Innovation

Lessons from the Dragons: Are You All In?

Part-time entrepreneurs with a full-time success story, and a cost-busting fitness app on Dragons' Den Season 10 Episode 21

Written by Murad Hemmadi
Photo: CBC
(From left) Shaun Stevens, Simon Donato, Brad Slessor of Stoked Oats. Photo: CBC

Almost a decade in, Dragons’ Den continues to inspire and amuse Canadian TV audiences. But the CBC’s hit show isn’t just meant to be entertaining. It’s a televised school for entrepreneurs. For each episode of Season 10 (which airs Wednesdays at 8 pm ET), we’ll be examining the pitches for smart strategies and useful tips that entrepreneurs can use to make their own businesses better. Episode 21 featured three part-time entrepreneurs with a full-time success story and a couple with a cost-busting fitness app.

Technocolour Dreams Paint Party

Entrepreneurs: Yvonne Arbour & Dominic Sabourin | From: Brantford, Ont.
Ask: $150,000 for 20%

Paint party experience

Make sure you’re covered: Former club promoters Arbour and Sabourin sure know how to throw a party. Their $25-a-head €˜experiences’ feature paint blasts at 15-minute intervals, DJ sets, and dancers. Michele Romanow commended the duo for tapping into some macro trends in the entertainment world. “No one said 10 years ago that DJs would be the highest-paid musicians out there,” she observed. “And then everything around that culture has happened—[Toronto festival] Digital Dreams has gone from 25,000 people to like 80,000 people in two years.”

But the novelty of the experience was as much threat as opportunity. “There’s no barrier to entry, and that is not comforting to me,” Manjit Minhas told them. And while the Dragons enjoyed participating (“I loved it,” Jim Treliving said), they were less impressed by the duo’s lack of a set margin on their $10,000 costs, and by their $750,000 valuation on a projected $310,000 in sales for the then-current year. What’s more, insurance costs—$5,000 for a 2,000-person party, according to Arbour—would cut further into Technolocolour Dreams’ margins. “I think you’ve got a good concept,” said Joe Mimran. “I don’t know how scaleable it is, given your current grasp of the numbers [and] the fact that you’re lacking insurance.” None of the Dragons made an offer.

Fresh City Farms

Entrepreneur: Ran Goel | From: Toronto | Ask: $300,000 for 10%

Local, fresh food delivery

Margins or volume—pick one: Conscious consumerism is here to stay, and Goel sees a big market for his product. “It’s for the customer that really appreciates where their food’s coming from,” he told the Dragons. With sales of $1.8 million in the preceding 12 months and a thousand weekly deliveries, plenty of Torontonians seemed to be eager to chow down on locally-produced produce.

The Dragons liked the basic concept, and how Goel was packaging it—the company’s delivery e-bikes are “a great marketing piece,” says brand expert Manjit Minhas. But Fresh City’s margins, at 3% after delivery costs, were less impressive. Goel positions his product as a premium option, though he says it’s 10€“25% cheaper before delivery than buying organic at a large grocery store. Fresh City needs to pick one or the other, Minhas counselled. “If you’re going to be on the low margins side, you need to advertise that,” she said. “And if you’re not, you need to increase it, and you’re going for a different customer who’s looking for the quality product [and] doesn’t care how much they’re paying for it.”

The Dragons have plenty of grocery experience between them—Joe Mimran has worked closely with Loblaw, and in the Den Michael Wekerle recounted losing millions on a delivery service called Grocery Gateway at the turn of the millenium. The space is not wanting for entrants, and a successful model has yet to be established. “The one thing we thought literally from the day that the Internet [started] is that people would order their groceries [online],” explained digital veteran Michele Romanow. “And after 15 years of solving this problem, there’s no one that has scaled in that space yet.” That challenge, coupled with a valuation Jim Treliving called “absolutely ridiculous,” ensured that Goel received no offers.

Stoked Oats

Entrepreneurs: Simon Donato, Brad Slessor & Shaun Stevens | From: Calgary
Ask: $100,000 for 20%

Protein-infused oatmeal

Commitment counts for a lot: Stoked Oats is aimed at busy, food-conscious professionals, and the target market was clearly eating it up—when Donato, Slessor and Stevens entered the Den, their breakfast dish was on pace for $350,000 in sales for the then-current year. A tongue-in-cheek brand helps. “I think it’s very fun,” said Michele Romanow. “Western brands do very well—Kicking Horse Coffee became a huge brand out west.” She particularly liked the company’s tractor emblem, and it’s Bucking-Eh flavour name.

Stoked Oats is a turnkey business, and none of the founders work on it full-time. “In terms of actually handling the product, we pay someone to put it together [and] to distribute it,” explained Slessor. But cereal is a competitive space, and the Dragons wanted to see the trio get more involved with their company. “I think you can [get] a lot more traction not farming it all out, and I think you need to put yourselves all in,” advised Manjit Minhas.

One Dragon was stoked about the opportunity, however. “The more money they get, [the more] return on their investment and time, it makes it very easy to leave their previous jobs and make this full-time,” observed Michael Wekerle. He offered the trio $120,000 for 25%, and they took the deal.

Pampered Pets Teeth Cleaning

Entrepreneur: Rhonda Hiebert | From: Vancouver | Ask: $250,000 for 20%

Sedation-free dentistry practice

Know your limits: Hiebert’s method of canine teeth cleaning doesn’t require its subjects to be tranquillized, and she says it’s 60% cheaper than the regular method. And her evident expertise at it earned the Dragons’ praise. “There’s no doubt that I think you’re an amazing technician,” said Michele Romanow. “I think you’re very, very good with dogs, and you’ve figured out how to do what you love, and do it every day with the animals and people you love.”

But great technique doesn’t always make for a good business, and Hiebert’s numbers didn’t impress in the Den. Revenue had levelled off at $150,000 per year from what Hiebert initially referred to as 34 “locations.” Follow-ups from the Dragons revealed it was more like “one truck, 34 parking spots,” as Romanow put it. And her plans for expansion didn’t meet with approval. “This is not a franchisable business—I can tell you that right now,” said franchise king Jim Treliving.

Pampered Pets’ valuation also stuck in the Dragons’ teeth. “I think your accountant, or whoever helped you with the numbers, steered you in the wrong direction,” said Joe Mimran. And though Hiebert said she had a document detailing the calculation, the Dragons weren’t convinced. “Forecasts are not real numbers,” said Manjit Minhas. Hiebert received no offers.

OneSet

Entrepreneur: Amad & Heather Abdullah | From: Waterloo, Ont. | Ask: $50,000 for 10%

Personalized fitness app

Get real buy-in: Short, curated video is the tech trend of the moment according to Amad Abdullah. OneSet brings that format to fitness, allowing users to film, share and playlist 15-second movies of themselves or others in action. “We’re essentially the Vine for fitness,” explained Heather Abdullah.

Apps haven’t historically fared all that well in the Den, where sales figures are a good shorthand for success. “I think that low-revenue models scare my fellow Dragons; I see how those scale over time,” noted tech titan Michele Romanow. “And I think that you guys have the capacity to run lean until we get this [right].” The Abdullahs certainly ran a tight ship—OneSet cost them just $1,600 to build. But Jim Treliving was concerned about the couple, who had quit their jobs to work on the company. “Any business that I’ve every bought, I worry about the person that I’ve bought into—are they going to be able to survive while they’re doing all this stuff?” he noted, suggesting the $50,000 ask wouldn’t go very far.

But unlike many pre-revenue startups, OneSet had identified a path to monetization: professional fitness trainers like Seon Holmes, who accompanied the Abdullahs to the Den, could sell custom playlists for $1.99€“4.99, with OneSet taking a 5% cut. “That’s like personal training, but at one-hundredth of the cost,” marvelled Manjit Minhas. And projections of a million users and $120,000 in revenue within a year got the Dragons» attention.

OneSet got four bids. Romanow, Wekerle and Minhas proposed to take 20%, 30% and 15% respectively for the $50,000; Mimran offered to add his own money to Romanow’s for three-quarters her equity, for a total of $100,000 and 35%. Spying an opportunity to enlist mulitple Dragons, the Abdullahs countered at $50,000 for 15% split among all four. Wekerle countered with 20%. “You don’t want to have what I call a €˜milkman percentage,’ where no-one’s going to work for [it],” he said. After the Dragons shot down a 17.5% counter-counter, the Abdullahs took the deal.

MEET THE DRAGONS THEMSELVES:

Share your reactions, thoughts and feedback on Dragons’ Den Season 10 Episode 21 by commenting below.

Originally appeared on PROFITguide.com