How this Toronto gift basket company caught the attention of Harvard

Robin Kovitz wanted a company that had its best days ahead of it. She bought Baskits Inc. in 2014 with that in mind.Courtesy of Baskits

As a private equity manager, Robin Kovitz was always on the lookout for successful multi-million dollar companies that his company could acquire that were ready for the next stage of growth. But when she decided to buy a business for herself, she wanted one with her best days ahead.

She found it at Baskits Inc., a Toronto-based gift services company launched in 1985, which she bought in 2014. The company had done well, launching a pioneering e-commerce site in 1995 and opening its first retail store in 2000. But Ms. Kovitz saw a lot more growth potential.

“Baskits was exporting a little bit,” she says.

At the time of purchase, the company had a few million dollars in annual sales. It now has nearly $20 million in annual revenue, of which about 10% comes from exports. The company plans to focus on the United States as a growth area and explore other markets in the near future.

“Obviously the United States is a great place to grow because it’s 11 times bigger than Canada,” says Kovitz, who holds a Bachelor of Commerce degree from Queen’s University and an MBA from Harvard Business School. “If you have a good product and a good offer, being able to successfully export to the United States is great because it’s such a large market.”

It has also expanded into new markets by acquiring some competitors.

His original goal was to improve and elevate the product to drive demand. On the service side, she says, the company has also focused on customer experience and invested heavily in technology.

The exchange rate is an advantage for Canadian businesses in the U.S. market, as it essentially translates to a 30% discount for their U.S. buyers, Kovitz says, but selling south of the border is difficult.

Exporting foodstuffs adds a layer of complexity to exports as far as the United States Food and Drug Administration is concerned. It’s further complicated by the fact that for Baskits, one customer buys the gift and another receives it, and the company must ensure that the recipient is not taxed.

The United States has a more established distribution network, resulting in much lower shipping costs. US customers, and increasingly Canadians, expect free shipping, but that cost is much higher for Canadian businesses, says Kovitz.

And the border control process is constantly changing and can be difficult, she adds. “We’ve invested a lot of time and money into the latest software to make sure it’s seamless.”

The growth of the Baskits was used as case study at Harvard Business School, which helped spark interest around the world. Still, there are many considerations when assessing a potential market, including currency exchange, regulatory environment and local tastes and preferences, she says.

Even in the United States, there are 10 distinct regions with different tastes, Ms. Kovitz points out.

“What would sell in Texas might not fly in New York. Just understanding local markets and ensuring your product line is appropriate for different regions and regional preferences is a challenge.

Baskits is planning a European expansion soon with its popular baby line. “We’ve just moved into a huge new warehouse that we’ve salvaged it from and are rebuilding and once we’ve done that our next focus will be Europe.”

Being a business owner has a steep learning curve, says Ms. Kovitz. She had several mentors and advisors, including her entrepreneur father, who sold his Calgary-based company, Centennial Foods, in 2007.

She also worked early on with Export Development Canada and Business Development Canada (BDC), which provided financial support and advisory services such as the BDC Growth Driver program.

BDC is essentially Canada’s bank for entrepreneurs, but it’s much more than just a financing institution, explains Mary Ann Wenzler-Wiebe, its vice-president, financing and consulting for the Greater Toronto Area. The organization also offers consulting services to clients at all stages of development and worked with Ms. Kovitz and her team at Baskits soon after she bought the business.

“At the time, it was a small company with growth aspirations,” says Wenzler-Wiebe.

BDC helped Baskits fund web and mobile marketing and hire additional staff. But more importantly, she says, he worked with the company to design a funding program that would grow with it.

“Exporting is really a journey that doesn’t start when you sell overseas,” she says. “It’s a mistake that many entrepreneurs make, not taking the time to build a solid base operation, or really understanding or analyzing your pain points, and thinking about the potential pitfalls they might encounter.”

The Baskits team used BDC’s market development program to better understand these aspects, with the goal of increasing sales through web development, says Wenzler-Wiebe. BDC also helped finance acquisitions that helped the company expand its markets.

“Flexible terms and conditions allowed them to expand their business without straining their cash flow,” she says, all part of building a solid foundation on which to expand exports. “The fundamentals have allowed them to gain momentum to such an extent that when they consider international expansion, they are well prepared to do so.”

BDC has three pillars to help businesses succeed: financing, advice and partnership, explains Ms. Wenzler-Wiebe. “You can’t do it all on your own. BDC has an extensive network of contacts and relationships, including our sister company EDC.

“Bringing in the experts can save business owners a lot of time, money and hassle, and dramatically increase their chances of success.”

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