Nuchas and the Cost of Pride
Episode 18 of Shark Tank saw another wave of hopeful entrepreneurs looking to strike deals with the sharks. All four sharks were back, and had their eyes peeled, looking for the next big idea. This episode was full of entrepreneurs that are passionate about their brand, but this episode was also a reminder to not let the love of your product get in the way of potential success. Ariel Barbouth, the founder of Nuchas, did just that.
Ariel, originally from Argentina, came to the floor, and asked for $2 million for an 8% stake in the entire company.
He went on to explain that nine years ago he came to New York City with his wife, $9,000, and the cricket on his shoulder. He had a dream to transform empanadas, a staple of Argentinean culture, into a gourmet meal. By combining the universal nature of handheld foods, delicious ingredients and baking them in edible pockets, Nuchas empanadas can be enjoyed without plates or utensils and making a mess. Nuchas has the mission of bringing the world together through unique flavors.
He then went on to talk about his sales. For this year he made about five million dollars in sales, which greatly impressed the Sharks. Nuchas’ business consists of two parts; the first part being the retail part, Nuchas is the first brand to have an open kiosk in the middle of Times Square. Shark Daymond John even commented that he walks by the kiosk often but the lines are too long. Nuchas has three kiosks all in iconic locations. The second part of the business comes from wholesale to third parties. He went on to say that Nuchas was going to make $750,000 in pre-tax sales this year, and stated that next year Nuchas would make $12 million in sales with $3 million in profit.
Ariel wanted the two million dollars to build production capacity. Last year, they bought an 8,000 square-feet facility three years ago to create raw products, but they’re currently at a capacity constraint. Ariel wants to go from producing 100,000 units a week to 300,000 units a week. Ariel also said he wanted to improve his kitchen, and Barbara agreed with the philosophy about wanting to have control over the kitchen.
Ariel, was well prepared with his pitch in the beginning when he was talking about Nuchas. But things took an unexpected turn, as the Sharks thought he was asking for too much money for too little stake in the company. Ariel then went on to explain that his empanadas are unique, and only he can make Nuchas empanadas his way. It’s clear how proud he is of getting Nuchas to where it is, since empanada businesses are very common, and it’s extremely hard to make one successful.
Then the business talk started. Kevin couldn’t understand why Ariel didn’t want to relinquish control of the kitchen. Mark Cuban was the first Shark to say he’s out because he felt that Ariel’s dependence on a potential airline deal was way too risky. Lori just felt that the $2 million for 8% was too expensive for her tastes, so she was the second Shark out.
It was very clear that Ariel is proud of his business and the fact that it’s grown to where it is, but that pride ended up being the deal breaker for him on Shark Tank. Daymond, impressed by the flavors and the kiosk line, wanted to make a deal to make sure he got his money back in four years. Daymond offered two million dollars, but for 25% of the whole company. Ariel responded by saying that 25% was too much for Nucha’s current state right now. Then Barbara offered a deal, which she stated was a bit odd for her. The deal was $1 million for the kiosks, and then a $1 million loan against the real estate of the wholesale business, while franchising the business at the same time. Ariel, didn’t take this offer either, much to the shocks of the Sharks.
Nuchas ended up not taking a deal, and many of the Sharks touted that it was because of Ariel’s pride. Nuchas can be a reminder, that it’s fine to be proud of a business, but don’t let that pride get in the way of potential expansion and growth of your business.