CHICAGO TRIBUNE
Ann Meyer Minding Your Business
September 28, 2009
ENERGY BAR MAKER CARVES HIS OWN PATH TO GROWTH CAPITAL THROUGH TV APPEARANCEThinking creatively has taken Jonathan Miller a long way in launching a business and funding it.
His Chicago startup, Element Bars, offers a new twist on the energy bar concept by letting consumers choose ingredients on the company's Web site to build custom bars that are shipped to their doorstep.
Finding growth capital for the year-old business during a severe recession also took a new twist, when Miller appeared on ABC's reality show "Shark Tank." The new series pits entrepreneurs against five aggressively skeptical investors in hopes of winning capital for their businesses.
Part of the entertainment is watching the "sharks" rip into their business plans. One shark told Miller: "You know my job is to squeeze your head like a teenage pimple."
Still, enduring the abuse proved to be worth it for Miller; he negotiated a deal for $150,000. Ironically, before the show's airing Sept. 13, Miller had tried for a $10,000 to $20,000 bank loan but was turned down.
"It's an interesting commentary. You can get great national publicity and a great equity deal, but you can't get the line of credit" from a bank, Miller said.
Miller's creative approach to securing capital was well-timed, given the current credit crunch that has many entrepreneurs scrambling for funds, said Mike Adhikari, president of Illinois Corporate Investments. Entrepreneurs have few options outside of investments by family, friends and individuals who have a shared interest.
When trying for private funds from investors or venture capitalists, entrepreneurs must know how to negotiate, Adhikari said. "They really need to know how venture capitalists think," he said. "Most don't have a way to get beyond the, 'I want $200,000 for 10 percent of the business.' "
But Miller did. A 2008 graduate of Northwestern University's Kellogg School of Management, Miller had taken a class in negotiating. He also spent a summer working in venture capital, reviewing business plans and observing entrepreneurs' pitches.
Before his "Shark Tank" appearance, he did his homework. He knew that he wanted to come away with $150,000 and wasn't willing to give up more than 35 percent of the company's equity for the capital.
Miller shrewdly kept the upper hand on the show, observers said. He started by asking for $150,000 for a 15 percent stake. While some investors laughed, Miller never budged on the amount of money he wanted.
"One mistake negotiators commonly make is they wait for the other party to make the first offer," said Jeanne Brett, professor of dispute resolution and organizations at Kellogg. "The first offer in a negotiation tends to anchor the other party's thinking."
Miller added another dimension by communicating his passion for the business, Brett said.
In the end, Miller gave a 30 percent stake in his company to investor
Kevin Harrington, chief executive of
TVGoods.com. In return, Miller got the capital he wanted plus a commitment for a 4 percent royalty tied to a licensing agreement.
Harrington, a regular shark on the show, said he looks for potential "As Seen on TV" products and had previously sold protein bars. When he tasted the custom Element Bar Miller made for him, "I loved mine. My initial reaction was, 'Wow,' " he said. "I thought I could take it to the masses."
Harrington hopes to use his relationships with shopping channels, Web developers and TV production studios to help Element Bars reach new markets.
Harrington is exactly the type of investor entrepreneurs should be seeking, Adhikari said. "When you are partnering with someone, they should be providing not only the capital but also additional value," he said. You also need compatible personalities.
Meanwhile, Miller said the "Shark Tank" exposure has fueled a tenfold spike in demand to 10,000 bars a week purchased on ElementBars.com. Consumers build their own bars on the Web site in five steps. First, they choose a "chewy, oaty, crispy or datey core," then add in fruits, nuts and sweets like honey or chocolate chips, Miller said. The final step is to choose from several nutritional boosts, like protein, omega-3 or fiber.
Customers also get to name their bars, which cost $36, plus $6 shipping, for a box of 12.
Miller started making his own bars for personal consumption in 2004, but didn't consider it could be a business until December 2007, when a friend of his wife's asked if he could make bars for diabetic children.
Four months later, Miller and two partners, Maria Sutanto and Jonathan Kelley, were testing a prototype Web site. Together, they put up $100,000 of their own money to launch the business.
"I'm a firm believer in proofing out a business before trying to raise money," Miller said. "We've done that. We have sales growing and repeat customers."
http://www.chicagotribune.com/business/columnists/chi-mon-minding-capital-0928sep28,0,2636676.column
