The odds of scoring a deal on ABC hit reality-business show Shark Tank is even less likely than becoming a professional athlete. So when Xero Shoes founders Steven Sashen and Lena Phoenix kicked a juicy investment offer to the curb, it was heresy let alone insane. But Sashen, famous for being the world’s fastest Jew under age 50, and Phoenix ran with the advice they got on the show. They turned a fledging sandal line — inspired by the huaraches worn by the Tarahumara Indian Tribe who inspired the barefoot running fad — into a million-dollar brand.
Thanks to their dive into the tank, they expect sales to climb to $3 million in 2016 — a massive jump from the $670,000 they had in the four years prior. Sashen and Phoenix appeared on Shark Tank on Jan. 31, 2013 aiming to get $400,000 for 8% equity in Xero Shoes, valuing it at $5 million. The Sharks unanimously agreed they overpriced their business, which they saw as nothing more than “a piece of rubber and a string.”
Kevin O’Leary was the only one to offer them a deal. But he cut their valuation down to $800,000 and offered them $400,000 for 50%.
“You people are probably delusional entrepreneurs,” said O’Leary.
“You should take Kevin’s deal because your bubble is going to pop,” Dallas Mavericks owner and multi-billionaire Mark Cuban said. “I’m out.”
Sashen countered O’Leary’s bid and offered 10%. But the educational software mogul stood pat.
“That’s an offer we’re not willing to take at this time,” Sashen said as Cuban hung his head in frustration.
Sashen and Phoenix declined and walked out of the tank empty-handed. Sashen explains how he believes the role of luck is massively understated in business success and steps necessary to hook a Shark Tank deal.
Ho: How did you prepare for your appearance?
Sashen: Oh, boy.
Well, we’d been watching the show for about a year. But after they said “We want you,” we watched every episode of Shark Tank and Dragon’s Den online and got a sense of how good pitches and deals looked.
We read the autobiographies of all the Sharks so we had a better understanding of how they thought and who we wanted to work with. You’ll see the irony of that in a moment.
We also had a serial CEO friend, who almost made it into the Tank, do mock sessions with us.
Ho: How did you value your company when you appeared on Shark Tank?
Sashen: We spoke to bankers, VCs, competitors, and footwear brand buyers to get a sense of what our valuation was. Then we took that number and combined it with what we knew about the Sharks. It can’t be too high, can’t be too low, need to give them room to haggle, need to offer enough equity, etc. – until we had a number we could confidently back up, but that was negotiable.
We went in with a $5 million valuation and offered 8% equity for $400,000.
Post Shark Tank Sales Jump
Xero Shoes run from $19.95 – $79.99 and come with a 5,000-mile warranty on top of standard manufacturer’s warranties. They’re manufactured in China and are sold by about 100 retailers with distributors in Japan and Australia.
Since the company’s launch in 2009 and appearing on Shark Tank in 2013, Xero Shoes enjoyed about $670,000 in sales. In the week after the show’s airing, sales jumped to $250,000 — about what they normally did in three months.
Ho: What kinds of distribution deals / sales channels did you score after being on Shark Tank?
Sashen: Frankly, none.
What Shark Tank has done for us though, in addition to inspiring us to expand our product line, is that it’s the best calling card ever in the investment community.
Even though they edited out our home-run answers, we still looked good (we’re told) and the general consensus is, “The Sharks missed the boat on this one.”
Our responses to their objections were so strong that, at one point, Robert jumped out of his chair and says, “You have a perfect answer to every question!”
Somewhat incredulous, I responded, “It’s our business.”
How to be a Shoo-in for a Shark Investment
Ho: What can you teach others about your Shark Tank experience? What are the secrets of a successful audition and appearance?
Sashen: a) Know your numbers.
b) Nobody give’s a crap if you’re “passionate” or will “work hard.” That’s what all entrepreneurs are and do.
c) The Sharks are not your friends. Even though they seen familiar because you’ve been watching them, do not treat them like a friend. If you do, guaranteed, you’ll say something that you didn’t want to (something you might say to a friend but not to a potential investor).
d) If you don’t know you’re funny, don’t try to be. The last thing you want is to tell a joke, and then have the cameras cut to a bunch of non-laughing Sharks.
e) Here’s the biggest: Every criticism the Sharks have is true. Do not argue with them. If they say you’re an idiot, you need to be able to find a place inside of you where you think that as well, or where it could be true. If they say your business is crap, remember the times, late at night, when you worry that it may not work.
f) Respond to their criticism with the truth: You may be right. But, that said…
I coached one person who was cut at the last minute… he had no business experience, no sales, a non-proprietary product, and he was asking for much too much money. He got to the point where he could, non-defensively, respond to any criticism or attack by saying, “You may be right. All I know is that when I was in my last semester of college, when I should have been partying every night, I invented a product that helps, me, my family, and 6.5 million other people. And I’m here to get your help to get it to them.”
Ho: How do you find business partners, instructors, salespeople etc? What qualities do you look for?
Sashen: I’ve been an internet marketer for over 25 years. So, first, I turn to my old friends and see if I can afford them. If I can’t I check with them and see who else they know. And after Shark Tank, we get pitched constantly.
Next, whenever I talk to anyone, I ask these two questions. I swear I ask them like this, verbatim:
- How quickly and cheaply can we find out if you have your head up your ass or if this will work?
- What are you going to do if it doesn’t work? Because I’m not interested in sending you a few thousand dollars and then have you shrug your shoulders and say, “Hmm… I don’t know why that didn’t work.”
We’re no longer interested in anyone who doesn’t have skin in the game.
Ho: Have you gotten other investors to invest in your business? Who? How much?
Sashen: We haven’t needed to yet, and still don’t – the business runs on cashflow. But to accelerate our growth, or to handle growth that exceeds our expectations (which happened last year), we may need equity capital.
Sashen is aiming for $3.2 million in revenue in 2016 and more than doubling that in 2017 to $7 million.
Ho: What are you doing now to move your business forward and expand?
Sashen: Our product line has expanded into a full line of sandals and closed-toe shoes to support our aspirational lifestyle brand. We’re aggressively improving site conversion and traffic online. We’re working with more 3rd party web stores. And we’re aggressively going after brick-and-mortar stores.
We have distribution in Japan and Australia, and we’re negotiating with distributors in five other countries. We’ve been courting investors and have a signed term sheet from the former CEO of Crocs.
Ho: What are your goals for your business over the next year and five years?
Sashen: The business goal is to continue establishing the aspirational lifestyle brand of Xero Shoes. To that end, we’re making the natural fit, feel, and flexibility of our products seem like the obvious choice, in a similar way that organic food has done so.
We’re expanding our product line to give people more opportunities to enjoy recreational performance with style. Speaking of which, our product developer is the former co-founder of Avia Athletic Footwear and, before joining us, was the head of global product design for Crocs.
Oh, finally, we’re running Xero Shoes with an exit in mind. We know that once we hit about $10 million, there are people and companies much better suited to take us to $30 million to $50 million.
If that partner wants to keep us onboard to do the things we love and are good at, great. If not, I’m happy to cash the check and hang out on an island until I get another venture idea.
Lena and I both imagine we’d be good at board service and would love to work with good brands/companies.
While I do have a “mission” of replacing footwear that’s all sold based on lies and propaganda (pretty much every running shoe made in the last 45 years), I also know that’s a Herculean task that would require massive financial resources. And I know I’d be met with a level of resistance from established brands that would not be conducive to my happiness.
So if the chance arises to take on this task, I’ll do it. If not, I’m happy to go back to training to maintain my status as the fastest Jew over the age of 50 in the world.
Unstoppable Marketing Strategy
Ho: What is your media and marketing strategy? How do you acquire new customers and what are your customer acquisition costs?
Sashen: We’ve grown almost entirely via word of mouth and organic search engine optimization and social media.
In 2016 though, now that we have products that directly compete with the likes of Chaco, Teva, and Keen. We’re going after their traffic with a strong series of “funnel” campaigns, targeting various niches in the outdoor, performance, travel, running, and athleisure spaces.
We’re creating more content than previously, including video content. My “Sh*t Barefoot Runners Say” video has gotten over 500,000 views on all platforms and our total view count for all videos is greater than 2,000,000.
We’re also using Amazon.com (AMZN) to drive more awareness and sales. Last year we had to pull off their platform because we were outselling our inventory on our own site.
Because we’ve spent almost nothing on lead generation, we don’t have a good picture of customer acquisition costs. This will change with our upcoming campaigns.
That said, when we look at our various current ad spend, we’re seeing sales generated for less than $10.
Ho: What other products do you have in the works? When are they set to launch?
Sashen: We are launching our best sandal yet starting now.
In the Fall, we have our first closed-toe shoe coming out. It’s a casual shoe that got raves at a recent trade show. So much so that I called Lena and said, “We need a bigger boat.”
We’ll have a running shoe coming out between the fall and Q12017 (still waiting for a production schedule).
Leaping Into Shoe Business
Zero Shoes launched in November 2009. Before jumping into the shoe business, Sashen developed a word-processing program for screenwriters called Scriptware that became the industry’s leading software. He also had a stint as co-host of the Emmy award-winning, internationally-syndicated TV show, Disk Doctors.
Ho: How did you come up with the idea for your business?
Shashen: I’m a serial entrepreneur. Or, a better way to put it: I’ve never had a job that I didn’t create.
Before Xero Shoes, my wife, Lena Phoenix, and I were retired. We’d done some clever investing (and, in 2006, predicted the real estate crash) and had some online businesses that gave us enough cash flow to not work for a living. I highly recommend early retirement, by the way.
When I was 45, I got back into sprinting after a 30-year break. For the next two years, I was getting injured constantly. A world champion cross-country runner I know suggested I try running barefoot to see if that helped.
I tried it and immediately discovered the form problems that were causing my injuries. More, from that awareness, they solved themselves. My injuries went away, I developed arches in my life-long flat feet. And within a year, I was a Masters All-American sprinter and one of the fastest guys my age in the country.
Well, I wanted to be as close to barefoot as often as I could, but with some protection, so I started making “barefoot sandals” that were inspired by the huaraches worn by the Tarahumara tribe in Mexico.
My sandal-making hobby grew as more and more people wanted to try them, and as the book Born To Run – about the Tarahumara and natural move,ent and barefoot running – became popular.
One day a barefoot running coach suggested I put up a website, “Because if you do, I’ll put it in a book I’m publishing.”
I pitched the idea to Lena, who told me it was a horrible idea, that it was a waste of time and wouldn’t make money.
As a good husband, I agreed. And as soon as she went to bed, I built a website.
I calmed her down the next day by saying, “Look the people who are ranked in Google (GOOGL) for the keywords we care about are there by accident. I can do search-engine optimization and own this in a couple months.”
Within two months, it was our full-time job. People realized the value of using your feet naturally, rather than wrapping them up in “foot coffins” (motion-controlled, padded shoes), and people enjoyed the do-it-yourself aspect of our first product.
Getting started cost us nothing. Each dollar we made went into buying more inventory. It wasn’t until we realized we had an actual business on our hands that we put in about $40,000 to develop new products and expand our reach.
Ho: What business books do you recommend people read and why?
Sashen: by Nasim Taleb. We often overestimate our own skill and underestimate the role of external forces and luck. Big mistake.
Ho: What are you favorite business websites, tools or resources that you love and why?
Sashen: Any good conversion rate optimization tool is a must. We use Klaviyo for managing email. We run a Woocommerce shopping cart (note: All shopping carts suck differently). Live Chat (we use SnapEngage) is a must, even if you’re not answering it live. The Norton Shopping Guarantee boosted sales for us. Shipstation manages our fulfillment.
Running With an Idea and Overcoming Hurdles
Ho: How did you go about making a prototype, sourcing the materials and finding a manufacturer?
Sashen: We were freakishly lucky.
Our original product was just a sheet of rubber, cut into pieces. But we got it when a distributor didn’t realize we weren’t an existing shoe repair shop. Once we had an account, though, they kept selling to us.
Then we met four guys who all started at Reebok 40 years ago. we met them socially after meeting a friend of a friend whose family business for 30+ years was licensing footwear brands. The ex-Reebok guys introduced us to their manufacturers and designed new products for us.
Ho: What hardships did you encounter in developing and launching it?
Sashen: Our first laces were sourced at Home Depot (HD). Every week, we drove hundreds of miles to every store in Northern Colorado to get as much cord as we could buy.
Otherwise, it was pretty simple when we were treating this as a nice lifestyle business.
Ho: Is there anything else I should have asked?
Sashen: “Can I visit you on your island after you retire?”
This story originally appeared in Forbes.com in 2016.