ABC’s quasi-reality-game show "Shark Tank" pits budding entrepreneurs and small business owners against seasoned investors looking to invest in new ventures.
Though not billed as educational television, the show offers some valuable lessons for those who dream of creating their own money-making scheme.
On this season's fourth episode a couple of the entrepreneurs' pitches got funded and a couple didn’t, all with the requisite reality TV drama edited in. But even when this group of investors (the “sharks”) decided not to throw money at a business, that didn't necessarily make the pitcher a loser. MainStreet spoke to one woman who walked away with no show money, but not empty-handed.
Consider this rejectee's inspiring success (so far) story:
Gina Cotroneo founded her company, Soul’s Calling, after she was assaulted in her home in 1997 (you can read her very graphic account of the incident in The Dallas Morning News).
Following the trial and conviction of her attacker, Cotroneo, then an art director living in Dallas, shared her story on Oprah. She wanted to help spread positive energy, and Soul’s Calling aims to do that by selling items such as umbrellas, bracelets and flip-flops with inspiring messages written on them.
In 2006 she began working at Soul's Calling full-time (she’s invested about $100,000 of her savings in the company). In 2007, her sales were $11,000 and in 2008, they were $18,000. And therein lies the problem. Even for a small business, those numbers are pretty low and it was on that basis that the sharks decided not to give her any money. (She’d asked for $150,000 in exchange for 25% of the company, based on a $600,000 valuation.)
“I know money has no soul. I never, ever, ever let emotion get in the way of an investment,” said Kevin O’Leary, the show's alpha shark (he’s also a bit of a hot head). Despite the brutal honesty, it was one of his more empathetic moments. “Your business is not worth $600,000. Here’s what it’s worth: Zero. That’s because it doesn’t make any money. Somebody has to tell you that. It might as well be me.”
The sharks agreed that Cotroneo’s emotional attachment to and belief in the business does not mean it is a good one. But there was a big part of the story that was left out.
Behind the Scenes
Cotroneo says her biggest small biz challenge is pricing. Because she does not have a bunch of cash in her bank account, she’s forced to produce her inventory in relatively low volumes, and because of that she must pay more for each item.
For example, the manufacturer's suggested retail price (MSRP) for her umbrellas (she calls them “inspirellas”) is $24.99. She’s been ordering them in batches of 3,000 or less. If she was able to up her order to 6,000 or more, she said she’d be able to drop her MSRP to $15.
“I’m in a capital-intensive business and it's hard to get things up and running without capital,” she said. A recent sales rep put it to her this way: “[the] product is great but ... the prices suck.”
Cotroneo explained this issue to the sharks. According to her, two of them said they appreciated the challenge: Daymond John, founder of the clothing line FUBU, and Kevin Harrington, who’s behind some hugely successful infomercials (remember Ginsu knives?), discussed it with Ms. Cotroneo ... but none of their conversation made it into the broadcast.
Another point to consider is that shark investors are looking for a 10x return, meaning that they believe they can make 10 times their initial investment as the company becomes successful. It’s possible that the sharks did not foresee a 10x return from Soul's Calling, but that doesn’t mean that the business should be written off entirely. A couple of the sharks advised Cotroneo to leave the business behind. She is unwilling to do so, and her instincts might be right on.
Since the Aug. 31 broadcast, Cotroneo has pulled in $7,333 in sales, bringing her total for 2009 up to more than $23,000. It could just be a temporary uptick as a result of the show, but she’s hearing from more than just shoppers. Dozens of retailers and a major department store chain have contacted her this week looking to stock her line, and she’s even heard from a number of venture capitalists and investors (she says she's working with an investment banker to vet the offers).
“I’d been hoping that being on the 'Shark Tank' would either get me money from the sharks or would help bring people into my sphere that would help me get what I need,” she says. “I’m going to watch every episode of this show. Everyone who cares about the American dream should be watching because small business is the backbone of this country. [Americans] are an inventive bunch. When our back is against the wall, we create.”
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