The Shark Tank has a simple set of rules; entrepreneurs pitch their businesses to the Sharks that are looking to invest. The entrepreneurs must get all the money that they ask for in order to close a deal, this means that if an entrepreneur asks for $100,000 for 25% of their company they can only alter the percentage of the company they are willing to give up in order to close a deal.
First into the Shark Tank was Jonathan Boos and his business, Wurkin Stiffs. Wurkin Stiffs makes several products that help keep your shirt collar from curling, giving you that button down look. His flagship product, Power Stays uses a metal insert that goes into your shirt collar pocket, and then a powerful magnet is placed underneath your shirt to hold it in place.
Jonathan also makes a full line of other men’s accessories, including fun cufflinks. His products are for sale in major retailers including Norstrom, and he did over $500,000 in sales last year. He is predicting to do $1.8 million in sales this year. Jonathan was hoping use the money to help develop other products to enhance his line.
The Sharks really liked his products, but Kevin was the first one to make an offer. Kevin offered $100,000 for 30% of the business and 14% royalties (The percentage paid off the gross sales of the product). Jonathan wasn’t keen on the idea of a royalty, he said he wanted more than money; he wanted someone who could help him grow his business. It is obvious that Jonathan really wanted a deal with Daymond, Daymond is a self made millionaire, who started the successful FUBU clothing brand.
With Daymond contacts Jonathan could surely grow his business. The problem was Jonathan wouldn’t listen, and before he knew it Daymond was out. Robert offered $100,000 for 30%, but Jonathan quickly asked for $200,000 for the same percentage. Kevin again countered with $100,000 for 20% but still kept his 14% royalty. Not to be outdone Robert came in again for $100,000 for 25%. Barbara began trying to put together a deal with Daymond for $100,000 for 20%, but Daymond wouldn’t come back for anything less than 40%.
The reason Daymond was asking for a higher percentage was because of his knowledge and contacts. After a little more negotiation the deal was done, and Jonathan walked away with $100,000 for 40% of his business in a deal with Daymond and Barbara.
In the end it came down to Daymond contacts, which I’m sure would help Jonathan get working stiffs into the stores quicker. The lesson to be learned from this pitch is to know when to talk and when to listen.
Tippi Toes is a children’s dance company, run by sisters Sarah Nuse and Megan Reilly. They came into the Shark Tank asking for $30,000 for 5% of their business. What makes Tippi Toes unique is that they go directly into preschools and day care centers to teach children dance. Most dance companies have studio space that they rent, which creates high overhead.
The day care centers and preschools pay a monthly fee, and they can advertise it to their families as an extra service. The sisters run their business as a franchise, and so far they have 7 franchises around the country. Sarah and Megan are real sharks, they offer financing for their franchisees, require a 10-year contract, and charge a minimum of $1000 each month in royalty fees.
The sister next goal is to grow their brand by developing a DVD, featuring the fun characters that they creative.
Kevin again was the first Shark to offer $50,000 for 51% of the business, but the girls wisely turned down a deal. Barbara then offered $60,000 for 20% of the business, but Mark wanted in as will. He told the girls to make him an offer, they countered with $100,000 for 30% of business, and before Barbara knew what hit her Mark closed the deal!
These girls have a solid business, but it may be expensive developing a brand, and a DVD serious to sell. They should concentrate on their core business and use the exposure from the Shark Tank to sign new franchises. I’m sure with Mark Cuban’s guidance these girls will be millionaires before you know it.
Shawn Davis, otherwise known as Chef Big Shake entered the Shark Tank with his business CBS Foods. CBS foods manufactures and distributes the original shrimp burger. Which features four different flavors, including Original, Jalapeno, Cajun and Teriyaki. He also sells other products including a lobster slider. This year CBS Foods sold $30,000 worth of product, and had commitments from two major supermarkets for an order worth $87,000. Shawn was looking for $200,000 for 25% of his business.
Seafood is an expensive commodity, and due to price fluctuations and the cost or refrigeration most similar companies have margins of around 70%, CBS Foods only had margins of 53%. Unfortunately the Sharks felt that Shawn over evaluated his business. With only $30,000 in sales they could not justify an $800,000 evaluation, the Sharks were out.
Over evaluating your business is a trap that a lot of entrepreneurs fall into. You need to separate yourself from your business, and look at it from an outside perspective. Unless you’re some crazy popular tech startup, you will most likely have base your value on your current sales and assets. The Sharks, or any investor is going to evaluate your business based on what it is worth, and not what you believe the potential value is in a year from now.
Last into the Shark Tank was James Martin with his business Copa De Vino, which is Italian for wine by the glass. James developed a method to individually package premium wine in glasses. James has patented his packaging, which keeps wine fresh for up to a year.
Copa De Vino sold $500,000 of product last year. He is currently working with two large wine companies hoping to close a deal that could be worth between $3 and $5 million.
Although there is a potential to license the product (allowing another company to use his patent, and paying a royalty fee) James believes that by keeping the businesses together he was proving the concept worked, which could lead to more money in the future. In reality if he separated the packaging from his wine brand, his wine would blend in with all the rest of the thousands of wines out there, and have nothing to make it stand out amongst the crowd.
Kevin offered $600,000 for 51% of the patent company, and not the wine company. James countered with $3 million for 51%, Kevin was not impressed and was out.
Remember that Shark Tank moves to its regular timeslot, Friday nights at 8PM on ABC, this week.