Beddy's, based in West Jordan, Utah, offers a "zip up" bedding that enables children (and adults) to make their beds quickly and easily. Betsy Mikesell came up with the idea after seeing, first hand, how difficult it was for her young sons to make up their bunk beds.
When we were in the beginning, we were taking loans out on our cars and our houses. We were kind of maxing everything out. I was still working as a hairdresser and trying to get this started. Any extra is going to the business.
We had a person who was going to do work for us and help us with some product and they offered to do it – equivalent to about $50,000 – and they offered us a royalty deal in exchange for their services. We thought we would save money this way.
Flash forward about six months and we are growing like crazy. We funded $108,000 on Kickstarter and we did $250,000 in our first year. In order to continue growing, we had to buy more product and maxed out home loans. We looked at working with an investor, but the royalty deal scared them off. They thought it was basically like paying commission: If I say the bedding costs $100 to buy, I still owe the royalty to the vendor. I didn't know there was a negative side to the royalty. It cost us several hundred thousand dollars to get out of the royalty deal. So we had to use this investor's money to help us get out of it.
It was a painful thing to learn, but I now know I will never do a royalty deal again.
I will never do a royalty deal again.
If a deal sounds too good to be true, it most likely is. There have definitely been times in my life when people have come to us at the right time. That's what I thought this was. Had I consulted with other business people, I wouldn't have done it. Had I consulted with attorneys … you think you don't have the money, but it's going to cost you more to not have an attorney in the end.
Maybe a royalty deal could be good for somebody else; our deal was in perpetuity, so we had to buy our way out of it. It might have been good to set an end date. Turned out she'd make money when I'm losing money. They got their money regardless.
Follow Beddy’s on Twitter at @Beddysbeds.