Leadership

Lessons from the Dragons: Build Solid Defenses

A fitness entrepreneur gets that sinking feeling and an NHL legend scores a deal in Dragons' Den Season 10 Episode 14

Written by Murad Hemmadi
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Marielle Chartier Hénault (at right) of AquaMermaid. 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 14 featured an entrepreneur whose fitness fad had no legs, and a former NHL enforcer hoping to help more people get on the ice.

AquaMermaid

Entrepreneur: Marielle Chartier Hénault | From: Montreal | Ask: $300,000 for 10%

Aquatics classes

Boredom is a powerful motivator to try something new. It’s why routine activities are so susceptible to trends, says Michele Romanow. “Things that people have to do every day, it’s really easy to get bored of those things,” she observes.

Food is perhaps the best example of this desire for variety—remember the Great Cupcake Craze of the early 2010s? Exercise is similarly trend-susceptible. So when Marielle Chartier Hénault entered the Den to pitch a fin-based fitness fad, Romanow saw potential. “I don’t know anyone who has seen The Little Mermaid and not thought it was the greatest thing ever,” she jokes.

But an interesting concept wasn’t enough to win AquaMermaid a deal in the Den. Michael Wekerle was the only Dragon to make an offer, proposing to take a 75% stake in the company for the $300,000 investment. Unsurprisingly, Chartier Hénault didn’t take the deal.

As with many unsuccessful Dragons’ Den pitchers, financials were what sank AquaMermaid. In four months of operations the company had done $50,000 in sales. Chartier Hénault reported that she was in the process of doing a deal with the Sandals hospitality chain to franchise her mermaid classes at its resorts, a partnership she claimed would bring in $180,000 in the first year and up to $900,000 a year once it was rolled out across all 15 locations. “You’d need a million people going through those resorts,” Wekerle responded incredulously.

In an exclusive interview before the episode aired, Romanow was similarly skeptical of Chartier Hénault’s projections. “You go to resorts and you look at fitness classes and there’s three people doing yoga,” she notes. “You’re never going to get that level of buy-in.”

There’s money to be made in trends, as long as you understand they’re quick-churn, says Romanow. Trendy ideas often invite imitation, and don’t stay in vogue for long. If you become the hottest thing since sliced bread [you’re] going to have 25 competitors,” Romanow observes. “In highly competitive markets, the only thing that happens is your life gets more difficult and prices drop.” AquaMermaid’s monofin training costs $60 a session—a price point competitors could easily undercut in pursuit of market share. “Then no one’s winning, and everyone’s working three times as hard,” says Romanow.

It’s a spiral the the head of marketing for Snap by Groupon and co-founder of Buytopia has experienced herself. “I lived through this in daily deals—I lived through what it felt like to have a zillion competitors,” Romanow recalls. “You can do a lot to out-execute people, but it’s exhausting.”

With no way to protect her concept from imitators, Chartier Hénault’s business was at the mercy of price competition and consumer whims. “There’s no patent, no way you can [make] every fitness studio only use your version of mermaid classes,” Romanow observes.

AquaMermaid can be successful, but a fantastical valuation and the absence of defensibility torpedoed Chartier Hénault’s pitch, says Romanow. “You can’t value a company at $3 million [with] a tiny amount of sales and where there’s nothing truly protectable.”

CoreChair

Entrepreneur: Patrick Harrison | From: Aurora, ON | Ask: $125,000 for 5%

Active sitting chair that helps improve posture

Strive for perfection—but only to a point: As you’ve no doubt heard by now, sitting is the new smoking. Harrison’s product is designed to counter the back pain and lethargy brought on by the average seat, and he’s got science to back it up: a Mayo Clinic study shows CoreChair occupants burn 5€“10% more calories than those in regular seats. But the Dragons were far less impressed by the other numbers Harrison cited, like the seven-and-a-half years he’d spent developing the product, or the $2.2 million he’d spent doing it. “I think that you’ve overdone the whole thing to the point where you’ve got a lot of chairs to sell before you get your money back,” said Jim Treliving. Joe Mimran did make an offer, proposing the $125,000 for a 10% stake. Added to the existing shareholder structure and possible further dilution, that put Harrison’s majority control of his company in jeopardy. But the Aurora entrepreneur never got to make a decision on the deal—Mimran withdrew his offer after hearing that CoreChair’s burn rate was $20,000 a month. “I would have assumed by this point you would’ve been able to just go to market now and not be burning that kind of money,” Mimran said. Harrison left the Den without a deal.

Spray-Net

Entrepreneur: Carmelo Marsala | From: Montreal | Ask: $175,000 for 5%

Franchised exterior paint service

Five percent of something is better than 100 percent of nothing: Many a Canadian entrepreneur has gotten his or her start running a Student Painter franchise, but the business that Marsala founded has a direct connection to those early days. Spray-Net uses a mobile spraying unit and its own proprietary paints to do the vinyl or aluminium windows and sidings that can’t be covered with brush and roller. It’s paying off: Spray-Net had $3 million in corporate sales (including the 7% franchise fee) in the year before filming. But while Marsala was eager to grow that number, he rejected Michele Romanow’s suggestion of listing his offering on daily deal sites. “We don’t discount our service—it’s a premium service,” he said. “If I can’t help you it’s not worth me doing a deal,” she shot back. Michael Wekerle stepped in with an offer of $175,000 for a 10% stake and the possibility of further investment. But it was franchise king Jim Treliving who emerged with the deal, matching Marsala’s original ask. “I’ve never seen you do a deal that size,” Wekerle said.

CDN Apparel

Entrepreneur: Faris Mirza | From: Toronto | Ask: $150,000 for 15%

Clothing line fusing Canadian flag with other national symbols

A concept isn’t worth much on its own: To represent Canada’s demographics and immigrant origins, Mirza mashed up other national symbols with the Maple Leaf. And while his passion for the idea clearly shone through, CDN Apparel’s numbers lacked the same lustre. “You’ve got no sales, but you came in here thinking that you could value the company for a million dollars?” Joe Miran asked incredulously. The Dragons were particularly surprised that the company had rejected the overtures of major retailers who wanted to licence or buy the concept. “I think you should go back to Roots and say, €˜I’ve got a plan and here’s what I want to do,'” counselled Jim Treliving. “But if they offer you a royalty, hug €˜em.” And the $160,000-plus that Mirza had spent over the previous 18 months to copyright and protect his nascent brand didn’t sit well either. It fell to fellow Morocco-born fashion entrepreneur Mimran to deliver the final verdict. “This is just not good enough,” he told Mirza. “This is just way too early stage for me.” CDN Apparel failed to get an offer.

BRASH87

Entrepreneurs: Jibin Joseph & Donald Brashear | From: Kingston, ON | Ask: $500,000 for 20%

Affordable hockey sticks

Hold on to your value(s): It’s hard to find a worthy second act when your first was so successful. But after a thousand-plus NHL games, Brashear is building a business around the object that made his first fortune: hockey sticks. Searching for equipment for recreational use, he spotted a gap in the market. “I bought a bunch of sticks, I put [them] in my garage, and when I was going to play I was selling to my friends for a cheap price,” he explained. Eight months on, he realized he’d sold a lot of sticks—2,600, to be precise. BRASH87’s line retails for about half what other sticks do, and Brashear wants to keep it that way. “I want to keep them at the same price, but to go get more volume,” he told the Dragons. And his focus on value won praise. “We’ve got to get the price of hockey down, for guys like Donald that couldn’t afford to be in hockey before,” said Jim Treliving, who partnered with Michael Wekerle and Manjit Minhas to offer the $400,000 for a 40% economic stake and a 50% voting interest. It was a deal Brashear was happy to take.

MEET THE DRAGONS THEMSELVES:

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Originally appeared on PROFITguide.com
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