If you live in the USA you will likely be familiar with Shark Tank, which is the American version of the international franchise known elsewhere as Dragon’s Den. Produced by the Canadian Broadcasting Corporation (CBC), Dragons’ Den is a top rated show in Canada. On February 1st, 2018, SoYoung was featured on Season 12 of the show during the “family” episode.
My wife Catherine, SoYoung’s founder, had auditioned for Dragons’ Den several years before I joined the business full time but it was entirely on a whim, with no prior planning. This time, however, we were much more prepared and hoped that with our increased profile and profits, there was a better chance of being chosen.
The Toronto auditions were scheduled on a Sunday and it appeared that anyone who showed up would be given a hearing, so we decided to avoid the anxious crowds in the morning and show up late in the day. By the time we arrived, there were only a few people left waiting to audition.
Upon registering, we were given a form to fill out which we did while we waited about 20 or 30 minutes to see a do a lot of producers. They were approximately four stations where two producers sat at small tables throughout the main atrium of the CBC building in downtown Toronto. When we were called, the producers reviewed our forms and asked us a number of questions about our business and financials.
As a Toronto based brand with over 8 years behind us, the producers were familiar with our products, which added credibility. There was also the fact that we had a positive sales record, healthy growth and some major retailers that were selling our product. Our pitch was that we have been growing so fast we cannot keep up with demand and needed additional financing to ensure we could we didn’t run out of product. The producers said that fashion brands, and particularly handbag lines, were a bit of a hard sell for Dragons Den. However, they thought that ours were perhaps different enough to catch the Dragons’ attention. We left feeling like we’d had a good audition and we had a real chance
Confirmation that we have been booked came about a week later via a phone call. Our taping date was scheduled for 3 weeks away on April 28th.
Once booked, we were assigned a producer who became our contact, helped prepare our pitch and handled all the details leading up to the show. There’s also a substantial package provided that answers the most pressing questions regarding the shoot day, how to prepare and logistics for those traveling from out of town.
On the first of several calls with our producer Stephanie, we discussed an overall approach to the pitch. While some companies get highly dramatic in an effort to attract attention, the feedback from our producer was not to force it. Unless there was something obvious for our brand, it was better just to play it straight and deliver a compelling business case.
We did spend a fair bit of time watching other pitches as a family and noting the factors that seemed to make the biggest difference between who got funded and who didn’t. The three things we identified were,
- knowing our numbers
- presenting a compelling business case
- being able to justify our valuation
It was quite a challenge to whittle the pitch down to the recommended 1-minute length. We rehearsed in front of friends and associates in order to get feedback and make sure we had it memorized. We also encouraged them to ask tough questions so that we could rehearse our answers around valuation, sales, positioning and competitive environment.
We also discussed the logistics of how to bring the products onto the stage, since there needs to be a “reveal’ to the Dragons on air. We chose to carry most of our samples with a couple of extra pieces hidden beneath the table that would already be on set, on which we would arrange everything as soon as we entered the Den. We decided to soften up the Dragons by bringing our 2 younger kids along for the product introduction, though they would leave the Den as soon as the products had been distributed.
Finally, there was the question of how to value the business and what percentage we should ask for from the Dragons. After watching many episodes of the show, Catherine felt we should not go too high on our valuation since many companies are dressed down for overvaluing their business. On the other hand, we have a proven product line, so we didn’t want to look like we were undervaluing our business either. Ultimately, we decided to value the business for slightly more than 1X Revenue ($1.6 Million) which seemed fairly conservative.
Despite some minor internal drama as we struggled to really refine our pitch, we felt prepared for the taping and were cautiously optimistic that we would get an offer on the show.
There are two sessions on each day that the show is taping. The morning call time is 5 AM so, given that we were with our kids, we requested an afternoon time slot. This had us arriving at the CBC building in Downtown Toronto sometime in the late morning for a 1-2 PM shoot time.
We were greeted at reception by a show representative who took us up to one of the top floors where the Dragons Den set and holding areas are. The holding area is essentially a large, unfinished portion of the soundstage, outside the four walls of the Dragons Den set. Other companies that are appearing on the show are spread out in little clumps around the area. This is where we practiced unveiling and placing the products on the rolling Dragons Den table that we were provided. After running through our entrance and our initial pitch a number of times, we waited around nervously for our turn.
While the dragons were on their lunch break, our producer was nice enough to give us a quick preview of the empty set where we would soon face the Dragons. We walked through the entrance way onto the darkly hued but brightly lit set, which had a hyper-real quality. This was a nice icebreaker for us and gave us a chance to snap a few pix. Returning to the holding area, we were wired up by the mic person and, after a little more nervous waiting and pacing, it was showtime!
Inside the Den
(If you’ve watched the pitch, I should note that my recap includes conversations that were not included in the final broadcast, which edits an almost hour-long conversation down to 8 minutes.)
Despite all the buildup and anxiety as we prepared to go on the show, Catherine and I both found finally standing before the dragons to be a surprisingly intimate experience. (Bringing our kids on for the entrance certainly helped lighten the mood). As the Dragons initially reviewed the products, they were surprisingly supportive, which helped us feel calm and relaxed.
As we had been warned might be the case, the chatty Dragons started asking questions before I had a chance to deliver my prepared portion of the pitch. This forced me to awkwardly insert my spiel after initial questions. Despite hours of practice and refinements, it never made the final edit.
After responding positively to our revenue numbers, the age of the business seemed to bring the Dragons down a bit. Having launched over 8 years ago, SoYoung is hardly an overnight success story. Catherine admitted that she struggled in the early years as she juggled being a mom while launching a business she knew nothing about. The Dragon’s were reassuring – after all we had built a viable business – but our growth wasn’t steep enough to get them really excited.
Joe Mimran, the fashion entrepreneur behind Club Monaco and Joe Fresh was our obvious first pick as an investor, and the other Dragons looked to him for guidance as they discussed the products. Joe pointed out that the backpack category was hot, but also that it was becoming quite commoditized. He said he liked the products but saw them as a bit niche. Had we considered working in other fabrics? (here we go….)
As I gently defended our brand proposition of using unique, eco-friendly linen as a differentiator, it became clear that being a brand-driven company – rather than a novel product idea – is a tough sell in a pitch situation. Customers love our products and brand, but it’s usually after discovering SoYoung in a favourite store, then buying a piece that they love, getting compliments on it, then digging deeper to learn about Catherine’s inspiration behind the business.
In the broadcast, the conversation seemed to center around profit margin, and how SoYoung’s were relatively low at 7%. However, the discussion was a little more nuanced in real life. At our current size, net profit is largely dependent on how much we choose to pay ourselves. Economies of scale work in our favour as the business grows and we are able to leverage the systems and supplier networks we’ve built without adding significantly to our overhead. Manjit Minhas seemed to be the only one willing to defend us on this point, saying it was typical for margins to improve as we grew. She also said she had been quite successful in a lower margin business herself.
There was a discussion with Michele Romanow about the online portion of the business and issues with attribution, as well as our ROI on marketing spend. Arlene Dickinson complimented us on our progress but said she didn’t see the business getting big enough to make an investment worthwhile, so she was the first Dragon to officially bow out. That was a bit of a “gulp” moment for Catherine and I!
Michael Weckerle asked about our salaries and how we financed the business. When we replied we had a line of credit for $400,000, he claimed that would need to be added to our valuation, so he was out, despite our meek protests that the credit went towards inventory and was paid off out of sales. (Frankly, Catherine and I had decided before the show that “Wek” was not a good fit for us, so we weren’t particularly disappointed about him.)
Jim Treliving echoed this, saying that he liked our products but really didn’t know how to help a business like ours. He thought we would probably be fine on our own if we just kept doing what we’re doing. Jim was classy and let us down softly.
At that point Manjit, having defended us previously, said she said like the products, liked us as entrepreneurs, and saw the potential for getting us into larger retailers where she already had connections. She also thought she could help get our manufacturing costs down. She offered us 250K for 20% of the business – a little less than our ask but still respectable. Phew – a deal!
Joe was still concerned about the speed of our growth and that we were still somewhat of a niche product. He said we had a good deal from Manjit that we should take, and that he was out. At this point, Michelle Romonow (positioned as the show’s the tech guru) was the only Dragon left who hadn’t made a call yet. She and Joe started a side conversation to go in together on a royalty deal, where Joe would handle the branding and manufacturing, and Michelle would handle the online marketing. They asked for 10% of earnings for $250,000
So now we had 2 deals, and were sent to the “deliberation room” for some dramatic tension. In retrospect, the royalty deal made no sense at all. Joe and Michelle would be making 10% off the top of any revenue forever and would earn their money back in a year and a half at our current sales pace. However, at the time I was a bit flustered by the fact that it was a Joe Mimran offer, so I essentially threw the entire decision to Catherine. Fortunately, she had the presence of mind to go with Manjit’s offer, which we did.
Exiting the Den, I felt a bit stunned by what we may (or may not) have just agreed to. However, we played along at acting excited. Gretchen lightened the mood by asking when we would get the money as soon as we got off stage. Then there was also some additional staged “revelry” which didn’t make the final edit.
So we had a “deal” with Manjit, which we were excited about, but very little information on what that actually meant. Our producer provided a 4-page photocopied handout from Minhas Breweries, Manjit’s business, requesting financial information and monthly reports on our progress. The document also clearly stated that there was no legal weight to what was agreed to during the shoot.
Still, I took the offer seriously, dutifully providing all of the financial documents and submitting monthly reports to the listed email address as requested. However, after 4 months with nary an acknowledgment of receipt, I picked up the phone to figure out what was up. After being informed that our initial contact was no longer with the Manjit’s company, I eventually tracked down their CFO who advised me that there generally wasn’t much discussion of the deal until the show had aired.
However a few weeks later we received an email from Manjit’s office requesting a skype call with her, which was promising. On the call Manjit was gracious, saying that the numbers all looked good but that we really needed to feel that the deal was right for us and offered some alternatives on how we might be able to structure arrangements, such as if she had her team invest some efforts in managing our manufacturing.
There was another gap of a month or 2 before we heard from Manjit again, this time by email. She said she had decided not to proceed with the deal. She didn’t give a detailed explanation but I feel like it just came down to time and focus for her. She is already running a $150 million dollar business of her own and, like us, probably views appearing on Dragons Den primarily as a personal branding opportunity. She has a few other micro-businesses that she’s backed through the show, that don’t show a lot of promise for a big return, so why add to her workload?
Airtime and beyond
We chose to host a viewing party for the airing of the episode. Knowing there was a positive outcome (at least on the show) certainly influenced our decision. We were still a little nervous knowing we would be seeing the edited version for the first time along with everyone else. Who knew what the might cut – or keep in? Still, Catherine made the point that this was a great opportunity to celebrate and thank all of our friends and associates who had become invested in our progress.
We held it at a friend’s condominium, which has a party room, and it turned out to be a lovely evening with 50-60 people. We were the last segment on the show, which provided a nice bit of buildup. While we didn’t hit a home run by winning over all the Dragons, I was pleased that our segment represented us positively, especially compared to some of the other companies on our episode.
In the days following the episode, we promoted it on social media (the segment was available on the CBC Website) and saw a huge response, receiving encouragement and congratulations from far and wide. We’ve also seen a considerable increase in website traffic and sales though largely limited to Canada where the episode is available.
Dragons’ Den was an entirely positive experience for us, despite the fact that the deal didn’t ultimately go through. We might have felt differently about it if we had been shut out on-air, but as it is, the episode is a powerful, marketing tool that will continue to introduce us to a new audience as it is syndicated and shared online.