Cubicall
The problem with open-plan offices, says the entrepreneurs behind Cubicall, is that employees are less satisfied in them and the environment is more noisy and less private.[1] The entrepreneurs even go so far as to say that most offices are now open-plan despite this "fact".
To make up for the lack of privacy, Cubicall has created a new type of "privacy booth" that can play host to small meetings and telephone calls. These feature an air fan to ensure movement of air, lights, USB ports, and power outlets beside seats and small tables on which laptops can be placed while inside.
The entrepreneurs state that they were inspired to create the Cubicall booth after having worked in open-plan offices and finding that then they had to make phone calls, they either went outside or stayed home that day.
Lori and Robert go into a booth that has been set up for demonstration and can be seen speaking and none of the other sharks could hear their conversation. Robert also said that he couldn't hear anything outside the booth.
Cubicall makes a small booth that will function more or less like a privacy phone booth and a larger model that looked as if it can host meeting of two to four people. The small booth retails for $6,995 and the larger for $11,000, which the entrepreneurs state is similar to their competition's pricing. It costs Cubicall $4,200 to manufacture the small booth and $7,200 to build the larger. They have an even larger booth that sells for $15,000 but the cost to produce it was not shared during the pitch.
Each of the booths is sold direct to their customers through their website and ships to them in a flat-pack to be assembled on-site like Ikea furniture. The company has been selling since the August previous and in the last twelve months have made $495,000 in sales through seventy booths.
Kevin brings up the issue he sees with their margins and states that he believes the direct to consumer method will ever work because they don't have room to absorb what the price to wholesalers would have to be. The entrepreneurs state that they believe they can add an extra 20-30% to their margins through efficiencies.
Cubicall's goal is to sell 300 booths in the next year to reach a sales target of $2,500,000.
Making A Deal
Mark starts things off by stating that he sees it as a capital intensive business and that, while online orders are a good way to start, he doesn't believe that it will scale. Because of this, he drops out.
Robert, meanwhile, doesn't see issues with scale because he sees it as merely a niche product and, because of that, is out. Lori, on the other hand, sees too much competition in the market and thinks it will take too long for her investment to pay off and, likewise, drops out.
The entrepreneurs then go on to break the First Rule of Shark Tank and cite the overall size of the office furniture market as a reason why their money would be in good hands with Cubicall.
Mr. Wonderful is the first shark to make an offer, with his usual mix of equity and royalty to ensure the safety of his money. He pitches a deal for $350,000 in cash for Cubicall in exchange for 10% equity and a $100 per unit royalty until he earns $1,050,000. After earning three-times his money back, the royalty would drop to $50 per unit and, it seems, last into perpetuity.
Barbara jumps in with a much more simple offer, $350,000 in exchange for 25% of straight up equity.
The entrepreneurs disappear into one of their booths to discuss the offers and, at least to the viewer at home, nothing inside can be heard. When they emerge, they flat out turn down Kevin's offer stating that a perpetual royalty would complicate a sale of the company. Instead, they counter Barbara, asking if she would accept 15%.
Barbara, being among the most sharky of the sharks, says no, that less than 25% would just be two little of a stake in the company for her otherwise. In an attempt to preserve their company's value, they see if Barbara would be willing to pay a little more, $4,500,000 in this case, in exchange for 20% but Barbara isn't having any of it and the entrepreneurs fold, giving in to her demands in order to land a deal.
Because the deal involved giving up 15% more equity than the entrepreneurs had originally pitched as part of the deal, this resulted in a massive $2,100,000 bite from the company's value, reducing it to just $1,400,000 from the $3,500,000 they had come in with.
Notes
- ↑ Your Stats Shark works in an open-plan office that actually features phone booths like the ones that Cubicall makes. So long as the other people who share the space and utilize the phone booths for calls, the environment is actually pretty great. Cubicall's, by contrast, do offer a bit more privacy but, with that privacy, comes isolation. Your Stats Shark actually finds open-plan offices to be more collaborative and friendly. But... this is a sales pitch and if the company wasn't solving some kind of problem, then why would anyone need their product?