@ Hammer & Nails: The Numbers Rule

By: Pete Troshak

Twitter: @Shak74

Website: www.Shak74.com

Michael Elliot overcame a lot of adversity in his life, spending much of his youth in shelters and on the streets of Philadelphia. But Elliot didn’t allow his difficult beginnings to keep him from achieving everything he set his sights on. At a young age, he founded the first hip-hip magazine, Krush, and later became a journalist for the hugely successful magazine The Source. He was also a successful DJ. Elliot later decided to be a screenwriter, and after reading a book on screenwriting, he produced his first script and sold it to 20th Century Fox. He has since written other screenplays and his movies have earned over $100 million combined!

But Elliot has a new mission now, and he came to the Shark Tank to try to get an investment in his new dream from the Sharks. He created a men’s salon called Hammer & Nails which he hopes will one day be “The Starbucks of men’s nail shops.” The idea came to him when he went to a salon one day to get a pedicure and felt out of place. He realized that the vast majority of salons are geared towards women and it became his goal to create a male-friendly salon where men could get there manicures and pedicures in a more manly setting (cue the Tim Allen grunting sound effects) decorated with manly things like hammers in shadowboxes on the wall.

His salon features posh leather chairs each with their own individual sound systems and 32-inch TVs. Seven months in, Elliot has decided he wants to expand his business. He came into the tank asking for $200,000 for 20% of his company, with an eye towards using the money to begin franchising his stores, helping to spread his vision of style mixed with “man-cave nirvana” around the globe.

Elliot’s track record of making whatever venture he has tried a success would seem to make him a great candidate for the Sharks to invest in, but the Tank is a cold and unsentimental place. Any good business person knows that no matter how great a person’s past successes have been, there is no a guarantee of future success, and there are some serious flaws in Elliot’s vision that make a deal with the Sharks seem unlikely.

First off, history shows that they rarely invest in businesses whose goal is to franchise immediately. Franchising has a lot of risks, as you can very easily dilute your brand, and quality control is tough because the one person (the entrepreneur) whose vision has created the product or service can’t clone themselves and ensure that the other locations will live up to the entrepreneur’s standards, thus limiting the odds that the company as a whole will be successful. Mark was therefore particularly critical of Elliot for trying to go the franchise route so quickly, telling Elliot that he is putting “the cart before the horse” before dropping out.

The second main issue is that there is nothing proprietary about Hammer & Nails. It is admittedly a unique service that he is offering, but as Daymond pointed out, anyone could create a similar company, and Elliot is missing out by not offering more services (a bar, fashion sales, advice, etc) to create opportunities to upsell the clients and earn more money from each visitor.

But ultimately it was Kevin who really terminated Elliot’s dream of getting a deal with any of the Sharks. Kevin used three small but devastating words - “The numbers rule” - to deliver a killing blow to Elliot’s Shark-funded dreams. Kevin pointed out that Elliot just breaking even after only seven months in business does not suggest that his business will ever be a huge success, and that such a small sample size of sales doesn’t not justify a nearly quarter of a million dollar investment.

Elliot undoubtedly has a great track record of success and a life that could inspire an oscar-winning film, but in the cold briny deep of the Shark Tank, the first rule is and will forever be, that the numbers rule.