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During Shark Tank season 13, entrepreneur Shahira Marei presented her cookie shot glass business seeking $500,000 for 5% equity. After explaining her $10 million valuation based on $2.6 million projected sales, Marei detailed production costs of $12.82 per unit.
After her pitch, businessman and investor Kevin O'Leary offered criticism of Marei's business model. He argued that the strategy limited the profit margins and restricted scaling options.
"The reason the model is broken is the 12 cost of goods. It has to be four. That's the only thing you should be focusing on. With your vision, your costs aren't going to go down that much. I hate your business model. I'm out," Kevin O'Leary stated upon hearing the metrics.
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Despite initial skepticism from multiple Sharks, the company walked away with Robert Herjavec.
Shark Tank's Mr Wonderful called Dirty Cookie's business model broken before walking away
Dirty Cookie's production methods showed significant scaling limitations. The Shark Tank company employed 10 staff members to manufacture 15,000 cookie shot glasses weekly through manual processes. Each unit required $12.82 in production costs, creating restricted margins on the $49.99 retail price for 12 cookies.
The manufacturing setup needed a $400,000 automation machine to increase output to 4,000 units per hour. Without this automation, the company had to stop advertising because it couldn't meet existing demand.
The cookie production process involved baking in special molds followed by chocolate lining to prevent liquid absorption. The company offered holiday and birthday-themed designs along with custom work for corporate gifts. At $35 for six cookies, the pricing strategy targeted premium gift markets. A portion of sales supported education-focused non-profit organizations, stemming from Marei's childhood experiences in Egypt.
The Shark Tank company's financials showed yearly improvements despite operational constraints. From initial sales of $300,000 in 2018, the revenue grew to $345,000 in 2019. The pandemic year brought unexpected growth as 2020 sales reached $1.27 million. This surge came after Marei introduced custom DIY kits during COVID-19 lockdowns.
The 2021 revenue target stood at $2.6 million with projected earnings of $250,000. However, the business carried $500,000 in debt while maintaining full ownership. Marei's goal for 2022 targeted $6 million in sales, a benchmark that would impact future investment terms.
Apart from Kevin O’Leary’s business model comments, other Shark Tank investors voiced concerns as well. Mark Cuban pointed out fundamental flaws in capital usage. He expressed concerns about inefficient resource allocation and market competition in the edible gifts sector. Daymond John focused on profit margins, stating the business model created too much risk without sufficient returns. Both Sharks exited without making offers.
Robert Herjavec initially stepped away from the deal. However, after watching Marei's determination and hearing about her plans for automated production, he returned with a modified proposal.
Lori Greiner offered a mixed deal of $250,000 as a loan with 8% interest plus $250,000 for 25% equity, drawing from her success with other food companies like The Pizza Cupcake.
Final deal and aftermath
The negotiations concluded with Robert Herjavec's offer of $500,000 for 25% equity. The deal included a performance clause, reducing his equity to 15% if the company reached $6 million in revenue. Marei accepted these terms over Lori's proposal.
As per the Shark Tank blog, after the show, the dessert company collaborated with Nuts 'n More in June 2021, which was previously backed by Mark Cuban and Robert Herjavec in season 4. This partnership led to new product development, including stuffed cookies filled with cookie butter, Nutella, and cheesecake varieties.
The company expanded internationally by opening a storefront in Egypt for making and selling stuffed cookies. Good Morning America featured the business during their Thanksgiving Day "Steals and Deals" segment in November 2022.
However, as of December 2022, the Shark Tank company continued manual production without the Italian manufacturing machine mentioned in the pitch. The current annual revenue stands at $2.5 million, while plans include opening additional retail locations across the US and Canada.
New episodes of Shark Tank are airing on the ABC network.
