Lessons from the Dragons

Lessons from the Dragons

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Eat with a local: Make a meal, make a friend

  • The entrepreneur: Vicky Edmunds
  • Investment: £50 000 for 15% of the business.
  • The idea: A website that connects tourists with locals who will host them, cook traditional, home-cooked meals for them and introduce them to the local culture. The idea is to unite food lovers across continents.
  • What the Dragons had to say: Consensus was that the numbers don’t work. Vicky asked for too little investment to achieve her goals. There was no clear indication of how the investor would get a return and the Dragons felt it was too big an investment for too little equity. It’s extremely difficult to monetise a concept like this and while the website works – and is a wonderful idea – it’s not clear whether it can be a viable business that generates revenue and makes a profit. The Dragons also felt that Vicky needed more commercial acumen.
  • What she did right: Vicky had a very infectious enthusiasm for her idea. She came across as extremely personable and engaging – the judges enjoyed her energy. She is in touch with her target market and remembers each of her customers by name. Vicky clearly had a real passion for what she does. While she has come up with a very nice reciprocal model, the question is, does it have a business angle? As she points out, she has accumulated 1 000 members without even trying.
  • What she did wrong: The idea was initially presented with enthusiasm but very little business information was provided, such as the target market, the revenue model or what the £50 000 investment would pay for. Vicky also cooked a meal for the Dragons, which was lovely, but she wasn’t selling her cooking skills. It was a neat trick, with no real purpose. She also didn’t have a firm grasp of relevant facts, such as how many of her members charged tourists for meals. When Georgia (her daughter) joined the panel to discuss figures, all amounts were presented as ‘we think’. Vicky and her daughter were unclear of what the tourism industry in the UK was worth, ranging from millions to billions. When asked how the investment would be spent it became clear that they hadn’t done sufficient research as the response was £20 000 on the website and £30 000 on advertising, but with no clear plan of how the money would be allocated if the website cost more other than to take money from the advertising budget. Vicky didn’t place sufficient focus on the financial side of her business and how her idea could be monetised to generate a return for the investor.
  • Verdict: No
  • The lesson: An engaging personality and a great idea aren’t enough, you need to have a clear plan for how your business idea is going to generate money. In addition, know how much working capital you will need and ask for enough to get your venture off the ground.

Third Door: Office come nursery

  • The entrepreneur: Yusuf Shatz and Shadi Mustafa
  • The investment: £120 000 for 20% equity.
  • The idea: Providing office space that comes with childcare for working parents. Childcare services can be inflexible and expensive, while working at home with a small child in the vicinity can prove distracting. This new way of working enables the parent to rent office space in a building with an on-site nursery. The business is already up and running, the couple is asking for an investment to grow the business and turn a profit.
  • What the Dragons had to say: A lot of questions were posed around set-up costs and the return to date over the 2 years that the business has been operational. The couple was unable to answer all of the financial questions to the Dragons’ satisfaction. What was very clear was that unlike the previous pitch, as this was an existing business, the Dragons posed some very tough questions pertaining to numbers, especially regarding profit and loss within the business. They pointed out that businesses make money and the couple would be well advised to close the nursery, which was not making a profit, and just concentrate on the office space, which is where the revenue lies. However, the couple insisted that the nursery was their USP (unique selling proposition) and as such gave people a reason to rent their office space.
  • What they did right. The concept is excellent, as shown by the fact that their child – who was in the room – was kept occupied by a carer throughout the entire pitch. This gave a good indication of how well the concept works and the quality of care available. Initially, Yusuf knew his figures off the cuff, both in terms of the investment and losses made by the business. He was very upfront and honest about the fact that his start-up had lost money. Being open about this showed that he understood the business and its figures. In addition, the fact that he had thus far £400 000 of own skin in the game, demonstrated his faith in his own business idea. The business showed very good growth from year one to year two, with a projected profit for year three.
  • What they did wrong: When the Dragons started asking for more detail about the year-on-year results, Yusuf went blank and couldn’t remember his accounts. When pitching to investors you need to be able to provide numbers asked for off the cuff. The Dragons pointed out that even though the couple’s research had told them that office space was profitable, much more so than nurseries, they had still chosen to pitch the unprofitable business idea. This begs the question: does having a USP justify the costs? The couple ended up ignoring the most commercial profitable part of their business. It’s also why they’ve had such high losses. Not enough information was provided, an issue that might have been addressed had they prepared a proper business plan. The Dragons advised that the couple prove the workability of the concept by operating at a profit for a number of years before seeking investment.
  • Verdict: No
  • The lesson: Sometimes your business idea needs to pivot once you’re operating. You also need to be completely prepared when pitching to investors. It’s extremely important to be able to provide detail when asked for it.

Dirty Beach: Sandcastles in the sky

  • The entrepreneur: (S) Andy Robertson
  • The investment: £100 000 for 10% of his business.
  • The idea: After spending six years building sand castles at events and festivals, Sandy is convinced that there’s money to be made from selling food and drink to the crowds attracted by his sand castles.
  • What the Dragons had to say: More information was required about how he would ship sand to inland venues, seating arrangements for customers and profit margins on food and drink. The Dragons were incredulous at Sandy’s lack of firm detail as to how the business would actually work and make money that would provide a return for investors. It’s important to have a proper business plan that includes financial projections of how the business is going to make a return. Speaking to a guy who runs a bar and finding out how much he makes isn’t real research and figures. These need to be stress tested and proven. Far too little firm detail was provided. Consensus was that the beach bar won’t make money and Sandy should drop that idea and focus on what he’s good at, ie building sand sculptures.
  • What he did right. Sandy was passionate about his business idea and he’s clearly a talented sand sculptor. His idea to make furniture out of sand was innovative and novel. His idea to ship sand to locations inland was a good one.
  • What he did wrong: Sandy didn’t cover the cost of shipping sand inland and focused more on making money from selling beer, although he had no idea what his margins on that would be. He needed to show how he’d make money by providing concrete figures. There was no clear business plan indicating how he would make a return. Sandy valued his business at a million pounds but couldn’t show where that figure came from. He was unclear on what he would need for set-up or what his turnover will be. Or his margins. His grasp of the numbers was lacking. While he knew something about running a bar he didn’t know anything about the financial side of the business, which is vital.
  • Verdict: No
  • The lesson: To get investment, you need to have something that others can’t do. That’s your USP but you still need to understand the mechanics of making money. Passion and talent can’t replace business acumen.

Shampooheads: Bubbles and babies

  • The entrepreneurs: Geoff and Collette Bell
  • The investment: £75 000 for a 15% investment.
  • The idea: The couple has developed a kids’ shampoo brand that features fun characters on the bottles, encouraging kids to look forward to bath time, which is an important parent/child bonding time. The bottles are pump action – designed for kids aged 2 to 6 years – and by eventually allowing them to wash their own hair, will create independence as kids get older.
  • What the Dragons had to say: The Dragons unanimously loved the idea. They were very impressed with the product and extremely impressed by the deal in hand with a high street retailer. The couple’s negotiations with Boots have resulted in them getting free promotional space in-store for four weeks.
  • What they did right. When pitching, the couple quickly jumped into their thorough market research. Their brand was registered, as were domain names for the characters and the products have the necessary approvals. They have all been dermatologically tested, tear-free and clinically approved and the couple paid for this out of their own pockets. A lot of thought has gone into what kids (and parents) need at bath time. The business already has a deal in place with UK’s leading chemist chain and Geoff knew the relevant figures off hand. He readily provided his cost price and profit margins as well as sales forecasts. The negotiation of the free in-store promotional site indicates buy-in from the retail chain to assist in launching the brand. The business needs the investment because the couple has built the business from scratch, boot-strapping it as they went. Now they have exhausted their resources and have a cash flow issue. They need the investment to grow. Geoff mentioned his background in shampoo and hair care products, another plus as he demonstrated his strengths to the Dragons. They ended up in a position where the Dragons were pitching to the entrepreneurs – that’s a real place of strength.
  •  Where they did wrong: Not much.
  • Verdict: Yes
  • The lesson: If you’ve done your research, approached the right clients, signed good deals, know your numbers, demonstrated there’s a market and have the details at hand – you’ll get investment.

If you have a great business, choose who you approach for investment carefully – you need to be able to work with your investor – closely. In the end they chose two of the Dragons as investors after evaluating who would bring what to their business.

Are you an entrepreneur with a viable new idea and an investor-ready business? Could you handle the heat in the Dragons’ Den? Enter BBC Entertainment and Entrepreneur Magazine’s exclusive Dragons’ Den Series 10 competition and you could win a business makeover worth R140 000 with business guru Pavlo Phitidis and Aurik Business Accelerator.

Alison Job
Alison Job holds a BA English, Communications and has extensive experience in writing that spans news broadcasting, public relations and corporate and consumer publishing. Find her at Google+.