Lite Netics: All Tangled Up
His product: Lite-Netics, magnetic lighting strands to decorate with, which are easy to use and hassle-free!
Shawn identified a problem. Every year, millions of people spend hours (if not days) decorating their houses for the holidays. Putting up decorations and sorting through the various ornaments and different colored light bulbs is a huge hassle, and it only gets worse when you have to start untangling wires and fixing tabs and clips to the strands and bulbs. So Shawn Genenbacher came up with a brilliant idea, to attach magnets to the bottoms of the light bulbs in order to eliminate the majority of the hassle, and spend a lot less time decorating his house, while making sure it still looks well dressed-up.
Lori Greiner identified three key problems with Lite-Netics, all of which are strong concerns for Shawn's hopes of competing with the other big market players:
1) Cost. A 50-foot strand of decorative lights bulbs sells for around $20 at Home Depot. A 50-foot strand of Lite-Netics light bulbs costs around $70, which is more than triple the cost! While it may be true that people generally spend more money this time of year, that mostly applies to gifts - not light bulbs. Most people would probably say that it is worth the extra $50 per strand to add the tabs and have a little more hassle, and use that money for something which is more beneficial to the family. Under normal circumstances, the Sharks would probably have said that they can help bring the costs down. But as Lori pointed out, when it comes to magnets there is not much flexibility in lowering the price, because they are expensive no matter where you get them from. A high production cost means a high retail cost, and Lori felt that it was just too expensive for the average consumer.
2) Usability. Lite-Netics are made to stick magnetically to metal - not aluminum which is what many gutters are made of. A seasonal product is restrictive by definition due to its seasonality, and it's much more restrictive when it only works on a segment of the market.
3) Practicality. Currently, Lite-Netics only sells large light bulbs, or old-fashioned light bulbs as Lori called them. Many or most people today decorate with mini light bulbs and other types of lights. This is yet again another restriction Lite-Netics faces with their product.
Lori went out based on these three reasons, and was pretty much followed by Robert and Mark who didn't see enough of a market and didn't feel they would be much of help in growing the business. Kevin and Daymond however had a different approach in partnering with Shawn, which was the potential to do a licensing deal with a much larger company. Kevin made an offer of $125,000 for 50% of his company, contingent on successfully licensing the product. Daymond made a competitive offer for 40%, with the same contingency. The question became, who was the right partner and would a deal be made?
Shawn spent a couple moments a bit tangled up as he contemplated the deal, and decided to counter Daymond asking him to drop his ask to 30%. Daymond sticks to his original offer, and ultimately Shawn left the Tank without closing a deal, as he was unwilling to forgo 40% or 50% of his business for $125,000.
Was this the right decision? It's hard to say.
Lite-Netics has been steady with its sales over the last four years, netting less than $40,000 per year in profits. If he accepted the deal, and Kevin or Daymond could successfully license the product to a much larger light bulb decoration company and set it up so that Shawn got a percentage for every unit sold with his magnet on it (after all it's his patented product), he would get richer and richer each holiday season. And worse comes to worst, if they were unsuccessful in reaching an agreement, Shawn wouldn't have to give up any equity in his business because the deal was contingent on the licensing agreement. For this reason it would seem that leaving the Tank without a contingency deal was a mistake.
On the flip side, now that the show aired, and Shawn and Lite-Netics has received major exposure to consumers, stores, and large companies in the same market, Lite-Netics could potentially get other licensing offers which are more appealing to him and which take less equity from his company. If Shawn can successfully reach a licensing agreement on his own for a cheaper price, then not accepting the deal in the Tank was to his advantage.
Do you think Lite-Netics should have accepted Kevin or Daymond's offer, or did they make the right move by leaving the Tank without a deal? Comment below.