Feb 15, 2015I've become a big fan of Shark Tank, an ABC television show that features ordinary Americans offering to sell a stake in their startup businesses to five venture capitalists. Kevin O'Leary, known as Mr. Wonderful, and the other VCs—or "sharks"—can be brutal in their assessment of a business idea and the person pitching it. They also invest their own money in good ideas. It makes compelling viewing, because those who go into the shark tank are putting the company they have worked so passionately to build on the line.
Virtually all of the businesses featured on Shark Tank are consumer firms that all viewers can relate to, but as I watch each night (I catch the reruns on CNBC), I often think about what would happen if an RFID startup went on Shark Tank. In my experience, RFID companies often make the same mistakes that the newbies on Shark Tank do: They try to sell what they want to produce, not what people want to buy, and they don't market effectively.
Here's how it might go if an RFID startup went into the shark tank.
Newbie: "Hello, Sharks. My name is Edsel Gilbert, and I am seeking $1 million for 5 percent of my business, XYZ RFID."
Mr. Wonderful: "Whoa!"
Edsel: "RFID is a revolutionary technology that allows you to capture information from a tagged item, including a unique identifier, and then track it. Think of it as a bar code on steroids. RFID is now being used to track hundreds of millions of clothing items, hospital equipment, tools in manufacturing facilities and much more. We've invented a new kind of passive ultrahigh-frequency (UHF) reader that extends the read distance of any passive UHF tag by 20 percent."
Daymond John: "How do you do that?"
Edsel: "We've developed a more sensitive antenna that can essentially hear fainter radio signals than anything on the market."
Mr. Wonderful: "Is it patented?"
Edsel: "The patent is pending."
Robert Herjavec: "Who is the product aimed at? What kind of business would use this?"
Edsel: "Any business that needs to track stuff, and almost all do. So manufacturers, retailers, logistics companies, health-care providers and so on."
Lori Greiner: "Do you provide the tags as well?"
Edsel: "No, there are other companies that make the tags, such as Avery Dennison, Invengo and Smartrac."
Robert: "What about software? Don't you need software to turn the data into useful information for the business?"
Edsel: "Yes, you need software. Again, there are companies in the market that already provide that."
Robert: "So, your customer has to buy the reader from you and then go to another company for tags and another for software, and probably another company to integrate the solution. That seems like a big risk."
Mr. Wonderful: "Let's get to the numbers. How much does it sell for, and how many have you sold?"
Edsel: "It sells for $1,000, and we have $3 million in sales."
Daymond: "Is that for the past 12 months?"
Edsel: "That's since we were founded four years ago."
Mr. Wonderful: "Your valuation is way out of whack. I'm out."
Mark Cuban: "My question is, what is your differentiation with other RFID readers on the market?"
Edsel: "We have a 20 percent better read range, so they can read a certain tag from 20 feet away, while we can read it from a distance of 24 feet."
Mark: "That's it?"
Edsel: "That's a very big deal. We have invested more than a million dollars to engineer this antenna so that it could achieve that extra read range."
Robert: "But does anyone need it? Where does having an extra 4 feet of read range matter?"
Edsel: "It's always better to have more read range."
Lori: "How are you marketing this?"
Edsel: "Mostly word of mouth. We also do some Google Ads, and we have a Facebook page and a Twitter account."
Lori: "How many customers has Google Ads brought you?"
Edsel: "None."
Lori: "You seem like a great guy and a smart entrepreneur, but I just don't see the value. I'm out."
Daymond: "I'm focused on marketing, and I don't see how you are marketing your solution, or what applications need the extra read range. For that reason, I'm out."
Mark: "I agree with Daymond that there isn't enough value in the extra read range, and I agree with Mr. Wonderful that your valuation is crazy. I'm out."
Edsel: "Robert, you're the only one left. Don't let me down."
Robert: "Do you have partnerships with tag and software providers, by which someone could buy all three together as part of a solution for, say, health care?"
Edsel: "We're looking at that."
Robert: "It's impressive that you've put a lot of effort into engineering a better RFID reader, but the reality is that the extra read range probably doesn't mean that much to most companies. They are looking for solutions to their problems. Google Ads are not a marketing strategy, and your valuation makes this deal way too risky. I'm out."
Edsel: "Thank you for your time." [Exits the tank and speaks directly to the camera.] "I don't think the sharks understand RFID, or realize how big this technology is going to get. This market is huge, and I'm determined now to see if we can increase the read range by 30 percent."
Six months later...
Shark Tank Update: XYZ RFID has gone bankrupt.
It's sad, but in many cases, this is how it would go. Why? Because most RFID companies are focused on their own engineering, instead of on solving potential customers' problems.
Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.
