Season 4 week 8 of sharktank was a great episode, and provides a number of different lessons on the importance of experienced management, how celebrity endorsements can work for you or against you, and how an entrepreneur can blow up his own success by poor management of a deal process.
The first company to pitch makes a 5-in-1 combination swing cover, high chair cover, car shade, carseat cover and changing pad, to protect kids from germs and from getting burned by hot surfaces. The founder had developed the idea after her daughter had been burned on a hot swing. She sought $65k for 25% of the company.
The founder told a story of serial poor decision making and poor preparation, and of opportunities lost. She had twice been featured on national TV shows, and had failed to take advantage of either opportunity. The first time, on the Today show, she did not have her production sorted out and had an 85% defect rate. The second time, on the show The Doctors, she agreed to give away her entire stock of inventory to the audience for free, and was unable to make meaningful sales. Her production costs are $30 and she is selling the product for $32.50 wholesale, a very slim margin. She is looking to move production offshore where costs will drop to $11.36, but has not done so yet. The company has lost $96,000 in the last year on $20,000 of sales. Ever the optimist, the entrepreneur focused on the fact that she has had no returns, and that a Canadian distributor had given her a purchase order for a thousand units.
All the sharks rapidly passed. I can see why. Based on the very poor decisions that she has made, I would consider her unfundable. She is far too inexperienced as a business person, as is evident from the sorry history of the last twelve months.
But then, a miracle occurred. The founder broke into tears. She expressed how hard she has been working on the product, and for how long. And Lori came back in. She agreed to invest at the terms that were asked for, $65,000 for 25% of the company, and to help with production and distribution. But make no mistake, this was not a rational investment decision. This was charity.
No Fly Cone
The next entrepreneur to pitch has developed a non-toxic cone shaped fly trap that is placed over a pile of dog shit. You can’t make this stuff up. The inside of the cone is covered in glue that traps the flies inside, avoiding unsightly dead flies lying around. He has had the product available in stores for several years but no one knows what it is, so sales have been anemic, just 3,000 units last year. He sought $25k for 15% equity in the company.
The entrepreneur brought on Seth McFarland, creator of the TV show “Family Guy”, to vouch for him. But it turns out that McFarland doesn’t use the product, and won’t invest his own capital. He mostly focused on trying to be amusing.
All the sharks passed. While the product sounds effective, it has not been able to break through after several years. In the consumer world, past is often prologue, and so this is unlikely to change. The entrepreneur did not offer any ideas on air that would suggest that a breakthrough may be imminent.
The total failure of McFarland’s endorsement is also notable. Celebrity endorsement can be incredibly effective. We have two companies where celebrity endorsement has led to very fast growth, Shoedazzle (with Kim Khardasian) and The Honest Company (with Jessica Alba). In both cases, the endorsement is authentic, the celebrities use the products, and the celebrities are authorities in the area that they are endorsing. In McFarland’s case, none of this is true. People won’t invest in your company just because your friend is famous or funny.
The last pitch of the week was by far the most interesting because it provided an example of an entrepreneur almost snatching defeat from the jaws of victory, and I break it down over at Entrepreneur.com
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