Luma: A Smart Alternative to Soda and A Memorable Pitch
In the beverage industry, the partnership between refreshing taste and high sugar content puts companies in a major pickle, and they are desperate for a solution. Much of the time, if high levels of sugar are removed from flavored beverages, it is very difficult to retain their desired taste. Beverage companies are aware that the modern consumer is more conscious of their personal health, wanting a drink that will either support, or fail to impede, on their journey to live a long and healthy life. Many people turn to diet soda in their efforts to improve their personal health but the artificial sweeteners used in these beverages are also linked to negative health effects, such as high blood sugar.
Jim Otteson, an entrepreneur from Palo Alto, CA, has found a solution for this controversy surrounding flavored beverages with his company, Luma Soda. He was seeking a $500k investment in exchange for 20% equity stake in his company. Otteson began his presentation to the Sharks by admitting to his own personal addiction to diet soda. He told the Sharks he used to drink 12 or more cans of diet soda per day, and the desire to turn his life around is what caused him to create Luma.
From there, the entrepreneur moved to his display to reveal the high sugar content in some of the most popular flavored beverages in the country. By stacking sugar cubs as a visual representation, Otteson demonstrated the massive amounts of sugar that is used to make apple juice (6 ½ Cubes), sports drinks (8 ½ cubes) and cola (10 sugar cubes). Not only did the sugar cubes convincingly stack higher than the height of the beverages themselves, it was rather impressive how Otteson was able to keep his hands steady while stacking them despite the immense pressure of pitching to the esteemed Sharks on national television.
The man behind Luma was impressively confident and composed during his presentation, which caught the Sharks’ attention and admiration. However, the entrepreneur himself, is not the determining factor of whether the Sharks will want to get involved or not; the product and the business’ financial stability are also major criteria for striking a deal.
Accordingly, Otteson passed out samples of Luma Soda for each flavor they produce: cherry cola, blood orange, lime and cola. He explained how Luma is a superior, all-natural flavored beverage that is made with only four grams of sugar and sweetened with a touch of honey and the Chinese superfood, monk fruit. The majority of the Sharks lauded the cherry cola and blood orange flavor but none of them were very high on lime or regular cola. Nonetheless, Rohan Oza, the beverage expert out of the panel of investors, seemed to be impressed with Otteson’s product so the chance of a deal was looking up.
Following the samples, the Sharks began to ask Otteson about the numbers surrounding Luma Soda. In the current year, the entrepreneur had sold $180k worth of product direct-to-consumer online but his customer retention rate was at a troublesome 10%. Grave looks washed over the Sharks’ faces in reaction to the low figure, but Otteson was able to reassure them by explaining how customers respond in the comment section saying they love the product but wish Luma was sold in their area so they don’t have to continue ordering it online.
Despite a convincing explanation, the pitch began to spiral from there when the Sharks asked how Otteson had raised money to finance his operations. The entrepreneur told the Sharks how he has put in $1.75M of his own money into the company, which came from a home equity line of credit and borrowing against life insurance. Thus, Otteson has risked a great deal for his start-up but one positive aspect of his situation is that Luma owes no debt because he funded the company with his own resources.
However, issues with the business continued to surface when Oza asked, “How much do you have left of the $1.75M?”
In return, Otteson said they had $600k worth of inventory—especially concerning as a result of the inventory consisting of perishable goods—and only around $30k left in the bank. The Sharks were baffled at Otteson’s large amount of inventory despite Luma’s small amount of proven revenue. Otteson then explained how he had met sales representatives that promised him retail distribution, which caused him to have to make a very large production run. To get adequate, smooth and eye-catching labeling and packaging that Luma would need in order to compete in retail spaces, Otteson needed to make a minimum order of one truckload, amounting to 204,225 cans. After making these orders and building his inventory for promised retail distribution, the sales representatives he talked to failed to get Luma shelf-space, so Otteson was hung out to dry.
Notwithstanding past mistakes, Ottenson has been able to negotiate three potential purchase orders from retailers through a new sales rep. This most recent time around, Ottenson assured the Sharks that his payment to the rep is determined by a contingency, which assures an extra level of security than his previously failed production run.
By the end of the pitch, Luma became a risky investment as a result of the company’s past troubles finding and maintaining customers. An investment, however, may also be worth it for the Sharks because of Ottenson, the rock-solid entrepreneur behind the company, as well as Luma Soda’s proven, satisfying taste.
Lori was the first to go out because she disliked the flavors. Then, potential of a deal began to peak as Oza delivered his feedback. Oza said that he liked two out of the four flavors and he respected Ottenson’s strategy to reinvent cola because so many flavored water companies have written it off as too difficult. Nonetheless, Oza thought Luma’s cola flavor needed improvement before he could hop onboard. The beverage expert went on to say that he would not invest because it would most likely be easier for him to use his own resources to create a similar product himself.
Suddenly, Corcoran interjected saying Oza could use a great guy like Ottenson and illuminated how it could be beneficial for him to partner with his existing business rather than trying to replicate it’s product. She also added that she would invest $250k into Luma if Ottenson was able to convince Oza to invest the other $250k and go in with her.
Unfortunately, despite Corcoran’s opinion, Oza went out because he still thought it would be a mistake to invest in Luma rather than try to make it himself. After that, Corcoran went out because she had little experience or confidence in the soda business. Next, O’Leary went out and advised Ottenson to cut the cord on Luma because of the money the business has already lost. Mark went out, as well, after he gave Ottenson advice to try and work with his biggest customer in order to get support and find the right path for his business.
Luma was left without a deal from the Sharks, but audiences across the country surely marveled at Ottenson’s performance in the Tank. The entrepreneur gave an outstanding presentation, confidently acknowledged his past mistakes and kept a positive attitude through the darkest of waters. Ottenson is an inspiration for entrepreneurs everywhere to believe in themselves and never give up.