In the sixth episode of the first season of Shark Tank five business ideas were presented. Out of the five businesses presented only two were able to walk away with an investment from the Sharks.
The businesses featured in this episode are:
Pork Barrel Barbecue
The investors or the "Sharks" featured in this episode are:
Jonathan Miller, who became tired of the standard energy bars on the market, created a company called Elements Bars which allows its customers to order and customize their own energy bars. He his asking for $150,000 in exchange for a 15% stake in the company.
The way that the company works is customers go to the website. They pick and choose what type of ingredients that they want to go into their bar. In addition to that, the customer can choose whether they want their bar to be chewy or hard. Furthermore, as the customers add ingredients to their bar the website updates to nutritional label which includes the ingredients along with other nutritional facts like calorie intake. The customer then receives their customized bar complete with customized packaging.
All of the investors seem to be interested in the business. O'Leary, however, begins to attack the valuation of the company which Jonathan is valuing at about $1 million ($150K divided by .15 of 15%). The investors then question Jonathan about his sales. Jonathan reveals that the company made $12,000 last year and has generated $50,000 in sales this year.
O'Leary continues to question the value of the company saying that even if he gave Jonathan 10 times of his current revenue the value would be $500,0000. Jonathan contends that the investors are not just investing in the company but they are investing in him as well.
Nevertheless, the investors continue to dissect his company. The investors contend that he has nothing proprietary and that other larger competitors can easily knock-off his idea. Jonathan's counter argument is that his company competitive advantage is that they can easily manufacture in smaller quantities.
At this point all of the investors pretty much agree that Jonathan has a lot of business savvy. It seems that they are really enjoying the company of Jonathan and concede that he is a "star". However, all the investors pretty much agree that the valuation of the company is crazy.
Kevin O'Leary bows out because of the valuation. Barbara believes that a larger company can easily rip the idea off and therefore she is out. Jonathan then offers the investors a higher equity position since it seems like their major concern is the the value.
Daymond offers Jonathan $150K but he want a 75% stake in the company. Kevin Haggerty, who is involved with a company that is in the customized nutrition space, offers $150K in exchange for 100% of the company and a 4% royalty for every bar sold in perpetuity.
Jonathan declines both offers. He feels that the amount of equity that they want in is company or royalty stream in Haggerty's offer would demotivate him as an entrepreneur. He makes counter-offer of 20% equity which is 55% less than Daymond's original offer and all of the investors immediately burst into laughter.
When Jonathan is asked if he is willing to give up more than 50% equity he immediately answers no. At this point, Robert Herjavec and Daymond decide to bow out. Kevin Haggerty, who seems to be extremely interested in the company, amends his original offer of 100% equity to 35% with the 4% royalty stream still in place. To the surprise of all of the investors, Jonathan declines the offer and counters with 25%.
Haggerty, who seems to really want to make a deal, agrees to split the difference and offer Jonathan $150,000 in exchange for a 30% stake with a 4% royalty. Finally, after lots of haggling Jonathan agrees to a deal with Haggerty.
Element Bar's Jonathan Miller On His Experience On Shark Tank
David Chodish, a toy maker and inventor, has created a product called The Fizz. He is asking for $150,000 in exchange for 25% ownership in the company.
The Fizz is a product that easily turns a regular bottle of soda into an ice-cream float. The product is a cup, which can be pre-filled with ice-cream, that comes with a special straw and easily screws onto a bottle of soda. The straw sucks the soda into the cup which allows the soda to mix with the ice cream creating a traditional ice cream float.
After demonstrating how the product works and allowing the investors to taste the ice cream floats, the investors seem to be interested. The investors question Dave about his sales. He says that he had $84,000 in sales in the last year. He says that most of his sales have come from ice cream store and vendors for fairs. In addition to that, he says that he get sales from companies who use the product for promotional purposes.
When Dave mentions that he sold is product to Coca Cola for a special event, the investors are eager to find out how Coca Cola liked the product. Dave says that Coca Cola liked the product but that they are not in the ice cream business.
After that exchange, the investors want to know where he gets the ice cream from. Dave says that ice cream comes from the customer or it can come from an ice cream manufacturer. When asked about partnerships with an ice cream manufacturer he says that he has not demonstrated enough sales to get an ice cream company to get involved.
All of the investors pretty much agree that the only way for product to work is for him to be partnered with an ice cream manufacturer. The investors view it has a huge risk because unless an ice cream company partners with him, then the product is pretty much dead. Consequently, all of the investors decide not to take a chance on "The Fizz" product.
Demonstration Of "The Fizz" On The Today Show
Husband and wife team, Buck and Arlene Weimer, have created a product called Under-Ease. They are seeking an investment of $55,000 for a 25% equity position in their company UnderTech.
Under-Ease is an protective underwear for flatulence better known as gas, "passing gas" or "cutting the cheese". After one Thanksgiving meal Arlene, who suffers from from Crohn's disease, was experiencing a lot of gas. Unfortunately, Buck was suffering from the gas too. Not wanting to go through another "cutting the cheese" experience with his wife, Buck decided to create an underwear which would literally suppress the smell of someone "passing gas".
After a couple of months experimenting in the cellar, Buck was able to come up with a solution. He came up with a special underwear that is designed with an air tight material, elastic around both legs, and a comes with charcoal filter in the center.
When asked about how the underwear looks when someone has them on, Arlene, with a lot of confidence, mentions that she is actually wearing product. As she profiles to show off her figure, O'Leary jokingly says, "You look good."
The investors, who are obviously enjoying Arlene and Buck, ask about the sales. Arlene mentions that they had about $37,000 in sales and the year before they had over $67,000 in sales. She mentions that in their best sales year they brought in $83,000 in sales. Arlene also states that one of the major contributors to their sales is publicity. Herjavec, who seems a little disappointed in their sales, mentions that their sales have actually been trending down since they started selling the product.
Before Arlene and Buck can explain how much they sell the product for and how much they make it for, Herjevec bows out because he feels that the market is too small. The other investors begin to follow suit. Daymond does not want to invest because he thinks that the product is limited with regard to distribution channels. Barbara, thinking from her perspective as woman, believes that women would rather be in sexy underwear versus a medical type underwear and therefore she is out. Haggerty is out because he does not see it working. Finally, O'Leary, who can come off at times as a prick, gives Arlene and Buck compliments on what they have done with their product but he is not willing to make an investment.
Arlene & Buck Weimer Talking About Under-Ease Underwear
Kimberly Cayce, a former professional golfer, has created a line of sports bras. Her company is called Kaylx Technologies. She is seeking an investment of $125,000 in exchange for 20% equity in her company.
As a former athlete, Kimberly understands that breast pain for women while engaging in high intensity sports or exercise is a problem that affects active women. She feels that the sports bras that are currently on the market are not effectively addressing this issue.
Consequently, she set out to create a line of sports bras that are fashionable, feminine, flattering, and, most importantly, functional. She has also specially engineered different sports bras that align with the type of exercise, sport, or activity that a women is engaged in. Each sports bra in her line incorporates her "patentable" technology which refers to as the Kaylx Power Sling. She Kaylx Power Sling technology is a wireless mesh insert designed to prevent breast motion across multiple planes.
After demonstrating her product, the investors want to know if she has any type of sales. She mentions that her company is brand new and is in the start up stages. In addition to that, she reveals that she has spent 3 years developing the product. Kimberly also mentions that she has a waiting list of over 200 women who want to purchase her product. The products has also been introduced in one retail location.
The investors, who are trying still trying to gauge her sales, ask her if she as any sales projections from the one retail location that she is in. Kimberly, who kind of avoids the questions, admits that her company is pretty much running on fumes. Daymond John asks her how much of her own money has she put into the business. Kimberly says that she has put in about $100,000 of her own money into the business.
The investors then start digging into her competition in the sports bra market. O'Leary mentions the fact that there are many sports bras on the market. Kimberly contends that the sports bras on the market are deficient.
Kevin Haggerty asks her about the leaders in the sport bra market. She says that major competitors in the industry are Champion, Nike, Under-Armour, Adidas, and Moving Comfort. Realizing that the investors are reeling at this point, Kim states that she has conducted surveys that show that 90% of women who use sports bras are dissatisfied with the bras on the market.
Herjevec, unmoved by her surveys, doesn't see how she is going to be able to effectively compete against the major players in her market who spend billions of dollars in advertising. O'Leary adds that it is going to be very hard to gain any type of market share.
Daymond, who recognizes that best play would be to license her technology to the major players, asks her if she has a patent on any of her technology. Kimberly reveals that, due to the company's current financial situation, she does not have any patents.
Haggerty asks her how she would use the money if he was to invest $125,000 in her business. Kim states that she would use the majority of the money for manufacturing. Herjavec, obviously a little frustrated, says you don't have any orders to start manufacturing. At this point Kimberly chances of securing an investment from any of the Sharks is done. Haggerty decides to bow out citing too much competition.
Barbara wants to know how long it will take before shes sees her money back. Kimberly tells Barbara that she would get her money back in 5 years. Barbara feels like that is way too long and is out. Daymond thinks that it is too early to invest and decides to bow out. Herjavec is out because she has too much competition.
O'Leary tells her that she needs a huge marketing effort to make it work. He says that she needs way more than $125,000 in order for her product to be a success and is out. O'Leary, who never seems to be at a shortage for words, continues to attack her product and bluntly tells her that her business is over.
Herjavec, who is a little displeased by O'Leary's words to Kimberly, tells him that his additional comments were completely unnecessary. O'Leary, who is unmoved by Herjavec's rant, states that he simply told her the truth and he did nothing wrong. Barbara, who is sitting between to two guys, tells them to calms down.
Pork Barrel Barbecue
Brett Thompson and Heath Hall, who both work in the political arena in Washington DC, have started barbecue sauce and spice rub company called Pork Barrel BBQ. They are seeking a $50,000 investment in exchange for a 10% stake in their company.
Among 50 entries in a national barbecue competition, their Pork Barrel BBQ sauces was voted as the 2nd best in the nation. The sauce recipe was created by Hall, who admits that he loves to eat and experiment in the kitchen.
After sampling the sauce, all of the investors agree that it is very good. Nevertheless, the investors, as always, focus on the business. O'Leary immediately points out that, although the product is good, no one knows about it. Hall and Thompson responds by pointing out that they their product has been recognized as one of the top sauces in the country.
Daymond attacks the valuation of the company which, based on the investment request and equity offer, is $500,000. Herjavec jumps in and say,"They are just joking about that." As Brett Thompson tries to pivot away from the valuation issue, Herjavec, who jokingly refers to his attempt to change the subject as a political maneuver, asks him to explain the valuation of their company.
They mention that they have just landed distribution deal with an experienced distributor which will allow their product to get in major grocery store chains. In addition to that, they have 10,000 units in production to fulfill their initial order of $30,000. Herjavec asks them how much it cost them to make their products. Thompson explains that it costs them $2 to make the rub and $1.80 to make the sauce. He also adds that they make a 50% profit margin on each product. They also, based on estimates from their distribution, project that they will make about $4.1 million in sales and over $1 million in profit.
Herjavec does not believe that they can get to $4.1 million in sales from their initial order of $30,000. He thinks that the key to the business being successful comes down to distribution and, equally as important, marketing. He thinks they are too small and for that reason he is out.
Haggerty feels like it is too risky. He says that, "It is like a sink or swim situation." He mentions that if they sell out the intial 10,000 units then are good, but if they don't sell them then they are out of business. For these reasons Haggerty decided not to invest.
Daymond feels like the they are entering into a crowded space and for that reason he is out. O'Leary feels like the company is overvalued. In addition to that, he does not think that the pair are fully committed to the business because neither one of them is working on the business full-time. He adds that they are, essentially, politicians with a hobby. O'Leary feels like one of the guys needs to be committed to the business full-time in order to prove the business beyond the embryonic stage. For those two reason O'Leary is out.
Barbara, in addition to admitting that she can't help but to think of Heath Hall as the pig mascot, reveals that she is interested in the business. However, she thinks that $50,000 is not enough money. She wants to know how they are going to finance another order. Thompson and Hall tell her that they plan to use the profits from the initial orders and that they are prepared to invest an additional $100,000 into the business.
Barbara offers Thompson and Hall $50,000 for 50% of the business. Thompson asks if she would be willing to do 40% which she immediately rejects. After a couple of moments, Thompson and Hall ultimately accepts the offer.
Pork Barrel BBQ Testing Their Product In Costco
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(price as of Jul 25, 2016)
Wrap Up Of Episode #6
Once again another entertaining episode yet there were not really any earth shattering ideas. On the other hand, there weren't any really bad ideas either.
Element Bar - The idea of individuals customizing their own energy bars is very unique and something that people, especially health nuts, would get into. I think the idea has great potential.
Kaylx Technologies (Sports Bra) - The biggest issue with her product is that she is in a market with some serious competition.
"My job is to squeeze you like a teenage pimple" -Kevin O'Leary
Full Episode Available On Amazon
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