Mary Teresa Bitti, Financial Post · Monday, Jan. 31, 2011
Each week, the Financial Post revisits CBC's previous week's episode of Dragons' Den. We capture what the cameras didn't and in the process provide a case study for readers, zeroing in on what pitchers and dragons were thinking and what the challenges for the deal are going forward. Mary Teresa Bitti reports on where the deal stands.
The pitch
Doug Burgoyne spent a lot of time looking at the right business before taking the leap and becoming an entrepreneur. He and his silent partner have high tech and medical sales backgrounds. “We worked in complex businesses, with very long sales cycles,” Mr. Burgoyne says.
Which is why they looked for something simpler: “an old school, cash-based service business. We wanted something with a bad reputation so that we could come in and offer a good service and stand out. We also wanted to be able to wrap a little technology around it. We were very specific going in. We had the criteria we were looking for.”
Their criteria led them to create Frogbox, which rents reusable plastic boxes for moving. “There are a few mom-and-pop type operations doing this but no one was doing it very well. We decided we could do it better and build a cool brand around it.”
It's not uncommon to spend hundreds of dollars on cardboard boxes when you're moving, Mr. Burgoyne says.
“Then you have to build them up and break them down when you're done and have to get rid of them. Recycling cardboard takes a lot of energy and water. Plus, cardboard is not sturdy and if it gets wet, it won't protect your stuff.
“Frogbox is easy. You call us or place an order online, we deliver your boxes right to your house. They are ready to pack, stackable. It's a better solution. We don't do the moving but we partner with a lot of moving companies and when you get to the new house you unpack, we come by with a biofuel truck to pick them up. There is no need to break them down or dispose of them.”
A lot of thought went into naming the company: “We needed a name that was catchy, that would be memorable. Frogs are an indicator species and as such they are tied to the sustainability movement.” Mr. Burgoyne says. “But we also wanted to be able to stand on our own regardless of the environmental benefits. Frogbox is more convenient and you get a ton of value because we are saving you time.”
Frogbox opened its first corporate store in Vancouver in 2008, another in Seattle in 2009 and one in Toronto in 2010.
Mr. Burgoyne left his full-time job in May 2009 to dedicate himself to Frogbox. “I want to do this one thing extremely well and I want to be in the 100 biggest cities in North America.” To do that, he plans to sell franchises, a decision the partners came to just before Mr. Burgoyne appeared on Dragons' Den. “Even though we had hundreds of franchise requests, we wanted to make sure the business was solid before going in this direction,” he says. “For the past two years, we've been working on systems to make sure we are ready.” When Mr. Burgoyne entered the Den, Frogbox had sales of $40,000 a month at each store.
The deal
Mr. Burgoyne asked the dragons for $200,000 for an 18% stake in the business. “We went on the Den because the people you surround yourself with bring credibility. I wanted to get partners that could help us grow. I would rather have a smaller piece of a much bigger pie than just hang on to everything,” he says.
Jim Treliving, Brett Wilson and Arlene Dickinson signed on for a 25% stake– on air. Ms. Dickinson, chief executive of integrated marketing firm Venture Communications, left the deal early in the due diligence process. The other two finalized the deal with Mr. Burgoyne. “The money was in the bank on Dec. 1,” he says. “Since taping, Jim's team has helped me get ready to franchise.”
The dragons' point of view
So why did Ms. Dickinson walk away? “I need to be super involved when it is a marketing effort. They wanted me involved, but they didn't want the level of help I wanted to provide. This is a true marketing challenge. There are a lot of competitors in a very specific market segment. They are going to have to educate the market about the value they bring.”
Mr. Treliving, chairman and owner of Boston Pizza International, is happy with the deal and Frogbox's performance to date. “They have proven in the past four months they can do what it takes to succeed,” he says. “It's a great company and one of the best investments Brett and I have made. I'm really impressed.”
The expert's opinion
“Consumer awareness is the big nugget here,” says Chris Van Staveren, partner, transaction service, KPMG Enterprise Services. “These boxes are around already. There are rental programs for the corporate markets. The reality is they are trying to hit the consumer markets. Therefore that market has too have product and concept awareness as much as it is a branding play. Second: they are also exploring a franchise model. I struggle with the franchising fee. It seems a little rich. That said, I like the product and the company. It is a green product that is cost competitive and more convenient. That is a powerful combination. People will buy into it when they hear about it. They just have to hear about it.”