National Post/Financial Post - Brother bag a deal
September 24th, 2012
Written by: Mary Teresa Bitti / National Post
Photos: Peter J. Thompson / National Post
The pitch Brothers Lee and Sean Renshaw from Kitchener, Ont., showed up in their underwear to pitch luggage, more specifically, luggage that keeps clothes organized and smelling fresh.
Lee, an industrial designer, came up with the idea for Rise and Hang Travel Gear, while studying at Humber College in Toronto. “I was living in Kitchener, travelling back and forth and spending nights at my girlfriend’s house and friends’ houses and pretty much living out of a bag for four years,” he said. “Everyone would make fun of my wrinkled clothes.”
He decided to put his training and design sensibility to work, creating a better duffle bag. He even bought a sewing machine and taught himself to sew because he couldn’t find anyone to help him make his prototype. Once he had an approximation of what he wanted, Lee sent his mock-up to factories in China to get samples made. After 10 iterations, he settled on a manufacturer and design. The bag features a built-in shelving system and a hamper to keep laundry separate from clean clothes.
“I always knew I wanted to start a product business and design something. I just didn’t know what, until I decided to solve this problem,” Lee said.
Sean came on-board with some seed money and a background in project management just as Lee was preparing to order his first production run. The brothers maintain clearly defined roles, with Sean handling logistics and Lee the design.
“We lined up some distributors and managed to get the product into the Air Miles catalogue, where credit card users can redeem points for the duffle bag, but we realized quickly that we had no buzz and that would be important if we wanted to land a deal with a retailer,” Lee said.
That’s when, just six months after launching and with only 100 units sold and an industrial design to protect the configuration and look of the bag, they decided to enter the Den.
The deal The brothers asked for $100,000 in exchange for a 40% stake in the business. “We were hoping to use the money for working capital to buy more inventory and to create a marketing campaign,” Lee said.
Jim Treliving and Kevin O’Leary teamed up as did Arlene Dickinson and Dave Chilton, with each group offering $100,000 for a 50% equity stake. The brothers took the deal from Ms. Dickinson and Mr. Chilton, who were open to their plans for building a business rather than licensing the product to a manufacturer.
During due diligence, the Renshaws decided they were too early stage to move forward with the deal. “We didn’t close any doors, but we want to be more established before we bring in an equity party.”
The plan now is to create a line of products based on the concept of mobile organization.
They will initially focus on travel but move into pets, sport equipment and school gear, and have several products in development.
“Our primary focus is building excitement for the product so we can build demand,” Lee said. “We’ve just completed a deal with The Shopping Channel and hopefully soon I’ll be on air pitching it.”
A dragon’s point of view Mr. Chilton admits he was thrown when the Renshaws appeared in their underwear, but the more he listened, the more he liked them and their pitch. “They were articulate and brought complementary skill sets to the table, but what really drew my interest was the bag and the fact all five dragons wanted one. That’s a 100% hit rate.”
A big believer in market testing, Mr. Chilton sought feedback during the due diligence phase and the results were weaker than anticipated. “Women didn’t think it was stylish and reported it didn’t hang properly in a gym or club locker, which was the only place they’d take a duffle bag. Younger guys liked it, but later admitted they were too lazy to use the accordion-like storage feature.”
Still, he was impressed with the brothers and their plans to create a line of products with a new go-to market strategy. “I think they have what it takes to succeed. They are passionate and they are willing to look at new directions to best move forward. The fact that they came back to us and said it was too early for them to take on partners was impressive. I’d love to work with them in the future.”
An expert’s opinion Dave Simpson, who teaches entrepreneurial finance and heads the Business Families Centre at the Richard Ivey School of Business, said the Renshaws are on the right track because people are willing to pay for the convenience of what they are offering. However, he says there are challenges.
“An industrial design doesn’t give you a lot of protection. All investors will want a patent on a new product but the truth of the matter is, the patent is only worth the amount of money you have to defend against someone who infringes on your patent. And if your idea is in the general consumer space, as this is, where everyone makes some sort of version of the product, it will be hard to specifically distinguish your patent. If your product is good, 100 people will try to copy it,” Mr. Simpson said.
His recommendation: “Stick to your core strength of design and license the idea to an existing manufacturer. If you want to develop your own brand, you can have a no-name manufacturer produce it for you. Just be sure to build up sales before walking into that licensing agreement meeting. You want to show you have passionate customers. The Shopping Channel is perfect because you can talk about your design strength and who you are, but you need to have the ability to fill the orders.”
Mr. Simpson also had some advice about brothers in business together. He said it’s critical to be clear on the terms of the partnership, the goals for the business and individual risk tolerance levels, and to have an agreement in place. “I tell my students, money or lack of money equals loss of memory.”