Top six questions that smart investors ask start-ups
There's a series of questions that I ask again and again on "Crowd Rules," and they're the same questions any smart investor would have before putting money into a new company:
1. What does that cost to produce, and how much do you sell it for?
2. What's your most profitable product?
3. Who is your least profitable customer?
4. When do you do most of your business?
5. Who is your most productive employee, and how do you measure that?
6. What was your revenue last week?
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I ask these questions only partly because I want to hear the answers. To me, it's important to find out if they have answers, because great businesses need data to support their decisions.
Pickle Licious had data on almost nothing. I'm not going to force them to come up with a unit cost on every pickle they produce, right down to the penny. But I would have felt better if they had been able to tell me they'd gone through the exercise of measuring every ingredient and every hour of labor that goes into a batch of product, even if they only did it once.
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We didn't get clear numbers from Robin, but suppose they're selling a pickle for 50 cents. If they learn that it costs 49 cents to make it, an adjustment is necessary, so they have three choices. They can raise the price, find a way to produce it for less, or dump the product entirely. Pickle Licious did not have the data to help them decide which adjustment to make.
I was impressed with Mr. Green Tea. They had immediate answers when I asked what their product cost was. Yet they too suffered from a shortage of data. I got little sense that there was market research behind their decisions about which supermarkets they were going to buy their way into. Supermarket scan data is available for purchase and can tell an expanding business where a comparable product is hot and where it's not. Such data are expensive but a worthwhile long-term investment.
The available data points differ by industry. Sometimes internal data tell the story, sometimes you need to find external data. Once you get the data, you have to filter them through your own experience and instinct. But data are critical. Without data a business doesn't make informed decisions.
Pat Kiernan is a panelist on "Crowd Rules," a NY1 News anchor and the owner of PatsPapers.com, an online summary of U.S. news stories, delivered to subscribers via e-mail every weekday morning.