Pitched Unfairly

Scrub Daddy

$100K for 10% of a sponge that smiles.

Season 4, Episode 7. Aired Oct 26, 2012

The ask

Asking 10% for $100K says this sponge is worth $1M.

Implied valuation

$1.0M

Before the money
$900K
Times sales
10×
  • In The royalty Shark
  • In The retail Shark
  • In The brand Shark
  • In The tech Shark
  • In The skeptic

Three Sharks lean in. Now we're negotiating.

The problem

Every sponge you own is too soft, too scratchy, or too smelly.

  • Too soft

    Gives up halfway through the baked-on cheese.

  • Too scratchy

    Scratches the nonstick pan you paid real money for.

  • Too smelly

    Smells like a gym bag by Thursday.

Live demo

Cold water makes it tough. Warm water makes it gentle.

Firm

Scrubs baked-on grime off a casserole dish.

Why me

3M bought his company and left the sponges behind.

  1. 01 He details cars for a living

    He damages a paint job, then invents foam buffing and polishing pads so it never happens again.

  2. 02 3M buys the pads in 2008

    The pad business sells. The sponge foam does not, so it stays behind in his factory.

  3. 03 He tries the leftovers on dishes

    Years later the foam that was too tough for cars turns out to be perfect for a sink.

  4. 04 He spends $150K on patents

    He protects the sponge before he ever pitches it, and ends up holding two patents.

Traction

One supermarket sold 100 times more of these than normal sponges.

  • ~$100Ksold before the show
  • 3QVC appearances
  • 4Philadelphia-area supermarkets

Sold per day, one store

A normal sponge 2 to 3
Scrub Daddy 200 to 300

Same aisle. Same shoppers. One of them smiles back.

The numbers

It costs $1 to make and sells for $2.80.

One sponge, wholesale

$1.00to make $1.80gross profit

64% gross margin, before a Shark asks

  1. What are your sales? About $100K, mostly on QVC.
  2. What does it cost to make? $1.00 a sponge.
  3. What do you sell it for? $2.80, wholesale.
  4. So your margin is? $1.80 a unit. About 64%.
  5. How do you find customers? Live demos on QVC, then the shelf.
  6. What is the money for? Our own factory, on our own schedule.

Objections

Every doubt about a sponge already has an answer.

It is just a sponge. It changes texture with water temperature, and the design is patented twice over. Patented
Can you make enough of them? That is the money. Our own factory, so demand never waits on someone else. Funded
Will it sell without TV? Four supermarkets already carry it, and one moved 200 to 300 a day. Proven
Why are you the one? He spent years making foam pads for cars. 3M bought that business. Done it

The negotiation

The bidding doubled the cash and held the $1M price.

  1. The ask Aaron Krause $100K for 10% $1.0M$900K before the money
  2. Opening bid Lori Greiner and Daymond John $150K for 25% $600K$450K before the money
  3. The royalty Kevin O'Leary $100K for 25¢ a sponge until he is repaid, then 7.5¢ No equityA royalty
  4. Final offer Lori Greiner $200K for 20% $1.0M$800K before the money

The choice

He picked the Shark with the shelf space over the cheaper money.

The royalty

$100K
  • Keeps 100% of the company
  • Pays 25¢ a sponge until repaid, then 7.5¢
  • On paper, the cheaper money
  • Brings a check

The partner

$200K for 20%
  • Gives up a fifth of the company
  • Gets a partner who already sells on QVC
  • Promised an infomercial and retail distribution within weeks
  • Brings the shelf
Picked

What happened next

The $1M sponge has sold more than $670M.

  • $1M+in sales within 24 hours of the episode
  • ~42Ksponges sold on QVC in under seven minutes
  • $18Min sales by spring 2014
  • $670M+in retail sales by the show's Season 14 update

Steal the order: 1. The ask2. The demo3. The numbers4. The objections5. The deal