Aaaron Krause is the guy who invented Scrub Daddy and will appear in the Shark Tank Friday in episode 407 to pitch his product. He has always been the “black sheep” of his family. After reading my preview the other day, Aaron agreed to a pre-show interview. I spoke with Aaron, an avid Philadelphia Flyers fan who lives in Voorhees, NJ, on the phone for about an hour today. He couldn't tell me what happens on the show, but he gave me a lot of insights into his history as an entrepreneur and the inner workings of America's favorite venture capital “game show.”
Aaron Krause goes From Black Sheep to Auto Aftermarket Mogul
Aaron comes from a very academically accomplished family. His parents are both successful doctors, both of his sisters graduated tops in their college class and went on to advanced degrees; one of his sisters even clerked for Supreme Court Justice Kennedy. Aaron Krause was the son who didn't care much for academics: he liked to take things apart and put them back together again. He even re-wired the family home when he was 13 so he could have a phone line in his room! He thinks he got his mechanical aptitude from his grandfather, who was a watchmaker. Krausse's inventiveness has rubbed off on his son who has a room in the house called “the invention room.”
After Krause graduated from Syracuse University, his father said to him, “now that we've spent $100,000 on beer, what are you going to do with your life?” His answer was to open up a car detailing business. With a little backing from his folks, he started the business out of his parents' garage, with the caveat that he needed to be out by the end of the summer. After damaging a customer's car while buffing it, Aaron saw the design of the buffing pad was the reason he damaged the car. “I've always been kind of a ‘crackpot engineer,'” he said, ” you either have an aptitude for that sort of thing or you don't. So I invented a better buffing pad.” Over the years, he began manufacturing his buffing pads in a facility in Folcroft, PA.
That little invention netted him a sweetheart deal with 3M corporation. He had a company called Innovative Accessory Products which made the buffing pad, The ShMitt, a brush to clean buffing pads, and several other items including what was to become Scrub Daddy. 3M wanted the buffing pad and the buffing pad only. “They certainly didn't have any interest in a $4 high-tech sponge, neither did a lot of people in the automotive after market; they preferred soap.”
3M and the offer you can't refuse
3M bought the patent for the buffing pad and acquired the manufacturing facilities, then approached Aaron Krause with an offer he couldn't refuse. He got bought out, then contracted with 3M to manufacture the pads!
Aaron Krause's business partner had no interest in working for 3M. “I was the inventor guy and he was the office guy. He didn't want to be an office guy for 3M, so my partner stayed on at Innovative Accessory Products. I bought him out back in 2011 because he had no interest in Scrub Daddy and wanted to do other things. We were partners for twenty years and the disagreement about Scrub Daddy was the only one we ever had.”
Aaron Krause, the “AHA Moment” and Patents
Scrub Daddy was originally created in 2008 for cleaning hands. Krause tried to market it to the automotive aftermarket, with no success at all. Back in 2011, things changed. “Business was a little slow, and I was doing some work around the house. I needed some sponges and I had a room full of these little yellow sponges at the factory, so I brought a few home. I was cleaning patio furniture and it did a great job. I left it in the sink and later that day I was doing dishes with it and it was like the skies parted! I thought ‘there's no way this thing will last,' but there it was, two months later, sitting in the sink. It hadn't broken down and it didn't smell; it was just smiling at me! It's made of a closed cell material, so it doesn't absorb anything that could cause it to smell or break down and it can be washed.”
Krause has a patent for manufacturing Scrub Daddy, but he also has something even better. “We make Scrub Daddy, but we buy the material from another company. Scrub Daddy is the exclusive distributor for this material and its composition is a trade secret. They aren't telling anyone how they make it. Patents can protect you, but if you have to disclose your formula. Another person can come along and change the formula slightly and have something that's close. With the Scrub Daddy material, it actually changes its chemical composition in the manufacturing process, so you can't reverse engineer it. That's a lot more powerful than a patent.”
Scrub Daddy on QVC
Aaron Krause is certainly a captain of industry in his own niche, but moving forward with Scrub Daddy was out of his comfort zone. “I have had a lot of success in the automotive aftermarket, but retail is a whole new thing. You have to go through five or six levels of buyers to get on the shelves of big box stores. It's a convoluted process. I have a friend whose family owns a few ShopRite Supermarkets in Jersey. If you own a ShopRite, you own a piece of their distribution company. He told me about how I needed bar codes for ShopRite, taught me about slotting fees and he introduced me to a broker. The process took about six months and when the broker presented it, we were rejected! My friend owned a piece of the distribution company and even he couldn't get Scrub Daddy on the shelf!”
Luckily for Krausse, a local reporter did a story on the Scrub Daddy that was spotted by an enterprising broker who puts products on QVC. After doing independent lab tests, which are required by QVC if you are making any product claims, Aaron was ready to roll and Scrub Daddy has sold over 100,000 units. Most sales are from QVC, but he also sells on the Scrub Daddy.
Aaron Krause on Shark Tank
The most obvious question I had for Aaron was: Why does a guy with so much success need to be on Shark Tank? “Really the decision to apply was due to the difficulties I was having getting in Big Box retailers. It's so bureaucratic and time-consuming, plus it's new to me. I figured the sharks, with their connections, could break through a whole bunch of levels of red tape. You can't just pick up the phone and call Bed Bath and Beyond and get on the shelf. As I learned with my initial ShopRite experience, it's not that easy. The Sharks can definitely help with that.”
“I follow and watch the show and think ‘I could do a better job than that.' I initially thought the Sharks just keep chasing the equity stake, but I realized if you have the right product and the right personality, you can negotiate. Even if you walk out with nothing, you get an infomercial in front of the whole country. There's always a risk that people will hate your product, but at end of day you believe in your product or you don’t.”
Aaron applied to be on the Shark Tank by email in late January, 2012. He didn't hear anything for nearly three months. “One day, while I was coaching my son's hockey team, my phone was ringing in my pocket. I didn't recognize the number, so I answered it. It was a producer from Shark Tank asking if I wanted to be on the show. This led to more meetings, then I was asked to send in a video. There are a bunch of specific questions they want answered in the video, but since I had already been practicing for QVC, I had an idea of what the pitch should be. After I got accepted, they sent me a 40-50 page contract which I gave straight to my attorney. He actually found some errors in the contract which I pointed out to them and they corrected. Then I signed it.”
“I think a lot of entrepreneurs go on the show with an idea of which shark they want to target and they practice their pitch to focus on that person or persons. The confidentiality agreement doesn't let me talk about what actually happens on the show, but I can say I practiced for what I would do when ‘a certain person' went out. It's funny that a lot of people are writing that I get a deal with ‘that certain person' but since I have an exclusive contract with a broker who deals with QVC, that ‘certain person' won't have any value with Scrub Daddy. I can also say that I will be on QVC Saturday morning at 10 AM eastern time. That appearance was already in place.”
The actual taping in Los Angeles was a bit surreal for Aaron Krause. “It was a bit uncomfortable meeting people in LA. Everyone was kind of walking on eggshells, afraid to break confidentiality. Nobody wanted to talk about what their product was, so there were a lot of generic conversations about the weather. I finally saw the SoloWheel guys with their product in the lobby because they couldn't really hide it anywhere. It was so cool!”
The previous negotiations with 3M gave Aaron Krause a lot of insight into the dealings in the Shark Tank. “Negotiating with a global mega-conglomerate is not easy. At that level of negotiations for acquisitions in manufacturing and consulting, they dig in and find out everything and use it as leverage. The Sharks do the exact same thing. They are incredible at digging to heart of the matter and they do it as well as any seasoned negotiators. It's intense.”
Aaron Krause moving forward
Regardless of what happens to Aaron Krause in the Shark Tank, he considers himself a success. His once skeptical parents are very proud too. “I was never ‘book smart' like my sisters, but I'm the only one in the family who has patents, so they go around telling all their friends. Plus, I'm the only one who has been on TV. It's awesome to have them be so proud of me” Krause is no longer the black sheep of the family. “It just goes to show you, you can make yourself a success in many different ways. You need to find what you're good at and enjoy doing it.”
I had one other question for Aaron Krause. He answers it on The Hot Dog Truck.