ABC's Shark Tank debut this week and they presented 5 entrepreneurs, looking for money to help launch or grow their businesses. They presented their case to five savvy, successful business people including Robert Herjavecreal a technology guru, Barbara Corcoran a real estate mogul, Kevin Harrington the “infomercial” expert, Daymond John a fashion clothing millionaire and financial expert Kevin O’Leary. who had to invest their own money into any idea the liked.
They called these experts sharks because they would eat you alive if your idea had no real future or you overvalued your idea. And that is exactly what they did.
As I watched the show I tried to put myself in the seat of the sharks and I evaluated the ideas that each entrepreneur brought to the table. I can tell you my conclusions in most cases matched those of the Sharks. However, I am also someone who helps those same types of entrepreneurs raise capital or generate successful businesses, so I have some words of advice for each of the contestants, if they ever get a chance to read my blog.
The first contestant was Tod Wilson of Mr. Tod's Pies, he was in need of $460,000 to increase his production capacity and improve sales and was willing initially to give up only 10%. His business generated approximately $850,000. He also explained that 50% of all of his revenue came from his pumpkin pie product and primarily in the wholesale business where margins would be tighter. He also revealed that he had a potential deal with McDonald's but did not elaborate as to the validity or true value of that deal.
So what did the Sharks think, well the first thing they stated is that he overvalued his company. a 10% stake equated to a valuation of $4.6 million for a company barely making it at $850,000. They also thought he should focus on his most profitable products and not spend money on non-profitable areas like his mascot. Therefore Daymond and Barbara paired up to counter with a offer of 50% of the business. Tod accepted it as he seemed desperate to get the cash influx. So the real questions is did he make a good decision? Could he have done something to improve is chances in front of the sharks? The answer is absolutely.
First he focused too much on the quality of his pies and not the quality of his business. While he mentioned how he planned to use the funds he never talked about how the additional capital would actually increase sales. If he had tried to get a letter of intent from the local McDonalds willing to carry his pies and shown a clear revenue gain from the cash infusion he could have negotiated from a position of strength instead of weakness and retained a greater share of his company.
The second contestant was Darrin Johnson an inventor of a bizarre new concept which was called the ionic ear. A surgical procedure to implant a bluetooth hearing device. He perceived a problem with blue tooth devices falling off the person's ear and therefore a need for a invasive surgical procedure which actually needs to be charged nightly. As expected the Sharks not only wanted nothing to do with investing the $1 million he was asking for they also thought he was crazy.
They called these experts sharks because they would eat you alive if your idea had no real future or you overvalued your idea. And that is exactly what they did.
As I watched the show I tried to put myself in the seat of the sharks and I evaluated the ideas that each entrepreneur brought to the table. I can tell you my conclusions in most cases matched those of the Sharks. However, I am also someone who helps those same types of entrepreneurs raise capital or generate successful businesses, so I have some words of advice for each of the contestants, if they ever get a chance to read my blog.
The first contestant was Tod Wilson of Mr. Tod's Pies, he was in need of $460,000 to increase his production capacity and improve sales and was willing initially to give up only 10%. His business generated approximately $850,000. He also explained that 50% of all of his revenue came from his pumpkin pie product and primarily in the wholesale business where margins would be tighter. He also revealed that he had a potential deal with McDonald's but did not elaborate as to the validity or true value of that deal.
So what did the Sharks think, well the first thing they stated is that he overvalued his company. a 10% stake equated to a valuation of $4.6 million for a company barely making it at $850,000. They also thought he should focus on his most profitable products and not spend money on non-profitable areas like his mascot. Therefore Daymond and Barbara paired up to counter with a offer of 50% of the business. Tod accepted it as he seemed desperate to get the cash influx. So the real questions is did he make a good decision? Could he have done something to improve is chances in front of the sharks? The answer is absolutely.
First he focused too much on the quality of his pies and not the quality of his business. While he mentioned how he planned to use the funds he never talked about how the additional capital would actually increase sales. If he had tried to get a letter of intent from the local McDonalds willing to carry his pies and shown a clear revenue gain from the cash infusion he could have negotiated from a position of strength instead of weakness and retained a greater share of his company.
The second contestant was Darrin Johnson an inventor of a bizarre new concept which was called the ionic ear. A surgical procedure to implant a bluetooth hearing device. He perceived a problem with blue tooth devices falling off the person's ear and therefore a need for a invasive surgical procedure which actually needs to be charged nightly. As expected the Sharks not only wanted nothing to do with investing the $1 million he was asking for they also thought he was crazy.
While I would like to think I could help this person the first thing I would say regarding this idea is what other human on this earth actually thought this was a good idea. If he asked anyone regarding the actual feasibility of people wanting to do this procedure he could have saved everyone including himself the wasted time his idea occupied.
The third contestant was Kevin Flannery of WiSpots an advertising system for patients in waiting rooms. He was asking 1.2 million for a 10% stake in his business. He quit his job, mortgaged his house twice and spent his daughters college fund to fund his business. And with over 550,000 spent he did not make a sale that generated any revenue. The sad part was that everyone of the investors realized that his idea was not feasible at $9 thousand per system and told him to cut his losses.
So what went wrong, how do you spend that much money without testing the feasibility, the market demand and price sensitivity. Ideas can be dangerous especially if you fall so in love with your idea that you risk your family and your future. Always do you your homework and never quit your day job until the idea you have can generate enough money to allow you to continue living.
The fourth contestant was a nanny turned inventor Tiffany Krumins. She was trying to raise $50 thousand investment to assist with her patenting and building a production prototype for her animal medicine dispenser. Clearly she had no business experience and was looking as much for a mentor as the money. She only wanted to give up 15% of the business but in the end gave up 55% to Barbara, who liked her idea but knew she would have to be able to control the business for it to have any chance for success.
Tiffany probably gained more by having Barbara as her partner than by the 50k she was going to get to move her idea into a reality.
She made so many mistakes but she really did not have the ability to find someone who could actually produce her product. If she looked at companies who could have produced the product, she probably could have made more money and done less work.
The final contestants were Nick Friedman and Omar Solomon who were trying to raise $250,000 to launch College Foxes Packing Boxes. This was an obvious spin-off from a successful business they already had been running called College Hunks Hauling Junk. They had the best business resume of the group of contestants and they came in with a little bit of ego to back it up. They intended to leverage their current company to help with the expansion to with their new business, but all of the investors wanted a piece of the business that was generating revenue and they asked them to make an offer for a percentage of both companies. They offered$1 million for 10% stake in both business. All of the Sharks balked except for Robert who offered $250,000 for 10% of the $3 million dollar Hunks business plus 50% of the new College Foxes Packing Boxes. Omar and Nick discussed it but decided that their current business was worth more and they decided to decline the deal.
The curious thing to me is why they were there in the first place. Their current business apparently threw 500 thousand dollars to the bottom line so why try to raise money at all when you have the capital in house and the ability to use existing resources from a similar business. Plus they can scale up within their own network, so this seemed to me to be more about advertising their businesses then actually getting an investment. Only time will tell.
If you missed the show, You can watch it right at the following address: http://www.hulu.com/watch/88498/shark-tank-series-premiere
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