Happy Friday the 13th everyone!
Love watching Shark Tank on Friday nights.
Blows me away how innovative American entrepreneurs are. Also, amazes me how naive entrepreneurs can be in terms of raising money. I understand the value of Shark Tank in getting advice from sharp wealthy business people. In general, the Sharks on the Shark Tank take like 40-60% of the equity in company for like $100k or something like that. There are many, many better ways to get money and advice for entrepreneurs. With new services like Kickstarter coming out, it seems like there are endless opportunities for people to build great businesses.
At the same time, MANY MANY of the products on Shark Tank are not businesses. Many are cute ideas, but I have a hard time believing that they will become compelling businesses for a long period of time. The Sharks on Shark Tank seem to be taking equity ownership in many companies that will make $1-3m in revenue per year. I wonder how they will recoup their investments (other than straight dividends out of the company, which is a good idea for small businesses).
My review of this week's businesses:
Kisstixx Lip Balm: Cool idea for lip balm that tingles and changes color when you kiss. Cute idea. Big deal with Walgreens. I would not invest in this. Seems like a cute idea, but doesn't seem like there is any barrier to entry. So what's product 2 or 3? Mark Cuban ended up investing for like $200k for 40% of the company.
Smart Baker: Small business with some "cute, but smart" products like aprons with conversion metrics on it, supcake towers and pre-cut parchment. Cute ideas, but small kitchy products. Hard to scale through small kitchen retailers or Williams Sonoma. High margins which was impressive. Not a good deal from my perspective, but Barbara did the deal for $70k for 40% of the company AND a 5% royalty until her money is paid back. Smart structure from Barbara, because it is basically riskless since the company is profitable and should be able to pay per back as it scales.
Heat Helper: Funny idea for a product that enables you to blow the heat from the clothes dryer back into the house. It had some interest from the Sharks until the entrepreneur mentioned Lowe's tried selling it and was unsuccessful. DEATH KNELL. Smartly, the Sharks said that if Lowe's can't sell it, it is highly unlikely that anyone can sell that product.
TEC (Technology Enabled Clothing): The entrepreneur Scott Jordan has a patent on putting holes in clothing so that you can run wires for your headphones into your iPhone or iPod. Seems like it is crazy to get a patent on something so obvious. He wanted to create a business to license his patent to other clothing companies. TEC also has a retail clothing business that is doing $12m in revenue and $2m in profit. He only wanted to finance the patent troll business and would not sell any piece of the retail business. The guy was a jerk in general. If you can't trust an entrepreneur or a business partner, you are doomed. So just on that, I would not even think about working with the guy. Robert and Kevin tried to invest in the retail business AND the patent with a low ball offer. Scott was offended and offensive and walked away. Probably best for everyone.
Summary: You can get funded on the Shark Tank with a smart / cute product and some sales traction. Be willing to take a VERY VERY low valuation in exchange for their participation. Oh yeah, and don't be a jerk when you are asking people for money. Seems obvious to me.