Shark Tank India, the business reality television series, has been a big hit with Indian viewers. The show’s creators wanted to make people in India discuss starting their businesses and becoming entrepreneurs. Shark Tank India has been a game changer for Indians who want to start a business independently.
The show brought new ideas and taught viewers the basics about building and running a great business. There are many financial lessons from Shark Tank India that are beneficial to business owners who want to grow their companies can learn.
10 key financial insights from Shark Tank India for achieving success
The TV show is excellent for businesses nationwide. It provides a rare opportunity for investors to learn important lessons about investing from the sharks. If you belong to the business industry, here are some financial lessons from Shark Tank India for building a sound business.
Lesson 1: Importance of Valuation Knowledge
Valuation is essentially what your company is worth. Sharks provide money to startups in exchange for a share of ownership, known as equity. Valuation helps determine the value of a company’s shares and an investor’s shares. Early-stage startups lacking sufficient financial data are valued by comparing their valuations with their competitors.
This assessment also considers the company’s ability to demonstrate its customer base, the strength of the founding team, and various other factors. To value a startup, investors analyze its founder capabilities, market size, revenue, intellectual property, financial performance, and unique selling proposition.
Lesson 2: Effective Equity Management
Managing equity effectively is one of the essential financial lessons from Shark Tank India. The equity of a business is the sum of money each owner has put into or owns outright as a percentage of the firm. Equity, which is measured as a percentage, is the overall ownership of your firm. If you are a lone entrepreneur without outside funding, you own 100% of the firm.
For two or more co-founders, the distribution of ownership or equity is either equal (each founder owns 50% of the firm) or proportionally dependent on capital contributed, expertise, and other considerations. Hence, when investors invest, they receive equity in your firm. For example, if Sharks spend 50 lakhs in a venture for 6% equity, they get 6% ownership while the founders keep 94%.
Lesson 3: Understanding Cash Flow for Business Stability
Cash flow refers to the money that enters a company through customer payments and exits to pay vendors or cover other expenses. A positive cash flow occurs when the cash inflow exceeds the outflow (i.e., income exceeds expenses). On the other hand, a negative cash flow occurs when outflow cash is greater than inflow cash.
Cash flow is distinct from profits, the remaining cash after all expenses. Anytime your customers are late with payments, you won’t have enough cash to run your day-to-day business, like buying additional inventory or paying the rent. For this reason, a company needs a good cash flow to stay in business.
Lesson 4: Focus on Maximizing Margins
Understanding the importance of margins is another crucial financial lesson from Shark Tank India. The difference between how much something costs to make and how much it sells for is called the margin. For instance, if a product costs ₹50 to make and sells for ₹75, the gross profit margin is 33.33 percent. This margin, which is also called the gross operating margin, accounts just for direct costs like materials and labor, omitting overhead and marketing.
Nevertheless, after subtracting all expenses, including taxes and interest, the remaining balance is the net profit margin. When a company has higher profit margins, its finances are in good shape. Investors can see how much a firm can make after expenditures and whether it has enough money for sustainable expansion.
Lesson 5: Differentiating Between Gross and Net Profit
Gross profit is a company’s revenue minus the direct costs of producing and selling its goods or services, known as the cost of goods sold.
Net profit is the amount of profit that remains after all operational expenditures, taxes, and interest have been subtracted. A firm’s net profit gives more accurate information about its financial health than gross profit, which determines whether a product is profitable.
Lesson 6: The role of ROI in investment decisions
ROI stands for return on investment. Knowing the role of ROI is one of the key financial lessons from Shark Tank India. It shows how much money an owner makes or loses on an investment compared to the money they put into it in the first place. A key performance indicator (KPI) is one way to measure how well and how profitably an investment in a business is.
This method can help startup founders determine how well their investments and other business choices work. From the investor’s point of view, a high ROI means that the startup is likely to make more money for the investors. Investors also figure out and compare the return on investment (ROI) of different startups to find the best one to invest in.
Lesson 7: EBITDA Explained
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It calculates net income after accounting for taxes, depreciation, interest, and amortization. It helps buyers determine and compare a business’s profitability without considering how it gets its money.
However, due to its omission of interest payments, EBITDA alone could provide an inaccurate image, particularly for organizations that depend on debt financing. Investors can determine how much money the business makes after taking out interest and other costs.
Lesson 8: Annual Recurring Revenue (ARR) as a Growth Indicator
In business, Annual Recurring Revenue (ARR) refers to the anticipated yearly income from existing clients. SaaS firms operating on a subscription-based model often use ARR as their primary calculation method.
Forecasting future cash flow becomes easier. A high ARR makes it easier for investors to grasp predicted revenue and future company growth and improves revenue predictability. Therefore, ensure you understand annual recurring revenue, as it is one of the important financial lessons from Shark Tank India.
Lesson 9: Monitoring Burn Rate to Manage Finances
Burn rate is the speed at which a new business uses cash on hand or venture capital to pay for its first few months of operations before generating revenue. A high burn rate means that the company is quickly running out of cash, and it may soon cease operations.
To lower the burn rate, one can cut down on regular expenses. This can be achieved by hiring fewer personnel, improving budget planning, shortening payment cycles, and negotiating improved payment terms with suppliers. These methods are all effective and help reduce the burn rate. A survey performed in India in 2023 revealed that about 30% of Indian startup founders cut back on marketing and advertising costs to save money in the financial year 2024.
Lesson 10: Reducing Customer Acquisition Cost
Customer Acquisition Cost, or CAC, is the total amount of money a new business spends to attract new customers. It includes costs related to marketing and sales, such as creating content, paying employees, buying tools for sales and marketing, and funding paid ads.
Calculating CAC can help you determine which client category brings in the most money for your company and evaluate the success of your marketing and sales approach.
Conclusion
Entrepreneurs and people who want to start a new business would do well to learn the financial lessons from Shark Tank India. It teaches you how to make innovative business plans, use resources effectively, and handle financial risks.
Learning about money is very important if you’re a startup looking for funding. Reading books, financial guides, or getting help from professionals with more experience are all good ways to learn more about Shark Tank business terms. Financial knowledge will benefit your business path.
FAQs
Q. How do Shark Tank India participants calculate valuation?
Valuation is one of the most essential financial lessons from Shark Tank India. Hence, to get the value on Shark Tank India, divide the investment amount by the equity being given. For instance, if a business owner wants ₹1 crore for 10% of their business, the value is ₹10 crore. Sharks may modify the valuation based on factors including revenue, scalability, market potential, and the founder’s vision.
Q. What is considered a good ROI by a Shark Tank India investor?
For Shark Tank India investors, a healthy return on investment usually falls between 5x and 10x their initial investment. Within three to seven years, they want to reap enormous profits via equity gain or profitable exits, so they’re looking for scalable companies with excellent growth potential. For example, Aman Gupta made 2,900% on his investment in Skippi Ice Pops, which turned ₹20 lakh into ₹6 crore in just two years.
Q. Who is the most successful Shark in terms of investments?
When it comes to investing, the total amount invested, return on investment, and the quantity of solid deals make it difficult to choose the most successful Shark. However, based on the number of deals he makes and the amount of money he invests, Aman Gupta appears to be one of the most engaged and successful sharks.
Q. What financial mistakes should startups avoid, according to Shark Tank India?
Startups need cash flow, and not planning for it may cause issues. Startups must understand their cash flow needs, including operating costs, supplier payments, and salary payments. Therefore, adopting a cash flow strategy could prevent cash flow issues.
