'Shark Tank' Recap: O'Leary Morphs From Grinch to Santa for a Christmas Entrepreneur
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’Twas the last Shark Tank before Christmas, and all through the show, the sharks went a'lookin' for a place to throw dough.
Two holiday-related items attracted scant interest from the sharks in Episode 11, but on the final deal of the show, it may not have been the Christmas spirit that moved Barbara Corcoran to outbid Lori Grenier -- but simply Corcoran’s gut instinct to win.
While the sharks have gone big on past holiday-related items, such as the success Grenier and Robert Herjavec enjoyed with Mensch on the Bench, a Hanukkah version of the popular Elf on the Shelf, the sharks have specified that these products must have a future -- and not be a fad. That wasn’t the case with Beard Head, a novelty headgear company with knitted hats that come with a detachable beard face mask.
Entrepreneur David Stankunas said he had 250 different designs, sells the product online and in stores and had sold $5 million worth to date. The average cost is $4.50 to $9.50, with 25 percent to 30 percent profit. Stankunas was seeking $250,000 for 25 percent of the company.
Beard Head sounds like an established winner, but sales last year were down to $936,000 from $1.3 million the year before. One reason was a costly legal battle with a competitor. But, even with no debt, and the product in 500 stores and profits of $250,000 to $300,000 a year, the sharks didn’t bite.
Corcoran didn’t love the product; Mark Cuban and Kevin O’Leary felt the company wouldn’t be able to scale; and Grenier called bearded hats a fading trend. That left Herjavec, whose holiday-themed investments have included Tipsy Elves -- a line of intentionally (and successfully) ugly Christmas sweaters. He paused for quite a while to weigh the possible synergies, before saying, “I just don’t see it.”
A Christmas miracle did occur, to bail out another holiday pitch on the show -- GeekMyTree, a Grand Haven, Michigan, firm that makes programmable Christmas tree decorations that can turn a simple tannenbaum into a high-tech light-and-sound show. Founder Brad Boyink sought $225,000 for 25 percent equity.
His was a truly impressive product, but there was just one problem: He acknowledged he had sold only 300 units, at a cost that is hardly modest: A base kit starts at $299 or $399, with expansion kits priced at $200. More volume could cut these cost by a third to a half, Boyink said, but the sharks still choked on the figures which they said would keep GeekMyTree from getting to scale.
“Do you see any problem with a family paying over $500 for lights on a tree?” O’Leary asked. “That’s ridiculously expensive.”
Corcoran said the product would work as a novelty item if priced at less than $50. Cuban added that he didn’t see the kits growing into a big enough business, tossing off a cheery “Merry Christmas, but I’m out,” and Boyink appeared to be headed home without a deal.
Then, O’Leary, who had just trashed the cost, saved the day. "Mr. Wonderful" turned from the Grinch into jolly old St. Nick, offering Boyink the full $225,000 he'd asked, only for half of the company. Boyink countered at 40 percent, but O’Leary insisted on a 50-50 split, and the two agreed. “The price is killing me because it’s so expensive,” O’Leary said, “but I still want it.”
Next up were two entrepreneurs with a line of stunningly gorgeous laser-cut 3-D pop-up cards, Lovepop. Founders Wombi Rose and John Wise said they'd met while studying to become naval architects and had recently finished studies at Harvard Business School. In 18 months, they said, they’d sold $300,000 worth of cards, at $8 to $10 apiece, with a $5 discretionary up-sell for a handwritten note and mailing. The two were seeking $300,000 for 10 percent of the company.
The sharks were impressed with the cards; O’Leary called them art and advised the entrepreneurs to increase the price. They said they'd been profitably selling the cards through kiosks in malls. They said that each kiosk could produce an estimated $240,000 in annual revenue, and cost about $20,000 to set up.
Most of the sharks were dubious about the ability to scale the cards, but Herjavec offered $300,000 for 20 percent of the company. O’Leary wanted to partner, saying he saw a potential tie-in to his line of wedding-related products, which he said consumers buy at a time when they're emotionally invested and tend to overlook price considerations. Herjavec demurred, however, saying the deal wasn’t big enough.
So, O’Leary matched Herjavec’s offer on his own. Rose and Wise counter-offered at 15 percent, saying they thought their valuation was fair. Herjavec agreed, followed by O’Leary, who said, “I see too much synergy with my other companies.”
That created the rare situation on Shark Tank where two sharks were the ones waiting on pins and needles for the answer, not the entrepreneurs. Rose and Wise decided to go with O’Leary.
Last up was PiperWai, a charcoal-formulated natural deodorant for both men and women. Founders Jess Edelstein and Sarah Ribner said they'd sold $110,000 in 18 months. Their blend of essential oils goes for $11.99, plus shipping, and costs $2.74 to produce. They sought $50,000 for 10 percent equity.
PiperWai has been enthusiastically reviewed in several beauty magazines, and Edelstein and Ribner brought along a model who said she’d been wearing the product and working out all day, and provided a human sniff test as proof. This produced the memorable moment of Grenier sniffing the woman’s armpit. Corcoran passed, saying, “I totally believe Lori.”
O’Leary said he wanted to steer clear of the behemoths that rule the deodorant market, while Herjavec saw a great product, but no business potential. Cuban was dubious about sales, noting that the figures would be higher if happy customers were truly re-ordering every two to three months.
Corcoran, however, was impressed and offered $50,000 for 33.3 percent equity. “I totally believe you,” she said. “I love the way you stood your ground. You haven’t wavered one bit in believing in your product.”
Grenier also bid, noting that she’d had been looking for a deodorant made without aluminum for quite a while and that, “None of them work.” She offered $50,000 for 35 percent equity.
Edelstein and Ribner countered with 25 percent equity, which both sharks refused. Then Ribner emphasized her real estate experience in New York City, clearly aiming to establish a connection with Corcoran, who reversed herself and made the deal for a 25 percent stake.
“I did it purely out of my gut because I wanted to beat Lori,” Corcoran said. “I’ve made a lot of great decisions purely out of my gut, purely to win.”