The Sharks Weigh in on 'a Business vs. a Product' and How to Tell the Difference
One big difference between the entrepreneurs who get deals on Shark Tank and those who leave empty-handed reflects the difference between creating a product and building an actual business. The four businesses pitched Friday on Episode Nine demonstrated that a good idea isn’t always enough to build a good business.
In some cases, a niche product or service simply doesn’t offer enough potential profit to attract a shark’s investment of time and money. In others, the entrepreneur hasn’t fully developed a business concept.
1. Bursting the bubble on Bubble Soccer
The latter scenario was the case with the pitch from John Anthony Radosta of Advanced Sports Technology, who has also created the National Association of Bubble Soccer, a full-contact version of soccer where the players wear huge inflatable vinyl bubbles. Daymond John, Robert Herjavec and Mark Cuban pulled on the body-sized bubbles and were giddy with laughter as they knocked one another around, painlessly.
Radosta sought $160,000 for 10 percent of the business. But the sharks weren't thrilled with his business plan, which involved creating a league of teams (now in 39 cities) and renting the bubbles for use at parties. Radosta told the sharks he had a free cash flow of $80,000 on sales of $430,000, mostly from equipment, but that he also planned franchises and licensing deals.
His business models, however, were confusing, and the sharks saw no clear focus or path to profitability. “You’re all over the map,” Kevin O’Leary said. Added Herjavec: “The longer you talked, the more confusing it got. The longer you talked, the more business models you mentioned.”
Those comments didn't burst Radosta’s bubble, but they didn't give him a deal, either.
2. An appetite for Brazilian cheese bread
More successful was Brazi Bites, a naturally gluten-free version of Brazilian cheese bread pitched by Cameron MacMullin and Junea Rocha of Portland, who sought $200,000 for 10 percent of their business.
The bite-sized, round bread treats are made with tapioca flour and are sold frozen. Three pieces have 120 calories, and, apparently, a lot of flavor. The sharks loved them. Brazi Bites sold $600,000 of product last year and, its owners said, is on track to do $1 million this year. Distribution is up to 700 stores, which the two entrepreneurs signed up on their own; some Whole Foods markets are included.
The sharks went on a frenzy for Brazi Bites, with John offering $200,000 for 25 percent equity. Lori Grenier matched that offer and Kevin O’Leary cut the equity he'd require, first to 20 percent, then 15 percent. But the bidding stopped when MacMullin and Rocha mentioned that they held $200,000 in debt and had taken on a co-packer as a 50-50 investor.
That left several of the sharks with little appetite for the deal because of the lowered equity they'd get. “When you’ve already given away half the company to someone else, that makes it hard to negotiate,” Grenier said.
Ultimately, after more haggling, Grenier dropped her equity demand to 18 percent. MacMullin and Rocha countered by offering 15 percent, and they split the difference, at 16.5 percent.
3. Kiddie artwork as a t-shirt business
Another real business -- in the Sharks' estimation -- was Umano, a fashion brand that aims to make a positive social impact by donating backpacks of school supplies from each sale of Umano t-shirts, which feature artwork drawn by schoolchildren worldwide. Brothers Jonathan and Alex Torrey sought $150,000 for 15 percent of the company.
The shirts sell for $48, and cost $7-plus, with the added cost of $4 for each donated backpack. The children who supply the “curated” artwork for the designs get no money, an omission that raised a concern about child labor. The brothers said they'd sold $106,000 worth of goods last year and were on track to do $250,000 this year. The shirts are sold online and at Bloomingdale’s, a fact that truly impressed the sharks.
Grenier offered $150,000 for 25 percent equity, while John, who made his fortune with his clothing line, Fubu, wanted 33.3 percent equity for the same investment, noting, “I bring a different skill set.” Cuban, meanwhile, offered to take just 20 percent of the company and partner with another shark. While Grenier accepted, John did not, saying, “I have no need for non-clothing individuals in my deal.”
The brothers took the joint offer from Cuban and Grenier.
4. Making sure socks don't wander
Last up was SockTABs, another product that seemed like a dubious business prospect. Created by Glen and Tracie Burress, SockTABs attach to individual socks and can be linked together to keep the socks from separating and getting lost in the laundry.
The Burresses said they'd sold $20,000 worth of SockTABs in six months, online and through retailers in their hometown of Rockford, Illinois. The cost is $1.25 for a package of 24, which sells for $4.99. The couple sought $50,000 for 20 percent of the business.
But that business is only a part-time effort: Glen Burress is a successful surgeon, while Tracie Burress is a high-earning pharmaceutical representative. However, Tracie is a very enthusiastic, committed entrepreneur who wants to make SockTABs a go.
Still, O’Leary was concerned that she could never replace her sales salary by going full time into the business, while the other sharks simply passed.
Grenier explained that she works with a similar product already and would have a conflict of interest, while John, who’s invested in Bombas socks, noted that, “Losing socks is where we make our business!”
Then . . . a sudden change of heart: As the Burresses turned to leave, John suddenly offered $50,000 for 30 percent of the company, contingent on approval from his partners at Bombas. Suddenly, SockTABs had a chance for a long-term connection, for both its socks and its founders.