Even your best business idea could be undermined by entrepreneurial inexperience.
Conor Lewis learned that lesson the hard way on the latest episode of ABC's "Shark Tank," when billionaire Mark Cuban gave him a sharp dose of reality. "You're a great case for what not to do as an entrepreneur," Cuban told Lewis. "People can learn a lot from your experience."
A father of two girls, Lewis founded his start-up Fort in St. Louis in the summer of 2020, after losing his marketing job at the outset of the coronavirus pandemic. The company makes kids' pillow fort sets – foam cushions with magnets to keep them in place – meant to save parents from worrying about kids dirtying or damaging their couch cushions.
In January 2021, Lewis launched a Kickstarter campaign to help generate interest and bring in some capital. It worked even better than he could have imagined: Lewis, who said he'd hoped to raise around $25,000 through the campaign, ended up selling $3.1 million worth of pillow forts in just two months.
"My claim to fame is I sold $2 million of products in 10 hours," he told the Sharks.
By the time of the episode's taping, Lewis told the Sharks, he'd captured roughly $4.5 million worth of total sales, thanks to the Kickstarter campaign and support on social media, where Fort has nearly 32,000 Instagram followers. He asked the Sharks for an investment of $500,000 in exchange for a 10% stake in Fort, which would value the company at $5 million.
So, what was the problem?
First, at the time of the episode's taping, Lewis had only just started shipping products to customers. That was partially due to pandemic-related production delays, Lewis said — but more notably, he'd underestimated how popular the Kickstarter would be, leading to significantly more demand than supply.
That was especially problematic for one simple reason: Initially, Lewis dramatically underpriced Fort's pillow fort sets. The majority of his early sales came from 12-piece pillow fort sets sold for an average price of $269, he said, despite his cost of goods plus shipping coming out to around $250 per set.
Pandemic-related supply chain issues then made his products even more expensive to manufacture, meaning he was actually taking a loss for every unit sold when the Kickstarter campaign first launched, he said.
"After I realized I oversold the first day, I realized 'I have to work really hard to sell the rest of this campaign.' And, I didn't sell enough to accommodate the cost," said Lewis, admitting that he'd burned through all of the company's cash by the time of the episode's taping.
"You're selling yourself out of business," Robert Herjavec observed.
The problems didn't stop there. Lewis told the Sharks that he had a business partner with a 5% stake in the company that could grow to 40% if Fort reaches $30 million in annual gross sales. The partner didn't put any equity into the company to get that 5% stake, Lewis said, but his manufacturing and supplier connections proved instrumental in helping Lewis turn his fun idea into a real business.
For Kevin O'Leary, that was an immediate dealbreaker. "I see a whole bunch of problems," he told Lewis. "Giving away 40% to somebody for no cash makes absolutely no sense to me."
Cuban disagreed, noting that vital connections can be just as valuable as cash. "I think you can survive this," Cuban said. "It's not bad that you worked with somebody else who didn't provide cash. Expertise costs you one way or another. So getting their expertise is fine."
The larger concern, Cuban said, was that the partner's 5% stake could grow to 40% if the company became more successful. That puts investors in a tight spot, Cuban said: If he were to invest, his goal of helping the business grow its revenue would ultimately be self-defeating.
"The trigger for their 40% being set to sales means that if any one of us invests, the minute we close the deal and we help you get to $30 million, we're diluted by 40% immediately," Cuban told Lewis. "So for those reasons, I'm out."
In the end, Lewis couldn't get any of the Sharks to overlook the deal he'd made with his business partner. O'Leary also criticized Fort's price point, arguing that $499 per set — an adjustment Lewis made to ensure he could reliably turn a profit — was too high. And while Lori Greiner said she loved the product, Lewis' $500,000 investment request was too high considering the various issues facing Fort.
The good news for Lewis: Fort's products have continued to sell briskly, even after Lewis' price hike. Lewis told the Sharks that he'd sold another $250,000 worth of product in just 24 hours after raising the price to $499 per set – and that sales have continued to roll in, since.
That continued customer interest will be crucial if Lewis wants to dig Fort out of the hole his early miscalculations created – especially since he'll have to do it without the help of any Sharks.
Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."
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