On the new CNBC show, Crowd Rules, we offered a chance for small businesses to try to convince the audience and a panel of judges why they deserve $50,000. While there were many great products offered on our premiere episode, we ultimately chose Heartbreaking Dawns after they showed the most strategic thinking.
There’s a series of questions I ask again and again on Crowd Rules, and they’re the same questions any smart investor would ask before putting money into a new company:
1. What do your products cost to produce, and how much do you sell them 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?
I ask these questions only partly because I want to hear the answers. To me, it’s more important to find out if they have answers, because great businesses need data to support their decisions.
Pickle Licious had almost no data on anything. 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 that 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.
We didn’t get clear numbers from the founder, but suppose the company is selling a pickle for 50 cents. If they learn that it costs 49 cents to make it, an adjustment is necessary. So, they have 3 choices: 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 scanner data is available for purchase and can tell an expanding business where a comparable product is hot and where it’s not. Such data is expensive, but it’s a worthwhile, long-term investment.
The available data points differ by industry. Sometimes internal data tells the story, and sometimes you need to find external data. Once you get the data, you have to filter it through your own experience and instinct. But, data is critical. Without data, a business can’t make informed decisions.