In the hit reality TV show Dragon’s Den, aspiring entrepreneurs have three minutes in which to pitch their business ideas to a panel of five millionaires (in Dollars or Pounds) in the hope that one, or some of these successful millionaires will invest in their business. In return the business receives a cash injection and potential access to the millionaire’s business acumen.
Return on investment
After the three minute pitch the millionaires, who are seasoned and successful business people in their own right, ask questions to help them decide whether or not these businesses represent attractive investment opportunities.
Given that the millionaires are considering investing their personal money, they want a good return on their investment with acceptable risk and they therefore probe and interrogate the business merits of the pitch. The questioning is frank and brutal, and if there are flaws in the business model they are quickly exposed in the Den.
Poor and average businesses tend to fail, but every now and then a sound business argument is heard and an investment is made.
While most business people would never do this type of three minute pitch of their business, just imagining that you were pitching your business creates a potentially valuable perspective on the health of your business.
The perfect pitch
A pitch might sound something like: “I run this type of business. We have a turnover of R…, and our expenses are R…. giving us a profit of R… We generate our income by ….. We operate in the … market and have a competitive edge because of… I am looking for an investment of R… in return for an equity stake of ..%.
The money will be used for … which will increase our turnover by R… and this would represent a return on Investment of …% which means that you should have your money back within … years. Are there any questions?”
Regardless of whether you are a shareholder in a small, medium or large business, or are employed and have a ‘business within a business’, would an outside investor, who is not familiar with your industry, be able to look at the financial score card of your business and see an attractive investment opportunity?
Know your business from the inside out
Considering the attractiveness of your business to (imaginary) outside investors is valuable on a number of levels. To be attractive as an investment the business would have to be financially healthy. A financially healthy business would be more sustainable and profitable.
Everyone will exit their business at some point in the future. In order for you, or your estate, to realise value you will be pitching your business to a potential buyer in one form or another. Why not make it an attractive proposition?
Pause and look at your business, not only from the perspective of a source of income for you, but through the eyes of an outside buyer or investor. Create a three minute pitch of the key features and attributes of your practice from a business perspective.
What would your business look like to an astute business person who is unfamiliar with your industry? What return on investment would it offer? Would you like to make this a more attractive proposition? If so, take steps to turn your entity into a healthy business.
This three minute pitch perspective could help you to maximise the exit value and make your business more lucrative while you are in it.