Ever Wonder What Gives “Sharks” Their Advantage?

To understand the value of financial models to any sized business, look no further than “Shark Tank”. For those unfamiliar with this popular CNBC show, “Shark Tank” features entrepreneurs seeking investments from a panel of very successful business leaders. The initial pitch by the entrepreneur includes the business overview and an initial proposal, consisting of a funding request and the ownership stake offered to investors. Following pointed Q&A, members of the panel either forego the opportunity to invest or explore a potential partnership, usually with very different funding and ownership terms. In the latter case, entrepreneurs and panel members initiate negotiations in an effort to find a mutually acceptable deal. At this point in the proceedings, the entrepreneurs often appear overwhelmed while the potential investors remain calm.

Unbeknownst to most entrepreneurs, financial models would increase their chances of striking an acceptable deal and decrease the odds of making a critical error. Successful business leaders, through their extensive deal making experience, have a very good sense of acceptable transaction terms. In other words, they “know the numbers”. Conversely, entrepreneurs who do not have a financial model for their business face the prospect of flying blind during negotiations. Understanding the potential returns for business investments, which includes getting comfortable with upside and downside scenarios, would allow entrepreneurs to remain as calm as “sharks” when striking a deal.

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