The Grindstone has partnered with CNBC to promote Shark Tank Tuesdays — with episodes airing on the network every Tuesday beginning at 8pm EST — and the season premiere of The Profit on February 25th, 10pm EST.
Shark Tank and The Profit may be fun shows to watch for viewers, but for the people appearing on screen, it is very real business. Many of the entrepreneurs on these shows are desperate for cash flow. And while the Sharks themselves may be millionaires and beyond, they are playing with their own money. Which is part of the reason “know your numbers” is a phrase that gets thrown around with such frequency.
In the third season of Shark Tank, which is currently airing on Tuesday nights on CNBC, the Sharks offered over $6.2 million dollars of their own money in investment deals. And they have eviscerated more than one entrepreneur for being shifty and unsure of the details of a fledging business.
But why do investors harp on this detail so incessantly? There are more than a few reasons.
5. “The numbers do not lie.”
That’s a phrase that Kevin O’Leary, AKA Mr. Wonderful, throws around quite a bit on Shark Tank. But even a great product and pitch can hide some very troubled business practices. That’s why the Sharks quiz pitchers on their numbers so aggressively. And why time and again, entrepreneurs who can’t answer the Sharks’ machine gun questions about their profits and losses often walk away empty handed.
Quite frankly, the details about profits and losses, evaluations and debt are where many investments get made or lost. According to Mr. Wonderful, there are three very simple things that every successful entrepreneur on Shark Tank has in common:
“In every case, the entrepreneur was able to articulate the opportunity in 90 seconds or less. Secondly, they were able to convince the sharks that they can execute. And third, they knew their numbers.”
3. Numbers=negotiating power
Many entrepreneurs (on Shark Tank and beyond) inflate the evaluation of their companies—to their own detriment. Meanwhile, Nicole Townend, who won $100,000 from the Sharks, advises entrants on the show to ask for less money than they want. The President of Teddy Needs a Bath! says that asking for less can pay off dividends:
“ Look at it like this- ask for a lot, most of your segment will be spent discussing why you are worth this much money and they will try and make you look bad. Ask for less and they will move onto talking about you and your brand- which is why you went on the show in the first place, right? I looked at it like this: you can’t buy 15 minutes of prime time TV on a Friday night. So ask for less and it’s like you spent some money on advertising.”
2. Numbers take out the guesswork
According to Marcus Lemonis, who also invests his own money on the CNBC show The Profit, numbers can only help you:
“If you know your numbers, you can improve you numbers, and, surprisingly often, you can improve you numbers a lot more that you can imagine.”
A lot of business owners try to fix symptoms of their revenue and debt problems without looking at the whole equation. An investor looking to help a fledgling startup can’t do that unless all the details are on the table.
1. Numbers are how you catch the big fish
If you REALLY know your numbers, you can use them to your advantage, to great reward. Take an example from Charles Michael Yim, a successful serial entrepreneur who created a product called Breathometer, a breathalyzer that plugs into smartphones. He showed the Sharks his product with a simple, direct pitch. And once he had one of them hooked, he caught them all.
He already secured $1 million of investment and was looking for another million, but only asking the Sharks for $250,000 and a 10% equity stake. Mark Cuban took that bait, offering $500K for 20% equity. Once he had Cuban on the line for double his ask at the same evaluation, he upped the stakes and asked the other sharks to join in. By the end of the episode, Lim had a cool $1 million from all the sharks.
But if he had come on asking for $1 million at the start, he may have been laughed out of the room. Instead, he knew his numbers cold. And used them to his advantage.
Join us and watch Shark Tank Tonight starting at 8pm EST. Tweet us with the hashtag #GrindstoneSharkTank and your reaction to the episode to win an awesome CNBC Prize Pack Giveaway. 4 of you will win! This includes:
- Shark Tank branded Water Bottle
- Shark Tank T-shirt
- The Profit ceramic mug
- The Profit branded Pen
- $50 Gift card to put toward business expense
- USB drive