More than 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 11 (which airs Wednesdays at 8 pm ET), we’ll be talking to one of the Dragons to get a behind-the-scenes glimpse of their decision-making process and hear what they hope viewers learned. And we’ll be examining the pitches for smart strategies and useful tips that entrepreneurs can use to make their own businesses better. Episode 6, the Why Didn’t I Think of That?’ special, featured plenty of inventive ideas and two entrepreneurs with a single-SKU success story.
A lot of business origin stories follow a familiar pattern: See a need, come up with a solution to fill that need, then build a company around the solution. Getting Product No. 1 right is key says Michele Romanow. “It needs to have such strong product-market fit that [it] can carry you for a while,” she explains. “If your first product is weak, you’re never going to get the flywheel going—the initial traction to get you enough customers [and] revenue to get to growth.”
Emily Rudow and Kayla Nezon had achieved that crucial initial step with the protective base-layer children’s hockey pants they pitched on Dragon’s Den‘s “Why Didn’t I Think of That?’ special episode. “These girls had found a real need, probably spent a touch too much time on product development, but had a very good end product,” Romanow said in an exclusive interview before the episode aired. On set, she offered $50,000 for a 25% equity stake in Oneiric. Joe Mimran also made a bid, asking for 40% of the company and an equal say on decisions. Manjit Minhas made it three, offering the capital for a 5% royalty for five years. Rudow tried to get the three Dragons together, but when they demurred, the duo shook hands with Minhas.
The idea for Oneiric came from Rudow’s own frustrations as a bantam hockey player. The product speeds up the process of getting dressed for the rink, and protects against cuts and bruises to the back of the leg. “I think when you walk into a dressing room and one person puts it on, I think all the kids are going to go home and say, Mom, I want one of those,'” Jim Treliving said in the Den.
Oneiric had amassed $10,000 in sales over the three months pre-taping, with 60% of that coming from retail and the rest direct-to-consumer, through tournaments and online. The pants retailed at $130 for the player version and $115 for the goalie, and cost the company just under half that amounts to make. Not all the Dragons liked those numbers, though Rudow noted she’d been in talks with manufacturers to reduce the fabricating expense. “Why didn’t you price it according to where you think your cost will be?” asked Joe Mimran. “Because retail price points do determine whether you’re going to be successful or not.” Oneiric was positioning itself as a premium product, Rudow explained. For her part, Romanow wasn’t worried about consumer sticker shock. “I would put hockey in the category of babies, weddings [and] pets, where people think, If it’s 50 bucks, okay. If it’s $100, okay. If it’s 150, okay,” she says post-filming. “It’s largely talking to a price-insensitive customer.”
Those consumers still expect quality for their money, and delivering one is even more important for a single-offering company like Oneiric. Perfecting what you’re selling—as Rudow spent several years doing—is crucial. “This is one of the huge problems with startups—if you don’t win the first time, it’s almost impossible for you to scale,” says Romanow. Once it’s a proven success, that initial product can become an impediment, as entrepreneurs resist trying anything else. “I can’t think of many billion-dollar companies that are single-SKU products,” notes Romanow. “You ultimately have to move beyond that.” But all of that still begins with a single starting product. “The first thing you scale on has to be something that customers really want.”
Mind the unit economics: Kelowna may be one of the few places in the country where a beach umbrella will spend more time open than in storage, but Mike McQuaid believed there was a big market for his shade-holder. When he entered the Den, McQuaid had just quit his job to focus on his company full time. “My first real production run is about to come off the line,” he explained to the Dragons. Still, he’d already moved $7,000 worth of Umbrella Stands in 10 days. “I’m really impressed that you went from the beach, you developed a prototype and you really have something that’s ready to sell,” said Michele Romanow. While the Dragons liked the top-line figure, they were less pleased with the unit economics of the product. The Umbrella Stand was set to retail for $99 sans the brolly, and a $31.25 wholesale price and $24 manufacturing cost left a slim margin for McQuaid, who planned to shift manufacturing to China. Still, Michael Wekerle opened the bidding, asking for a 6% royalty for the $100,000. “Once you start ramping up sales, this product, based out of China, I’d be surprised if you pay more than $10 for the whole thing,” he told McQuaid. Manjit Minhas also made an offer, asking for a 25% stake in return for her capital. “I can help you with the procurement, because cost optimization is where the margins are going to be in this,” she said, suggesting she’d also buy a million pieces branded with the logo for her beer as a promotional gimmick. McQuaid took Minhas’ deal.
What’s your plan?: Numbers are usually a challenge for nascent businesses entering the Den, but the Dragons saw some potential in Paint Away Products’ early returns. The company had sold some $12,000 worth of Marc Allen’s preservative cases for paint applicators in two weeks, at significant margins. But they were less impressed by the future prognosis. “We want to see this everywhere,” Kris Friesen told them. “So we see online as huge. We also see [it in] say in a Home Depot and big box stores.” “That’s not much of a plan,” Michele Romanow shot back. The duo hadn’t made any progress towards their other goal—to team up with a national paint company for Canada-wide distribution—in part because Friesen wasn’t working for the company full-time. “If you don’t put time into the company and dedicate your resources, how do you expect it to grow?” asked Manjit Minhas. But some Dragons were willing to bite. Romanow offered the $25,000 for half the company. Michael Wekerle upped the stakes, proposing $50,000 for a 40% stake. Friesen tried to negotiate him down, but Wek stood firm, and the Paint Away duo ultimately took the deal.
Prove your worth: Most cities and towns—not to mention neighbours—frown upon those sauntering down the street with a tallboy in hand. Trinken’s solution: A faux coffee cup lid that clips onto the top of the can and fits on a standard paper cup. “Originally it was a way to hide a beer, but then we started realizing all the other awesome features, like keeping it cold,” Jerry McArthur explained. The company, called Lolo Lids when it pitched the Dragons, had sold $90,000 worth of the product in three months at $15 a pop, mostly during a Kickstarter campaign. “It’s such a good way to test market validation for your idea,” said Michele Romanow. “You don’t have to spend money up front, you see if the audience likes it, you see if they put their credit card down.” McArthur and partner Wendy Lloyd saw their lids as an alternative to the logo-plastered promotional beer koozie, a $1.3 billion market. “I think there’s a real product,” said Jim Treliving. “I could probably buy some right now [and] take it to another couple of beer companies that we’d deal with.” He asked for $150,000 in return for half the company. Beer baroness Manjit Minhas was also a fan, offering the capital for a 33% stake. McArthur and Lloyd took her deal.
MEET THE DRAGONS:
- Michele Romanow’s Entrepreneurial Secret: Start Now, Fix Later »
- The Secrets of Jim Treliving’s Success »
- How Manjit Minhas Built Her Booming Business »
- Inside the Brilliantly Weird Mind of Michael Wekerle »