Advice From the 23-Year-Old Who Said No to Mark Cuban
What would you do if you were chosen to appear on the ABC reality show "Shark Tank," and then Mark Cuban offered to invest $200,000 in your company?
If you were Derek Pacque, the 23-year-old founder of CoatChex, you'd turn him down.
CoatChex was born when Pacque, an entrepreneurship student at Indiana University, was told to come up with 10 pet peeves. "One was wearing my coat to the bar and not having anything to do with it," he says. His aggravation level peaked one night when he hid his coat in an out-of-the-way place only to find it had been stolen when he returned. When he asked bar owners why they didn't offer coat checks, they told him it was too messy, and too much of a hassle with patrons often losing tickets or leaving without their checked items.
"So I said, do you mind if I set something up?" Pacque recalls. "I'll deal with the customers and the hassles, I'll get out when you don't need me, and I'll give you a percentage of whatever we make." Three nightclubs signed on right away and the company earned $50,000 within its first few months.
Pacque and his team devised a free-standing kiosk where they could take in garments, and portable coat racks that could be assembled and disassembled quickly. They soon learned that tickets are indeed a hassle--drinking patrons are prone to lose them--so they designed a ticketless mobile system in which coat check attendants get a phone number and/or other information (such as social media handles) from patrons and take a quick picture of the patron's garment and a QR code. Patrons then retrieve their items with their phone number or other identifying information, eliminating the need for tickets and making it much easier to scale.
Pacque saw Cuban's call for entrepreneurs to audition for "Shark Tank" and he sent in a description of his company. Last summer he appeared on the show, and Cuban wound up offering him $200,000 for a one-third stake. It was too little, Pacque believed. Though Cuban's people had put the value of CoatChex at $600,000, he could see the potential for fast growth and a much higher valuation.
Life After "Shark Tank"
That potential came true quickly, as Pacque's appearance on the show brought unexpected opportunities, such as providing "survivor" stations for the 7,000 participants at Life in Color, a concert and dancing event in which paint is thrown on the audience. Without CoatChex, Pacque explains, "There's nowhere for them to clean up afterward. This way they can check some extra clothes and we can provide towels for them to wipe the paint off. It's fun during the event, but you don't want to get it on your car seat on the way home."
In addition, CoatChex's ability to collect contact and social media information has created a new business model in which brands sponsor the coat check stations, making them free to patrons, and use the gathered information for market research and promotional purposes during and after the event. That's led to CoatChex being hired for some truly huge events, such as New York's Fashion Week 2013, which Pacque was preparing when we spoke.
What's Pacque's advice for other tiny companies that need to scale quickly? "The biggest thing for us was improving the team," he says. "I was trying to do a lot of things myself that other people can do better. We brought in an operations guy and a technical guy because that isn't really my expertise. I'm more of a sales guy." With these additions, CoatChex has eight full-time staff members, four seasonal managers, and anywhere from 15 to 75 part-time staff manning its coat check stations on event nights.
He also says CoatChex was able to grow more quickly when he stopped being constrained by his original vision for the company. "It was hard for me at first to go outside of what I knew--servicing coat checks for nightclubs," he says. "But there was a whole new level of opportunity that I hadn't seen before when I started looking outside that box."
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