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The show Shark Tank, where entrepreneurs pitch investors for capital, has some great business lessons . . .

1) If you get what you ask for, take it. Mark Cuban offered one entrepreneur exactly what he requested. The entrepreneur then asked for more and lost the deal. No one likes to do business with someone who gets what he requests and then asks for more; it's a sign of what's to come in the relationship.

2) Networks matter. The Shark Tank investors bring huge value in their networks. Daymond John got the sticker guys distribution in Best Buy as well as retail distribution for Nubrella. Lori Greiner is able to help the businesses she invests in get on QVC. When you're looking for investors understand their networks and more importantly if they're willing to leverage them for you. Ask about this before you sign a deal. Sometimes a deal with less lucrative financial terms is better if it brings the right network to the table.

3) Do your homework. When Mark Cuban negotiates and tells you a deal is final, he means it. I've seen enough episodes to know this, so I cringe when an entrepreneur tries to negotiate further and loses a deal entirely. You won't have the benefit of seeing most people you'll negotiate with on TV in advance, but you can still do plenty of due diligence -- like researching their past deals and talking to their business partners.

The most successful entrepreneurs also know enough about the Sharks to customize their pitch. They tell each one why he or she should personally be interested in the business.

4) Get an advisory board. Getting a Shark to invest in your company is one way to get partners with experience and a network, but not everyone can be on Shark Tank. Creating a strong advisory board can also increase your opportunities; for a small amount of equity you can build a great board. I've found that retired executives with extensive networks are often eager to get back in the game and make tremendous advisory board members.

5) Know your absolute bottom going into a negotiation. One entrepreneur was offered a deal and needed to think about it. By the time she decided to move forward, the Sharks had talked among themselves and reduced their offer. If she knew her absolute bottom going into the show, she could have made a decision on the spot and had a better deal.

Too many entrepreneurs are unsure of what they'd accept and their hesitancy gets them worse deals. Also, if you don't know the lowest offer you'd accept, you could commit to something you'd regret later. Of course, there may be exceptions if unexpected elements come into play, which sometimes happens on Shark Tank.

6) Solve your own problems. The most successful founders built companies to solve problems they faced. They're building for a market they understand and are passionate about. A couple examples are Travis Perry who developed ChordBuddy to help his daughter learn to play the guitar and Eric Corti who invented the Wine Balloon to better preserve wine after he and his wife opened a bottle.

Of course, the problem you're solving has to address a sizable market. No Sharks wanted to invest in Ledge Pillow because they didn't think the market was big enough.

7) Investors buy into people as much as ideas. The Sharks get most excited about a passionate, likeable entrepreneur. Be honest. If that's not you, and you need investors, consider finding a partner who fills this role.

8) Do a deal that works for everyone. The Sharks often say they won't invest in something because they don't have the right background or connections to help the business. If you're looking for investors, try to find those that can help you by serving as more than just a bank. In any deal, whether it's related to VC or not, make sure both sides provide value. You're probably going to do more deals in the future, and a one sided deal won't be good for your reputation.

9) Listen. The Shark Tank investors offer great advice when they turn people down. If you're told "no" don't be so displeased that you can't listen to the rationale. And, if they don't tell you why, ask so you can leverage that advice moving forward. This is a chance for insight from experts.

10) Don't respond to people you're pitching with disdain or sarcasm - even if they say something nasty. The people who do, tend not to get deals. How you act in a pitch will shape what potential partners think it would be like to work with you. In fact, maybe they're pushing you just to see how you'll react under pressure.

11) If you can't sell, learn to. This lesson is for everyone. Even if you're in a large company, you need to sell your ideas and yourself to get ahead. In the case of investors, Sharks are looking for people who can sell. And, business valuations are significantly higher when someone has revenue. Do whatever you can to get sales prior to approaching investors. Mark Cuban stresses that selling is one of the most important skills for entrepreneurs in his great book, How to Win at the Sport of Business.

12) Prepare. I've seen entrepreneurs on the show who don't know their financials or seem to freeze up in the middle of their pitch. When you're going to a meeting or pitch, practice enough that you can talk about your business even in stressful circumstances and please know your financials. The most successful people are usually over prepared. This is something Barbara Corcoran mentions in her excellent book, Shark Tales: How I turned $1,000 into a Billion Dollar Business.

13) Demonstrate your commitment. Investors want to see that you've taken a risk - investing your money and time -- showing that you believe in your business. Don't ask for their money if you haven't invested yours.

14) Patents are extremely valuable. A worthwhile investment if you have something unique.

15) Have options. You can almost always tell when someone believes they have no other options. Those entrepreneurs get a worse deal than they'd otherwise receive. Whether you're selling a stake in your company or buying a car, you need alternatives to get the best deal. One alternative is knowing at what point you'll say "no."

16) Ask, "Are there any other offers on the table?" Some people have gotten much better offers when they ask this rather than responding to the offer that was given. Like anything, the more competition you can create for your business, the better deal you'll get.

17) Don't quibble over small numbers. I've seen deals get lost because someone is dickering over 1%. Don't do it.

18) Ask for something valuable . . . besides money. Steve Gadlin and Mark Cuban were negotiating an investment in Steve's business, I Want to Draw a Cat for You. When the financial terms were on the table, Steve asked Mark if he'd draw and sign every 1000th cat drawing. Mark said "yes." It was easy for Mark to say "yes," and it will add value to Steve's business. Look for opportunities where the other side can provide additional value without any out of pocket expense.

19) The right partner offers more than financial terms. There are some great businesses that are giving up huge chunks of equity for a seemingly small amount of money. Kevin O'Leary bought into Talbott Tea at what seemed like a great valuation for him, but within a short period of time he had the business packaged up and sold to Jamba Juice. When you do a deal with a Shark you're giving up more than you'd offer someone else, because they can exponentially grow your business faster.

20) Don't tell potential investors they're wrong. When you tell Sharks they're wrong - especially in front of other people (like the national TV audience of Shark Tank) they will naturally stop listening to you. No one wants to be told they're wrong in front of other people. Instead, say, "I think that . . ." or "What do you think about looking at it like. . . ." How you defend your position makes a difference.

21) If someone asks you to sell him something, ask, "Why do you want it?" Daymond John challenged an entrepreneur to sell him a pen. The guy did a good job, but I think he could have done better. Instead of jumping right into selling the pen, he could have asked Daymond what he was looking for in a pen and customized the pitch.

22) Find investors who are passionate about your business. The Sharks gravitate not only to the businesses they like but the ones that they're passionate about. Kevin O'Leary invested in the tea company (loves tea); Daymond John in the trash can cover company (he said he had just lost his own garbage can cover); and Robert Herjavec in the guitar learning company (he has a lifelong dream to learn guitar). Those entrepreneurs were solving problems that the VCs personally experienced. Do research to find partners passionate about what you do. You'll have a higher likelihood of making a deal.

23) More Sharks are better than one. Every investor will bring a different network and expertise to the table. Jewelry company M3 Girl Designs, founded by Maddie Bradshaw when she was 10, was offered $300K from Lori Greiner and Mark Cuban. Maddie said she'd take the deal if they'd let Robert Herjavec in as well. She got the same financial deal with one additional investor. See if you can increase the parties who have a stake in your business.

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Here are 5 tips for selling a business, a handy business valuation tool.

The impetus to sell your franchise business can come from any number of directions and at any time.

The market could change, someone could pass away, an unsolicited franchise might offer to buy you, or the founders might simply get bored and want to do something different than remain in the franchise business.

Whatever the reason, selling a business is a big step that should not be taken lightly. Nevertheless, when it is time to sell your franchise, you want to be clear on your motivations, and have a business valuation which supports the price you want for the franchise business.

It's Valuable to Be On Top

Selling a business in a hot market is always better than the other way around. People want to associate with winners. If your franchise business is on a winning streak, people will be more likely to pay more for it.

Should financial markets determine whether you should be selling a business? Probably not.

However, if you are going to be selling a business, you are better served by selling while both the market and your franchise business are in their best shape.

Determining when your franchise business is performing at its peak is often a job for a fortuneteller, but you can do some simple trend analysis to see where you stand, part of more detailed business valuation.

Your Relative Market Standing

Here are the 5 business valuation tips you can perform to see where you stand with respect to the rest of your market, in particular, and the overall market, in general:

  1. Has your franchise shown a profit for the last five fiscal quarters? If so, you are immediately a viable financial investment.
  2. Are your historical net-income-before-tax results increasing over the prior five quarters, or are they erratic in nature? Financial markets like consistency, and the more consistent the income figures the better your franchise looks.
  3. Has your franchise been gaining market share with respect to other franchisees in your industry? If so, you look even better. If not but your income continues to grow, it means the management is doing something right with respect to operations.
  4. Has your franchisor recently added new products, services or other features with hot market potential? If so, selling now while the iron is hot may not be a bad idea.
  5. Is your franchise located in a growing market that is showing above-average increase in potential customers? If so, then you might want to sell your franchise even if some other financial parameters are not in optimal condition. Remember that when selling your franchise, you are competing with other investment opportunities. If other investments are not performing as well as your franchise, your franchise could represent a solid investment.

Any one of these reasons, along with numerous others, might be reason to assume that your franchise is on a solid upswing. A combination of several reasons makes the business valuation case even stronger.

The point is that you must do some market research for yourself to determine the performance of your franchise with respect to the others in the industry to get your price.

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The best exit strategy is one that has unfolded over the course of years. It is never too early to begin an exit strategy. You should have had one on the day you signed your franchise agreement.

In addition, you should review your goals annually. Part of the review should focus on your exit timing. If you think now is the time to exit then you must honestly ask yourself how motivated you really are to sell. Like any big project, you will need to devote time, money and effort to do it properly.

Most small business owners, however, worry more about building their business than selling it and never plan their exit. Be assured, it's never too late to develop a plan.

After making the decision that now is the time to exit you need to accomplish three critical things before placing your business on the market.

1. Discuss Your Exits with Your Franchisor.

First, you should discuss with your franchisor what your plans are. All franchise relationships eventually come to an end. You are not the first and won't be the last franchisee to exit your system.

You have used the franchise system, brand, and people to build your business. Don't be afraid to use them to exit. They have a
critical interest in a successful transition. Use them to help you close the deal.

2. Gather your Documentation.

Second, you need to gather documentation and clean up any inconsistencies, errors or omissions in your paperwork. The list is extensive and you can never have too much documentation.

Buyers will take lack of documentation or documentation they have to fight to get as a sign of trouble and it will break down the trust between you. Not only will it potentially affect your value, it will cause unnecessary delays.

In a small business transaction the trust between the buyer and seller is critical. Without trust the deal will not happen. The way you can build trust is by having all the documents readily available for any buyer who is serious about making an offer.

You need to tell a story to the buyer, and that story has to be validated by documentation.

3. Look for Financing Options for the Buyer.

Finally, you should see what if any financing will be available for a buyer. This should be done before you even list your business for sale. Talk to your business broker, attorney or accountant to get some recommendations on financing sources to pre‐qualify your business.

Not only will this make it easier to sell the business, it will be a great reality check on your price. If the price can't support financing, then maybe you shouldn't sell until the business grows into the price you want.

Buyers of small businesses always have to make a leap of faith, similar to the leap you made when you got into the business. You need to convince the buyer why this transaction makes sense.

If you are really ready to sell, have prepared a well organized and thorough package, and have pre‐qualified your business for financing, you will have a better chance of selling your business on your own terms.

When you are ready to think about selling your franchise, connect with me on LinkedIn and give me a call.

When it comes time to sell a business bad practices become costly.

The general rule of thumb is that a business is valued at three times income or one time sales then adjusted according to circumstances.  While this appears to be a clean and simple method of valuing and selling a business it is unrealistic based on my experience and, I suspect, those who have successfully sold or assisted in the sale of a business. 

At the most basic level, why should the potential buyer of a business actually believe that the seller is providing realistic and reliable information?

How does one get around this tendency to mistrust the other party in such a transaction?

Selling a business involves a high degree of trust between buyer and seller.  A seller must provide information (particularly financials) that are real, indicative of the business and presented in a manner that exudes confidence.  A potential buyer of the business must be trusted not to use confidential information provided to them to damage the business. 

Mutual trust requires a level of compromise and openness that is not easily given.  It is necessary to the successful sale of a small business.  Overcoming this hurdle is the responsibility of the seller of a business.  It typically involves preparing for the sale of the business at least three years in advance to ensure that financials (a key component of achieving this trust) are ready for disclosure at the time of sale.

I was recently involved with two businesses where this trust was compromised.  Failure to obtain this trust resulted in early termination of negotiations for the sale of each business.

In one instance, the business lacked even the most rudimentary Profit & Loss Statement.  They provided two years of revenue by month and "estimated" the cost of goods sold as a standard percent of sales.  There was no reference to operating costs - a complete lack of even the most rudimentary accounting systems. 

A prospective purchaser of the business had no understanding of the profitability or operations of this business.  While the business was may have been profitable, lack of reasonable disclosure made this difficult to determine.   

This sale failed to due to a lack of disclosure.

The situation of the second business was quite different.  It had extremely effective management control and accounting systems.  The owner provided a comprehensive set of financials that allowed a prospective buyer to fully understand the business.  Unfortunately, the business was unprofitable.  To compensate, the seller provided a "normalized" set of financials that showed what a new owner could earn. 

This seller was relying on a level of trust that enabled a prospective buyer to purchase based on potential rather than actual results.  Perhaps this was considered necessary in order to justify the desired selling price. 

Nevertheless, the necessary trust between both parties was never established.  Discussions on the sale of the business were terminated.

Many business owners consider management control systems are an unnecessary expenditure.  Perhaps this is because they do not understand how to use the information gleaned from these systems to improve their business. 

This approach may increase short term profitability but at what cost?  The success of any business is determined by its profitability and a lack of adequate management insight is a serious liability.  When this same business is for sale and exposed to a potential buyer, a lack of management insight is likely to result in a reduced valuation by an outside party.  Perhaps this is why many owner operated businesses fail to survive to a second generation of ownership.

Investing in good management control systems is the foundation upon which successful businesses are built and maintained.  Maximizing the valuation of a business is important to the owner selling the business. 

It is only through effective management control systems that this value can be determined and reliably documented when the business is put up for sale.

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Unless you already have a buyer, such as a fellow franchisee, a key manager, or a family member, use a business broker when selling your franchise. Even if you have a buyer, use a business broker.


It is helpful to hire business broker to expand the universe of those interested in your business and to confirm that you are getting a fair deal.

The law of supply and demand applies to businesses as well. If you have more buyers (higher demand) you should be able to command a higher asking price.

Brokers have specialized knowledge and experience dealing with multiple transactions a year, where you may only sell a business once in your life or only a handful of times.

In addition, don't underestimate the value that a broker provides by acting as a third party intermediary. They will screen unqualified buyers and help the serious buyers understand your business better.

Broker's have processes to deal with many buyers and will be able to efficiently and effectively reach a much larger audience than you could alone.

Your ideal buyer may contact your broker about another business they have listed only to learn it is not a match or already sold. Access to that database of buyers is usually well worth the commission.

Talk to multiple brokers, and when you interview them be sure to obtain and check references.

Hiring a broker is an important step. The wrong broker can cost you valuable time

The standard key metric used to measure an individual hotel's room revenue performance achievement is revenue per available room, which is calculated by dividing an individual hotel's room revenue by the hotel's available rooms.

Hotel management performance is typically determined and judged by its ability to maximize a competitive set's RevPAR index. Individual managers' goals and objectives are frequently designed around improving these statistics so as to underscore the notion "what gets measured gets done."

But, the calculation of the RevPAR index is not straightforward and depends upon the relevant competitive set.

What is RevPar?

Taking this one step further, one of the most widely utilized benchmarks in the hotel industry is the metric known as RevPAR Index, also referred to as Revenue Growth Index. RevPAR Index measures an individual hotel's performance compared to market-wide RevPAR and is calculated by dividing an individual hotel's RevPAR by the market-wide RevPAR.

The RGI of a hotel reflects a measurement of the property's ability to obtain its fair share of RevPAR for its specific market. An Index above 100% indicates a hotel achieving more than its fair share of the market-wide RevPAR, while an Index below 100% represents a property not attaining its fair share of the market-wide RevPAR.

The most commonly defined "market" to measure an individual hotel's performance is the property's competitive set. A competitive set is typically defined by hotel ownership and/or management and in some cases with guidance provided by the subject's brand affiliation.

Properties included in a competitive set should represent direct competitors of a specific property. Factors in determining the selection of direct competitive properties might include: location, number of rooms, type of property, brand affiliation (if any), amenities, available meeting space, etc.

How to Choose the Competition for Comparisons.

Competitive set selections should be reviewed on a continuous basis to ensure their relevance, as markets are continuously in flux due to, but not limited to: the addition of new hotels, reduction of supply, vagaries in brand affiliations and changes in requirements of surrounding hotel demand generators.

Fundamentally, a comp set with the most accurate depiction of a subject property's competitiveness can drive and impact actual results.

Grading performance

For a moment consider the elementary school report card as an STR Trend Report, the hotel's RevPAR as the student's performance, the market as the criteria to measure the performance of the student, and RevPAR Index as the actual grade.

Back in my elementary school days the grading system did not consist of letter grades but rather a simple three tier ranking system; Unsatisfactory ("-"), Satisfactory ("S") and Better than Satisfactory ("+").

Therefore, if the report card is considered to be the STR report, then an "S" equates to a RevPAR Index of 100% while a "-" is likened to a RevPAR Index below fair share or less than 100%, and so on.

School report cards are segmented into subcategories referred to as course subject, just as an STR report can be divided into submarkets such as market class, tract, comp set, etc. Each course subject contains criteria by which the performance of a student is measured, similar to individual properties within each sub market and/or competitive set.

The measurement criteria for the course subject of Physical Education might include items such as: participates in class, works well with others, positive attitude or follows instructions. These criteria seem adequate for gym class but would not be suitable for the sole measurement of English class, where the expected criteria should include topics such as spelling, grammar and reading comprehension.

Therefore, it would not be relevant to measure a student's performance in English class by the criteria for gym class. This might result in a skewed evaluation.

The same can be said for a competitive set. Including hotels that are not truly direct competitors is comparable to measuring a student's performance in one subject using the criteria from another.

Measuring the correct items on report cards allows students to identify their individual strengths and weaknesses, which enable them to grow, learn and improve. The same can be said about a properly selected competitive set, which allows management to focus and improve performance against the hotel's direct competitors.

A Relevant Case Study

The following is an example of a recent assignment executed by LWHA Asset and Property Management Services. The selection of a competitive set can have implications on the actual performance of a subject property.

LWHA reviewed a 200-plus room, limited-service midscale property located in a major airport market. When the property originally opened, it was the only limited-service facility in the immediate market. The immediate market, excluding the subject, consisted of four full-service properties and one upscale limited-service property.

Management and ownership of the property included all five properties in the competitive set, which was a clear representation of the entire local market at the time the subject entered the marketplace.

Over time, an additional five limited-service hotels opened. In addition, during this time period two of the competitive set properties underwent a change in brand affiliation.

Management/ownership of the subject property did not adjust the existing set to reflect the changes in the marketplace, as the full-service properties were closer in proximity to the subject. The subject's RevPAR Index averaged a RevPAR Index of 110% compared to the competitive set described above. Based on these results, it was concluded by ownership and management that the property led the market in RevPAR.

But, during our engagement, an additional STR report had been analyzed to reflect the actual changes in the competitive marketplace. This revised competitive set included the sub-market's limited-service midscale and upscale properties, and excluded the full-service properties.

The performance of the subject went from an RGI ranking of 110% to 90%. Obviously, the actual RevPAR of the property remained the same; however, the performance of the RevPAR Index as compared to the new set fell below its fair share. Therefore, management and ownership's conclusion that the property led the market in RevPAR was a misnomer.

After a thorough analysis, we determined the original competitive set no longer represented the direct competition of the subject property, as these full-service properties relied heavily on airline crew and group rooms for the majority of their business, while the subject property marketed to and depended on transient rooms for a preponderance of its business.

The full-service competitors sold a significant number of rooms at lower base rates to group and crew customers, leaving a smaller amount of rooms available for transient guests. With fewer rooms available for transient business, the full-service properties sold the remaining rooms at higher room rates than the limited-service properties in the local market.

The subject property, a limited-service hotel, mirrored the pricing strategy of the original comp set and out-priced itself as compared to its true competitors, the limited-service properties, which resulted in a RevPAR Index of 90%, achieving a level below fair share.

As a result of this performance, we recommended the property alter its selling strategy to be more competitive with the revised and more accurate competitive set. The subject property quickly improved its RevPAR Index to more than 100%. The conceptualization and implementation of the revised sell strategy of the subject hotel came about as a result of the competitive set modification.

The STR report is a valuable tool and is considered the hotel industry's report card. However, if a selected competitive set is not an appropriate representation of a subject's competitive landscape, the outcome can be misconstrued by producing inaccurate and sometimes detrimental results.

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This has been a guest post by Gary Isenberg. Gary Isenberg has more than 28 years of diversified hospitality experience. He joined LWHA Asset and Property Management Services as president in May of 2011. He leads the firm's practice of providing third-party asset management, property management and an array of advisory services specializing in hotel operational and financial functions. Mr. Isenberg can be reached at 212-300-6684 x 108 or [email protected].

How to Sell Your Business

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Interesting piece from the New York Times on selling your franchise or business.

"For many sellers, all they know is their business," said Jack Garson, author of "How to Build a Business and Sell it for Millions." "These sellers have spent many years, sometimes decades, building their business. While it may not be a big part of their conscious thinking, they fear they will be utterly lost and worthless without their business."

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