Luma Soda Before Shark Tank
Jim Otteson was a man with a sugar problem. He could drink up to 12 cans of diet soda in a day. Although diet sodas have artificial sweeteners that mean that their sugar count is low, they are still sweetened with artificial sweeteners that can be detrimental to your health. Aspartame is one of the sweeteners used in diet soda and it makes a person’s sugar levels fluctuate.
Jim was a lawyer for 25 years and for those 25 years, he would start his day with a diet soda. He needed to find a way to enjoy a tasty drink without having to consume large amounts of sugar and so he created Luma Soda. Luma Soda was sweetened with honey and monk fruit which has natural antioxidants.
The use of natural sweeteners meant that one can of Luma soda only had 1 sugar cube which is much less than the amount of sugar that energy drinks and even fruit drinks have. Jim Otteson was running Luma soda by himself and was its sole investor. Although he had successfully created 4 flavors of Luma, he had a hard time selling them online and getting shelf space in retail outlets.
Jim’s sales team constantly disappointed him and he soon needed more capital to keep the business going. He went onto Shark Tank to find an investor who could help him with more capital and also be a reliable sales partner. He was on the 19th episode of season 10. This episode featured Rohan Oza as a guest shark.
Luma Soda on Shark Tank
Jim Otteson wanted $500,000 for 20% of his company giving Luma Soda a valuation of $2,500,000. He started his pitch by telling the sharks of the problems he faced being addicted to diet soda. He then showed the sharks the amount of sugar that he was consuming every day from drinking all that diet soda.
Jim had come with some drinks which were normally consumed and he showed the sharks the amount of sugar each drink had. He then showed the sharks his product, Luma Soda, and the low amount of sugar that it had. After that, he gave each shark some samples of Luma Soda to taste. Luma Soda was available in 4 flavors and each shark got a can of each to taste.
The sharks decided to taste the same flavors at the same time. They tried the cherry cola first, 4 of them thought that it tasted great except for Lori who did not like it at all. They then tasted the lime and none of them liked it. The sharks then tried the regular cola but they did not like it either. Barbara then asked Jim what he had done before he started his soda company.
Jim said that he had been a trial lawyer for 25 years before he started his company. He had worked mainly on patent infringement cases. It was during that time that he had become addicted to diet soda and constantly consumed them as he went about his work.
Lori asked Jim what his sales had been and he said that he had sold soda worth $180,000 that year. Lori then asked him where he had sold them and Jim said that he had sold them directly to consumers online. Lori then wanted to know how many of his customers were repeat customers and Jim said that only 10% of Luma Soda’s customers were return customers.
Jim said that he got many customers who liked his product but who wondered when he was going to be in their area so that they did not have to buy it from the website where there was a delay time. Rohan then asked him how much he was selling the product for online. Jim said that he was selling a unit consisting of 12 cans online for $19.99.
The sharks thought that his sales price was too low. Mark Cuban then asked him how much he had invested in the business and whether he had any outside investors. Jim said that he had invested $1,750,000 of his own money into the business but he had no outside help.
Rohan criticized Jim’s business decisions. Rohan said that he knew that product development was expensive, but Jim could have made his flavors for a few hundred thousand dollars. He also complained of Jim then going to sell online and spending around $15,000 a month on marketing. Mark Cuban agreed with Rohan’s sentiments. Jim then said that he had been spending a lot of money per month on marketing.
Rohan then asked him how much money he had left from his $1,750,000 investment. Jim said that he didn’t have much left. What he had was $600,000 worth of inventory and $30,000 in the bank. Rohan asked him why he would buy inventory worth around $500,000 when he was making sales worth $15,000 a month.
Jim said that he went through a series of salespeople who had promised to find him shelf space in retail stores but they were not successful. The salespeople made him do a big run of production expecting large orders.
The minimum amount ordered was called a skew and a skew consisted of one truckload which consisted of 204,225 cans. Barbara asked him where he had got his money from because it was a lot. Jim said that he got his money from a home equity line of credit and he also borrowed against his whole life insurance but the amount was not a debt on the company’s ledger.
Kevin then asked Rohan how Jim could save Luma Soda from certain death. Rohan said that Jim had to pick some retailers in the state of California and move that inventory through them first. Rohan said that he was in negotiation with 3 large retailers and had a salesperson who had a personal relationship with them. Kevin asked him why he had a salesperson after such bad experiences using them.
Jim said that this time it was different because the salesperson was hired on a contingency and not simply being paid. Lori then left. She said it was because she drank a lot of soda and did not like the taste of any of the Luma sodas. Rohan followed suit and he said that it was because the company did not have much to offer.
Barbara had said that she was willing to invest $250,000 but it would have been contingent on Rohan also investing because she did not know the soft drink market as much as he did. Rohan was not investing in the business and so neither would she. Kevin then left because he thought that the company was headed to failure.
Mark Cuban then left saying that he did not think the business was a fit for him. Jim then left Shark Tank without an offer. As he left, he said that an investment from any of the sharks would have made a big difference. He had not got one and so it would be an uphill battle but he was going to fight on.
Luma Soda Now in 2023 – The After Shark Tank Update
Luma Soda did not get a deal from any of the sharks and Jim had said that he would keep running the business even if it seemed an uphill battle. Unfortunately, Luma Soda went out of business as Kevin had predicted. Their website is shut down and it is no longer available on Amazon.
Luma soda has one social media account on Facebook that was last updated in 2018. Its Facebook page has 4,600 followers showing that the product did enjoy some popularity but many problems in the long term prevented it from growing. Jim sold all his soda online and did not have any shelf space in any retailer big or small.
Without retailers, Jim would have had a very hard time making a profit because convenience is very important for the success of a soft drink business. Consumers buy them when they are thirsty so if a retailer is not stocking their favorite drink they will easily move to a second option available option. Jim had not yet gotten into retail stores by the time he only had $30,000 left.
Retail space is always hard to get because there are always over a hundred varieties of the same product fighting for a single space. Hopefully, the failure of Luma Soda to break out can be used as a case study on what to not do so that the next person can get it right.