Innovation

Lessons from the Dragons: Quality Always Wins

A simple activity made too elaborate and three entrepreneurs making Canada's favourite cocktail better on Dragons' Den Season 10 Episode 20

Written by Murad Hemmadi
Aaron_Harowitz_Zack_Silverman_Josh_Linde-Walter_Craft_Caeser_Mix-Dragons_Den_S10_E20-P_CBC-600x400
(From left) Aaron Harowitz, Zack Silverman and Josh Linde of Walter Craft Caeser Mix. 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 20 featured a pitcher who’d taken a simple thing and made it too elaborate,  and three entrepreneurs making Canada’s favourite cocktail better.

Ameri-Can eChopper Bicycles

Entrepreneur: Bruce Dean | From: Victoria, B.C. | Ask: $20,000 for 20%

Electric bicycle and mobility aid

Know your market: As baby boomers settle into retirement, Dean is betting they’ll finally have the time and money for that chopper they’ve always wanted. And the product he pitched in the Den can double as a mobility aid—a function Dean included out of personal necessity. “I’m on full disability, [blew] out both my knees teaching skiing up at Whistler,” he explained. “The doctors told me to get a scooter chair, and I thought that was a foot in the grave—I’d get no exercise in it at all.”

Dean had some traction going into the Den—his website received 5,000€“10,000 hits per day without any marketing, he told the Dragons. Why not convert that traffic into pre-orders, Michele Romanow asked? “I don’t have a new prototyped finish I can show, I don’t have the money to put into it,” Dean explained. The Dragons were also concerned that unlike his product, the $20,000 in capital Dean was asking for wouldn’t take him very far. “This is going to cost in the neighbourhood of half a million to a million dollars to produce and do all the things you want to do,” Jim Treliving said. “I wouldn’t do another stitch to it, other than take it to a big supplier.”

Though they found his business skills lacking, the Dragons were impressed by what Dean had managed to achieve despite his financial status. And Michael Wekerle—an e-bike owner himself—saw a concept worth investing in. “People don’t understand how convenient it is, how green it is, how much they’re saving, and how safe it is,” he said. Wekerle offered Dean what he came in for, and the Victoria bike-builder took the deal.

Combat Model TV Show

Entrepreneur: Dan Couto | From: Toronto | Ask: $850,000 for a convertible note

Reality TV show

There is such a thing as too disruptive: Couto is no novice to the TV game—the Toronto producer’s last effort, Naked in the House, was picked up by Fashion TV and won a Gemini Award. But his pitch for a models-meets-martial arts show didn’t hold up for Jim Treliving. “I find that’s going to be very boring, because there’s no shock value here,” he said.

While other Dragons found the concept interesting enough, all five were united in their assessment of Couto’s financial plan. His ask, $850,000 in the form a zero-interest rate note repayable in 18% months in exchange for 50% of profits for four years, was predicated on a massive projected valuation: $4.1 million at the end of year four. But at least one Dragon didn’t think he’d ever get that far. “I can guarantee you it’s going to cost you more than $850,000 to get this show produced and edited and out and available for viewing,” said Manjit Minhas, who owns a film and TV production studio of her own. Couto protested that the show would be shot without lights and with a skeleton crew, suggesting that the trailer had been shot in the Turks & Caicos for $150,000.

Even those Dragons who saw an audience for the show balked at Couto’s proposed distribution model. After rejections from the W Channel, Shaw, Rogers and others, he intended to stream the show online and charge a subscription fee. “No other television show is doing that right now,” noted Michele Romanow. Ultimately, Couto’s pitch proved just too risky. “I think it has to be pre-sold,” Joe Mimran told him. “To go out and to produce it all, and spend the money, and have it all sunk, it’s not a smart move.” Couto received no offers.

IsoAcoustics

Entrepreneurs: Dave, Paul & Sean Morrison | From: Markham, Ont. | Ask: $500,000 for 15%

Adjustable speaker stand

Customers are your best salespeople: To audiophiles searching for high fidelity, a small improvement in sound quality is worth a lot of money. “”I have software developers that are buying $500 headphones all the time,” observed Michele Romanow. Dave Morrison’s base clarifying speaker stands—sold at $80 a pair at pro audio and instrument stores—certainly had market traction, with the company having moved a total of 60,000 units at filming. And Morrison had a few others numbers that impressed the Dragons—revenues of $1 million in the year before he entered the Den, and a 25% net margin.

IsoAcoustics counts Grammy winners among its existing clientele, and Romanow suggested the company leverage those tastemakers in its planned push into the consumer market. “If you truly have those awesome clients, call that guy up and say, €˜Can we come in and can we film a two-minute testimonial of you talking about our product?'” she said. “And then you should do like the biggest Kickstarter campaign I’ve ever seen.” Morrison seemed receptive, though the company had stayed out of direct e-commerce to that point to focus on traditional distribution channels.

Hearing an opportunity, one Dragon jumped in with an offer, which proved strong enough to keep the others out of the bidding. Michael Wekerle, who bought Toronto’s iconic El Mocambo venue in 2014, offered the $500,000 for a third of IsoAcoustics. “I am going to try to white-label this, and try to rebrand it with the El Mocambo brand,” he told Morrison. “There’s not many studios that have this kind of tenure where you’ve seen significant acts play there, whether it be the Stones, U2, etcetera.” But Morrison balked at the equity he was being asked to give up, and when Wekerle rejected his counter of 20%, he turned down the deal.

Karma SUPtra

Entrepreneur: Julie Thayer | From: Uxbridge, Ont. | Ask: $200,000 for 35%

Paddleboard for indoor yoga practice

Let simple things stay simple: Thayer’s business attempts to combine two trendy fitness ideas, yoga and stand-up paddle-boarding. But while the Uxbridge entrepreneur saw huge potential in her concept, sales are the only metric the Dragons accept. “I’ve actually sold at the Yoga Conference,” noted Thayer. “It’s a much higher priced item, so I didn’t expect that I would be selling them like hot cakes out of the Yoga Conference.” And while that sounds like the set-up for a “but,” follow by some impressive numbers, it wasn’t—Thayer sold two.

The set-up—a mat and three cushions—retails for up to $700, making it a stretch for most consumers. “One of the great things about yoga is that anybody can do it anywhere, without any tools,” noted Manjit Minhas. Minhas also pointed out that the board’s size eluded easy transporation, despite Thayer’s plans to provide a carrying bag. “This is probably a product that’s not as good sold to an individual, because they’ll have to lug this around,” concurred Michele Romanow. “But if I go to class, and they say, €˜Pay an extra $5 to do yoga on a board today,’ I can see studios buying and storing them.”

Thayer was open about her entrepreneurial past—she’d previously run a failed clothing boutique with her sister. And though they were impressed by her honesty and learnings, the Dragons weren’t ready to make any offers. “I think you’ve got incredible passion,” Joe Mimran told Thayer. “I think you know what’s trending, but you’ve got to have a business plan€¦ Stop tinkering.”

Walter Craft Caesar Mix

Entrepreneurs: Zack Silverman, Aaron Harowitz & Josh Linde | From: Vancouver & Toronto
Ask: $275,000 for 10%

All-natural mix for caesers

Contacts count for a lot: Caesers was invented by a Walter—Calgarian Walter Chell—and Silverman, Harowitz and Linde named their company in honour of him. And they had a huge target market to go with their apt name—Canadians drink 350 million caesers a year, according to Silverman. And Walter taps into consumers’ growing desire for natural, sustainable and local products. “We don’t use any MSG, high-fructose corn syrup, colour or flavour,” noted Harowitz. “We use real clam juice from a sustainable fishery.”

Walter held up to the Dragons’ taste test. “It’s a beautiful taste, beautiful blend,” said Joe Mimran. And he wasn’t the only one that thought so—the company had $690,000 in sales over 18 months prior to filming, and the product was listed in 400 eateries including all the Oliver & Bonacini restuarants, as well as Sobey’s and other grocery chains. Silverman claimed they were on track to hit seven figures for the then-current annum, and $2.5 million the one after, hitting profitability about halfway through that year.

Despite those numbers, valuation proved to be a sticking point, as it so often does in the Den. The company had already raised $350,000 from outside investors, in addition to the $100,000 the trio had put in themselves. Michael Wekerle was the first to take a swing, offering the $275,000 for a 25% stake. Beverage mogul Manjit Minhas went next. “I have many people—including Trader Joe’s, Walgreens and Walmart lined up in the United States—to get to them a product with their name on it that is a caeser product,” she told them. “I have boots on the ground already, so it’s an easy add-on to our portfolio.” She asked for a 20% stake. The trio couldn’t live with that number, countering at 12%. Minhas said she’d split the difference, and the deal closed at 16%.

MEET THE DRAGONS THEMSELVES:

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Originally appeared on PROFITguide.com