Innovation

Lessons from the Dragons: Students Go to Entrepreneur School

Young business-starters try their luck in Dragons' Den Season 10 Episode 6

Written by Murad Hemmadi
Viktor Grabovskyy of ForeverSpin. 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 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. Episode 6, this season’s Student Special, included some unfinished business and two young siblings running a very grown-up operation.

ForeverSpin

Entrepreneur: Viktor Grabovskyy | From: Waterloo, Ont. | Ask: $300,000 for 12.5%

Spinning tops

Michael Wekerle has a long history with spinning tops. “I won money doing this as a kid,” he recalls. So when Viktor Grabovskyybrought his take on the classic toy to the Den, there was no doubt which Dragon would win the unofficial battle to log the longest spin.

And Wekerle also triumphed in the more customaryDragons’ Den competition, securing a deal with Grabovskyy worth $300,000 for a 20% equity stake. His bid trumped that of Joe Mimran and Michele Romanow, who together offered Grabovskyy—a computer science student at the University of Waterloo—the same figure for a a quarter of his company.

The Dragons were all impressed by the tops, and by ForeverSpin’s progress. The company did $1.1 million in revenue in the year before Grabovskyy stepped into the Den, and the entrepreneur predicted a rise to $3 million for 2015. Mimran wasn’t completely sold on that projection. “It’s a big leap,” he said, suggesting that Grabovskyy’svaluation looked a little high.

On the show, Wekerle disagreed, and in an exclusive interview before the episode aired, he explains that growing sales and therefore production would improve ForeverSpin’s model. The company makes its tops from blocks of metals like nickel, titanium and tungsten. “The reality here is when you have high-end materials, you cannot buy them in very small quantities and make money,” explains Wekerle. He should know—in his day job as a merchant banker, Wekerle once took a mining company called Neo Materials public. Neo’s success was based on the electrical and automotive industry’s demand for such metals, creating supply competition for a small operation like ForeverSpin. “It’s a great product, but the margins are only good if you can expand the production,” Wekerle says.

Though Wekerle was an enthusiastic spinner on the show and spoke highly of Grabovskyy afterward, the deal never closed, because the Dragon’s due diligence partner didn’t get the information he needed to vet the company. Meanwhile, ForeverSpin appears to have secured financing elsewhere. Wekerle is philosophical about it. “The only thing in life we control is the decision, and you’ve got to be accountable and responsible for that decision,” he says. “If they believe that this is the next big thing—the next Trivial Pursuit or the next Monopoly—so be it.”

But he also cautions that some contestants underprice themselves in the Den, a strategy that creates poor long term returns. “Most people make the critical mistake of not funding to [their] capability,” he says. “They get to Dragons’ Den and feel like they’re on top of the world, [so] they underfund themselves. Then when times are bad, they try to hit the market at a higher valuation, and people say, ‘Why didn’t you do it before?’”

Taking less money in order to preserve equity can seem like a smart strategy, and in some cases it’s undoubtedly the best choice. But entrepreneurs need to be honest about what their business requires, and act accordingly. “I’d rather be a small piece of a big pie than a small piece of a big pie,” says Wekerle.

Les Parfums Joseph

Entrepreneur: Erby Joseph | From: Montreal | Ask: $25,000 for 18%

Day and night perfume collection

Know your business: Perfume is not an easy business to break into, Joe Mimran told Joseph in the Den. “There’s over 100 new entries every single year,” he said, citing his experience with the Alfred Sung brand. “And the amount of money that’s got to be spent on promoting a fragrance for it to be successful is in the millions of dollars, and it still does not ensure success.” And while the perfumes themselves seemed pleasant enough, the McGill student’s lack of sales and experience in the industry didn’t smell so sweet. “You can’t just come in with big dreams. You have to prove to us that you have some traction,” Manjit Minhas told him. He got no offers.

Adrenalease Inc.

Entrepreneur: Noureddin Chahrour | From: Toronto | Ask: $60,000 for 20%

Light-weight posture correction shirt

See the potential:Bringing Team Canada ice dancers Paul Poirier and Piper Gilles into the Den to demonstrate the Posture Performance Shirt proved to be a winning routine for Chahrdour. But it wasn’t just the brand ambassadors that caught the Dragons’ attention. “I think it’s really impressive that you’re a student doing this,” Michele Romanow told him. “This is [would also be] an incredible product on Groupon—we could probably just start by selling 10,000 units next week.” Four of the five Dragons made offers, and Chahrdour ultimately took a deal worth $90,000 for a 30% stake from Romanow, Jim Treliving and Manjit Minhas.

Simptek Technologies

Entrepreneur: Asif Hasan & Keelen Gagnon | From: Fredericton, N.B. | Ask: $200,000 for 6.6%

Customer engagement software for electrical utility companies

The value of lasting utility: When Hasan and Gagnon entered the Den, their company was still pre-revenue, though it was in deployment discussions with one utility and in conversation with five others. The Dragons weren’t impressed. “Oh my God guys,” exclaimed Jim Treliving. “You want a $3 million valuation and you have no contracts signed?” Simptek’s platform providers homeowners with detailed electricity consumption information and charges utilities a fee per household for providing engagement. Michele Romanow didn’t think the model held up. “I actually have no reason to really be engaging with it that much,” she said. “I’ll log into my dashboard, I’ll see it the first time, but unless I can set a meter or change something, you’re not going to get continuous login.” No utility would pay for that, she concluded, and her fellow Dragons concurred—Hasan and Gagnon received no offers.

Kids Can Cook Gourmet

Entrepreneur: Skylar & Chloe Sinow | From: Vancouver | Ask: $25,000 for 10%

Kid-friendly food products and cookbook

Know your stuff: While most kids their age are focused on homework and video games, the Sinow siblings are cooking up a pint-sized business empire. “You know, my first job was at the age of 12, so I was about your age,” Joe Miran told them (Skylar is 12). “But I wasn’t doing anything as glamorous as you were—I was delivering groceries.” The siblings precocity wowed the Dragons, as did 10 year-old Chloe’s command of the company’s financials. “You guys have the perfect answers for everything,” Manjit Minhas told them. “Honestly, I’m impressed.” But Minhas lost out on the deal to Jim Treliving and Michael Wekerle, who gave the siblings their ask.

MEET THE DRAGONS THEMSELVES:

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Originally appeared on PROFITguide.com