The 250 Square Foot View

I started watching ABC’s Shark Tank less than a year ago and since then, I haven’t been able to stop.

The concept of the show is simple: product inventors and/or owners of nascent businesses stand in front of five millionaires and billionaires–would-be investors in their business, or “sharks”–and pitch them on why they should invest their own money in exchange for part ownership (i.e. equity) in a company they’ve never heard of run by someone they’ve never met before.

Most of the presentations are what I’d call “professionally cheesy” (or “cheesily professional”?). They’re rehearsed little 30-second intros that tell the sharks the name of the company and tease what it does or makes, finishing with a flourish in the form of a catchy slogan often uttered in unison. (Jelly company Mango Mango went with, Are you ready for this jelly?) At some point during the little song and dance the entrepreneur(s) (or “treps,” for brevity’s sake) reveals what share of their company they’re selling and for how much equity, e.g. $50,000 in exchange for 20% equity in the company.

Depending on the product, there’s usually a short demo of how it works or what it does, after which the floor is open for sharks to pepper the treps with questions about manufacturing costs, margins, annual sales, their background, and anything else germane to a potential investment.

The better presentations–and the ones most likely to whet a shark’s appetite–are the ones where the treps A) know all the answers to the sharks’ questions and B) have good answers. By good answers I mean the company is profitable, the margins are high (i.e. the product sells for a high price but costs very little to make), and sales have increased year over year.

(One pet peeve of mine related to the Q&A portion is that almost every trep’s answer starts with, “So,” as in, “How much do you make it for and how much do you sell it for?” “So…right now it costs about $5 a unit to produce and we sell it at retail for $9.99.” I know it’s just a stall word in a nerve-wracking situation to let them gather their response, but they do it every time!)

Where was I? I blacked out. Ah yes, the sharks. Each has their own distinct business background (click the links in each shark’s name to learn more), personality, area(s) of expertise, and investment strategy. Episodes features five sharks from a rotation of six. The sharks, far more than the treps, make the show what it is. For the uninitiated, the sharks are:

• Mark Cuban. The moral compass of the show. Usually very supportive and free with advice even if he doesn’t make a deal with the trep. Calls out his fellow investors for bad deals that don’t favor the trep. Occasionally calls out treps (2:20 mark) whose products/companies he deems specious, irresponsible, or who are on the show for free advertising and not actually seeking a partnership. (Cuban also forced Shark Tank‘s production company to change its policy re: taking 5% of all businesses that appear on the show, regardless of whether a shark chooses to invest his/her own money. What a guy.)
• Kevin “Mr. Wonderful” O’Leary: Shark Tank’s answer to Simon Cowell and the show’s constant reminder that it’s not a charity—it’s about making money. On almost every episode Kevin will eschew equity and request a royalty deal where he recoups his investment upfront by taking a cut of every unit sold until he’s paid back in full, then taking a smaller royalty for each unit sold “in perpetuity”—meaning FOR-EV-ER.
• Robert Herjavec: The nice family guy—but don’t jerk him around or he’ll say things like, “I’m a very nice guy, but don’t mistake my kindness for weakness.” Also loves kids and dogs.
• Lori Greiner: A Chicagoan (listen to the accent) and big player in the QVC world—which is the driver behind most of her deals, as in “This will sell very well on QVC.” (Incidentally, I had no idea QVC was such a huge moneymaker but based on the size of some of the checks she writes, it’s doing a-OK.)
• Barbara Corcoran: The wacky older woman on the panel–wacky like a fox, that is–also with ties to QVC.
• Daymond John: Tends not to stray too far from his forte, fashion. Will regularly mention that he started out selling hats on the street (he founded FUBU).

Any time I talk about Shark Tank (which is often) to someone and they’ve actually seen the show, the response is almost always “You watch it, too? I LOVE Shark Tank!”

On May 2 ABC aired a behind-the-scenes special, “Swimming With Sharks” (click the link to view the special) that gave fans a look at the sharks when the camera wasn’t rolling, and some dirt about some of the show’s biggest deals (and non-deals)—as well as some of the stinkers. Below is a recap of each company update:

• Breathometer ($50): A device that plugs into smartphones and works with a mobile app to perform a self-Breathalyzer test. Per the special, Breathometer expects $10 to 12 million in sales in 2014.
• Lollacup ($15): A children’s drinking cup with a weighted straw that allows kids to drink even when the cup is not right side up. Profits from Lollacup netted the trep couple who started the company with their $1M dream home.
• Simple Sugars ($22): All-natural sugar scrubs. Was doing $88,000/year in sales pre-Shark Tank, finished 2013 with $2.1M in sales.
• Bubba’s Boneless Ribs: A patented process for removing the bones from ribs (without losing the essence of the rib, of course). $200K in first ten days after appearing on Shark Tank.
• PRO-NRG ($2): A Brandon Jacobs-backed energy drink eventually repackaged as a protein water–after Daymond’s investment and intervention. Per its founder, they’re over $1.5M in sales. During their presentation Mr. Wonderful repeatedly referred to the company as “Pro Nerg.”
• Stella Valle: A jewerly line made by two female U.S. veterans. $2.5M in sales post-Shark Tank ($50K before).
• Tipsy Elves ($60): Intentionally ugly Christmas sweaters. No sales figures given.
• Grace & Lace ($20-36): Lacy women’s socks designed to be seen partially while wearing boots. No sales figures given.
• Tree T-Pee ($6-7): A mini tent designed to put around trees keep in water from sprinklers to save water. After appearing on the show the trep scored a deal with Home Depot.
• Voyage Air Guitar ($429): A guitar that folds in half. Working with Kevin, the trep licensed his product to Fender. No sales figures given. Despite their business partnership, the trep and Kevin seem to genuinely dislike each other.
• Wicked Good Cupcakes ($8): Cupcakes in a jar. Kevin’s royalty deal of 45 cents for every cupcake sold paid off. They’re selling $265K/month.
• Toygaroo ($40/month): “The Netflix for toys,” lost $200K and went out of business in six weeks. Per Mark, Kevin and the trep had different visions and that caused the company to go under.
• Copa Di Vino ($3): The trep rejected the sharks on two separate episodes. Mark called him a “gold digger” who was only on the show for the PR. The $300K investment the treo was seeking at the time of his second appearance would have been work $3M today. Now doing $25M in revenue. Trep has a private jet, apparently. Good for him.
• ReadeREST ($9): A ridiculously simple magnetic hook on which to hang reading or sunglasses. $8.2M in sales so far.
• Scrub Daddy ($7): A scratch-free scrubbing sponge. The most lucrative trep in Shark Tank history is expected to finish 2014 with $16M in annual sales, and is projected by shark investor Lori to do $30M next year. Within the first hour of their episode airing, Scrub Daddy had 30 to 40K website hits.

Some other thoughts from the special:

• Mark, according to Robert, is worth more than the rest of the sharks combined ($2.6 billion per Forbes), which I didn’t realize. I’d imagine in some cases, though not all, this gives him an advantage when negotiating against the others.
• “We are the Mick Jaggers of the business world,” according to Robert. Um…
• Mark mentioned that it was a family show and people come up to him and say their 9-year-old daughter is obsessed with valuation. Adorable.
• “Buying a nicer car isn’t as powerful as taking care of my children,” says Robert. He’s so quotable!
• Interestingly in the “shark on shark” interviews the two female sharks said Mr. Wonderful was a teddy bear, while the guys called him a jerk (excluding Mark Cuban, who wasn’t interviewed, probably because they actually hate each other in real life).
• We can certainly debate the “realness” of Shark Tank, the vibe I got from all the shark interviews is that it’s genuinely competitive and that none of them wants to be bested by the others. And while this might be viewed as a bunch of rich men and women gambling with these treps’ companies like they’re at a high stakes poker table, the treps stand to gain the most if one of the sharks bets big on them.