Shark Tank Brings Business Acumen to American Families

Original Runner Company at the 21 min mark

Shark Tank is my go-to family show to learn about entrepreneurship. I am always so impressed with the business owners featured and often lend my support by buying their products. Here at Together We Money it’s important to have fun when learning about finance as well!

When my friend got a promotion at her job, I sent her Eco Flowers which uses recycled and sustainable materials for flower bouquets. They are made out of wood flower, paper flowers, corn husk flowers, brooch wedding bouquets, pine cone flowers, and many other materials that are great for our planet.

She received a ton of compliments at work. They are beautiful, can come with a scent of your choosing (I chose black cherry), and don’t need to be thrown out a week after purchase. Plus anything green is good to me! It’s a win-win.

I recently bought the Sleep Styler curlers which are the first hair rollers that can both dry and style, while you sleep. I have yet to determine if I will keep them or not because I definitely need to practice putting them in better. Nonetheless, the reviews online are positive and seem to save women time in the morning primping, another win.

My sister bought the Spatty which is a tiny spatula that retrieves every last drop of product from containers, saving up to 25% more of a product before discarding. It’s frustrating when you have mustard left in bottle or didn’t realize how low you were on your $30 foundation. Spatty to the rescue will ensure you get every last drop. It started out as one little product and now has a whole line!

Are there any Shark Tank hits that you ended up purchasing? How was your customer experience and are you satisfied with the product? Leave your comments below.

Now where was I? Oh, for over 9 seasons, Shark Tank has seen thousands of ideas and invested hundreds of millions of dollars.

Over the years of watching the show, I’ve come across some terminology the sharks use when negotiating with the entrepreneurs. They can be brutal if someone doesn’t know their numbers or is unfamiliar with this information.

Take a look at the examples below to test your knowledge of Shark Tank speak:

Margin

Example: A product is sold for $60.00 and the entrepreneur’s costs to make it are $15.69 including packaging. That means the margin on the product is 73.85% ($60.00-$15.69=$44.31 in revenue. $60.00/$15.69=0.02615*100=26.15%. 100%-26.15%=73.85% margin).

Multiple

Example: Kevin tears an entrepreneur apart for asking him to pay twenty times multiple for the business. The entrepreneur’s desired valuation is $2,000,000 and the business only generated $100,000 of sales last year (2,000,000/100,000=20x multiple).

Valuation

Example: An entrepreneur walks into the tank and asks the sharks for $75,000 for a 20% stake in the company. That means they value the company at $1,500,000 (75,000×20).

Wholesale and Retail Cost

Example: Damon asks the entrepreneur what their wholesale and retail costs are. The entrepreneur says the wholesale cost is $9.99 and the retail cost is $24.99, meaning the entrepreneur will sell the product to the retail store for $9.99 each (this is typically done in larger orders). For the retailer to make money after they account for other expenses like salaries, taxes, advertising, etc. they mark up the price to the consumer to make a profit. The consumer would pay the retail price of $24.99 per item.

Equity

Example: An entrepreneur seeks $100,000 in exchange for 10% of their company means the shark who chooses to invest their $100,000 will have a 10% stake in the company, or be owed 10% of all profits. The entrepreneur believes the company is worth $1,000,000 dollars ($100,000×10=1,000,000).

Run rate

Example: Robert asks what the company’s run rate for a new business where there is less than a year’s worth of data. If sales are $50,000 during the first month, the run rate is $600,000. With this calculation the business can tell whether they are on target to meet annual sales goals ($50,000×12=$600,000).

Burn rate

Example: Kevin is worried a company is losing money quickly and wants to determine if he should offer up more capital (money) for a larger percentage of the business. He asks the entrepreneur what the burn rate is. The entrepreneur says $100,000 a month. Kevin is out because the company is spending $100,000 a month more than it is earning to maintain operations, which he finds too risky.

Convertible note

Example: Lori offering a convertible note of $500,000 means it is a loan for the business with the intention to converting the money to equity because it is too premature to put a valuation on the company.

Year-over-year sales

Example: Mark asks an entrepreneur what their year-over-year sales are. This is to get an understanding if their sales have increased each year they have been in business and if not, find out why.

Line of Credit

Example: Barbara thinks a business will need a line of credit to succeed. She offers a $500,000 line of credit at an 8% rate. That means the entrepreneur will have access to up to $500,000 and if borrowed, will have to pay 8% additional interest on top of the principle for borrowing the money. The entrepreneur does not have to borrow the entire amount and only pays interest on what they borrow. This also provides flexibility because they can determine whether to pay the minimum or monthly payments based on business objectives.

Seed Round

Example: Mark asks an entrepreneur what the seed round was for their business. They say $1,400,000 which means to start the business, $1,400,000 was generated from venture capitalists, friends, family, and even the entrepreneur’s own money. Seed money is often used for market research, product development, prototype production, or other early-stage operations.

I believe that this show has had a huge impact on American culture by bringing business into living rooms across the country. I myself didn’t know much about what it took to run a company.

I’ve always been a typical 9-5er and I found it refreshing to see people, many of whom quit that life, to pursue something greater.

Shark Tank is a nice opportunity to support dreams that would never have gotten that type of exposure otherwise. The show has made millionaires and their products are used all over the world.

Do you have an idea that could get you on the show? Do you have a favorite episode?

While I have many favorites, one woman I was impressed by is Julie Goldman from The Original Runner Company. I respect women that know their shit and Julie is exactly that. Watch how she defends her business here using some of the business acumen described above!

21:00 minute mark: https://gomovies.tech/film/shark-tank-season-2-18102/watching.html?ep=706643

Remember, learning about all things finance doesn’t always have to be serious. Together We Money believes in finding information across various avenues and platforms.

2 Comments
  1. June 27, 2018
  2. June 27, 2018

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