Scrub Daddy: Aaron Krause. How a Failed Experiment Became a Billion-Dollar Sponge

26:11Edge Buffing Pads. And the company name was called Dedication to Detail, which by the way, my dad gave me that name. And then we bought this automated equipment and then we needed to move into a serious warehouse. And so we rented our first 3 ,000 square foot real manufacturing site. Right. So, all right. So, let's talk. So, now you've got – you're out of the car wash and detail business. Now you run the buffing pad manufacturing business. Give me a sense of how much you guys were doing in sales a year, like over a million, two million, or less. Yeah, we started, I'd say by 98, we were doing over a million, a million and a half.

26:51But I could see the writing on the wall, this was going to become multi-million dollars. We were going to be selling these. There's tens of millions of pads sold every year. And it's not something that you would use or many of the listeners may use. It's something that's used in every car wash, detail, body shop. It's also used to polish marble, airplanes, boats, statues. It's a huge business. All right. So you're doing pretty well selling buffing pads. And then I guess at one point, this is around 2006, you come up with an idea for a totally, would become a totally different type of product, which is not even for cars, but for cleaning your hands.

27:33So how did that happen? So I used to build all these machinery, all this new equipment, and I was the only one who knew how to fix them. Right. And I'd come back in the office and my hands were filthy dirty. And I used to have this white keyboard that I would type on. And I remember looking down one day and seeing it was covered in soot and grease. And I was like, geez, look at my hands. I need a better way to clean my hands. And I started out using different kinds of soaps like lava or gojo. Does lava soap still exist? I think it must still exist. I remember those ads in like the 80s and 90s.

28:08Like it was always like car mechanics or something, you know, in those commercials, like using the lava soap. Always car mechanics, right? Because our hands are filthy dirty. And I'm like a mechanic because my heads are like always under these machines and getting filthy. And I couldn't get them clean. And I couldn't use the soap anymore. I wanted to use my soap that smelled good and bubbled up and foamed. So I started experimenting with different materials. And then one day I just saw the wall of foam that we make our buffing pads out of. And I was like, I wonder if like our rough foam could scrub my hands.

28:43And I tried it and it didn't work, but it worked a little bit. The problem was I was using buffing pad foam, right? It's too soft. It's for rubbing on a car and not scratching it. I want something that's really going to scrub my hands. Well, I know every company in the world makes foam. So I send out a request to everybody. Send me the roughest, toughest foam that you have. And this company in Germany sends me this rock hard yellow foam. So I cut like a regular rectangular shape and I start scrubbing my hands with it. And it's hard to hold. So I cut a circle. And that was really easy to hold on to.

29:21And then I want to get my fingers clean. Because it's hard to go around your fingers with this big thing. So I cut a hole. And then I could stick my finger into that hole and just spin it. And it would scrub your whole finger all the way around. And I scrub my hands with it with regular soap, and it comes completely clean. By the way, I'm only using cold water because in the back of the factories, a lot of times you don't have a hot water heater. Right. So you're just using cold water out of the sun. Really fun in the winter. Right? Really fun. Yeah. And so anyway, it works great. It's cleaning my fingers beautifully, and then I want to get underneath my fingernails.

29:55So I cut some ridges on the top of it so it would fit underneath my fingernails. but it was hard to hold it. So I cut two holes and I put my two fingers in and then the sponge stayed on my hand and I could just power through my fingers. So you're doing this thing with this piece of foam and what, right away you're like, okay, this is it, this is great. This is actually what I've been looking for. Well, it needed to be a little bit stiffer and the pore size needed to be a little bit wider and it needed to be a little denser. So I contacted the company, I said, can you make this, can you do that?

30:27And they said, sure, sure. And they sent me prototypes and I made some scrubbers and they were the best thing I'd ever used and I love them and I use them every day. And then the light went on. What am I doing? I'm in the body shop industry. I'm selling to car washes and body shops and mechanic shops and detail shops. These guys all have dirty hands. We should make this a product. So we need a name and we're sitting in the office and I'm talking into one of my office managers and he's looking at it and it looks like two eyes and some hair. It looks like a radical skateboard guy maybe. And it looks a little bit like the GoDaddy symbol, you know, like the GoDaddy symbol with the spiky hair.

31:08And he's like, we should call it Scrub Daddy. And I said, oh my God, that is the best name ever. That was your reaction right away. Oh, right away. That's the best name ever. That's the best name ever. And you're thinking of this as a hand scrubber. It's only for scrubbing your hands. That's it. So really for the mechanics and auto detailers, like it's, again, it's for a very specific industry that you're thinking. Well, I'm in that industry, right? Yeah. That's what I know. I'm not even thinking outside of it. I'm like - You're not thinking consumers, right? No, and these are all my customers already.

31:39So, and that was it. We started trying to sell it and market it and no one wanted it. How much were you trying to sell one of these sponges for? So that's the problem. It's a really, we call it a highly engineered polymer, and it was made in Germany. So we had to ship it across the ocean, and then we had to cut it and shape it. And it was$4.50. And people are like,$4.50 for a brush to scrub? For a thing to clean my hands. My guys can use lava soap. Not only lava soap, but these guys, you're talking to the wrong market. Like, they don't care about dirty hands. They would rather go home with dirty hands and spend$4 on a sponge.

32:14And so it died. It died right away. No one wanted it. I had made 150 samples, and I'm a bit of a pack rat. I always save things I'm working on, and I think, oh, I'll come to this one day later. And I spend money on these, so I can't throw them out with good conscience. So I put them in a box, I labeled it scrap, and I put it in the back of the factory. So how long did you try and sell these? Did you spend like months on this? For a year. A year. Wow. And you put it aside? Put it aside. Yeah. It died. When we come back in just a moment, why Aaron eventually gives the scrubbers another chance and why he furiously hangs up the phone on the company that wants to buy him.

33:03Stay with us. I'm Guy Raz, and you're listening to How I Built This.

33:25Hey, welcome back to How I Built This. I'm Guy Raz. So it's the mid-2000s and Aaron has shelved his idea for a hand scrubber, but he's still designing lots of other things for the car industry, including something that'll become a hit product. We had created the first double-sided buffing pad with a quick connect, disconnect, automatic centering, reversible adapter. You'd snap it on and it was like smooth as butter. And I thought this was game changing and it was industry changing. And one of our customers who was a big chemical manufacturer in the detailing business, they saw the technology and they wanted the exclusivity for this system.

34:13They wanted to exclusively license it or not to buy it out, just exclusively. So they basically, they liked it and they said, all right, we'll do a deal with you, but you can't sell it to anybody else. We're going to be your only customer. Yeah. Which is not, it could be great, but it could also be not great. It was not great. It was, I was foolish and I signed a worldwide exclusivity for this technology for very, very low minimum quantities. And you did that because? Because I was, well, I was desperate. To be honest, at that point, I had dumped a huge amount of money into this project and we needed to get sales out of it.

34:47I mean, I had put the company in a little bit of a financial stress point. So how long was the deal that you signed with them? It was in perpetuity as long as they met their minimum requirements. And that became a real major issue for us. Okay, I guess we should explain why this became a major issue for you because something else was going on, right, which is that 3M, which is this massive manufacturing company, they make everything from post-it notes to scotch tape and so much other stuff. They also wanted to license some of your products, right? I mean, they sold buffing pads too, and I guess your pads were eating into their market share.

35:34Yes. And they came down and I toured them around my factory and they see this machine that I built, this fully automated machine that makes buffing pads. And I watched the 3M engineer's eyes like blow out of his head. And he was like, where did you buy that? And I said, I didn't, I built it. He was like, you're kidding me. And I was like, no, I built it. He's like, could you build another one? I'm like, yeah, of course. And from that point, the discussions about them wanting to license our technology or use our buffing pad technology somehow turned into we want to buy the company. We want to buy dedication to detail.

36:14We want to buy dedication to detail. But there's a problem because the license to your Hero product is – somebody else has it in perpetuity. Correct. It's a huge problem. So it must have been agonizing when 3M was like, we're interested in acquiring you. And then you had to tell them, well, this is the situation. And I guess what their response was, ooh, that's tricky. Yeah, they said, that's tricky. That changes the equation here. Yeah, they said we're not going to be able to probably move forward. So I'm pretty devastated because I know this is the future of the company and it needs to be sold to 3M.

36:57But I'll say this. I didn't have a deal with 3M. I had nothing. They had expressed an interest and I saw the interest and I needed to be able to have the ability to do that. But I also needed to keep running my business as if it would never happen. And I start looking through the contract. There's got to be some way out of this contract. So I said, listen, guys, we need to renegotiate this contract because it's really egregious. Like you have the worldwide exclusivity on a product. You have this in perpetuity and for minimums that are not even 1 % of the market share. Like none of this is fair.

37:34And in that negotiation, I just need to find a way to make sure there's a clause that if someone wants to buy me, there's a way out. And the way out, I let them negotiate themselves. I said, like what happens in the case that a company buys me? And they said, we want this amount of money paid to us and we want 12-month supply at a locked-in price. And then if that happens and you get bought out, we'll let you down. All right. So you managed to get out of this exclusive contract, which finally, I guess, allows you to start talking with 3M about an acquisition. And I think you negotiated with them for like a year, right?

38:16But from what I understand, the back and forth was pretty heated, right? Like this did not go smoothly. No. 3M and I had a very contentious negotiation and due diligence. The major sticking point with 3M was the price. Like they – I distinctly remember this. They have this thing called the zip code conversation. and it's when you get to the point with 3M that they're going to buy your business that they throw out a number and you see if you're in the same zip code and if you're not in the same zip code, the conversation's over. And I told them from the get-go, guys, I know our sales aren't anything huge, but I'm not selling the company on our sales or our EBITDA.

39:01I'm selling the company based on a technology that's going to change the entire industry that I own the patents for the next like 15 years. But their formula, and I'm sure in any acquisition is clear, It's EBITDA, look at multiple of revenue or EBITDA, and they're looking at your business, and they're saying, okay, here's a multiple of that. Yeah. Well, I told them if you do that, the conversation is over and I'll hang up on you. And the day that we had our zip code meeting, they called me up, and I had forbidden them to talk about EBITDA. It had to be about the value proposition of what I was bringing them.

39:36And I get on with these finance guys. And the guy goes, so, Aaron, based on EBITDA, we're going to – and I hung up. I hung up. And they called back and said we got disconnected. I said, no, we didn't. And the conversation's over. Goodbye. And the business guy called me up and said, Aaron, I don't understand what happened. I said, I told you, do not come with that number. I'm not interested. If you're going to base it on EBITDA, there's nothing to talk about because our business is just getting off the ground. I'd rather keep going and I'll take all of your market share. And then we can talk about a multiple then.

40:08So he said, Aaron, what if we doubled the number? And I said, not even close. He said, triple the number. I said, you're getting closer. He said, triple the number and we'll buy some of your accessories. We'll make a contract to buy accessories from you as well. And I said, okay, now we have a conversation. We started getting into that, like the depths of like what that number is going to be. and they were like, Aaron, you need to justify, we have a board, we're shareholders, we're a public company. You need to justify literally every asset you have. And so I have to go through a list of everything, the desks, the computers, the patents, every piece of equipment.

40:49And I have a patent on this thing called Scrub Daddy. I got a patent for the next 15 years for this hand scrubber. And I'm going through a list of all of these things that I have patents on. I have a patent on a brush that has an ergonomic shape that helps you clean the buffing pads that I invented called the edge conditioner brush. And I got a patent. I patented an apron that has Velcro cord holders. So when you're buffing the car, the cord doesn't fall and get wound up in the machine that's spinning at 2 ,000 RPM. And how many patents did you have? More than 10, 15? I had seven or eight at that time.

41:22Okay. And you have to justify all the assets you have because you've got machinery that you've created and you've got this buffing pad. And then the hard assets like office equipment, right? You've got to justify to them so they can go to their board and say, hey, here's what he has. And here's why the company is worth this kind of money. And the patents were like the most important, right? Because you get a patent for a set period of time. You own the exclusive rights that you have a monopoly and you can make your killing in that period of time. And so I'm like, well, I have a patent on this brush for the next 15 years.

41:56And they're like, yeah, not interested in that brush. You can just minus that off for the deal. Oh, you thought that brush was worth a million dollars, Aaron? Minus$1 million. Oh, this apron? Really cool idea. By the way, not interested. Minus a million dollars. What's this thing? Scrub Daddy for cleaning hands. What are your sales? Zero? Yeah, minus that off. They went through and carved out five items and said not interested in any of them. And they went through this list and literally showed me the math and said, okay, so we're taking these out. And here's the number you said you'd sell the company for.

42:28and we're taking those items out of the deal. Those are valuable. And you agreed on that price. What was I going to say? I said, oh, I guess you're right. I guess we have a deal and we'll sell the company. I know the number's undisclosed, right? But are we talking about somewhere between$5 and$20 million? Yes. Okay. All right. It's double digit millions. Okay. So they said, we don't need this. We don't need that. This is really what we want. And among the things they did not need was the scrub daddy. Correct. And they're carving that out of the deal. And did you care? I mean, but at this point, you weren't like, ha, ha, ha, carved it out.

43:10You were just thinking whatever, they don't want it. No, I thought it was kind of trash too. Nobody wanted it. It's sitting in a box collecting dust. Like, yeah, of course they're not going to buy that. And I think at one point they were like, we're not paying you for it. If you want to leave it in the deal, sure, we'll take it. And I was like, no, if you're not buying it, we're taking out a deal. I'll start a separate company. I'll make an accessories business and I'll sell my accessories to someone else. Right. So you piece together a deal that is acceptable and you and your partner, finally, you both get some cash out of this deal.

43:45So this is the craziest thing. I sign the papers, the money transfers. I literally go from not just paycheck to paycheck, because some weeks I didn't get a paycheck, to I'm a multimillionaire, like immediately. And it's the most shocking. I spent all weekend opening up my bank account and just looking to make sure it was real. Looking at those zeros, yeah. Just to make sure it was real. And we had a great time that weekend. We went out, did a bunch of great dinners and exciting. And you had two kids by this point. Yeah, I had two little kids. I think they were like three years old or something like that.

44:24Because this is, you are 40. You're almost 40 at this point, right? Yeah. Yeah. And on Monday morning, I come into the office and I get a call from the lead M &A guy that we've been doing the whole deal with. At 3M. At 3M. And he says, oh my God, you are the luckiest guy I ever met. And I said, why? because I sold my company to 3M? And he goes, no, because I'm reading a memo from the CEO of 3M, and it says, shut down every acquisition, the world's coming to an end. And that was September 1st, 2008. Financial crisis. And the entire markets just began to collapse. And we were completely insulated because we had sold the company and I had a contract with 3M to keep working with them.

45:15As a consultant. As a consultant. And when you're acquired by a company with a prestige of 3M, it's life altering. And I was so proud to work with that company and go to headquarters. And then I learned a lot about how corporations actually function, like big corporations. And I can't tell you how valuable that is to me now that I'm running a much larger organization. It sounds like you, I mean, it sounds like you really took this job and, you know, in good faith and really like, if I'm reading between the lines, you kind of felt like, I really want them to know that they made a good decision.

45:50I'm glad you said that because I have a lot of passion around, like, that's my reputation. And I felt like, you know, they bought this business and they did pay a huge multiple. I mean, a very, very double-digit multiple for this business. And I was like, I'm going to prove to them that they got not just what they bought, but every dime of it. And I also had a consulting contract. And I guess part of the agreement, right, part of the way you could make this deal work was they allowed you to do your own side work. Like you were a consultant for them, but you could start another business if you wanted.

46:28And I guess they had already agreed that they would buy products from this new business, right? Exactly. So you hit the nail on the head. They knew I was starting a new business because they were already a customer of it. And so I was running the same factory for them. And under the same roof, I was running a totally separate company called Innovative Accessory Products. And it was probably the most incredible deal ever because I don't have any issues anymore. Like all I had to do was run the business. I didn't do the marketing. I didn't do the sales. When the machine broke, it was their machine.

47:02I called them up and said, your machine broke. It's not my machine anymore. And it's going to cost, this is how much the new motor is. But I had to go and fix the machine, make sure that the place was operating. And I had to transfer all the knowledge to them in year one and year two. And I had several requirements that we had to achieve in order to get paid out our full earn out. and some of them were that we had to hit a certain sales number um you know and combined like of my new products we had to sell this amount or i didn't get paid out millions of dollars and that's where i that's where i learned the frustrations of working for a multi-billion dollar conglomerate um you know it's it's mired down in red tape and politics and it was extremely frustrating for someone as entrepreneurial and ADHD as me.

47:57And so there was parts of it that I loved. And then there was parts of it that were like extremely frustrating for me. Okay. So you've got this going and you're working for 3M, but you've got this side business. And 3M was your main, one of your, probably your biggest customer really for that side business. So they were our biggest customer side business, not our only customer, but our biggest. And interestingly enough, one of the products that wasn't selling was the sponge called a scrub daddy that was sitting in the back that no one had wanted. But we were selling the aprons and we were selling the conditioning brushes.

48:34But the scrub daddy you were not selling. No, no one wanted it. But it was on your mind clearly because you brought it back out again, I guess not to sell, but just to kind of use, right? Tell me what happened. Because from what I understand, this happens around 2011, where you kind of take these scrub daddies that you'd made in like 2007 out of the box and you start to play with them again. So that's exactly right. Like they're sitting in the box collecting dust. Every once in a while, I probably grab one over the years to clean my own hands, but they last a long time. So I wasn't pulling a lot of them, maybe one or two a year.

49:14In 2011, my beautiful wife was nagging me to clean the lawn furniture because it was going to be spring soon. And the lawn furniture sits out there and gets all moldy and gets allergy on it and stuff like that. So I started out using a traditional sponge. It's that yellow, stinky sponge, and it's got that green scour on the back. I know the sponge well. And it scratches scratches things really easily. And I'm scrubbing this furniture and it's taking the paint off. And she's out there watching and she's like, you're scratching the paint. What are you doing? And I was like, oh, shoot, I can't use this.

49:50What am I going to use to scrub this stuff off? And I remembered this box of rock hard scrubbing things at the office. And I thought, I'll bring a couple of those home. And so I brought two or three of them home and I made a bucket of hot, soapy water because it was 50 degrees out and I didn't feel like working in cold water. And I had never really experimented with hot and cold temperatures with this sponge. It was always in the back of the factory scrubbing my hands with cold water. So I dunked it into this bucket of hot soapy water and it went completely soft. It literally squished down like a regular sponge and I took it out and squeezed it a bunch of times.

50:31And I was like, well, it's what I have. Let me try it. And I started scrubbing with it and it started cleaning and it wasn't, it was pretty good, but it was 50 degrees out. And so the longer I had it out, the harder it got, it started to crystallize in my hand. And the cold air was making it rigid and firm again. Correct. The cold air was changing the sponge into a harder textured sponge. And the harder it got, the better it scrubbed. And then when I took it with all this dirt and muck in it, I would put that back into the warm water and it would go completely soft and I'd squeeze it and everything would rinse out of it.

51:11I did all the lawn furniture and held it up and looked at it and it looked like I hadn't used it. It was brand spanking new. So that night I go to do the dishes. And I'm scrubbing around the kitchen with a regular sponge. And I see this thing sitting there. And then I remembered that texture change thing. And I thought, I wonder, does that work in the sink? And so I made it warm and I started scrubbing some stuff. And then I made it cold. When I made it cold, it scrubbed all the burnt spaghetti sauce off the plate in two seconds. And now I'm going into my engineering inventing mode. And what I'm noticing now is that everything is round.

51:54Pots, pans, plates, coffee pots, muffin tins, casserole dishes. They're all round. Why are we using a rectangular sponge with edges? Because this is getting all the way to the sides of all these things and it's the perfect shape. So you're cleaning the dishes, right? You've already cleaned the furniture. I mean, I would be thinking at this point, I should revisit this thing. This thing is actually, this is interesting. I mean, is that what you're thinking that night? I'm enjoying washing the dishes and seeing it rinse clean. And I look at it and I'm like, oh my God, if it had a smile face on it, I could clean the silverware on both sides.

52:38And I grab a steak knife and I cut a smile in it and I stick the spaghetti spoon in the mouth and I squeeze it and pull and both sides come clean at the same time. And when I tell you this, I honestly heard the angels start to sing. I like heard like, I was like, oh my God, we missed it. This has nothing to do with you cleaning your dirty hands in a body shop. This is the greatest kitchen scrubbing tool in the world. I just need to market this differently. And that's when Scrub Day 2.0 was born. Okay. You go back to your office, which is you've got your business with your partner and you've got the 3M buffing business.

53:23Did you, I mean, were there still people, presumably there are people working there who remembered when you tried to sell this in 2008, 2007, 2008. And did you say, hey, guys, do you remember this thing? or tell me what you did. Well, remember, I told you, like if you go back into history, I'm constantly inventing new crazy ideas and concepts. So people are always like, Aaron, are you kidding me? And this is crazy idea. You come up with another one. And then my poor partner, like I would, we'd finally make money. I'd be like, wait, I got a better idea if we do it this way. And then we got to reinvest all the money again and then there's no money.

54:02So yeah, I knew it was going to happen. And I went to my business partner and he said, I don't like it. I think we wasted a lot of time and money on it before and 3M didn't want it and I'm not interested. And I said, well, look, we got to move forward with it. It's a great product, great idea. And I know it's going to be successful. And he was adamant that we're not going to do anything with it. And I kind of felt his pain because for 18 years, I had made him spend every dime that we ever made in profit plowing it back into something. And he could see the writing on the wall. here we go again.

54:37Aaron's going to make us do this. And I was like, no, look, we'll each put in like 75, 100 gram and we're going to start this whole new thing again. We need advertising, marketing, branding, packaging, and we're going to blow this thing up. And he was adamant that he was not going to do it. And it's a really sad story because we had our first real blowout fight ever. We had 18 years, we had never had a fight. We'd always gotten to discussions and they could get, you know, hey, I want to do it this way. But ultimately, it always resolved. We got into a yelling match. So what happened? Did he eventually agree that you should pursue this?

55:17Well, I had the right to make the final decisions on everything as the CEO of the company. And I pulled out the shareholder agreement and I said, here's the deal. You're a 50 % shareholder and I'm a 50 % shareholder, but I have the right to make the decision on this and I'm telling you what we're going to do. And, uh, and he was, he was very unhappy with that. And he opted to leave the company. So I, I had to, I had to buy him out of, of, uh, innovative accessory products. And, uh, I had to make a go of scrub daddy on my own. And did that end your relationship? And I guess you could say it did.

55:58We had a really great talk. The day that I gave him the check and he departed the company, I did say to him, and I have the exact words, I'll never forget it. We smoked these cigars that we had bought years ago in Hong Kong. We got these Cuban cigars and we thought one day we're going to smoke these. And so I said, well, I guess this is the time we're going to smoke the cigars. And I said, you know, I got to ask you, we did so much great stuff together and we grew this whole business and you know me, like I'm never going to stop until this thing becomes something. And he says, yeah, I do. I know you.

56:30And for 18 years, you plowed every dime we ever made, you know, into the company and we finally did it. And I have money and a nest egg and I want to, I want to go and do things on my own. And I want to invest in other businesses now. And, you know, I don't want to, like, start a whole company over from scratch. And I said, okay, I respect that. And with that, you know, we shook hands. We hugged. And he went on his way. And he never really looked back. And we didn't really keep in touch much after that, to be honest. All right. So now you've got this conviction in this thing and in this product.

57:11And you're really, for the first time, going to go into consumer products. So I guess the first – I've got a bunch of questions about this. I mean the first question I have is you had patented a design, right? You basically patented the design of this sponge. But the underlying material was not yours. You were going to have to depend on this German company to give you the material. So in order to protect your product, did you sign an exclusive deal with them? Like what did you do to make sure that somebody else couldn't just get this material and just cut it in a different shape? Exactly. I negotiate with the company and get an exclusivity on the material.

57:56They can't sell it to anyone else but me. And it turns out for some very specific reasons, no one else can make it. it's literally locked into this one particular facility in Germany. It's kind of like bread. You ever eat bread at a specific bakery? It's always different than the next bakery. And certain bakeries, they make a special bread and it comes down to their processes and their ovens and their temperatures, but it's very specifically at that facility makes that bread. And that's how I can liken it. This company had some technologies that this wasn't going to be easily copied, and now I own the exclusivity.

58:33Basically, so the deal was they would send out the raw material and you would cut them into shapes in the US. So it actually started in my own facility. Like I cut foam for buffing pads. I had all the equipment. And so they would send us the material and we would cut out scrub dies one at a time by hand. And we created, I spent$150 ,000 on packaging and logos And I created this beautiful product in a bright orange box called Scrub Daddy. And I started calling all of the retailers. And let's just pause for a minute. Because your relationships were with people in the automotive industry, detailing and body shops.

59:16Like you didn't have – I imagine you didn't have relationships with like the Walmarts or Targets or Kroger's of the world, right? Zero. Bro, not only did I not have contacts, I had no experience in this market. I mean, I was in the OEM industrial professional world. And my thought was I called Walmart. How far do you think you get when you call the receptionist from Walmart? Right. I mean, this is 2011, right? This is early days of direct-to-consumer, right? This is really when it's starting to become eventually what it would become. I know you sold them on a website, but did you think, all right, this is the way we should do it?

59:53Let's just try to sell it online. Sure. We made a website, but there was no virality at that point yet. You know, there was not TikTok or Instagram and maybe Facebook was just getting going. And we made a website. I would tell my friends, you know, go and buy a scrub day. But it wasn't, nothing was happening. You needed to get into a store. I needed to get into a store. Okay, there was, so you've got this product. Where did you get, like, who gave you a chance to put this in a shop? So after I contacted everyone from Walmart to Target to Lowe's and Home Depot and Kroger and couldn't get past the receptionist, I went to a friend of mine whose family owns five ShopRites.

1:00:37It's a local, it's a small chain, maybe 250 grocery stores in the Philadelphia region. And I went to him, I said, hey, I got this new product and, you know, it's this awesome sponge. And I showed it to him and he said, yeah, you know, it's not going to sell. And I said, oh, no, you're wrong. It's a bright yellow smiley face in this neon box. There's no way it's not going to sell. And he said, all right. So he went to the shelf and he just moved some sponges over and put it on the shelf and said, we'll see. So give me the price. And I told him it would be$3.99. And he asked me what he can buy it for.

1:01:11And I had to give it to him for less than half. And so he could make money. And we put it on the shelf. And I walked that aisle for 10 hours a day waiting for a customer to buy it. You know how many people bought it? How many? Nobody. Everyone would walk down the aisle, wouldn't even turn. Their hand would go out and grab the old Scotch-Brite sponge that their grandmom's been using and just keep going. And I went to my friend, I said, wow, you're right. I mean, no one's even looking at it. He said, look, no one's coming to the store to look for the latest in sponge technology. They're coming here for their eggs, their milk, their cheese, and maybe a sponge and they're getting out of here.

1:01:50He's like, the only way you're going to get interest is if you set up a little display and do like live demos in the store. And I'll give you some space. Do you want to try that? I said, yeah. So I built this little booth with hot and cold water and a couple of pans and a mug. And I wouldn't let you walk by me. I mean, if you were walking, I mean, ma 'am, ma 'am, I got to show you this. You're not going to believe this. And I would do a demo. and every person that saw the demo bought one or two. And then after a couple of weeks, people would come back and tell me, I have never had a sponge that I love so much in my life.

1:02:26And my friend came to me and said, Aaron, I'm used to selling like two, three sponges a day. You're selling a hundred. You need to go to every one of my stores, all five of them and sell sponges. But I couldn't do that because I was running another business. Right. And you couldn't constantly demo. And even if you're demoing in one shop, right? I mean, it's not enough to - No, it's not scalable. Right, no. Not scalable. And then I did the math and I couldn't even pay someone$10 an hour because I'm not making the$3.99 price. I'm selling to him for like$1 or something. They're making all the profit.

1:03:01And I was like, oh, this is crazy. I can't even pay someone to do this. What am I going to do? And it was frustrating, but I was really busy. I was making buffing pads for 3M every day. I was running a factory that runs 24 hours a day. So I mean, I was occupied, but I was really sad because I felt this had a lot of potential. And then one day, and you remember this is 2011, I'm in the middle of another recession. And if you remember 11, we're teetering on what they think might be depression. and there's all these stories that are coming out in the newspaper and the local paper is called the philadelphia inquire here they have like a million and a half uh followers and um they're writing these articles about how bad the economy is and how many people are losing their jobs and china's taking our jobs and we might go into a depression and i i instantly i'm like i they need to write a positive story so i i call up and i got through to an editor and i said hey i'm a business in the Philadelphia area.

1:04:00I'm an entrepreneur and inventor. I'm creating more jobs in the Philadelphia area. And I have this new product called Scrub Daddy that's going to be the greatest kitchen sponge. And they said, oh, that sounds interesting. They came down. It was supposed to be an hour interview and I wouldn't let them go. So they spent the entire day with me and they wrote an article on the front page of the business section on the Sunday Inquirer that hits 1.5 million people. And it's my big smiley face holding the sponges. And it says he's the daddy of the scrub daddy. And the phone started ringing off the hook.

1:04:34And I said, here we go. It's about to start. When we come back in just a moment, the phones may be ringing off the hook, but sales are still pretty limited and local. And Aaron has to figure out how to get scrub daddies in front of a bigger audience. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

1:05:14Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2011, and Aaron is finally starting to sell some scrub daddies because of a story that ran in the Philadelphia Inquirer. And pretty soon after, he gets a phone call. The guy calls and says, hey, I saw the article and I love this idea. Have you ever thought of selling this on QVC? And I said, like, home shopping network? Like, no one's going to buy sponges on that. And he said, oh, no, you'd be surprised. You could sell millions of sponges on that. And I was like, so do you work for QVC? He said, no, I'm a broker. I said, well, how's that work?

1:05:52He said, I can get you into QVC and then I get a cut of everyone you sell. And I said, well, isn't QVC down the street from me? He's like, yeah. I said, well, why would I just go there and try to get in myself? And he said, sure, go ahead and do that. Here's my number. And when you can't get in, give me a call. So I went to QVC. I got booted out the door in 10 seconds. They told me go online and fill out a form. Request, yeah. Yeah. I filled out the form. I was rejected within hours. It said, this doesn't meet any of our marketing criteria and wouldn't sell on TV. Best of luck to you. So I called the guy back and I said, well, I can't get in.

1:06:33Why do you think you can get me in? And he said, because they say no to everything because everyone wants to sell on QVC. So they rely on a network of brokers and we waste our time and our reputation to bring a product to a buyer that we know could sell on TV. And I think this could sell on TV. So I said, okay, we'll give it a shot. So you get this opportunity to be on QVC. And from what I read, you know, and this is normal, it took you, you know, some time to warm up. But like many products ago on QVC, it did pretty well. Like you reach a national audience and it was probably huge. for Scrub Daddy.

1:07:17Can you estimate how much you sold as a result of your QVC appearances? Well, to be honest, on the first show, I failed. I was like a deer in the headlights. And so I didn't know what to do. The cameras are all turning on and off and the host can see I'm nervous. So she took the sponge out of my hand and tried to start doing demos herself, which you couldn't do. I got through no demos. And I think they had brought in 20 ,000 sponges, maybe. And we only sold 40%, which is a fail. And when you fail on QVC, you don't get a second chance. It's airtime they gave you, and they just kick you off. And my broker was livid and was like, you didn't sell enough.

1:07:57They're kicking you off air. And I was devastated. I thought that was the end. And I got really lucky. The broker called me up after I failed and said, I've never seen this in all my years at QVC. He said, I just got a call from the buyer and the producer, and they loved your energy and the product, and they wish that you had more time to talk. They're going to give you another show. And so I got a chance to sell the other 60%. And every time I went on, they would reorder like 30 % to 40 % more and give me another show. By the fourth show, I loved it and I was addicted to it. I mean, there's a high because they're talking in your ear and the producer can tell you, oh my God, great demo, Aaron, a huge spike in the phone sales.

1:08:44You just got a thousand people on the phone and it builds you up and you finish the show and you sell out of all your inventory and you're on cloud nine. And then the sales are incredible and then QVC reorders. And by the fourth show, I'm directing the show. I'm telling the cameraman which angle to come in and how to show the product right. Wow. Okay. So this was like – and I think a lot of people see QVC and they assume that's it. You're set. But that's actually not really the case. And I think that even with that success, you had a tough time getting Scrub Daddy into – you still couldn't get it into stores.

1:09:25Yeah. At that point, none of the retailers still would call me back. And the only place we were selling was at QVC and in five shop rights. So could you theoretically just have kept doing it on QVC and even if you didn't get to stores? 100%. I mean, would that have been enough to create a sustainable business? It would have been a spike and then a saturation point. And then the minute that you had a bad show, you would have been kicked off. Yeah, you needed to get into stores. 100%. All right. So this is where, and a lot of people know this part of the story or may be familiar with, this is where Shark Tank comes in.

1:10:06Because I guess you are a fan of Shark Tank at this point and you start to think, well, if I'm going to get more exposure, maybe I should try to get on Shark Tank. Is that what you start to think? I think it was the QVC that did it. I started having television experience and being really comfortable in live TV. I would have never thought to apply for a show on television before. But now I'm not watching Shark Tank like a regular viewer. I'm watching it like, oh, my God, look at that camera angle. Can you imagine I could do a demo in front of 7 to 10 million people? It's going to be the best show ever.

1:10:41And I'm bragging to my wife that I should have been a TV star. And I turned to my wife. I said, I could go on this show and kill the sharks. And I took my phone out and started searching, how do you go on Shark Tank? and I found a website and I just filled out an application. And the best thing was I told them, here is a link to my QVC, my last QVC show. You can go watch how I do on TV. And they, obviously they responded and they invited you to film an episode of Shark Tank. From what I understand, your hope was that you would do a deal with Mark Cuban because he was the guy that you thought could really help you make this into a nationally known product.

1:11:21Well, I thought we had a lot of synergies. You know, we're both entrepreneurs and he's like the billionaire of the show. And when I looked at the show, it was, you know, Barbara, real estate, and Damon is fashion, and Kevin was, you know, nasty, and Hershovic was technology. And Mark is like sports and entrepreneur, and everybody knows him. He's a celebrity. I'm like, I'm going for Cuban. So you pitch. He's not even interested. in this product? It was a very shocking experience. I mean, I went in extremely confident into Shark Tank, except for I didn't know Lori was going to be in the show. And the producer told me that an hour before the show, that they had subbed Barbara out for someone new.

1:12:03And this person gets products on the QVC and I'm already on QVC. So you don't need her for that. Yeah. Well, I don't need her for that. I went in and I did what I thought was a flawless pitch. and Hercevic starts out and tells me he doesn't see the retail value and he's out. And I was like, are you kidding me? This is going to be a huge retail product. I'm like, you know what? He's in tech. He doesn't understand. But then Mark started telling me that I was just a one product company. I'm like, you don't understand. I'm an inventor. I actually said to Mark Cuban, you don't understand who you're dealing with.

1:12:37And he said, look, you may be the scrub daddy, but I'm not a scrub pimp. So I'm out. And the only comeback I could think of to that was that hurts Mark. I really wanted to work with you really bad. Yeah. And with Lori, it became really obvious that we were like kindred spirits. Not only is she on QVC, but she's a product presenter like me and she has a hundred patents and I, it instantly made sense for me, but she actually called me out and, um, And said she thought that my pitch was a fraud. She said, I just watched your pitch different than everyone else did. And you used two different sponges and two different weights to show the texture change.

1:13:18I think one of the sponges is hard and one of them is soft. Or one of the weights is heavy and the other one is light. And I was like, no, it's 100 % real. And she said, fine, let me come down off the set. And she came down, standing right next to me. And she starts dipping into the hot and cold water. And all the sharks are screaming, Lori, does it work? Is it work? And she's like face to face with me. And she goes, oh, my God, it's magic. And I'm looking at her. I'm like, oh, my God, you might be my shark. And I can't wait for that to air on the episode. But they cut it from the entire episode.

1:13:49Because they want to make it more dramatic, probably. Yep. They knew that they knew we were going to do a deal. So you end up doing a deal. Well, you're I think you offered like one hundred thousand dollars for 10 percent. Yeah. And people listening to the show know that the deals that are brokered on the show that we see are not actually the deals that get finalized because there's a lot of negotiation and lawyering and papering. And oftentimes it doesn't resemble what you agree to on TV. But Lori Greiner, clearly, I mean, it makes total sense because she – this is what she did. She sold things and made things and invented things and sold them on QVC.

1:14:29She's interested and she wants to do a deal with you. Absolutely. Absolutely. And you're 100 % right. The deals, just like every deal, you negotiate for a house, and then you make a deal, and then you go do an inspection, and the deals change. So I think Shark Tank is very real like that. When 3M came to buy my business, then they made an offer. That whole deal changed by the time we got through due diligence. So it's totally accurate. That episode, I think you filmed it earlier in 2012, and it aired in October of 2012. And when When it aired, tell me what it did to your sales. Oh, my God. We did a million dollars the night the show aired.

1:15:05Wow. It was the most transformative thing that could have ever happened to the company. And I already heard the stories, the scare stories that you air on Shark Tank and your website blows up. And so you better have inventory and you better have backup servers. And we had all of it. I had IT people sitting there watching. And when the traffic got too heavy on one site, they flipped it to the next one. And I had the inventory ready made in our factory waiting for the show. And the Bed Bath & Beyond person that wouldn't talk to us before called us. And Walmart called us. And Lori was really gracious.

1:15:40And she joined a bunch of the calls and brought star power. And they were like blown away and instantly took the product in. And then she would have other experiences like with other entrepreneurs that she had. And she'd be like, oh, call the target buyer. I know that person. And she'd give me the number and I could just call them and take it from there. And then things just blew up and she turned into like monster celebrity and she invested in all these companies. And she was like, Aaron, you good? You know what you're doing? I'm like, Lori, I got this. And now we're like more like good friends than she doesn't like get involved day to day with the business.

1:16:12She doesn't need to. Yeah, makes sense. All right. So it sounds like at by this point, right, Scrub Daddy is really starting to take off. But meantime, I mean, you are still working for 3M. You've still got a pretty big job there making the buffing pads and you're running the separate accessories business. So how are you doing all of this stuff and Scrub Daddy at the same time? Yeah. So by 2014, I was out of horsepower. I couldn't run the 3M thing at the same time I was running Scrub Daddy, and I had to make a choice. And Scrub Daddy was exploding, and it was much more lucrative, and I couldn't control my own destiny.

1:16:54And that was really big for me. And I told 3M, I won't be renewing my contract and I'm moving on. And by that time, we really started to understand the retail landscape. And we understood you can't be a one product company. You need to create a brand block. And so even on the show, if you watch the show, again, we were talking about Mark Cuban. Mark Cuban says to me, well, you're just a one product company, right? I'm like, not for long. We got Scrub Mommy. We got Scrub Baby for doing baby bottles. I got a holder. So I was already thinking this way. And then we came out with Scrub Mommy. All based around the same foam material?

1:17:31Yes. So Scrub Mommy is a double-sided foam. So instead of just being the hard scrubbing texture changing sponge, we put a really soft absorbing sponge on the other side that wasn't cellulose, that didn't smell, didn't stink. So it was still a unique material. And to this day, Scrub Mommy outsells Scrub Daddy by about 10 % in every retailer. and i'm wondering when you even when you get them into stores right how are you able to like by 2014 or 15 like how are you able to get people to still know what it was because shark tank is there's an audience right but if you hadn't seen shark tank and you weren't familiar with that episode and you just passed by the scrub daddies on the shelves of kroger in 2015 how did you get people to know what it did?

1:18:23Like, didn't you have a similar problem that you didn't, you know, in the shop rights in 2012? So, you know, Shark Tank is the gift that keeps on giving. They don't just air once, they have reruns. And then because of our success in 2013, like a few months later, they did our first follow-up episode where we got into Bed Bath and Beyond. And that gave us another boost. And then the next year we had a huge bunch of sales and they gave me another follow-up episode. I've been on Shark Tank almost 15 times and almost every year they do some follow-up and then CNBC picked up all the reruns and started airing them all the time.

1:18:59And so I end up in episodes all the time on that. And so throughout all that time, we're constantly out there and then people start uploading clips of me from Shark Tank onto social media and that gets a life of its own. And then we start going, hold on, this social media thing, we should be involved in that. And so by like 17, 18, we start posting on Instagram, TikTok, Facebook, and it explodes. I mean, we have almost 5 million followers on TikTok now, almost a million on Instagram. And some of our videos get 20 million views. And the videos that you also, like one of your strategies, I guess there's like these clean influencers, what are they called?

1:19:42Clean talk or - Clean talk, yeah. Like there's this whole, I don't, I'm not on TikTok, but there's a whole world like of people who just like clean stuff, right? Like influencers who make sense. There's influencers for everything. And you got into some of these people pretty early. Yeah. So the influencer marketing, I'm going to credit my best friend who's my chief strategy officer here at Scrub Day. He found two or three of these influencers who have become mega, mega influencers in the cleaning space. And you know what happens in COVID, people start going crazy about cleaning. And they're watching these videos like religiously and these influencers take us to the next level.

1:20:21And so basically it was like a combination of the Shark Tank reruns. And then you start to invest in social media and that. And so year over year over year, you're just growing every year. I also started to do a lot of podcasts, a lot of interviews. And I also got myself onto like every major publication. Lori got me onto The View. You know, Fortune magazine did an article. The Wall Street Journal did an article. and put our sponges on top of a whole bunch of Scotch-Brite sponges and said, 3M fights off Upstart. And so all of this free media, all of it, and I consider social media, even though we paid some influencers, it's still very, very inexpensive and it gets you a broad broadcast to everybody.

1:21:12I'm curious. I mean, did you, I know that you sold your previous business to a part of 3M that was not in household cleaning supplies or consumer products. But did 3M at any point come and say, oof, we blew that one? Or, hey, should we, do you want to talk again? Or anything like that? So in 2014, when I resigned, I said my goodbyes. And they said, Aaron, the home products division would like to talk to you. And I said, about what? And they said, oh, I'm sure you know about what. And I went and met with them and they were all loving scrub daddy. And it looked like that was going to lead to another acquisition.

1:21:59And I was more than happy to entertain that. I felt like 3M was my friends, like family. And unfortunately, one day the lead M &A person called me and said, we have to stop all of our discussions. The VP of the home products division who loves you and loves your product and sees the vision, they got promoted to another part of 3M, which happens all the time. And they brought in someone new who has no experience in the home products care. And their first directive was shut down every acquisition until I understand the business. and they stopped talking to us and gave back all our diligence information.

1:22:39And that was it. Wow. I know that on a few occasions, you've been public that you were like ready to sell. And I think even in 2020, you told the Philadelphia Business Journal that you were ready to sell. And tell me about that. I mean, has the right offer just not come around? I mean, because it sounds like maybe you would still sell today if the right offer came around. Yeah. Everyone has to be, that's one of your strategies, right? If you're not planning an exit strategy, I don't know what you're doing in business. There has to be some succession plan. I won't be here forever. I don't foresee my children running Scrub Daddy.

1:23:16It's far too complicated and sophisticated a business. And my daughter wants to be in education and my son is a social media influencer and hockey player. So this isn't for them. So what are we going to do with it? So yeah, I'm always open to sell. It's just a matter of the price. And to date, we haven't gotten the right offer, although we know that we've been valued in multi-billion. And selling this to XYZ private equity firm doesn't tick it for me. And I have no interest in that. This needs to go to the right home at some point. And that needs to be one of the largest companies in the world in the CPG space.

1:23:57That needs to be a Procter & Gamble, a Unilever, a Clorox, a Henkel, a 3M. It could be any of those. Or I'm left with the last piece, which is we just go public. Right. How do you protect against copycats? Huh. That happens every single day. So the first thing is, I told you our material is exclusive. And really, only one company in the world knows how to make it and can make it. So every day there's a Chinese knockoff and it's a piece of junk. So a lot of people will try to copy us. You can't get the smiley face, right, because I have the patent on it, but they'll make some other shape. And when you copy our trade dress, which is our packaging designs or our color schemes, I will actively pursue you and defend vigorously.

1:24:46And so one way we protect it is we maintain our exclusivity and we only sell the top products in the world. And we keep to the fact that Scrub Daddy, if you want a cheap$1 sponge, I'm not your company. Now, we also started seeing – this is recent. Last year, we started seeing counterfeits. And I mean real, actual counterfeits. That looked just like it. Dude, it was my name on the box. Wow. It said Scrub Daddy, Scrub Mommy. It had my address, had my patent numbers on it. They literally made a scrub daddy box, but they put cheap Chinese sponges inside of it. And they were passing it off all over Amazon as if it was ours.

1:25:26We hired a private investigator. We found the company in China. We sent a guy with a camera in on his lapel. He filmed the whole thing. We went to the Chinese government and said, this is fraud. Someone's copying our brand. And they agreed and we raided the facility and took all of their inventory. And so we think that sets a good precedent. Some people start to see that we protect our brand and we'll continue to do that anywhere that it's possible. You have like, I think, over what, 250 employees or 300 employees now? We have almost 500 worldwide. 500, wow. Aaron, you are, I mean, you've been at this for a long time, right?

1:26:07Right. What do you I mean, how long do you want to keep running it? I mean, is it is it something that you want to you could do for 10, 20 more years? Do you want to if you if you did sell it, would you start another business? Like what are your sort of ambitions at this point? So as long as I find it still fun and entertaining and interesting, which I am, I'm still developing new products all the time, getting new patents. We just got our eighth patent on a toilet scrubbing system that's coming out this year. So as long as I can keep doing that and I'm enjoying it, I can keep doing it until the right suitor comes along.

1:26:49And if it's not that, I would consider going public. And at that point, I would step down. I don't want to run a public company. It's far too much red tape for me. And as far as starting other businesses, I've already done it. Um, I'm in the middle of, uh, a brand new startup, uh, making this really unique hockey stick called Tovi T O V I. Um, it's a revolutionary hockey stick that we have NHL approval for. And I love the sport of ice hockey. I've always loved it. I've always played it. Um, and I love to change that sport forever. And so I've already started what will be my next business. Should I ever exit scrub diet, but until this becomes like too stressful and until my wife tells me that she's tired of sitting home by herself a lot of nights.

1:27:35I can keep doing this. When you think about everything that's happened to you and, you know, selling to 3M right before the financial crisis and, you know, even selling to them and then them not taking this product as part of the deal, like them allow, you know, you got to keep it. They didn't care about this sponge, scrub daddy thing. And then where you are now, how much of that, this, where you are now, do you attribute to the work you put in and how much do you think had to do with getting lucky? So I think it's a definition of luck, right? And I think, you know, luck would be someone just coming to my door and dropping off a boatload of cash.

1:28:19Like that's luck. So, I mean, I attribute, You know, more than 90 % is hard work. And then there's just like great fortunes. Like, you know, like you're just fortunate because you worked that hard to put yourself into a position where you might get lucky. You know, in 2020, I saw the writing on the wall and I got scared and sent everyone home and said, well, I'm working from home. We'll shut the factory down for however long. And then I got letters from Walmart and Target and Lowe's that said, you're considered a essential product in the home cleaning business and you're not to shut down. In fact, we're increasing our orders 30%.

1:28:58Like we were the unintended beneficiary of like a pandemic where cleaning becomes paramount. But is that luck? Well, no, I created a cleaning product and I put a lot of time, money, and effort into making this brand. And because of that, I was in the position that one day there happened to be a pandemic and cleaning became essential. Yeah. Yeah, I mean, it's, you know, you were determined to make this work. Like, you knew it was going to work. But still, like, I mean, on first glance, like, the response was, this is ridiculous. This is a smiley face sponge. Like, what? It doesn't make sense. That's what Kevin O 'Leary said on Shark Tank.

1:29:39He said, you're kidding me. A sponge with a smiley face cut out, that costs two cents to make in China. And I was like, you're missing the whole thing. every single person in the world uses some kind of sponge or cleaning tool. And so the market share is so big that even if I didn't get the whole market, this was still a monstrous opportunity. Like I knew this was going to be something huge and I would have put all my effort into it, which I did. That's Aaron Krauss, founder and CEO of Scrub Daddy. By the way, it's actually one of the most successful Shark Tank companies ever, which has led to some regrets from the Sharks who did not do a deal with Aaron.

1:30:22I'm very close with Damon John, and he's always making fun of the fact that he didn't get the deal. He was on the Drew Barrymore show, and she's like, you ever miss, you know, ever regret something? He's like, that stupid sponge. And like, I know he's kidding because he uses Scrub Daddy, and he loves my barbecue brush, and we talk all the time. And all the sharks on my 50th did a video and gave me a happy birthday. So it's pretty cool. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show.

1:30:56And as always, it's totally free. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, sign up for my newsletter at GuyRoz.com or on Substack. This episode was researched and produced by Chris Messini with music composed by Ramtina Arablui. It was edited by Neva Grant. Our audio engineers were Patrick Murray and Jimmy Keighley. Our production staff also includes Alex Chung, Nora Gill, Casey Herman, Sam Paulson, Catherine Seifer, Carrie Thompson, Ramel Wood, John Isabella, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.

1:31:39Thank you.