Lita McDonald and Meghan Dear have invested their money to launch a small busines
Now they’re looking for outside help. The big question: Have they protected their idea?
Lunch with … is a column for Alberta Venture. Every month, we ask a young executive to pick a person with whom he or she would like to talk business. The senior executive, if willing to act as mentor for an hour or so, gets to pick the place to eat. If you would like to participate, email Michael
by Michael Ganley
YOUNG EXEC: Lita McDonald
COMPANY HISTORY: McDonald and Meghan Dear have developed a labelling system for grocery stores that allows consumers to identify and support local, regional and Canadian food products
ESTIMATED 2012 REVENUES: Nil
LUNCH: Selections from five dishes chosen by the proprietor, David Cheung
SENIOR EXEC: Randy Marsden
HISTORY: Marsden is best known as the CEO of Edmonton-based Cleankeys Inc., which makes easy-to-disinfect keyboards, but he has a history of invention and commercialization
LUNCH: Selections from five dishes chosen by the proprietor, David Cheung
Photograph Ryan Girard
Lita McDonald and her business partner, Meghan Dear, think many consumers want to know more about where their food comes from. In particular, they believe people want to know where the ingredients were sourced, where the food was processed and who owns the company that made it. Motivations include freshness, support for the local economy and a lower environmental footprint.
So they’ve developed a rating system, out of 10, that takes these factors into account. Their idea is to put the rating on a business-sized card, attach it to a grocery store shelf and let people make educated choices about where their food comes from. To add depth to the process they include a QR code that can be scanned for more information on how and why the score was arrived at.
Their business, Localize, has done a 90-day trial run of the program with 10 Sobeys stores in the Edmonton area. They labelled 400 products, stuff like Bles-Wold dairy products and Cheemo perogies. McDonald says not only were consumers more informed, but that it drove purchases: Those products that scored well saw a 12 per cent increase in sales.
But Localize has hit a wall and needs funding. McDonald and Dear are debating whether or not to turn to outside investors – from friends and family to venture capitalists and government grants – to raise the money needed to take the business to the next level.
They asked to have lunch with Randy Marsden. The Edmonton-based engineer and inventor has three successful businesses to his credit. He founded and launched Madentec, which makes devices that help people with disabilities, developed the Swype app, which allows users to “type” by sliding a finger across the keyboard, and invented Cleankeys, an easily-disinfected keyboard that is popular in hospitals.
He thinks McDonald and Dear are ready to approach friends and family. “The big test is, if your own money is in – and it is – then you can feel OK asking friends and family because you can say, ‘I’m there already.’ ”
But moving on from there? Marsden has some concerns. “This is too early stage for VCs,” he says. “They come in after you’re running and you need $5 or $10 million to expand.”
He runs over the potential list of granting agencies and programs, many of which he has accessed himself: the Industrial Research Assistance Program, the various Alberta Innovates bodies, Alberta Enterprise. McDonald has already approached many of them. “The challenge for us is that we don’t really fit into a slot,” she says. “We can argue on the tech front that we use an app and smartphones and a website, but then funders see that we want to spend on marketing and they say, “Whoa.’ ”
Marsden goes off on a tangent. “This is my big soapbox,” he says. “It’s like you’re cursed if you’re doing marketing. What’s wrong with that picture? You can have a great product and bad marketing and fail, or you can have a mediocre product and good marketing and really succeed.”
Back on track, Marsden mentions TEC Edmonton’s deal generator, designed to connect entrepreneurs to angel investors. “Do you think we should be playing up the fact that we’re a social enterprise?” McDonald asks.
“I tried playing that angle with Madentec because it had a pretty high social impact, and it works with angels,” Marsden says. “Some want their money to go towards something good, almost philanthropic, but government grants and VCs just want to see the economic benefit.”
For lunch, Marsden had chosen the Pearl River Restaurant, an unassuming place in a dour industrial area on Edmonton’s 99th Street. When the proprietor, David Cheung, sees that there is a picture to be taken he takes control, ordering and serving five sparkling dishes. He even removes the serving spoons for fear they would make the food look less palatable.
Photos taken, Marsden has another thought. “What do you have that’s unique and patentable?” he asks. Without some kind of protection for Localize’s idea, he says, investors will be wary. “Your rating method is a formula?”
“Yes,” McDonald says, and she explains the method. “It’s not a question of whether or not your food is local,” she says. “It’s how local you can go.” In order to account for the fact that there are various degrees of localness, McDonald and Dear developed a weighted score with a variety of considerations. The score is weighted 80 per cent toward place of production and place of ownership, and 20 per cent toward source of ingredients. There’s an additional component to address the regulatory definition of local, which the Canadian Food Inspection Agency says means within 50 kilometres of the point of sale. “If the product is made within 50 kilometres of where it is sold, then it gets 10 out of 10,” McDonald says. “An example I like to use is Spolumbo’s sausages in Calgary. They’re owned locally and have a manufacturing facility in Calgary. They use Alberta pork. They get their basil from Didsbury. In Calgary, they get a 10 out of 10. In Edmonton, it’s a 9.7.”
“I wonder if there is something protectable there?” Marsden says. “Can you say, ‘You could slap a ‘local’ label on your soup, Campbell’s, but there are rules that say it has to be within 50 kilometres. We’ve solved that with a rating system which we’ve patented’? That would go a long ways with strategic investors, and it would help with government grants, as well.”
McDonald knows Dear has been working something through the patent system but is not sure exactly what. She recognizes that the right patent could be lucrative in a social enterprise realm where, as she says, “local-washing” has been an issue.
Marsden emphasizes the defensive nature of patents, and their long lead time. “Patents take forever,” he says. “Whether or not it’s patentable, you can say pending, and sometimes companies string that along as long as they can, thinking, ‘We don’t think we’re going to get it, but we want to say that it’s pending as long as we can.’” He wonders aloud if Startup Edmonton might have a sponsoring law firm that can look at the patentability of the rating method.
Marsden then decides to do a quick customer survey and explains Localize to Cheung. “You probably have your set suppliers,” he asks, “but would it make a difference to know if your ingredients are locally made or not?”
“We are not very faithful,” Cheung says, laughing. “Whoever is cheap and good, we buy. It’s business and we need to survive. That’s the number one priority.”
McDonald sympathises. “I was a student,” she says. “I didn’t care where it came from. It was the lowest price.”
But the beauty of Localize is that it doesn’t necessarily raise the price. McDonald anticipates that Localize would make some money from grocers who implement the system and some from vendors to have their product highlighted, but in neither case would the price of the item necessarily go up.
“When you go looking for an investor, it’s important to find one that has more than money to bring to the table,” he says. “Ideally they’d have money, they’d share your vision and they’d have some experience in the field you’re in.”