Article 05: When to involve a shark?
“Mountains have a way to deal with overconfidence!”
- Hermann Buhl
(Austrian mountaineer & the first person to climb Nanga Parbat)
Are you a mountain person or a beach person? Umm.. We both are mountain people, and so are all the entrepreneurs. And the mountains we are referring to here are not the great Himalayas, but the business administration term — business life cycle (BLC). The BLC for a business is like a mountain of hardships, of long hours of work, of patience, and of failure too. And yet, when a business does succeed, it is obviously all worth it. It’s a racing certainty that the stage of a business’s life is a crucial parameter in getting investors on board.
That being said, let us take a look at different stages of the BLC via different examples.
In S01 E05 (2009), Irina Blok pitched Face Blok describing it as “a collection of fashion surgical masks designed for people with an edgy sense of humor who want to express themselves.” The product sounds like second nature in 2020. Yet, the idea didn’t have any takers in 2009 despite the raging danger of Swine Flu. Selling masks as a fashion accessory was an idea way ahead of its time. Or one may classify it as a product without a market. These kind of products stay in the initial/introduction stage till a time a certain externality impacts the market and in this case, that externality has been this not seeming to end COVID-19 pandemic we have had at our hands for almost a year now. It is difficult to predict such events much less be ready with a business to cater to the demands that entail such situations.
From an investor’s point of view, such businesses don’t have a visible path of success and that was the same reason why Blok didn’t get a deal on Shark Tank. Sadly, Blok closed shop according to reports in the media. Would have been quite the rage had she kept doing this as a “side business” as suggested by Robert and as accurately predicted by Kevin at the time, “there has to be another pandemic for success”. Such ideas are for the lack of a better phrase, Black Swan ideas where Sharks/anybody couldn’t predict the possibility of a market and its size and hence the concept died early.
Okay! Get yourselves a steaming drink of your choice and a bowl of popcorn because we’re getting down to some drama! One of the most strikingly ineffective pitches on the show was Hot Shot Coffee from S07 E08. Have a go at what happened shortly after the pitch began:
Danny Grossfeld (entrepreneur) serves canned hot coffee from a “hot fridge”.
Lori: “Wow, It’s Hot! This is great coffee!”
Robert: “Why don’t you tell us about your business?”
Grossfeld: “This is 6 years and $2M in the making. I am launching this fall. It took 3 years and 1500 variations to reach this stage”
Chris Sacca: “I can’t tell whether you’re pitching or asking for therapy.”
(Savage) Kevin: “I believe that all the answers to business come from Greek mythology, & so there is a very famous figure in Greek mythology — to punish a man in perpetuity, what happens is that he finds himself pushing a rock up a mountain only to get it to the top, and finds himself back at the bottom again. That’s you! After six years, you’ve just continued to push the hotshot up the mountain and no sales whatsoever!”
You get the drift where this is going. Obviously, Grossfeld failed to get a deal from anyone at Shark Tank. While in a previous article we put a lot of thrust on the criticality of the role of a critic (pun intended), the longer an entrepreneur stays in the stage, the more difficult it is to climb the mountain along with the rock. The startup that takes this route is on Man-Rock-Hill story that Kevin told us. For these kind of non-technical product launches, the maximum an entrepreneur should spend in the innovation stage is 36 months — or at least that’s the general consensus for waiting your turn at success in sales.
Many times we have heard, “I could have been a millionaire by now had I acted on my idea to start something like eBay/Amazon, it came to my mind long before.” But those who just things are never the millionaires because ideas are dime a zone, and it is their execution that is worth everything. Nobody would give money for a great idea; and let’s not expect Sharks to be that naive. They believe in entrepreneurs who build something, ship it, and prove that people are willing to give money for the value they create. From our observation the ideas that enter the tank before market validation don’t get a deal form the Sharks though they may become unicorns later; remember Jaime Siminoff’s Ring from our first article?
One of the critical ingredients to landing a “fair deal” on the show is its timing!. Bargaining power comes with timing. On the BLC curve, the right time is the early adopter stage. Where the idea is proven; the entrepreneur has figured out how to make money and needs a Shark to step on the gas. Building a business is like flying an airplane, where taxing and take off is the job of the entrepreneur; a Shark helps it achieve greater height and gives it direction for the long haul.
Too early, a startup ends up with no offer (or a sharky offer where entrepreneurs end up losing a lot, at times even the controlling interest in the company) and too late, Sharks lose chance of multiplying their investment and don’t know how to contribute.
In S05 E12, a dentist-lawyer duo of Nicklaus Morton and Evan Mendelsohn started Tipsy Elves and went on to become kings of the “ugly” Christmas sweater movement in the US. They stumbled upon the idea during Christmas, when they saw young adults wearing ugly sweaters as an ironic nod to the bad gifts they received as kids. Despite sweater market being a crowded space, the entrepreneurs had built the capabilities to make the idea big and to cover ground before the competition catches up. Robert could visualize that he can help give the airplane height and direction and hence he jumped on it. This “acceleration thirsty stage” is that sweet spot we wanted to highlight.
P.S: Since the business show predominantly features Introduction/Growth phase companies, we are not covering startups in Mature and Decline phase.
So, our favorite mountains are calling. Okay bye!
Choose a battle worth fighting and a mountain worth climbing!
This is our fifth in a series of articles on Shark Tank, where we try to deconstruct the pitches, business fundamentals, and the Sharks.
*Copyrights of the images are owned by the authors.
