Getting Bidders to Bid Against Themselves Using Negotiation Leverage on Shark Tank

First into the Shark tank were David Jackson and Dave Petrillo, who are the creators of Coffee Joulies.  David Jackson and Dave Petrillo, created Coffee Joulies to solve the age old problem of keeping hot beverages at the right temperature for long time.  Coffee Joulies are stainless steel pebbles that reduce the temperature of a hot beverage to 140 degrees Fahrenheit and keep it there for hours.  The secret to the Coffee Joulies are the chemicals inside of them that have thermo-chemical reaction that absorbs heat when cooling its surroundings to 140 degrees Fahrenheit, and then releases heat when the beverage has cooled to 140 degrees Fahrenheit.  The chemicals are contained inside of the stainless steel Coffee Joulies, so it is safe to use, according to the duo of David Jackson and Dave Petrillo.  Sales were to the tune of $575,000 in the prior year, with a bottom line profit of $55,000 or so.  The asking valuation was $3,000,000 ($150,000 for 5% Equity).  This initially pushed Daymond John out.  Since he is well disciplined investor, he does not overpay for businesses, and Coffee Joulies was quite highly overvalued based on actual sales and profit.  However, as Lori Greiner, Kevin O’Leary and Robert Herjavec came in with a joint offer, they brought back in Daymond John for his retail experience.  Fun note is that Joules are a measure of energy, and Coffee Joulies is a word play on that.

There were two offers, one from Mark Cuban for $250,000 for 12% equity, a Valuation of just over $2 Million Dollars.   Mark Cuban did not want David Jackson and Dave Petrillo to focus on Wholesale and Retail for Coffee Joulies.  Lori Greiner, Kevin O’Leary, Daymond John and Robert Herjavec wanted zero equity, but for $150,000, they wanted $6 royalties on retail sales, $3 royalties on wholesale sales, and $1 in royalties on all sales in perpetuity after the $150,000 is recouped by the investors.  Lori Greiner, Kevin O’Leary, Daymond John and Robert Herjavec were not going to be involved in strategic planning for the business.  David Jackson and Dave Petrillo chose the offer from the four sharks for Coffee Joulies over Mark Cuban.

Lesson Learned here is that while David Jackson and Dave Petrillo did give away any equity by choosing the four sharks, they essentially took out a loan that has a lifelong payments to it, because even after they have paid off the initial investment, they will still be paying $1 per unit sold forever.

Nicole Townend of Teddy Needs a Bath was second into the Shark Tank.  Teddy Needs a Bath is a handy laundry bag that can fit stuffed toys, like teddy bears.  Stuffed toys do get quite dirty, and they can be delicate which makes washing them directly in the washing machine a dicey proposition.  With a retail product when Lori Greiner isn’t interested, it is important to figure out why.  Lori Greiner is a retail products maven, which gives her opinion on a retail products tremendous weight.  Unfortunately, most of her rationale for passing on Teddy Needs a Bath were likely edited out.  The only comment of Lori Greiner’s that made the air was her saying that she has seen products with similar functionality to Teddy Needs a Bath.  Since this seems like a home run product for Direct TV sales, such as QVC, we’ll follow the story to see if a deal was finalized in writing with Mark Cuban.   Nicole Townend of Teddy Needs a Bath shrewdly used negotiation leverage to get a deal from Mark Cuban,  by playing off of a competing offer from Kevin O’Leary.

How did Nicole Townend of Teddy Needs a Bath do it?  She kept quiet on any counter offers until she heard both offers.  This put both offers on the table making it clear to both Kevin O’Leary and Mark Cuban that they were in competition.  This put the pressure on Mark Cuban to reply to Nicole Townend when she pitched him with her counter offer.  It worked, as he accepted her counter offer for Teddy Needs a Bath without any pushback.

Lesson Learned here, if you have more than one bidder, then keep all of the offers on the table until one is finalized.  This is called negotiation leverage, always use it to your advantage to apply pressure to each bidder.

Third into the Shark Tank were Jerry & Naomi Hancock of SubZero Ice Cream & Yogurt.  They were asking for $300,000 for 12% equity ($2.5 MM Asking Valuation).  SubZero Ice Cream & Yogurt is a fun concept where ice cream is made from scratch and frozen quickly via liquid nitrogen.  The concept demonstrates incredibly well with the cloudy mist that forms as the freshly made ice cream mix is flash frozen in front of the customers eyes.  Jerry & Naomi Hancock have franchised SubZero Ice Cream & Yogurt, and at the time of taping had 18 franchised stores in the Western United States.  The Sharks have been hesitant to get involved in franchise QSRs in the past, and that didn’t change here.  This isn’t a knock on franchising, which has made many entrepreneurs wealthy.  It’s just that the Sharks come across many other options to invest their money that require less of their time.  Time is a valuable commodity for High End Investors.  Good thing for Jerry & Naomi Hancock of SubZero Ice Cream & Yogurt is that they are in good shape with a growing brand that shows so well.  This isn’t just showing well on TV, but the concept demonstrates really well, as evidenced by the fact that the SubZero Ice Cream & Yogurt booth from the recent West Coast Franchise Expo was by far the busiest booth.

Lesson Learned here is that the Franchising model is better to pitch to franchisees instead of VC type investors.  Which is inherent in the business model, as the strength of franchise concept is measured in the strength of operating franchisees.

Last into the Shark Tank was Urbio, which is the brainchild of Beau Oyler and Jared Aller.  Urbio, is a modular wall based system to hanging plants, or any other items as needed.  Seeing is believing with Urbio.  Beau Oyler and Jared Aller were seeking $300,000 for 12% equity for Urbio, which translates to an asking Valuation of $2,500,000.   The Urbio product had only been sold for about 4 months at the time of taping, so the history was short, but Beau Oyler and Jared Aller reported that they had sales of $125,000 for Urbio in that timeframe.   Lori Greiner, Kevin O’Leary, and Robert Herjavec were the three sharks that made offers for Urbio.  Daymond John was also interested, but at a lower valuation than the other three sharks had put offers out on.  With three offers in hand for Urbio, Beau Oyler and Jared Aller wisely used their negotiation leverage, but they took it to another level.  After all three offers were on the table, the Beau Oyler and Jared Aller wisely got the sharks to increase their offer for Urbio by pulling out their trump card.  After all three offers were on the table, they presented a hard order from Bed, Bath & Beyond for $150,000 which increased the Sharks desire for the Urbio business.  Genius move, the best way to leverage multiple bidders is to get them to bid against themselves, which Lori Greiner and Robert Herjavec did.  Kevin O’Leary did not up his offer, which made the choice for Beau Oyler and Jared Aller easy, they chose Lori Greiner’s offer which allowed them to keep 85% equity in Urbio.

Lesson Learned, take your negotiation leverage of having multiple bidders by getting them to bid against themselves.

For More information on how Just Elementary, Inc, Business Brokers can help you with Valuation Matters & Negotiation Techniques for your business contact our Client Care Manager Sonia Chhabra at  (888) 926-9193 or email cs@justelementary.com