One of the things I really like about the Shark Tank TV show is that almost every episode raises a big issue facing today’s entrepreneurs. In this episode, the US patent system was “examined” and became the subject of an intense debate between the Sharks and lawyer, turned entrepreneur, Scott Jordan.
Scott had developed and built a very successful online business selling his Technology Enabled Clothing (TEC). TEC will gross about $12 million in Sales this year, and is growing at an annual rate of 100%. He had received a patent for this clothing line which allows you to “embed” your mobile devices, iPads, etc. in inside pockets. Actually, the patent is just for the wire running thru the clothing which allows the user to listen to music without carrying a separate wire.
Scott had already threatened to sue 11 competitors for patent infringement and received a settlement of some sort from each of them. When the Sharks learned about this, Mark Cuban went nuts. He said, “Dumb-ass patents…..that’s what’s killing this country. How can they issue a patent for a wire running thru a piece of clothing?”
I totally agree with Mark on this one. Patents are acting as a tax on many industries and are hurting innovation…..particular in anything to do with technology. Patents are being granted on “obvious, everyday technologies” and the patent holders are bringing lawsuits on those “infringing” on their “dumb-ass patents”.
I have been involved in several such frivolous software lawsuits and it is truly a travesty and huge waste of time and energy. It’s hurting businesses of all sizes.
Scott had separated his retail business from the “larger opportunity” which included the aforementioned patent and the Sharks didn’t like that one bit. They wanted the retail business to be included with the patent. Scott received two offers on the combined company but turned them down after talking to his advisor, Steve Wozniak, the co-founder of Apple on the phone.
Then Scott committed the cardinal sin of investor meetings. He insulted the Sharks. He pointed at Kevin O. and declared “You’re Out”, and then pointed at Robert H. and announced “You’re Out. I don’t need you”.
Good TV, but Entrepreneurs should never, under any circumstances, be disrespectful to their audience. It will come back to haunt Scott someday.
Winners of this week’s Sharky Awards
Platinum Sharky Award…..Dallas and Mike, Kisstix
These two had created a his-and-hers lip balm that created an exciting flavor by combining two flavors when kissing. Despite only having $80K in sales last year, the two buds were asking for $200K for 20% of the company. They used a huge Walgreen’s order for over 7000 stores that they had recently received to convince the Sharks to invest. They succeeded in getting a $200K investment from Mark Cuban for 40% of the company. The highlight of the presentation was when the entrepreneurs got Mr. Wonderful and Barbara C. to kiss to demo their product. Interesting to note, that neither had any interest in the product after that traumatic experience.
Gold Sharky Award……Stephanie and Daniel, Smart Baker
This husband and wife team got a nice investment from Shark Barbara. Their business makes unique aprons, cupcake towers, and other baking related products. Barbara’s offer was a little different, but I liked it. She offered $75K for 40% of the company but with one additional condition. She would be paid 5% of every sale until her $75K was repaid. This is a good way for an investor to minimize their risk, while still funding the company during its initial growth phase.
Barbara was the best match for Smart Baker because of her previous success with Daisy Cakes….a Season Two participant on Shark Tank. The other Sharks could not add as much value as Barbara.
Shark Chum…Lyle from Heat Helper is a great guy and gave a great presentation. His only problem was he abandoned this business about 8 years ago to go into the “Dirt Business”. Heat Helper seemed like a “warmed over” deal to the Sharks and they all passed.