Thinking Like An Entrepreneur
There’s more to life than money, but there are so many stresses that come from money pressure.
I’ve seen comments online about how it’s faked, and I know that pacing can be exaggerated, but there’s still a tone that his business sense seems utterly mysterious to a large number of viewers.
First, because running a business is very much applied psychology and sociology, it’s important to realize that it’s almost as complex as humanity itself.
Because of this, much of running a business, which at its crux is just the actions of lead generation, conversion to customers, and enticing the customers to return, requires conceptualizing the circumstances. This means summarizing the situation, and REMINDING yourself of these fundamental factors.
Why is the reminder so important?
It’s because we all can keep a lot of content in our heads at once, but we naturally become too focused on a fraction of what we may have learned.
Here’s the main assumption of this article:
You like watching Kitchen Nightmares but you want to understand his business sense better.
Here are the main points to recognize in each episode:
- You can only make money from the right clientele
- The right clientele will only be attracted to your business if you can get access to them and gain their trust
- Avoid lowering your profit margin to the point where the only customers you get are cheapskates
- Always be prepared to close a business that isn’t returning your love
- Always be prepared to adapt your business to large changes
- Keep your main business focus clear and simple
For the first point, we know the saying that some people are such great salesmen that they could sell iceboxes in the Arctic.
The fact remains that even for a talented salesman, it’s still easier to sell water to a man dying of thirst than it is to sell sweaters in summer.
As an entrepreneur, it’s far too easy to fall in love with your business, its location, and its business model, but successful entrepreneurs are the ones who put all their effort into what makes money EASILY.
The second and third points follow what I’ve just said, but to clarify a little more you’ll frequently see Ramsey research the restaurants in town and find the cuisine style in the area of the least competition. He’ll also avoid casting pearls before swine, meaning a burger joint is more appropriate for some areas than fine dining.
I encourage you to watch a couple of episodes and notice the math.
The next two points you’ll see inside the venture capitalist shows Dragon’s Den and Shark Tank as well.
Warren Buffet famously said to never invest in anything you don’t understand, but the other thing you’ll notice in Dragon’s Den and Shark Tank is that they won’t invest in industries that they aren’t heavily involved in already.
So why is that?
It’s about leveraging your time and resources.
It’s simple. It makes no sense for someone like a doctor to try and make extra money on the side by washing cars, because they could just put in more time doing what’s more profitable.
For this reason, you’ll see the investors on the show pass up on businesses that they love.
Some people likely think that they’re just placating or mocking the entrepreneurs on the show by saying, “I love the idea, but I’m out.”
I’ve read Kevin O’Leary’s book, Cold Hard Truth, and he won’t tell you it’s a good idea unless it is.
There are loads of things you can learn from Dragon’s Den or Shark Tank that will help you in your own business whether you are planning to go on the show or not.
There are a few things where if you break even one of these rules, you will walk away without a dime: Here’s a quick checklist of them:
- Do your research or stay home
- Be completely upfront and honest
- Don’t expect them to do all of the work of turning your business into a big win
- Expect that they won’t trust you to control your company
- Never lose your temper or talk back
- Be prepared for an offer that does not include what you asked for
- Bring the prototype or samples
- Evaluate using the formula I give below
Doing the research is tough, because you actually need to have a bit of imagination to intuit what to look for and how to find it.
If you’ve just been working in a typical job, you wouldn’t know to go to the US Census Bureau to get essential stats like 2011 Inflation-adjusted 12 month income, like in the chart below:
Now, we’re not all mathematicians, and that’s why so many people come onto the show and think their business is worth a million dollars even though they don’t have a single sale.
I mentioned to be prepared to get an offer completely outside of what you asked for, which might be a 100% buyout and give you royalties alone, or only if they like the product and not the valuation they’ll offer you the same or less money for more of the company.
To get a realistic valuation, it should be something like this:
|REVENUE PER YEAR * 2|
|+||EQUIPMENT AND LAND * 0.5|
|*||NEED OF YOUR INVOLVEMENT|
|–||DEBT TO BUSINESS|
|VALUATION OF BUSINESS|
This means that if you’re offering 25% or 10% of your business, it better be for 25% or 10% of that valuation.
First though, they will go over double revenue if they like the idea. You don’t actually have to any sales, but that brings me to the crux of the equation.
The need of your involvement should be inverse, so a 1 if you’re unnecessary, and a 0 if you’re completely necessary.
If the value of your company is 100% intertwined with your own work, they will walk away.
If you are that necessary for the running of your business, if a tragedy occurs they’re left with nothing.
It’s an unfortunate truth, but a huge number of profitable businesses are valueless for this reason.
This brings us to the metaphor that still isn’t clear enough; it’s better to get 10% of something than 100% of nothing.
It should be thought of more like this:You’ll get further letting Michael Schumacher drive even part of the way than you will on your own
These guys know precisely what they’re bringing to the table, and it comes at a price. Marketing is extremely difficult, and more importantly time intensive.
What’s most important is to recognize that they are actually helping people, rather than trying to get a steal.
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