All of the Sharks were involved this week for a total of $750,000 invested in two companies which sets records for dollars invested in a single episode, dollars invested in a single company, and valuation of a company. A Perfect Pear was the big winner, receiving $500,000 for just 50% ownership which equates to an estimated valuation of $1 million. For their money, the Sharks snagged an average stake of 75%.
The lesson this week comes from an offer that was (gasp) rejected by the entrepreneur. Robert Alison is the inventor of LifeBelt, a system that prevents cars from being started if the driver’s seat belt is not buckled. Ultimately, he was offered $1 million by Robert H. just for the patent. Robert declined, not because the dollars were too low but because he was determined to build a business from it.
So here’s the lesson, Robert: you can come up with new ideas faster than you can build a business. Maybe the patent is worth more than $1 million, in which case he made the right move; according to what he was asking from the Sharks, he valued his business at $5 million. However, having built businesses myself and advised entrepreneurs starting and growing many other businesses, I know that it is dangerous to become emotionally attached to the idea of being a “business owner”. The most successful entrepreneurs treat businesses almost like commodities, buying them, growing them until the price is right, and then selling them. Knowing your exit strategy up front is critical to structuring your business appropriately to maximize the value of that exit.
Many entrepreneurs seem to have the attitude that every business they start is going to be a home run. They fantasize about going public or selling their 100% ownership for incredible multiples. They see themselves sitting next to the Sharks with a similar “rags-to-riches” story, flying their own private jet, and owning an island. Unfortunately, businesses like these are the exception, not the norm. Most wealthy entrepreneurs have started, owned, and sold many businesses, some that completely tanked and others that barely broke even. Maintaining your focus on how much of a selling price would provide a sufficient return on your investment of time and money while remaining creative and flexible enough to recognize an exit that meets that requirement and pulling the trigger requires discipline and planning. Know how much that patent is worth and take an offer that fairly compensates you and frees you up to go after the next great idea.
——-
Shark Tank airs on ABC, Tuesdays at 8/7c
