Leadership

Lessons From the Dragons: The Refined Art of Trend Hopping

A couple of tasty pitches and an idea in search of a foundation on Dragons' Den Season 11 Episode 2

Written by Murad Hemmadi
Bartesian's Bryan Fedorak and Ryan Close pitch the Dragons on CBC's Dragons' Den
(From left) Bryan Fedorak and Ryan Close of Bartesian. Photo: CBC

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 2 featured an all-Dragon bidding war, a couple of tasty pitches and a big idea lacking a firm foundation.

Bartesian

Entrepreneur: Ryan Close & Bryan Fedorak | From: Waterloo, Ont. | Ask: $450,000 for 8%

Manufactures and sells single-serve cocktail machine and mixes

The ranks of amateur bartenders are swelling says Joe Mimran. “The trend is people are moving to mixology, and there’s a [lot] of interest in mixed drinks,” he observes. So when Ryan Close and Bryan Fedorak brought their simple cocktail-making machine to the Den, Mimran saw a delicious opportunity.

Bartesian applies the beverage-making system popularized by single-serve coffee makers to cosmopolitans, margaritas and more. Though its machines weren’t on store shelves when it entered the Den, Close claimed the company already had $200,000 in pre-orders and committments for 2016€“2017 worth $3.5 million. Mimran was impressed by what the duo had achieved over their two years in operation. “I’ve developed appliances in my career. [It’s] not the hardest thing in the world,” he said in an exclusive interview before the episode aired. “But to do it well and to get a manufacturer that’s committed to [producing it] for you, that’s good.”

The Dragons saw enough to prompt a full house of bids. Mimran made the first, proposing $450,000 for 12%; Michele Romanow came in next, a percentage point lower. Manjit Minhas and Michael Wekerle offered their expertise and the money for a 8% royalty until the initial capital was paid back, dropping to 2% thereafter, and a 10% equity stake. “I can absolutely help you with the manufacturing—because we have to get that right—and with talking to the other big liquor companies,” said Minhas. Jim Treliving offered a straight 10% deal. Close suggested the franchise king join forces with Mimran at 9%, an offer they were happy to take. (Post-taping, Mimran said Treliving was handling due diligence on the deal, and wasn’t sure whether it had been completed).

Bartesian’s revenue model is akin to Keurig’s—getting a relatively inexpensive machine onto the countertops of consumers so they’ll buy lots of single-use flavour pods to put into it. The appliance itself is priced at $299 and the sachets are $1.50 apiece. “That’s where the recurring revenue will be, is the pods,” Minhas told Fedorak and Close. But it’s a much smaller business when what’s in the capsules is cocktail mixes instead of coffee, Mimran acknowledged before the episode aired. Plus “there’s no money in the selling of the liquor itself, which is the most important component of the drink,” he observes—Bartesian users most provide their own vodka, tequila, rum and gin.

Longevity could also prove a challenge. “Right now it’s a novelty piece,” Mimran says. “It’s an unusual gift [or] maybe it’s used [by] somebody who’s constantly entertaining.” While that could be good for a season or two of sales, it won’t win mixology purists. “Are they going to want a pre-packaged lemon, as opposed to a real lemon?” he asks.

The company’s opportunities may instead lie in what their machine could evolve into. Mimran suggests Bartesian could expand into another trend, health, with wheatgrass or other natural (non-alcoholic) drinks. “Sometimes [you see] a logical extension, and you can see somebody really take their business and morph it into a whole line of specialty products,” he says. “It’s not always just the one product—it’s the entry-point that then allows them to pivot.”

Mimran compares the Bartesian’s cocktail maker to the first Apple computer, which he calls “a dud.” “It sat in my son’s room, couldn’t do anything,” he recalls. “But it got Apple in the computer business, and [the Bartesian] is going to get these guys into pre-mix, pre-ready application of drinks. Maybe that’s a category that they can explode.”

RareForm Underwear

Entrepreneur: Ryan Fields | From: Calgary | Ask: $100,000 for 50%

Manufactures and retails hip-hop inspired boxer briefs

Know your market: Marky Mark turned Ryan Fields into an entrepreneur. As a sixth grader, Fields saw then-rapper Mark Wahlberg’s Calvin Klein underwear ads and wanted a pair. In 2010, he went into the boxer-briefs business himself. By the time he stepped into the Den, Fields had managed to sell 2,986 pairs of RareForm Underwear, mostly direct-to-consumer and without a sales team. The Dragons liked the $45 retail price and fake-spray can packaging. “I think it’s fun, it stands out,” said Michelle Romanow. But they were less impressed by the unit economics and logistical challenges the gimmick presented. “It reminds me of the Versace fragrance that they would always do in a can,” said fashion mogul Joe Mimran. “The problem is you can’t stack €˜em.” The cans also cost $2.60 apiece, though Fields insisted the price would come down with volumes. RareForm’s creator believed there was a big market for his product. “We have a hip-hop culture, they’re very brand-conscious,” he explained. “They’ve been waiting for this.” Michael Wekerle, who in 2014 bought Toronto’s iconic El Mocambo music venue, offered Fields the $100,000 for a 50% stake. He then managed to convince Manjit Minhas to bring her distribution and production expertise to the deal, which Fields was happy to take.

FoxBox

Entrepreneur: Christoph Kesting | From: Vancouver | Ask: $150,000 for 15%

Retails a do-it-yourself container home kit

Construct your message with care: Given how competitive Canada’s housing market has been of late, an entrepreneur with a plan to make home ownership affordable might seem like a hot ticket. And Christoph Kesting’s DIY container residence idea was aimed at the audience every business wants to sell to today: millennials. “For $40,000, [they] can access the housing market, build equity and experience the joy of building their own home,” he explained. But the Dragons didn’t warm to Kesting’s proposal. “This is one of the worst pitches and ideas I have seen in the Den so far,” Manjit Minhas said. His laconic presentation style also failed to win their favour. But what really caused the pitch to collapse was the company’s (lack of) numbers. When he entered the Den, Kesting had only sale under his tool belt. He left without receiving any offers.

Caddle

Entrepreneur: Ransom Hawley & Mick Higgins | From: St. Catharines, Ont.
Ask: $125,000 for 15%

Makes a mobile rewards app

Early traction pays off: When Ransom Hawlery and Mick Higgins pitched their discount and promotions app—which rewards consumers for taking surveys, watching ads and uploading their receipts—in the Den, Michele Romanow saw something familiar. The tech entrepreneur had used a similar model with SnapSaves, a company she founded and later sold to Groupon. “Everything you’ve shown me looks basically like the app I built,” she told the Caddle duo. “We’re not just looking in grocery. We had signed partners in retail, and food, also tech, and we’re also branching out into service and entertainment,” Hawlery replied. The startup had amassed $20,000 in processing fee revenue over its five months in operation, and signed up another $50,000 in sales. Further growth required an expansion of Caddle’s userbase, which stood at 20,000 at the time. “We’re hoping to hit 500,000 by 2018,” Higgins told the Dragons. Michael Wekerle and Manjit Minhas opened the bidding with a joint offer of $125,000 for 20%. “I do like the amount of traction you’ve been able to get in a very short period of time,” Joe Mimran told the pair, matching their ask. Jim Treliving also met the demand, and offered his rolodex of potential partners. (A non-compete kept Romanow out). After some negotiation, Hawlery talked all four bidding Dragons into joining forces at the capital ask for 28%.

Little Saigon

Entrepreneur: Nghia Tran & Jenny Fergusen | From: Abbotsford, B.C. | Ask: $100,000 for 20%

Manufactures and sells a line of Vietnamese sauces

Authenticity isn’t always enough: Little Saigon’s sauce line started because of consumer demand—patrons at the restaurant siblings Ngia Tran and Jenny Fergusen ran kept trying to take them home. “I wanted to build history and legacy,” Tran told the Dragons—the family came to Canada as refugees from Vietnam in the 1980s. The line—there are five sauces in total—had been on shelves for three years, and sales for 2016 were projected at $150,000 from over 150 grocery stores on the western side of the company. But while the family’s story touched the Dragons and their sauces whetted their palettes, they worried about the competition in the space. As Fergusen herself observed, there are hundreds of Thai, Indian and Chinese condiments on grocery store shelves. “It’s never dawned on me that I’m using a Thai sauce with Vietnamese food—to me, it’s a peanut sauce,” Manjit Mihas observed. And the lack of differentiation ultimately proved too big an obstacle “I don’t know if the fact that’s it’s coming for such an authentic space is enough, particularly for this category,” said Joe Mimran. None of the Dragons made an offer.

MEET THE DRAGONS:

Originally appeared on PROFITguide.com
FILED UNDER: