The second entrepreneurs into the Shark Tank this week were presenting their business Basic Outfitters. They were looking for a $125k investment in exchange for 10% of the business. They have developed an online shop that allows you to pick out up to 17 items for $60. These items include socks, underwear, undershirts, and sweatpants.
As for their numbers, they are running a $25.90 cost on each “drawer.” They have done $351k in sales in the last ten months and project to do $500k in sales this year. They currently have $397k in inventory, they have invested $250k of their own money into the business, and raised $750k of outside capital at a $1Mill valuation.
When they first started explaining the business, I was actually pretty excited. I can’t tell you the number of conversations I have had with my wife over all the holes in my socks and underwear. I think they are still perfectly fine, but she is convinced they need to go. If there is such a convenient and low cost way to replenish my drawer and keep my wife happy, then I am in!
Sorry, I might have started to sound like an infomercial actor there...but I genuinely think this is an excellent idea!
I am especially happy that they didn’t try to sell this as a subscription business. I know that’s still kind of the hot model in business right now, but the market is becoming saturated with “boxes” and “crates.” Unless you are a major sock enthusiast, there is really no need for a sock and underwear subscription. Just having a shop where people can come purchase at their leisure seems to be the right direction for a business like this.
Now let’s get into the moment when this entire presentation fell apart. There was a split second between the moment when this looked like a sure thing and when every Shark in the room knew they would have no part in it. The entrepreneurs informed them that they had already sold 75% of the company to other investors.
The reason this is such a problem was pretty well covered in the episode, so I won’t get into the fine details. To sum it up, these two entrepreneurs barely even have anything to give to the Sharks and would just be diluting themselves down to practically nothing by taking a deal. An investor wants an owner who has skin in the game.
Kevin and Lori still tried to craft a deal that would take 25% of equity, but it would all come out of the other investors. The entrepreneurs were interested in this kind of structure to the deal, but at the end of the day they couldn’t assure the Sharks that the other investors would be willing to do that.
I echo Lori’s final thoughts on this presentation. She said that the whole thing made her kind of sick, and I agree. The moment they said that they only owned 25%, my heart sunk. I hate hearing stories of AWESOME businesses that had to go to those lengths to get off the ground.
Despite this, it is still an awesome business. If they keep pushing forward, I think they will see it continue to grow. It just wasn’t investible for the Sharks if the deal was going to dilute those entrepreneurs so significantly.