“Here’s my offer and it’s a little bit different….. sell it to me.”
This is how Robert Herjavec’s historic offer to entrepreneur and Shark Tank guest Logan Riley began. (You can see the video here, it’s two minutes long)
“I’ll pay you $500,000 for 100% of Rokblok, and I’ll hire you for 2 years with a 6 figure contract.”
Logan Riley took the deal, and walked away with a cool $500,000, plus a two year contract for at least $100,000, PLUS royalties on every Rokblok sold. It cost him ownership of his company and his invention. The only problem was, he had sold Herjavec a total piece of junk.
You see, Rokblok (a small, wood-framed car that drives around a record, playing the music) wasn’t new, it wasn’t GOOD, and it was hardly innovative. Worse yet, it would utterly destroy any record that had the misfortune of being played by it.
The “ingenius way to play records on the go” that Logan Riley had taken credit for was actually an invention from the 1970’s. The “incredible technology” that Robert Herjavec shelled out $500,000 for was just a reskin of a cheap novelty toy that could (badly) play records, called the Soundwagon. The only real innovation that Mr. Riley had applied was giving the box bluetooth capabilities, so that the terrible audio fidelity can be played on a wireless speaker or headphones.
How could this have happened? What was Robert Herjavec doing? Isn’t he an expert, an investing prodigy and a multimillionaire? Didn’t he do his research first?
It turns out that no, Robert did not do his research. He was so excited about this “new” toy that he didn’t bother to see if it had any competition (from the 1970’s or otherwise). He did not take the time to physically listen to the music the product could play, to realize the audio fidelity was incredibly poor (a MAJOR factor for audiophiles/record owners). Most damning of all, he did not seek out customer feedback on the product, which would have revealed the audio issues as well as the fact that the car was too heavy, and was severely scratching records it played causing irreversible damage. A full and critical review of the Rokblok can be found here.
Does this mean Robert Herjavec is not a genius and an intelligent business man? No, it means he is human. Robert fell prey to excitement and a basic instinct to trust others and take them at their word. His enthusiasm washed away his doubt and made him forget to ask the kinds of biting questions that need to be asked when evaluating an investment. “Is this product the first of its kind? Is there as similar product out there? How good is the audio fidelity? What has the feedback from the customers been?” etcetera, etcetera.
Robert left himself exposed and manipulable due to his passion. Robert is passionate about music, about records, and about toys, and this product hit the trifecta. But in business, it is a very bad idea to let your passions and emotions override your logic and reasoning. We see this kind of passion in investments all the time. It is NOT uncommon to see some very unusual stock picks in a prospective client’s portfolio. When asked “Why?” a regular answer is “Oh! I don’t really know much about them, but I really like them.”
While it is good to like or even love the product of the company you’re investing in, it just simply isn’t enough. I used to love going to the Blockbuster in town and picking up a bunch of movies with my cousins, but I knew investing in the stock would be a total disaster. My emotions and attachment were trying to lead me into a bloodbath.
The moral of the story is: While passion and excitement are excellent, you must be strict, diligent, and agnostic when it comes to putting your money into investments. Passion ISN’T enough, and numbers matter. Enthusiasm can buoy a company’s stock price for months or even years (I can think of a few serious offenders), but numbers are the ultimate arbiter of a company’s fate (and their reflected stock price). You must be disciplined in your approach if you are to be a serious and successful investor. If you’d rather delegate that task out to someone else, the disciplined and successful advisors of Dynamic Wealth Solutions are always happy to help.