Maybe the worst advice an entrepreneur can follow is something Ralph Waldo Emerson allegedly wrote: "Build a better mousetrap, and the world will beat a path to your door."
Wrong. Wrong wrong wrong. W-R-O-N-G.
Maybe there's no market for that better mousetrap. Maybe that better mousetrap costs 10 times more than the old reliable spring-driven neck-breaking mousetrap. Maybe, just maybe, the world is happy with its current mousetrap, which is good enough. Plus, Acme Mousetraps Inc. has the market sewed up and, for most people, mice are just not that much of an issue.
Then consider this: There have been more than 4,400 patents issued by the United States Patent and Trademark Office for unique mousetraps designs. So when's the last time you read about some mousetrap mogul buying an NBA team?
Finally, if I may repeat myself on the subject, if you want a definitive answer about the relative power of having the better product, go chat up the folks at Sony about something they used to sell called "Betamax." And if you don't know what that is, you're proving my point.
What this all means is that any innovator or inventor who brings a better widget to the world faces a much bigger challenge when he or she confronts the question: Yeah, but is this a business? And this was the central query facing all four businesses pitching on Friday's new broadcast of Shark Tank. In each case, the deals foundered on a very simple concern from the sharks: How do I make my money back? And, in every case but one, the answer was unclear.
But here's what WAS clear: In every case, these were truly cool, maybe even great, products with hardworking, committed entrepreneurs who've done everything and more to get their companies going. They all had the better mousetrap but, in most cases, it wasn't enough.
Alex Furmansky of Lake Worth, Fla., wants $100,000 for 5 percent of the company, which takes kids' drawings and turns them into stuffed animals. Parents text a cell phone photo to the company, and four weeks later they get the doll, for $69. Budsies also does dolls of pets and people. In seven months, the company has sold 2,000 dolls, netting about $39,000 on $94,000 in revenue.
The sharks loved the product, including the Budsies of themselves, but the issue of how to scale the business, shorten the delivery time and make a decent profit loomed large. The custom approach requires either finding some way to automate the process or raising the price to position Budsies as a luxury item so that it can make real money. "I don't see that as something that will ever be scalable," says Lori Greiner. "I see it as a nice little business you can do, but I don't think it will ever become big."
Daymond John likewise thinks the valuation is crazy but, amazingly, Kevin "Mr. Wonderful" O'Leary thinks he can find a way to make it work, and offers $100,000 for 50 percent of the company. Daymond counters with the same offer for 40 percent but Alex turns them down, saying, "I think my company is worth so much more."
Matt Reed makes gorgeous beehives for amateur beekeepers out of Western Red Cedar in Portland, and wants $400,000 for 10 percent of the company. He and his wife have quit their jobs and, with seven employees, run the business full-time, in part as an effort to combat the continued loss of bees. Since mid-2009 they've posted $1.9 million in sales, and moved $775,000 of the hives in 2014, with a profit of about $120,000. A typical hive costs $150 and sells for $360.
Once again, the sharks can't see a way to profit, and Matt doesn't specify what he needs the money to accomplish: inventory, marketing, buying lumber at a volume that will increase his margin, or any other specifics. Kevin, noting that bees signify immortality in many cultures, looks at the numbers and quips, "I would have to be immortal to get my money back." Ultimately, all the sharks buzz off and pass.
Julie Thomson of Atlanta wants $100,000 for 20 percent of the company, which makes gorgeous plush dolls that are suspended over a crib or baby carriage and carry two pacifiers that babies can pull down to get the pacifiers for themselves, instead of wailing until an adult retrieves a pacifier dropped on the floor or dangling over the side on a clip. Julie reports $97,000 in sales for the last 12 months, through Amazon and 350 specialty stores, and says that as a one-woman operation, she can't keep with demand for product. It sells for $19.99 to $24.99 and costs $3.50 to make.
Most of the sharks don't a see a path to big profits on this business, either. Kevin sees the price and distribution holding the company back, while Daymond thinks the concept is too hard to grasp in an in-store display. Others think the sales are too low or that other pacifier alternatives are much cheaper. But Lori likes it, and offers $100,000 for 30 percent. Julie counters with 25 percent of the company and Lori counters with 28 percent, which Julie takes. Lori thinks her connections to Toys R Us and Buy Buy Baby can make it work.
Joel Vinocure and Arsene Millogo are looking for $200,000 for 15 percent of the company, which makes an ultra-lightweight running shoe. The shoes cost $11 to $13 to make and wholesale for $35 to $50, ultimately retailing for $75 to $85. They've sold $500,000 in six months and expect to do $2.5 million in the next year, with distributors in Holland and Taiwan, and an e-commerce campaign in the United States.
The sharks seem put off by the idea of trying to gain distribution against the mighty forces of Reebok, Adidas, and Nike. Both Lori and Kevin feel Forus just can't take on the major players, while Mark Cuban has to bow out because of his current deals with Adidas and Sketchers. When Joel and Arsene mention that they have a deal pending to do shoes for Nascar, the sharks worry that the company is trying to go in too many directions--as a fashion/lifestyle shoe and an athletic shoe.
Still, Robert Herjavec, a five-mile-per-day runner himself, is interested in doing a deal--if Daymond will come in to help with the crucial issue of inventory control, which could eat a company like this alive. Daymond, however, doesn't share the founders' vision for the company and can't see himself fighting against that as an investor. Ultimately, Forus goes away empty-handed.
Brian O'Connor is author of the forthcoming book, Everything I Needed to Know About Business I Learned From Shark Tank (An Unofficial Guide), coming this fall from Riverdale Avenue Books.