What if there were a Shark Tank for creative startups? Of course there is no such thing because venture capital is only for radically scalable business that have the potential for a 10x to 100x return on investment. Creative startups are professional services business, and while they can become lucrative personal businesses, they’ll never perform to Silicon Valley standards.
But what if there were? What if you could pitch your business to venture capital investor? I’d like to suggest that if creatives had the opportunity to “pitch” VCs, they would gain so much in the process—even if they never attracted an investment.
Investors Know How to Scrutinize a Business Model
That’s because, when startup founders pitch VCs, while they might get an investment, they always benefit by having their business model kicked and prodded by insightful, and brutally honest, investors. Founders will tell you that while it’s painful to pitch and be told “no” over and over again, they always gain valuable insights in the process.
The investors inevitably ask basic questions such as how much revenue they’ve made, what their margins are on that revenue, what their growth has been, what overhead expenses they have, what their costs of customer acquisition are, whether there is any debt, and whether or not the founders have been drawing a paycheck from the startup. They ask these questions, among others, right away, every time. And based on the answers, they’ll dig deeper and ask further questions—unless, of course, the founder doesn’t know their numbers. That never goes well.
Savvy investors can get sufficient insight on the overall viability of a startup, just based on the answers to these basic questions. If the answers to some of the questions aren’t sounding so good, that’s not always a deal killer, but you can bet that the investor is going to press the founder hard about why their sales are low, or growth has plateaued, or margins are slim, or cost of customer acquisition is so high.
Not everyone walks out of the tank with a deal, most don’t. But all of them get put through the ringer. Their business models get exposed. Any flaws or wishful thinking on their part gets called out on the carpet.
What if You Got Your Shot in the Tank?
What if YOU got on the show? What if all you were asking for was a $10,000 investment to help you add a key employee, or to invest in advertising, or to simply give you some runway so that you can focus on your own branding and marketing strategy?
The response, or course, would be “no,” since professional services businesses are not nearly scalable enough for such investors. But after asking all their questions, assuming you could answer them, would they send you on your way, affirming that you have a good business, one that will provide you with a lucrative future—or would Kevin O’Leary, a.k.a. “Mr. Wonderful,” insult you by telling you to take your business behind the barn and put it out of it’s unprofitable misery.
Since creative startups are not attractive to investors, you never have to face that kind of scrutiny. That helps us avoid humiliation, but it also enables us to gloss over glaring problems in our fundamental business model. Personally, in my experience, it’s better to face the truth, and fix real problems, than to keep telling ourselves that we just have to make it, simply because we’re so passionate about what we do.
And since no investments are forthcoming, you’ll have to keep bootstrapping your creative business. But that means that you are your own investor. And while most of your investment comes in the form of your time (otherwise known as an opportunity cost), that time has a real dollar value. Have you run the calculations on how much you’re investing, and whether that investment is paying off?