PUT A LID ON IT
Compostable green-bin creators get Dragons on side as brothers rush to beat any knockoff wannabes.
Each week, Financial Post contributor Mary Teresa Bitti revisits CBC’s previous week’s episode of Dragons’ Den. She captures what the cameras didn’t and in the process provides a case study for readers, zeroing in on what pitchers and dragons were thinking and what the challenges for the deal are going forward.
The pitch “It was a classic ‘there must be a better way,’ scenario,” said Morgan Wyatt, who appeared on the show with his brother Jackson to pitch The Greenlid, their Toronto-based compostable compost bin business. “Along with every other Canadian who has municipal waste pickup, we were given these beige bins and asked to use compostable bags to collect our organic waste. The bags were always leaving some sort of mess so we started thinking of ways to solve the problem.”
The brothers from Brockville, Ont., were uniquely suited to the challenge. Morgan recently earned his PhD in chemical biology from McMaster University and understands microbial metabolism. Jackson graduated from the University of Toronto with a Bachelor of Science degree and at the time of the pitch was enrolled in Humber College’s Bachelor of Industrial Design program.
They hit on the idea of a compostable compost bin about six months before pitching in the Den. Made of recyclable plastics and end-of-life recycled cardboard, The Greenlid’s proprietary patented formula can hold four litres of wet organics without leaking. It is made in Ontario and can be composted along with its contents in home compost piles and municipal compost programs. It is also the first product of its kind anywhere in the world, Morgan Wyatt said.
In the summer of 2013, they joined the Innovation Factory, a Hamilton-based business incubator, built a prototype and in October entered a local business competition called the Lion’s Lair, similar to Dragons’ Den, where The Greenlid was the People’s Choice winner. From mid-February to mid-March 2014 they ran a crowdfunding campaign on Kickstarter to gauge demand for their invention. That campaign resulted in 14,000 pre-orders, raised $26,000 and gave them the sales and confidence to pitch the dragons.
They are working closely with food waste recyclers, or bio cleanse companies, that are trying to get subscription contracts with multi-resi- dential apartment buildings in Vancouver where organic waste has been banned from landfills as of Jan. 1. “Property management companies and municipalities have to figure out how to get people to 100% compliance with no fines,” said Mr. Wyatt, who is hoping The Greenlid will be the solution of choice. “It’s super convenient.” The deal With just a prototype and the Kickstarter funds when they pitched the dragons, the Wyatts asked for $85,000 in exchange for a 10% equity stake valuing the startup at $850,000. The money was earmarked to fill current orders. All five dragons wanted in. The Wyatts accepted a deal from Arlene Dickinson and David Chilton for a 20% equity stake.
That deal closed and production began in November. The Greenlid has landed shelf space in more than 250 stores across Canada, including Home Hardware and Home Depot. “David and Arlene have really championed The Greenlid. We’ve sold more than 100,000 containers into those retail stores so far. In about 2½ months, we’ve generated about $90,000 in revenues,” Mr. Wyatt said.
“We’re trying to get the product into grocery retailers, as well as mass merchandisers such as Walmart and Costco, and we’re starting to look at opportunities on the U.S. west coast and internationally.” Starter kits retail for $11.99 and five pack refills sell for $6.99. A dragon’s point of view “It’s one of my favourite investments of the past three years,” said Mr. Chilton, who took the lead on due diligence.
“They are so smart and meticulous, passionate about their product and two very good people. The due diligence went very well and conceptually it tested well. People liked the idea behind it and the execution.
More important, the entrepreneurs and the product drew a very warm reception from the retailers. They developed a lot of their own packaging and point of sale materials and they are all good. So they’ve got the science and the creative side covered,” Mr. Chilton said.
He said their biggest challenge will be to get the product out quickly, particularly in the U.S., because there will be knock-offs. “I suggested California as a starting point because the population tends to be more green oriented and you have to pick your spots when you’re entering a country that size. If they can build momentum there quickly, they’re off to the races.”
Mr. Chilton said they need to find the right distribution partners, which can take a year or two but they don’t have that kind of time because he anticipates competition will come quickly. “We’ve cautioned them to have contracts they can escape from on the distributor/broker front so if it’s not working out they can move to Plan B,” he added.
Also key: marketing. “They will likely have to take on a good PR firm to raise awareness in the U.S.” The big question now is if the market agrees with the price point, he said. An expert’s opinion John Cho, partner, KPMG Enterprise, likes the product, its uniqueness, simplicity and practicality and the fact that early sales have proven there is a market. However, he is concerned about the price point.
“The price per unit seems a bit high relative to the bags they are replacing. If they want to mass market, they will have to get the price point down because it’s too expensive for the average consumer. In the meantime, they have to focus on marketing and getting the word out.”