Why the Sharks Were Wrong About ‘brellaBox

“We’re all looking for a breakthrough idea. And by definition, a breakthrough idea looks like a stupid idea. If everybody recognized the idea as a breakthrough idea, it wouldn’t be a breakthrough at all.”

Ben Horowitz

Last fall, my partner Anusha and I walked down the long Shark Tank tunnel to pitch our startup, ‘brellaBox, to two billionaires, a fashion mogul, one of the most successful women in real estate, and a bald guy formerly in the toy business.

Despite the fact that it rained in drought ridden Southern California the morning of the taping (which I took as a positive sign), the reception wasn’t what we hoped for.

With the exception of Mark Cuban, who seemed to at least get the idea, the Sharks didn’t think much of ‘brellaBox. They questioned our concept and valuation, and set their minds to ejecting us from the tank.

In other words, they did their thing.

Going into the Shark tank is no joke, but the Sharks aren’t the first investors to trash the idea of umbrella sharing. We knew what we were heading into when we accepted an invitation to apply for the show, and to be fair, some of the Shark’s reasons for hammering us were on point. We’re a baby company, at the time we had no revenue, and our ask and valuation was on the high side.

We get all that.

Fair points all.

But for those playing along at home who believe giving up a large percentage of a startup at the seed stage is a good idea, please read Marc Suster’s blog Understanding How Dilution Affects a Startup.

No matter what your valuation is, the Sharks are going to attack it, that’s a given. Allowing the Sharks to take their typical outsized bite of equity would have muted any financial incentive we had to continue working on our own startup. It’s not uncommon for startup founders to bank very little of what appear to be large exits. That’s where you get the 2m valuation. It may sound high for the Shark Tank, where the deals are historically smaller, but it’s not outlandish for a startup like ours. Think of it this way, our value was not as much based on the current market value of ‘brellaBox stock, as much as it was the incentive structure we needed to justify continuing to work on the project after a round of investment.

Again, read Marc Suster.

However, valuation is not really the focus of this post. Independent of our “outsized” valuation, the Sharks thought the idea of umbrella sharing was crap at any valuation.

They were wrong. Umbrella sharing is a good idea, one whose time has come, and one that will spread the world over. I’ve listed four reasons below that explain my confidence.

Reason #1 – Youth Movement

The bald, cynical, 60 year old Mr. Wonderful hated ‘brellaBox. However, the younger, nicer, Mr. Wonderful, the Mr. Wonderful with hair, would have felt differently. Enthusiasm for ‘brellaBox, of which there is plenty, divides along generational lines. College students love us, people over 40 or so, usually don’t.

mr_wonderful

We have received over 40 unsolicited  inquiries from major universities asking how they can bring ‘brellaBox to campus. They usually go something like this:

“This idea is genius, we need something like this at Purdue University.”

Or:

My name is BLANK and I am Student Engagement Coordinator for the University of BLANK. I am highly interested in the details of your products. I believe it could prove very helpful for our students. Please email me information asap. Thank you.

Or:

My name is BLANK and I’m the Facilities committee chairman for the student government at BLANK University. One of our premier platform initiatives this year is to bring an umbrella rental program to campus. I would love to discuss the potential of bringing brellabox. You can reach me by email at BLANK or my cell BLANK I look forward to speaking with you soon!

As these inquiries show, college students, at campuses across the country, are planning umbrella sharing eco-systems independent of ‘brellaBox. They contact us once they do research and realize a startup is already working in the space. We have received emails from at least 15 different groups who found us this way. So, in other words, people are planning umbrella shares on their own, and then contacting us asking for help. Derek Sivers would be proud.

This enthusiasm for umbrella sharing is translating into signed orders for ‘brellaBox.

Since filming Shark Tank, we have secured orders from Penn State University, Michigan State University School of Law, and East Stroudsburg University, with talks ongoing with many other major universities. For those of you have tried to sell anything to Universities, you understand how difficult it is for an established player to close a sale, let alone an early stage startup. In a few years, with our innovation minded early adopters leading the way, many other schools will listen to demand from students, and ‘brellaBox will be a fixture at college campuses all over the country.

It will happen, because young people want it to happen. They don’t see any boundaries to where technology can, and should, go. I’ve visited with, and spoken to, students at campuses from Florida to Iowa. Trust me, the enthusiasm for this concept is very real.

Reason #2 – Internet of Things

The Internet of Things has been called the next industrial revolution, with 6.4 billion connected “things” projected to be in use by end of this year. Cisco predicts that number will reach 50 billion by 2020.

I have no ambition to summarize the explosive growth of Internet of Things businesses here. If you’re interested, do a Google search, but suffice to say, the industry is set to take off, and part of that equation is analytics. Amazon recently rolled out its its Amazon Web Services IoT platform, a model designed to give analytics data about IoT connected devices for a fee. Microsoft and Cisco have similar platforms, with a big goal being access to data for connected devices.

More than a hardware play, or a sharing economy play, ‘brellaBox is an IoT play. In addition to being a convenient amenity, our platform could provide valuable data on rainy day traffic and consumption patterns.

Reason #3 – The Waste Proves the Model

To be clear, we’re not putting umbrellas on the digital grid just to show we can. As we mentioned in our pre-pitch, every year worldwide, we throw away enough umbrellas to build 25 Eiffel towers. This is a staggering amount of waste, that New Yorkers in particular can relate to. Broken umbrellas litter streets and trash cans after a rain storm in NYC. Umbrellas that end up in the trash go straight to solid waste landfills, which are the number one cause of methane gas in the US. It is this exact type of pollution that is causing our planet to warm at an alarming rate. In fact, the Environmental Defense Fund estimates that 25% of man made global warming is caused by methane emissions.

In order to combat global warming, society will be required to treat resources with more respect by using them more mindfully. Using a product, like an umbrella, comprised of a significant amount of plastic, polyester, steel, and fiberglass once, and then throwing it away, is insane in light of what is happening to our planet. It also demonstrates that people don’t want to own umbrellas, they want to use them when they need them. We like to say the “waste proves the model,” meaning, ‘brellaBox goes with the grain of existing umbrella usage because it allows people to use umbrellas in single servings. People are using umbrellas once, then placing them in a receptacle (a trash can). All we’re doing is changing the receptacle (to a ‘brellaBox).

Reason #4 – It’s profitable

By Anusha

We have worked hard to get the cost of our machines lower without sacrificing quality or function, and we’ve been successful. ‘brellaBox has profitable unit metrics, both for the company itself, as well as for our partners. Even without sponsorship, which we see as a significant source of revenue as the idea spreads, with 20 boxes deployed on a revenue share split, and with conservative usage estimates, we estimate annual rental revenue net of merchant fees to the B2B client (i.e. a University) to be $10,640. That’s $10,640 a University can earn and reallocate towards student activities or other initiatives while providing a useful and eco-friendly resource to students. In this scenario, estimated annual net rental revenue to ‘brellaBox would be $60,240. If ‘brellaBox were to launch in all 40 of the universities that have inquired about our service, we could see over $2.3 mm annual net revenue from umbrella rentals alone. Our licensing model is just as profitable and scaleable. With introductory pricing on monthly fees for use of software and service, launching in the 10 largest mid-range US hotel chains could yield $2.8mm annual gross revenue. The licensing model provides a stable source of revenue that frees us from worrying about weather or usage patterns, while allowing the customer to have a fully branded experience.

The Bottom Line

Back to John

The bottom line is we started ‘brellaBox as a fun side project to enter in the NYU Entrepreneur’s Challenge, but have kept going because the market has asked us to.

Reaction to the idea has always been strong, both positive and negative, however, we are starting to secure orders from major Universities. The business is now generating revenue. Enthusiasm on college campuses is very real. We also see ‘brellaBox as a no brainer for hotels, and expect to secure orders from that industry soon.

Since we left the Shark Tank, we rebuilt our machine and software from the ground up, and we’re proud of the result. Even Chris Sacca gave us some love.

As long as we keep seeing demand, we will keep working on ‘brellaBox.

See you in Happy Valley.

John and Anusha

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John O'Connor

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John O'Connor is a serial entrepreneur and co-founder of 'brellaBox.

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