Derek Pacque is the founder of Chexology (formally known as Coat Chex, a franchise ticketless coat-checking system for events. Derek appeared on ABC’s Shark Tank (season 4), where he surprisingly turned down a $200,000 investment deal from billionaire investor Mark Cuban. Those of you who are familiar with the show understand why that moment was one of the rarest and most unusual situations in the history of the tank. In this interview, Derek talks about how he started the company and his reasoning for turning down this one-in-a-lifetime offer.
What’s the startup story behind Chexology (formally known as CoatChex), where did the idea come from?
Derek: The idea behind CoatChex was born in the bars and nightclubs of my college town, Bloomington, Ind. I loved to go out with my friends but could never decide if I should bring a coat or not because coat check stations were not readily available in any of the local venues. What was better: freezing in line or risking potentially losing my coat at the bar? After one such incident of losing my pricey coat, I knew something had to be done.
I consulted with the local bar and nightclub owners on why they didn’t offer a coat check. More often than not, venue owners viewed coat check stations as too time-consuming, too much liability, and too little additional revenue to be worth the effort. That’s what prompted me to start Hoosier Coat Check LLC, a ticketed system I ran at a couple of local bars. I began to learn all I could about the industry and gain experience. Hoosier Coat Check did well, and made $90,000 in sales with 50 percent profit margins. However, one thing stood out with this system – the tickets were a problem.
I began thinking of ways to streamline the coat check system and make it easier to operate and more efficient. It was clear the industry needed to undergo a revolution. In December 2011, I partnered with my business professor Gerry Hays and worked together to invent what we now know at CoatChex.
CoatChex is a company whose comprehensive, turn-key system – including the ticketless Digital CoatChex System and the mobile CoatChex Keg – allows for coat check stations to be more conveniently operated and managed at any event or venue. CoatChex is focused on bringing innovation and value through today’s technology to an industry that hasn’t been touched in decades. The patent-pending process optimizes coat check-in and retrieval functions and reduces the risks that I found to be commonly associated with checking coats, making it the hassle-free solution to running a secure, profitable, and efficient coat check station.
Why did you decide to go on ABC’s Shark Tank, and how has it changed your life and business?
Derek: Our initial reasoning for applying stemmed from a “why wouldn’t we?!” question. Maybe we went on the show too early, but we weren’t going to turn down the chance to pitch to the “shark” and have more than 7 million people see us. Since appearing on the show, we’ve received hundreds of requests to use our products at venues and events worldwide.
Tell us a little bit about the application process. What was it like when you applied for the show?
Derek: We created a satirical video comparison between myself and Mark Cuban; since we were both IU Kelley grads who started a successful business in college, my idea had made $50,000 in its first five months. We were one of 30,000 applicants, so we had no idea we’d made it on the show. Before we knew it, we were pitching to the “sharks."
Share some tips and advice for entrepreneurs on pitching new ideas to investors.
Derek: Aside from knowing your business model and its industry like the back of your hand, there are a few things we made sure we had a good grasp on before pitching to the “sharks” on the show. It’s important to be confident in your valuation of the company and be able to explain that valuation. Second, knowing what you’re looking for in a partnership is important (money or business partner, i.e.). Also, be ready to discuss a realistic split of ownership. How much is too much to give away? It all goes back to knowing what your business is worth, where it’s going and what you are really looking to get from the possible investment.
Looking back, if you could do one thing differently on the show, what would it be?
Derek: I wouldn’t change our process at all. We went in as prepared as we could be at the stage we were at as a business. We were confident in our valuation and knew what we were looking for, so when it didn’t line up just right, we weren’t afraid to walk away.
Why did you pass on the chance to close the deal with Marc Cuban, and do you still feel the same way today?
Derek: The timing just wasn’t right. We were still early in development, but we weren’t going to turn down the chance to pitch to the “sharks” and have more than 7 million of people see our product and service. As a startup, we want to continue to build our brand, test our system and prove our business idea. Handing over 33% stake that early wouldn’t have been the best decision.
I have a lot of respect for Mark Cuban, but the offer would give too much of our business away too early. For us, it’s all about timing, and it didn’t feel right. He has great connections and could do a lot for us, but we’re focused on CoatChex and how we can continue to prove and improve our ticketless and bailment systems technology. Maybe we’ll be in a position to work together at some point down the line.
What are some of the projects you are working on now, and what can we expect from CoatChex in the next 5 to 10 years?
Derek: Right now, we’re focused on signing new contracts with events, venues, nightclubs, and bars across the Midwest. We have several on board and hope to continue to grow our roster. Eventually, we see CoatChex as a franchise option for entrepreneurs wanting to start their own station. In addition to our coat check system, we plan to roll out our bailment system technology into other scenarios, like valet parking and dry cleaning, to name a couple.
Say I was pitching to the Sharks tomorrow what advice would you give me?
Derek: Know your business inside and out, as well as know its industry and its needs. You don't stand a chance if you can’t explain your product or service. Other than that, it’s important to know the value of your company and be able to build a case for the value you declare, and also know what you want from the investment, what you hope to get out of it and what kind of stakes you’re willing to give away.
What’s the most valuable lesson you’ve learned from this experience?
Derek: Building a company can’t be done alone. It is important to bring in the right people who believe in the business and in you…whether it is an advisor, teacher, employee or investor. If you have the right team, you have a better chance of building a business that lasts.
What’s your definition of success?
Derek: Success is being happy and solving problems while reaching life goals.
What is your favorite entrepreneurship quote?
Derek: “Entrepreneurship is living a few years of your life like most people won’t, so you can spend the rest of your life like most people can’t.” (Anonymous)
Connect with Derek Pacque on LinkedIn: DerekPacque