For those of you who may not be into this kind of show, Shark Tank is all about people coming into a “meeting” with 5 super-rich entrepreneurs and pitching their dreams for capital. In short, people sell their stuff to the highest bidders.
I just finished watching an episode on Hulu and was stupified by the last man to enter the room. He invented a rather ingenious way to preserve wine while it’s still in it’s original bottle, which will help prevent pouring bad wine down the drain.
The cost to produce the product is $6.50, which could go WAY down if it is manufactured in mass quantities. One shark estimated $2.50 per unit. The retail price is $22.00, which equates to a profit of $13.50 in small quantities, and $17.50 in large quantities. Assuming that you can manage a hundred-thousand sales a year, that amounts to a possible yearly take of $135,000 to $175,000.
Kevin offered $40,000 for 30% of the company, with the catch that they license the patent out to a manufacturer who specializes in this kind of product. Assuming that they can get even a small 5% royalty, that would amount to about $8,750 per hundred thousand units sold. The company already sells several hundred thousand units of their own inferior product every year, so this would be a good opportunity to supplement his normal income with some bonuses. On a 500,000 unit year, the team could make $43,750 annually, which equals $30,625 a year to the inventor. Not too shabby if you ask me, that’s like having a second full time job, and not having to do anything for it.
Two other sharks offered $400,000 to buy the inventor out completely. That seems huge, until you run the numbers… It would take a little over 13 years to make that with Kevin’s offer, BUT the money wouldn’t stop there. There could be improvements and tweaks which would renew the patents and licensing long into the future, as I can think of 4 improvements I could make to the design right now.
Do any Americans plan for the future anymore? What is going to happen when that one-time check runs out? Mark Cuban (Dallas Mavericks owner) and Lori Greiner (the QVC lady) will make millions off of this, and the inventor will not be able to collect any of it, which is why they shot down his counters of 3% and 2% royalties so fast.
Personally, I would have said no to both of those offers and tried to make it work another way. Sometimes the quick-money is the small money, and we lost sight of that, which is why we get killed in the global marketplace. The Sharks don’t often make moves like they did here, and Eric could have made a lot more if he had recognized it for what it was at the start; a feeding frenzy at his expense. He basically did not have enough confidence to walk away, because he was blinded by dollars.
Here is the episode in case you’d like to watch it. The Swilt is just another snuggie-style product which looks stupid and isn’t really practical, the same could be said for the ShowNo, and the Puppy Cake thing is ridiculous.
This blog illustrates my point, because you have to believe in your product enough to say no sometimes. http://whointernational.wordpress.com/2012/02/06/never-say-now/