Posts Tagged 'Profits'

I saw the new show Shark Tank the other night, and found it very interesting.  Inventors and entrepreneurs would approach the shark tank, a panel of five venture capitalists, and present their business plans, hoping to negotiate an offer from one of the sharks for the money they needed in exchange for a share of ownership in the company.

It was no surprise that over-valuations ran rampant, but what I was really glad to see was the care that the sharks took in determining the percent of ownership they would accept.  It was really quite simple.  If the shark thought the concept was profitable enough and the entrepreneur had a good grasp of the critical variables that need to be controlled for the business to succeed, then the shark would accept a 50% ownership share.  If the entrepreneur did not understand their critical variables, the sharks required at least 51% ownership before they would invest.  Obviously, they wanted the controlling interest to protect their investment from the entrepreneur they were partnering with.

Continued from Part 1, posted July 12:

4) I Know Everything I Need by Looking at my Bank Account Balance

It’s amazing how much things can change in a few short years.  Unemployment went from about 4% to over 10%, seemingly overnight.  Businesses are failing in record numbers, only to be replaced by new businesses, in record numbers.  Where people used to graduate from school, get a job, and plan on starting their own business in 5 to 10 years, surveys now show those same people are starting their businesses immediately upon graduation.  Many more people have lost their jobs, only to find a tight job market, with few openings and long lines of qualified applicants.  A lot of these folks have also started their own businesses.

There are three types of business owners – The Professional Hobbyist, the Job Owner, and the Businessman.  Recognizing these types, and setting your expectations accordingly, can have a dramatic effect on the level of success you achieve in business.

The Professional Hobbyist: This person started out doing something they love as a hobby, and then they opened a business so they could get paid to do it.  They take great pride in their work.  You can recognize this person because they have all the newest and best tools and materials, and they love to show you.  They have invested quite a bit of money into their operation, and anytime the business has extra cash that could be profit, they use it to buy even newer and better stuff, even though they’re not using half the equipment they already own.  After all, they think that the capacity to do even more and even better work will eventually lead to bigger and better profits.  However, no matter how long they have been at it, their business has never shown a profit.

This economy gets blamed for everything. Granted, it IS causing plenty of problems for a lot of people. But that’s no reason to let other issues needlessly drain the profitability of your business. Let me explain what I mean.

After looking at dozens of businesses and talking with their owners, I saw a particular “economic” situation far too frequently. These businesses were struggling with reduced profits, or in some cases serious losses, due in part to a steep decline in sales. In every case, the owners told me this decline in sales was due to the economy. That’s where they’re missing the boat. What’s more, it’s the unspoken implications of this statement that make it so dangerous.