Barbara, Robert, and Kevin O. were the only Sharks to find deals this week but still managed to put $550,000 to work in two companies for an average ownership stake of 45%.
There were quite a few good lessons, but the one that sticks out first comes to us from Coffee Brand Gifts. Dan Claffey is asked the obvious question by the skeptical Sharks: do you have any orders? Dan’s response is no, that he had been waiting to sell the product until after he had inventory and capital to produce more. The Sharks’ incredulous reply speaks for itself.
Maintaining inventory is a cost of doing business and savvy entrepreneurs have been inventing ways to get by with little or no inventory for years. “Just-in-time” has been replaced with drop shipping and other inventory-less ways of getting goods to consumers directly from manufacturers. In this age of instant communication, making a sale and shipping goods can happen almost simultaneously from anywhere in the world.
What the Sharks stressed to Dan is that sales trump just about everything else. If customers are willing to buy your product then you have the potential for a business. Until then it’s all a dream. Even if you’re not profitable costs can be reduced, processes can be made more efficient, and prices can be raised. Having sales means that the major risk of developing a viable product has been overcome and a serial investor just needs to bring his expertise at building a viable business to bear in order to create something truly valuable.
So get out and sell your products! Even if you don’t have much more than a prototype to show them, if you can convince them to sign a purchase order you can often take it to the bank to get enough startup capital to fill the order. The margin from that first order and the relationship started with a manufacturer should be enough to get the next order rolling and then you’re off and running.
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Shark Tank airs on ABC, Tuesdays at 8/7c
