The Sharks Suffer From Premature Evaluation
Three Shark Tank pitches challenge Barbara, Lori, Robert and Kevin's understanding of what the people of today and tomorrow might want to spend their money on. Mark Cuban, however, is confident in his visionary investing prowess.
One of the reasons I never really warmed to American Idol is because the entire premise of the show rewarded pop-cultural conservatism. People didn't vote for the performer who brought something new and challenging to music; they called in for contestants who confirmed their already-existing tastes. "That show's a lagging indicator of what's popular in pop music," I scoffed. "I'm already uncool enough without spending an hour getting even more so."
I had a similar complaint about a lot of the pitches on Shark Tank: Few of the businesses that get thrown to Mr. Wonderful et al. were the kind of thing that defined an entire new product category; a lot seemed to be about refining an existing product for people who were all, "You know, I do love living in a world where I can change my child on a cushioned table, but why don't I live in a world where that cushioned table also weighs my little poop factory?"
"This show is a lagging indicator of where the money's going to go in retail," I'd scoff to Phil.
This week blew that diss out of the water, as three out of four of the pitches introduced products or services that were received by the Sharks with a reaction best summed up as "Whoa! What is this strange new thing you're doing? I…can't see into the future and it frightens me."
Which segment most challenged the Sharks by presenting a brave new vision of consumerism's future? Let's rank them from been-there-done-that to truly-this-is-the-future.
Ben Young and Greg Coleman have had it with your excuses for why you don't exercise. Don't have the time or the money? Pah! You have a smartphone, don't you? Then you can download their app, pitched as "Spotify for exercise," and do the little workouts your phone tells you to. Never mind that the app still doesn't address the "I don't have time" issue and introduces fun new complications like "I don't have a place to exercise in my apartment that will not invite my roommates' derision and/or merciless Vine-making" and "How, exactly, am I supposed to check my yoga form on my phone when my forehead is resting against my kneecaps?"
Sworkit is the third product to come out of this fitness company in the five years it's been in business, and thanks to in-app purchases and display ads, it's raking in approximately $94,000 in monthly sales. Young and Coleman plan to introduce a $10/month subscription model in Q4 2016, so that'll be another revenue stream for Sworkit.
Now, it's worth noting that the company made all of $770,000 in revenue for 2015, and yet its founders value Sworkit at $18.78 million dollars. They're asking for $1.5 million for an 8% equity stake in the company. Robert is all, "And what, pray, will you do with my $1.5 million?" and the answer, "Throw some engineers at our product," is enough to convince him that this venture is overvalued. He bails.
The crazy-high valuation is enough to drive Lori and Barbara from making any offer. Kevin shrugs that perhaps Sworkit could take on some debt and he's sure they can work something out, and both Young and Coleman actually roll their eyes at him.
Mark muses that fitness apps are a defined category already and name-checks MyFitnessPal, which was snapped up last year by Under Armour for $475 million. What he fails to mention is that the MyFitnessPal was valuable for three reasons: First, it offers strong integration between software and wearable devices, and wearables are an exploding retail category. Second, MyFitnessPal is basically a wet dream for data miners, who can tidily slice and dice the user base into highly specific segments and sell the information to all manner of marketers. Third, MyFitnessPal has a great developers' API, so it's becoming the default hub for a lot of other fitness-tracking apps and sites.
There is no mention of wearable integration, data mining, or cross-service integration in Sworkit. There is, however, the notion that Mark can get $1.5 million in unsold ad inventory on Sworkit in addition to the $1.5 million he'll pay for a 10% stake in the company -- bringing the valuation down a tinch to $15 million.
We have a deal.
- Tutu Blue
There's this company that's taken over a percentage of my Facebook feed, where people are selling leggings in weird prints and collecting the prints is a thing. And I admit that when Sarah Buxton and her backup swimsuit models came dancing into the Tank in their full-body sun-blocking swimsuits, my first thought was, "The leggings have grown!"
Anyway, this woman started her business six weeks ago, stuck these suits in one shop out in Laguna Beach, and wants $200,000 for a 25%. That's a $800,000 valuation for neck-to-ankle suits meant to protect one's skin from the sun.
Robert correctly points out that modern American parents are already inflicting this kind of beachwear on their children, so why not reach into an adult market worried about melanoma? Kevin, however, has another suggestion: These suits can be used to encase women over 40, so that fellow pool- and beachgoers don't have to be subjected to the hideous sight of aged female flesh. After all, if a woman loses her decorative value to men, what right has she to impose her appearance on the public?
Bold postfeminist rhetoric notwithstanding, Kevin still can't bring himself to invest in the exciting opportunity to visually erase older women from swimming venues. Barbara, Lori and Robert all decide to pass on the six-week-old company. And Mark takes a moment to tell Buxton that maybe she should grow the business first and refine her pitch so it's sharply focused on the health angle, but as of right now, he has little confidence this business will even survive.
Buxton leaves with nothing.
- Clean Sleep
Michael Ingle has a compelling biography -- self-taught engineering type who labored for seven years on his prototype -- and his product is certainly novel. He's created a U-Haul-sized system for cleaning the bejesus out of a mattress, using everything from superheated dry steam to UV rays. The way Clean Sleep works is that the truck drives up to your house, two burly men haul your mattress out to the truck and subject it to the cleansing rays of the system, and then you can sleep well knowing that your mattress is newly pristine.
In a nation that had fifteen years of CSI episodes indoctrinating us on the gallons of bodily fluids soaked into every Sealy Posturepedic, the notion of a service that makes your mattress a sterile environment should be a real moneymaker, right?
Not so much. Ingle admits that he's only earned $100,000 in the first 18 months of actually trying to make a living off his invention. He's asking for $1.5 million for a 15% equity stake, putting the valuation at $10 million, and that is the point where you can visibly see every Shark lose interest.
Ingle's attempts to convince the Sharks that he'll have multiple revenue streams -- the flagship drive-up service! Franchises in other cities! Deals with hospitals and hotel chains! -- give every one of the Sharks the excuse to say that Ingle's business is not sufficiently focused. I note that when two Wharton dudes talk about multiple revenue streams in a fitness app, it's good business but when this cat tries it with Stain-B-Gone, it's unfocused. Chalk it up to the difference between an established business of five years pitched by two Wharton grads versus one that's only been operational for about a year and a half and pitched by a visibly nervous guy who keeps repeating "We're moving into proof of concept" like a mantra.
In any event, Kevin, Robert, Lori, and Barbara say it's too early to tell if there's a market for this sort of thing. (Did the TV viewers of America make CSI a number-one show for a bafflingly lengthy period of time? Yes. There is a market.)
Mark also passes, but he advises Ingle to sharply focus the pitch. It's fine to be thinking about all the possible revenue streams, but maybe dominate one first before announcing exciting new plans to grab new markets.
Ingle goes home with nothing.
This honestly sounds like it should be some sort of neighborhood where rents have tripled over the last five years, but it's actually a eco-conscious company that makes balls of powdered shampoo and body cleanser.
If you're going, "Wait, that sounds weirdly similar to what Lush Cosmetics does…?" … you are not a Shark, because apparently none of them ever check out and take a night to themselves with a Dragon's Egg bath bomb.
Anyway, sixteen-year-old entrepreneur Benjamin Stern is asking for $100,000 in return for a 20% stake in his company, so that's a $500,000 valuation.
Stern's got a crafty pitch -- claiming that he's part of a very environmentally-aware generation, so he manages to reference his youth without banging the "I'M A CHILD INVENTOR! INVEST IN PRECOCIOUS ME!" drums -- but what really sells is his bubbe Lois. I fully admit I find it adorable and hilarious because I am a sucker for bubbe devotion (see also: James Franco's Saul in Pineapple Express). And it's also very sweet how Bubbe Lois consents to letting her grandson wash her hair on television so he can demonstrate how these shampoo balls work.
Anyway, the Sharks have not heard of Lush, but they have heard of Unilever, etc., and when they ask the usual "What happens when the cosmetics giants take you on in this space?" question, Stern is ready with a quick answer: He's got a patent pending on the method by which the powder soap is contained in a ball-like shape, and he's got a deal with Clorox for a licensing deal once the patent is granted. What's more, he's got a conversation going with the Hyatt regarding samples in their hotels.
The notion of being able to license this patent -- or sell the tech to the inevitable Unilever-esque company that will then take it and sell it to the Target-shopping public with "It's like Lush, only cheaper and easier to buy!" -- piques Sharkly interest.
Both Robert and Barbara are down with paying for a 20% stake, but each of their offers come with contingencies. Mark's offer, on the other hand, is basically, "I already have two personal-grooming companies, an army of lawyers, and a real interest in what we can do with this ball. Gimme 25%."
That knocks down the valuation of the company to $400,000, but Stern's not too upset about that. After all, he's sixteen and he's already piloted one category-expander in the mainstream grooming product market. He's got time for more before he reaches legal drinking age.