Watch: Why Entrepreneurs Should Be Open to Negotiation and Even Rejection
On this week's episode of 'Entrepreneur Elevator Pitch,' contestants learn that you can't always get what you want.
On the new streaming show Entrepreneur Elevator Pitch, founders step into the Entrepreneur Elevator and have just 60 seconds to present their idea, product or business to a panel of investors. Whether an entrepreneur gets invited into the boardroom or sent back to the ground floor depends on what our experts think in that first minute. Here, we break down the lessons aspiring business owners can take away from each episode's pitches.
There are many ways to get the funding necessary to build and grow a new business. You can apply for a bank loan, borrow money from a loved one, even put your item on Indiegogo and use the power of the crowd to help bring the product to market.
For the inventive professionals on Entrepreneur Elevator Pitch, the goal is to secure financing from a team of experienced investors. However, as we learn from episode 11 of the online streaming series, you have to be open to negotiation and ready to take an alternative path in case of rejection. The business owners on this week's show certainly were.
Know when it's time to take a different route.
Suzanne Sinatra's business is all about private parts. Her product, Private Packs, offers both warm and cool therapy and comes with a protective sleeve to attach to a person's underwear. Although there is a market for consumers who have recently had medical procedures, the investors just didn't feel enthusiastic about the product. They recommended Indiegogo as a reliable best place for Sinatra to find support and declined to invest.
Harrison Broadhurst and Chris Rannefors had already found success on Indiegogo for their bat hotel when they approached the investors. BatBnB is a line of designer bat homes for people looking to keep the animals, which are by and large considered very safe and are hugely helpful in killing mosquitoes and other pests.
In only one week on the crowdfunding site, the founders brought in $50,000, an accomplishment that wowed the investors. The pair wanted $200,000 for 5 percent, which quickly took the air out of negotiations. Broadhurst and Rannefors were claiming a $4-million valuation and seemed unwilling to budge on their value, largely because of the agricultural potential for the bat homes. The board declined to invest, saying that perhaps the company didn't need investment so much as more crowdfunding and time. If you're not willing to budge when you negotiate, you better be ready to take a different path like these entrepreneurs were.
Stay open to negotiation.
The Unique Seat brings comfort to people who attend outdoor events, packing two seats, a blanket and pillows into a lightweight backpack. Shirley and Addison Hayden had patented their product and had already sold just under 1,000 units when they pitched the investors. The panel felt that there were many similar products already on the market, but they were intrigued by the patent, not to mention the Haydens' highly informative pitch. As a result, the entrepreneurs were invited to the boardroom.
The Haydens knew they had a great product, but they faced serious challenges in marketing and manufacturing in a cost-effective manner. Due to the short-run nature of the manufacturing they've been doing, they're currently paying $24.90 per unit including shipping.
The investors offered $75,000 for 20 percent of the company, less than what the Haydens had asked for. However, the board offered to add their marketing and manufacturing expertise as part of the package. The Haydens smartly accepted the deal. They weren't afraid to do a little negotiating, and it delivered them a bright new future for the company.
Take a lower amount, but get something in return.
Up next is another founder team open to negotiation. Stacy Goldstein and Lois Ungar are the founders of Lola Getts Active, an athletic apparel company looking to attract women who wear size 14 and up. The active wear market is huge, representing an estimated $44 billion in sales in the U.S. alone. However, finding stylish athletic apparel can be difficult for plus-sized women.
They approached the investors seeking $300,000 for 15 percent equity. The board immediately recognized the benefits of a product that speaks to an underserved market and brought the duo in to learn more.
From the start, the entrepreneurs' pitch was on point, impressing the panel with their 40 percent returning customer rate and less than 5 percent in returns. The $300,000, they explained, would go to their marketing and manufacturing costs, in the hopes of improving sales and profit margins.
For a company that had only been in business for three years, the investors felt that the valuation was a little high. So, they offered $100,000 for 20 percent, significantly less than the entrepreneurs' ask. Goldstein and Ungar took the lower amount, but got something in return. They asked for help with a loan for manufacturing, which the investors were happy to provide.
Again, the key here is that the entrepreneurs stayed open to the investors' offer, even when their ask was denied. They saw the value and were willing to compromise. Many entrepreneurs don't do this, and they end up out in the cold. If you stand firm and refuse an offer, just make sure you're ready to take an alternative path, whether it's crowdfunding, a different group of investors or some other source of securing capital.
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