Bombas Before Shark Tank
Randy Goldberg and David Heath were inspired to start a business in 2010 after seeing a quote from The Salvation Army who were appealing for a massive sock drive at the time, ‘Socks are often the most requested clothing item at homeless shelters.’ The quote stuck with them and they realized that the one-for-one charitable model made popular by Tom’s Shoes, where every pair of shoes bought would equal another pair donated to charity by the company, could work equally well for socks.
They were fortunate enough to have a personal contact in the field already, the former President of Gold Toe Socks, Steve Lowenthal. With his help and guidance they spent the next two years in intensive product development and rigorous testing. Eventually, after much trial-and-error, they produced a sock with a range of innovative characteristics that improved its design from the long held traditions of sock making.
Taking the Latin word for Bumblebee, they named their new sock ‘Bombas’ with the vision that their company would be a hive where all elements could work together to improve life for the common good.
In 2013 the entrepreneurs ran a month long Indiegogo campaign in order to raise $15,000 to begin the development of their product. The response was phenomenal, the final figure raised was in excess of $140,000. Randy and David’s vision of a business with a strong charitable link combined with their strong emphasis on customer satisfaction clearly appealed to their generous benefactors. They spent countless hours answering every inquiry and feeding back progress to their followers and ultimately all that hard work paid off, the result of the campaign was better than they had dared hope.
Bombas on Shark Tank
David and Randy appeared on Shark Tank in September 2014 hoping a get a $200,000 investment in exchange for a mere 5% equity in their business.
Randy began their pitch by explaining that the athletic sock market had essentially remained unchanged for decades. He detailed the two years of rigorous product research and design they had undergone, and the seven substantial improvements that they had identified and engineered into their product which was ‘The most comfortable pair of socks you’ll ever wear’.
David joined in and told the sharks of the charitable element of their strategy, for every pair of Bombas sold, one would be donated to the needy.
Randy handed out samples of the socks for the sharks to try out, so far everything appeared to be going well and the sharks seemed to approve of the charitable ambitions of the company. David launched into more details of the seven substantial improvements they had made. The material was Peruvian Pima cotton, very flexible and porous, the stitching had been improved, annoying toe seams had disappeared and there was proprietary stitching on the arch. It was an impressive display of how much work had gone into the design of a sock.
Robert Herjavec was a keen runner and he knew that speciality athletic socks were ‘Everywhere’, which David agreed with. Robert wanted to know what made their sock so different from the competition.
David explained that during the two year long process of product development, they had looked at all the products that Bombas would be in competition with, from niche athletic running socks that cost over $20, down to cheap mass-market multi-packs retailing for a fraction of that. After compiling all the areas of potential improvement that other socks had in common, they had developed Bombas with the ultimate aim of producing a sock with all those problems present in other socks removed. They had then worked on their production costs until they were able to retail their own product for only $9, and that still included the second pair that they would donate.
Robert Herjavec asked what the wholesale price was and David informed him that all sales had been retail and made online up to that point.
Lori Greiner inquired how long the company had been in business and what the total sales had been so far. David confirmed that Bombas had been operating for nine months and had achieved sales of $450,000 so far.
Mark Cuban remarked ‘That’s not bad’ at the sales figures, particularly impressed that they had all been made online.
Robert dug a little deeper, and asked about projected future sales. David, who seemed to be answering all the questions, announced that projected sales figures were $1.1 million for the first year of business, $2.7 million for the second, and $4.9 million by the third. He also informed the sharks that the average profit margin was 54% including shipping costs.
‘Including the give-away?’ Kevin O’Leary asked. And they both confirmed that the 54% figure did include the donated pair.
Mark wanted a more in-depth picture of sales growth and asked for a month to month breakdown. David admitted that monthly growth had plateaued for the year, but he explained that he and Randy had been fund-raising for the last two months and had achieved $900,000 in investment to further a marketing strategy.
Kevin O’Leary wanted to know what valuation the funding had been raised on and David confirmed that it had been $4 million.
‘Why are you worth four million dollars?’ Kevin wanted to know, looking troubled.
‘It’s worth what people will pay for it’ Randy said, probably slightly unwisely, and Kevin was ready to turn the screw a little.
‘You can get Bozos or you can get me.’ Kevin said. He was smiling but he was also implying that only a bozo would value the business at $4 million.
‘You get both with him’ joked Daymond, not missing the opportunity to taunt Kevin a little.
Mark Cuban decided to join the fun, ‘The godfather of Bozos, right here’ he said, gesturing towards Kevin.
Kevin O’Leary smiled gracefully but didn’t respond to the banter from his fellow sharks, he had the taste of blood in his mouth and wasn’t going to be distracted from the upcoming carnage he was about the wreak on the Bombas founders.
Kevin shared his opinion that a $4 million valuation for a fledgling sock company was ‘ludicrous’, he told David and Randy that they were ‘Sock-Cockroaches’, they had no market share, they were nowhere yet and they had no market exposure. He continued ‘If any of these sharks give you money at this valuation I will forbid it’. Kevin didn’t have a veto but he wanted the Bombas boys to understand his point, that the valuation was far too optimistic. With a final parting shot of ‘It’s ridiculous’ he dropped out of the negotiations.
Robert Herjavec found the sales of over $400,000 impressive but he had concerns. He couldn’t determine if the business would succeed as a standalone company selling only socks, the product was traditionally more successful when sold as a supplementary item.
David addressed that issue, he informed Robert that they had spent nothing on advertising or customer acquisition up to that point, all the sales made so far had been generated through word of mouth.
But that was the problem for Robert, he knew that sales growth without advertising was not scalable, and the word of mouth method of generating sales would only take the business so far.
David explained that the investment they were seeking now would be used to employ a customer acquisition manager who they believed could increase their base sales tenfold.
Robert didn’t like the answer, his swaying indecision about the viability of the Bombas business finally settled down on the negative side. He wasn’t impressed enough to be interested in striking a deal with the pair, and he was out too. ‘Great sock though’ he added.
Lori Greiner didn’t like the strategy of employing someone else to help with customer acquisition, she thought that Randy and David should be doing as much as possible themselves in order to attract new customers, not employing others to do it for them. She left the negotiations too leaving only Daymond and Mark Cuban involved.
Mark was unhappy about the sales figures that had plateaued after only nine months, it shouldn’t be happening so soon in his opinion. He had an even bigger problem with the margins, a 50% mark up on the Bombas was too low for him and would leave the company always struggling to operate efficiently, for those reasons he was out too.
Kevin O’Leary pointed out that only the fashion Guru Daymond John was left in the negotiations. He laid the facts on the line for Randy and David, describing the negotiations as ‘flat-lining’. Wearing his sample Bombas on his hands like the Worlds oldest six year old showing off their favorite mittens, he advised the pair to recalculate their valuation before they found themselves without a deal.
David spoke to Daymond and admitted that they had come to the show hoping to strike a deal with him due to his extensive fashion and clothing contacts, David improved their proposal to $200,000 for a 10% stake in Bombas, but the offer only applied to Daymond, not the other sharks. Randy didn’t look entirely overjoyed at his partners more generous offer but didn’t object to it.
Daymond claimed that he had been on the verge of dropping out of the negotiations too, but in light of the improved offer, he could at least see room for further discussions. He made a counter-offer and suggested $200,000 in exchange for 20% of the business.
Randy and David clearly felt they had very little flexibility on the equity percentage offered and there was an urgent whispered conversation between the two. Daymond stressed how ready he had been to drop out too, the Bombas partners asked if they could consult their financial advisor about the offer but Daymond said ‘No.’, he wanted to deal with them, not the person who had advised them so badly on their valuation.
After even more quiet and stressful debate between the two entrepreneurs they finally agreed on a slightly better deal with Daymond, the requested $200,000 in exchange for 17.5% equity, and with the condition that Daymond would finance their inventory. The impression I got was that Daymond had hustled them into a deal that was extremely favorable for himself, it wasn’t helped by the fact that he jumped up out of his seat, raised his arms and shouted ‘Awesome!’ when they agreed to it.
Bombas Now in 2018 – The After Shark Tank Update
Daymond has certainly stuck behind the Bombas business now in 2018. In a recent interview he admitted that the business was one of the top three investments he had made throughout his time on the show. His influence is certainly showing on the company. The visibility of the brand has been enhanced, not only through his connection to it, but through numerous high profile media appearances, including one on the Today Show in December 2015. Randy and David also featured in series seven of Shark Tank in the same month when they were shown attending an entrepreneurs workshop at Daymonds home, along with a few of his other favored partners.
The publicity immediately after the show led to the projected annual sales figure of $1.1 million that David had revealed during filming being achieved in a few weeks instead of several months.
The emphasis on customer service is still strongly represented through the company website and a toll free customer service line is open seven days a week, not that there can be too many complaints. I couldn’t find a single person online who had anything bad to say about either the socks, or the service they had received. The very opposite was true, plentiful praise has been heaped on the company and the product, but particularly the product, which appears to have impressed some customers to the extent that they threw away all their other socks upon getting a decent supply of Bombas in.
However the company operates in the future, Bombas seems to be a sure-footed business with a product that is miles ahead of its competitors, things look to be very comfortable for David and Randy for the journey ahead. With Daymond John’s enthusiastic help and advice, they are unlikely to put a foot wrong.