Have you ever seen the ABC reality show “Shark Tank”? Their weekly viewership of over 6 million suggests you have, but just in case, let’s have a quick review. Shark Tank features scrappy entrepreneurs and inventors pitching their ideas to high profile investors. They accept cash in exchange for shares in their success. When a deal is struck the music swells and the entrepreneur walks confidently off the soundstage, believing that the millions they have just accepted equals sure-fire success.
Every time I see it, I cringe. To me, that confident stride into the future is not a red carpet – it is a death march.
Nothing feels better than someone offering you a lucrative check because they believe in what you are doing. It is easy to spin fantasies of the sleek office spaces, elaborate marketing stunts, and company off-sites you can pull off with that money. But I urge you to resist. Early in my career I developed what I call the double/half rule. If you accept outside investment, try to remember that you will have to work twice as hard, and for twice as long in order to achieve half of the payout you have been promised. Investors like to keep entrepreneurs lean and hungry, always promising that a massive payout is just around the corner. But remember, any cash they give you will have to be made back with profit. You are not accepting help; you are accepting debt – debt that you will have to single handedly work yourself out of
We have all experienced the uncomfortable sensation of watching the horizon recede as we approach it. It is a common technique used by personal trainers, they tell you “one more lap”, only to surprise you with another one after you think you’re finished. The idea here is that if the finish line is in sight, you will push yourself that much harder to reach it. Once you’ve picked up that race-ending momentum, it gets harder to pump the brakes, so are left with no choice but to keep sprinting to the new finish line.
Investors operate the same way. By keeping their business owners hungry for that finish line payout, they know that they can push you harder and further. If they say one lap, they probably mean two. If they make you believe you can finish in first place, then they will be happy with second, knowing that your faith in first is what pushed you hard enough to place at all. Everything takes more time and energy than anticipated.
So instead of accepting lucrative offers and a far off promise of riches, obsess over the bottom line. Pay attention to your monthly, weekly, and daily expenses. You can stretch your own capital a lot farther than you think you can. Frugality pays out more dramatically and much quicker when you haven’t diluted your shares.
Keep in mind that outside investment does not equal success. Those contestants on Shark Tank have a lot of work ahead of them, and they are now accountable to someone else.
Make sure you know what you are getting into before it is too late to turn back.