on you.
2.A SMALL PIECE OF A BIG PIE IS BETTER THAN A BIG HELPING OF NOTHING Thesecond pitch was from a (cute as hell) chick who created a “gadget” tomake it easier to give liquid medicine to kids. She was asking for $50kfor 15% of her company, but all she had was an idea. No workingprototype, no partnership deals, no patents (though the search had beendone.) Barbara Corcoran offered her the $50k for 55% of her company,and she took it. Good call. She now has an incredible dynamo with avested interest in making her company a success – and the brains, trackrecord and connections to do it.
3. SOLVE A REAL PROBLEM Themedicine dispenser solved a real problem that millions of people haveand could deliver a solution at a low price-point that anyone couldafford. I’d be willing to bet you’ll see this thing in Walgreens withinthe year. The other two pitches that I saw pretty much made up aproblem that either didn’t really exist or was already solved incountless ways.
4. STOP SMOKING CRACK (I mean, GET REAL WITHYOUR VALUATION!) The last pitch to go was two incredibly cocky youngguys whose egos filled the screen a good 10 second before they did. Youknow the type. Not surprisingly, one of the Angels actually called them”pigs” as a result of their over inflated egos. The thing that did themin was their valuation of their company. They had built a successfulmoving company and were now pitching a “packing” company. Thesuccessful company has huge franchise capabilities and was profitableto the tune of about $300k last year. But they weren’t offering anystake in that company. Rather, they were offering a small stake in apacking company. Long story short, the Angels were more interested inthe moving company, which, when asked, the guys put a valuation of$10M on.
The point that was repeatedly hammered into their denseheads was this: You cannot realistically create a valuation around ahypothetical upside. Those days are over and left a lot of nakedinvestors searching for the shelter of a sure thing. Your company isworth what it is ACTUALLY worth based on current revenue, contracts inhand and receivable revenue in the next fiscal year or so.
More than that, being “greedy pigs” (yes, they were called that) with investors is just never a good idea.
5. KNOW THE DIFFERENCE BETWEEN AN EXPANSION, A PRODUCT AND AN ACTUALCOMPANY The chick with the medicine dispenser was told, rightly, thatit is very likely that she just has a good product, and a good productdoes not a company make. If it were software, she would have been toldit was “just a feature.” However, for reasons that make sense to me,Barbara Corcoran could see a business there – companies like SafetyFirst spun a couple child safety products into an entire brand of kidsproducts. Most importantly, it was a small enough financial risk thatit was worth it.
The dudes with the moving company were trying tosell and expansion as a business. This was stupid for so many reasons.One of the reasons they felt it would work was that they would leverageall of their existing customers, call centers, data etc, into thepacking company. (Yes, that really just makes it a division.) Thatmakes it risky for so many reasons, not least of which is that if therelationship went South, the movers could pack up their infrastructureand go elsewhere. Just stupid.
I highly recommend watching thisshow. More than anything else, I appreciated the blunt directness ofthe Angels. Especially in a city where many of us die from the”long-slow-no.” These guys call stupid “stupid.” And provide a greatlens through which to look at yourself.
I have a good friend on aplane to LA right now to go be on that show. So as a cherry on top, Iwill share with you an email that I sent to him. It’s the best advisethat was ever given to me, and I shared it with him to prep him. NowI’ll share it with you. For the record, the Angel who gave me thisadvise never invested in my company, but he has been my strongestadvisor since the day he told me this, and has helped me make some veryhard and very important decisions:
nobody gives a damn aboutYOU. they don’t care how cool you are, smart you are, cute you are andhow many people flock around you when you speak at conferences. theydon’t even care about how cool the underlying mission of your productis. the ONLY thing they care about is whether or not your product willmake them rich. you are nothing more than a vehicle for wealthacquisition. the ONLY things they want to know are:
1. how willyour product make money 2. how much money will it make 3. how long willit take to make that money 4. how much money of theirs will it take nowto make the money they are going to make later
as a vehicle to their wealth acquisition, the only qualities of yours that they care about are
1. credibility 2. organization 3. focus
andthey will judge those things based on your being able to answer verysimple questions, without hesitation and explanation. everything theyask you will be answerable with either “yes or no” or a number, “6months or 1 million dollars.”
the most important tool that they have is their own internal “bullshit meters.” if they get a whiff of bullshit, it’s over.
“i don’t know” is a better answer than making up bullshit.
thescary thing about the group that you are pitching is that they are allself-made from nothing. those guys are the hardest to pitch becausethey tend to have the strongest instincts and rely on them. the guy whogave me this advice is one of those. guys with MBA’s are much easier topitch because they can be easily snowed with jargon and charts and aremore likely to be complete herd-following idiots.
if i were you, i’d practice, a lot. even if you think you know your shit backwards and forwards. narrow it down. make it snappy.
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AlyssaRoyse launched a product that nobody understood into a market thateveryone said was dying using new technology that no one has seen,without any money. And it sucked.
