Business Lessons from Shark Tank Season Finale

First up in the season finale of Shark Tank is the prominently featured Rebecca Rescate of CitiKitty.  Rebecca Rescate’s CitiKitty is a product that is an alternative to the traditional cat litter solution.  This product helps trains cats to use actual Human toilets.

As funny as it looks watching a cat on a toilet, it does solve a problem, especially for urban dwellers whose cats can not easily go outdoors and use a yard for their bathroom needs.

Rebecca Rescate pitches CitiKitty as an improvement over the standard litter box solution, as the waste products are not left sitting in a box, but flushed down the drain via a regular toilet.  This minimizes the waste product sitting around and smelling up the home, and also reduces the tracking of litter and waste products around the home via the feet of the cats.

Robert Herjavec, Kevin O’Leary and Daymond John are all out on the product.  Kevin Harrington and Barbara Corcoran are interested, and Harrington is the first Shark to present an offer of $100,000 for 40%.  Harrington pressures Rebecca Rescate to give a reply on his offer for CitiKitty, but she wisely asks for other offers.  Corcoran eventually comes in with an offer at what Rebecca Rescate was asking for, which was $100,000 for 15% equity, but she can’t offer certainty on taking CitiKitty to Direct Television Sales.

This is where Rebecca Rescate of CitiKitty had to apply pressure on Harrington to get him to improve his offer.  How does she manage to apply the pressure?  #1, she solicited other offers, which she got from Corcoran, which forced Harrington to adjust his offer to remain competitive.  #2, she denied Harrington’s suggestion to step out of the room and ‘think about it.’  This was wise, as staying at the negotiating table with two parties competing against each other kept the leverage in Rescate’s hands.  These are two key lessons in negotiation.

After Rebecca Rescate of CitiKitty gets Harrington to accept only 20% equity for the $100,000 investment, they come to an agreement.  Rescate preferred the goes with Kevin Harrington for his infomercial expertise, hence why she persevered to negotiate with him instead of accepting Corcoran’s offer.  Quick note here, Rescate managed to get Kevin Harrington to DOUBLE his original offer.  A 100% increase is pretty good negotiating on Rescate’s part, and it serves notice that the Sharks will negotiate when they believe in a product or business.

Asking for $50,000 for 15% investment in her business was Kim Preis of Samson Martin.  Preis was there to pitch her apparel line that is designed for pregnant women.  While Preis’ line and idea are clever and neat, the Sharks ended up having issues with the viability for Samson Martin for an investment of their money.

Preis has a trademark on the phrase ‘Due In’ which is used on her line of T-Shirts to announce the approximate due date for the pregnant mother.  She has had approximately $1.4 Million in sales over the course of the first six years of her business, but her previous year sales slipped to $90,000.

Preis cited the recession, which affected the boutique stores that sells at.   Another issue that Preis faces is that copycats have popped up that announce the approximate due date without using the phrase ‘Due In.’

There were quite a few lessons on Display in Preis’ segment.

Lesson #1. Know what you are asking for.  Preis asked for $50,000 investment, and she said that she would use it for manufacturing and marketing.  That amount is TOO small side to build Nationwide recognition and to fulfill a large amount of orders.

Lesson #2. If  your idea can be replicated in a simple manner, then you need to find a differentiating factor, or stay in a small niche.  Corcoran pointed out that she saw conceptually similar pregnancy t-shirts around town in New York.  This is an issue that all the Sharks alluded to, and a problem Preis faces going forward, which she acknowledged on the show and in her twitter feed.

Lesson #3.  Have a business plan ready, be ready to fine tune it as time progresses and circumstances change, and believe in it.  Preis had success with small boutiques when the economy was strong and suffered declines once the economy tanked.   Preis mentioned that getting into larger chain stores would be a good way to go with her company.  So, she did adjust her business plan, but the question is, did/does she believe in it?   She did not successfully connect with chain retailers.  Did she not pursue them hard enough to connect because she did not believe in the business strongly enough?  In Preis’ case we don’t know the reasons why, but you can learn the lesson, put your heart and soul into the business.  Anything less than 100% of your effort, energy and commitment makes it tough to push past obstacles and achieve success.

Kevin Harrington pointed out on Twitter that he was not in on Samson Martin because it is not a good fit for direct sales on TV, due to the number of products.  Ultimately, all of the Sharks passed on Samson Martin, and clearly she was going to have a challenge getting an investment after Apparel Guru Daymond Bowed out.

Following Samson Martin came on the set to pitch his line of high end upscale jewelry which happens to be self titled as Aldo Orta Jewelry.  Orta came in asking for $180,000 in exchange for 45% equity in his business.

Orta has some incredibly stylish, fashion forward jewelry that connects back to recognizable mythical figures that are well known, such as Alexander the Great, and Egyptian characters.  While, Aldo’s designs can seem over the top for most people, the Sharks were in general agreement that there is a market for his products.

Orta has been in business for 12 years, he is a designer of custom jewelry.  He is not a manufacturer.  There is a simple moral to his story, which Kevin O’Leary gladly provided, and that is that Orta is the Business as a One Man Show.  So, if something happens to Orta, the business would require a new designer, and well it would be a totally different business.  This is an important business lesson to take home with this segment.  It is extremely difficult to attract investment if you are a one man show.  Anything can go wrong and ruin the business, you could get sick, break a leg, get in a car accident, have a family tragedy, etc.  If you are a one man show consider adding infrastructure to your business, and investigate Key Man Insurance.

Fortunately for Aldo, he is an example of another important lesson.  If you are a one man show, you better be the Poster Child for your business.   Aldo has the persona and charm to be a seller of his mythologically based jewelry.  Simple lesson here, make sure the business matches your personality.

Aldo’s flair, personality and designs are enough for Barbara Corcoran to get involved, which ends up being enough to get Kevin Harrington off the fence.  Harrington goes in 50/50 with Corcoran to give Orta the terms he was asking for. Corcoran sums up the ability of Orta to be a branding face of the business in a tweet that she sent.  Also, Direct TV sales work on personality, which is what had Harrington interested in the first place.

Last up and in the most dramatic segment of the show is Dominique McClain Barteet, who presented her product OneSole.  You can catch an interview with Dominique just before she goes in for taping her episode on YouTube.  OneSole is a unique product that has a serious track record, $20,000,000 in historical sales.

The product is unique line of footwear that has interchangeable straps and designs, which gives the footwear incredibly diversity in look and wearability.  The historical track record and the fact that she has protection on her intellectual property.  All of the Sharks were sold on investing in the business.

Ultimately, Daymond John’s background in apparel was a heavy factor in Barteet choice.  They tentatively agreed on $500,000 for 35% equity.  For a $1,000,000 EBITDA, Daymond John got a good price at just under $1,500,000.  This is less than a 1.5 multiple on the EBITDA.  That is a low EBITDA multiple, despite the fact that the business is in apparel, the margins are still reasonably healthy (30%) to command at least a 2.5 EBITDA multiple.   Based on the little information revealed in the segment, it certainly seems like Barteet sold herself and her business short.  Simple lesson here, don’t sell your business short, get help with the valuation of your business.

For more information how Just Elementary Inc. can help you with Valuation and Negotiation Needs contact our client care manager, Sonia Chhabra at (888) 926-9193 or by email cs@justelementary.com