This review makes a great forum for a critique and learning experience valuable to all entrepreneurs. Learn what to do and what not to do from entrepreneurs making a pitch for money in the Dragons’ Den. The review complements my book, The Small Business Planner and there are also great free resources including fully formatted planning and marketing templates on the book’s web site. In addition, my regular Blog, and the Entrepreneurship Video Series on my You Tube channel can be very helpful to budding entrepreneurs. Constructive comments are most welcome on any of these reviews.
Series 7 – Episode 16. Original air date: Feb. 17, 2013
Baby BlowOut Blocker - Asking $50,000 for 15%
Jadine Parr from Campbellford, ON, and Melanie Miller from Utah in the U.S., created a product that protects against the dreaded blowout of baby poop out of a diaper. It is a washable addition to the standard cloth or disposable diaper and creates a barrier between the mess and the baby’s clothes. Kevin questioned about the existing diapers and their inability to handle a full blow out and he was reassured by Jadine that they cannot give adequate protection as the excrement often shoots straight up the baby’s back.
Retail: $9.99 Sales: $500.00 (3 months)
Arlene called it one of those smart dumb ideas and questioned why someone hasn’t invented it before as the need and solution are quite obvious - as was a market for the product with day care centres. Jadine boasted that they had a single order for 50 units and a deal in the works with Giant Tiger. Kevin said, “Who cares – you need 50 million of these sold!” He also told the entrtepreneurs that the product would have to find itself on the shelf beside every diaper being sold to make it an investable business and wanted to know who was going to do that for them. Melanie said that they needed the Dragons’ network but Kevin countered that they only had to go to P&G (Proctor & Gamble) and say that it solves the Pampers blowout problem so give me a penny per copy. He added that they would be wealthy and would not have to fight getting shelf space on the diaper aisle which is almost impossible. He then dropped out.
Bruce agreed with Kevin and dropped out as did Jim and David leaving just Arlene. Arlene told them to just go and get the word out to moms through blogging sites and social media and not to try and take on the giants for shelf space, and then she also opted out.
My entrepreneur ratings:
Idea: good; Competence: moderate; Knowledge of Market and Competition – questionable; Competitive Advantage: unique; Preparation / Planning: low; Chance of Success: questionable.
The ladies have a pretty good idea but they hadn’t done their homework as far as product distribution is concerned. People who invent something brand new and innovative should always consider having the big players develop, manufacture, and distribute their product, especially if it compliments an existing cash cow – in exchange for a royalty under a licencing agreement. The price tag to commercialize and keep the cost of manufacture down is prohibitive and Kevin was right about getting shelf space. Their valuation was also way out as they were a start-up and had no sales. They should have offered more equity in return for the investment, but in this case it still would not have secured a deal.
Group IV Solar - Asking $300K for 15%
Valuation: $2 million.
Michael Zimerman from Toronto, ON, plans to build solar farms in Ontario and is looking for the Dragons help. He showed a pic which Arlene identified right away as a solar farm in a field but Kevin identified it as money wasted while Bruce called it an eye sore in a natural environment. Michael reminded them of the Ontario government incentive to create solar farms and when he asked how many successful operations there were in this field, Kevin correctly answered – zero. He told the Dragons’ that the failure rate was because of government induced pitfalls but after years of work and putting everything he had into it, he was inches away from making it a reality.
He has purchased thirty acres of farmland in Southern Ontario and wants to plaster the landscape with more than twenty thousand solar panels. Michael confirmed that he has been awarded three contracts to sell power to the Ontario Hydro Authority for twenty years. He told them that all the heavy lifting had been done and they were in the victory lap. When he lifted a silver food serving platter off the table then removed the cover to offer them a cash cow, the toonies and paper money fell out causing a chuckle.
The panels are not yet on the property and Jim learned that more than a million dollars has been invested, on what Michael termed, pre-construction development, and the Dragons gasped at the high number. Michael said that he mortgaged and re-mortgaged his house, left a high paying job, and has been in a cash flow vacuum for two and a half years. Jim asked if he could get his job back right away. Kevin gave him the definition of hell on earth as trying to build a solar farm and partnering with the government as not one has been successful.
Michael tried to tell them that he would be one of the first to be successful because he has learned how to avoid the pitfalls and exploit the weaknesses. David asked about the investment required to bring the project to life and learned that the estimate was $7 million which would be financed by debt capital. Jim said the return would be too distant and dropped out. He wanted to explain the income model and Bruce directed him to tell the other guys as he was out. Kevin painted a picture of Michael’s tombstone which would read, “I partnered with the government and they killed me!” He pulled the plug on a deal and David was out as well because he didn’t like capital intensive businesses along with Arlene who wouldn’t take the risk.
My entrepreneur ratings:
Idea: questionable; Competence: questionable; Knowledge of Market and Competition – questionable; Competitive Advantage: not applicable; Preparation / Planning: low; Chance of Success: very low.
David was right about this being a capital intensive business; Jim was right about an extremely distant return (if there is one at all); Arlene was right about the risk; and Kevin was right about partnering with the government – especially if you are a small player. There was no planning done here leading up to a personal investment of one million dollars and what is there to show for it? It is absolute lunacy to mortgage your number one investment in life for a risky venture, or any venutre for that matter, even if you conduct a successful feasibility study. Kids – don’t do this! Leave the utilities up to the big players with deep pockets.
EnRICHed Academy - Asking $40,000 for 10%
Kevin Cochran from Uxbridge, ON, and Jay Seabrook from Vancouver, BC, developed a DVD program that teaches young people how to earn, save and invest their money while avoiding debt and the pitfalls of credit cards.
Retail: $150.00 for the set.
Kevin (pitch man) said that they spared no expense in creating the program and you knew someone was going to bring up David Chilton and The Wealthy Barber. In this case it was Arlene who asked if they interviewed him and they had not. David asked what their financial background was from a credibility perspective. Kevin who earlier related a story about his bad experience with credit card debt said that he took the school of hard knocks and he and Jay had been involved with companies previously that became successful very quickly. Million dollar companies as he put it. (Hardly the credentials that Chilton was likely hoping to hear.)
Sales: $170K (since launch 3 months earlier).
Jim asked why they need the $40K. They then presented their idea of having the Dragons endorse their product. Arlene jumped in telling them that they had it ass backwards and should be paying them – not asking them for money. Bruce urged the expert to jump in and David said that he has always struggled with kids and Kevin (the pitch man) said they were targeting 13 to 23 year olds. Kevin (O’Leary) got the idea but wanted to know how they were going to get 15 year old kids to plug in the DVD and watch their production rather than blast aliens on the video game screen downstairs. They responded that it was up to the parents who would force them to watch or suffer with 25 year old kids living at home with a ton of debt.
Obviously they need more money to reach the target market and Jim suggested that they all do a deal. Arlene said they could use their brand on the product but there would be a 7% royalty payable in perpetuity (forever). David refused to put his name on a brand if he hasn’t gone through all of the DVD’s and Bruce suggested that they do the deal pending an analysis of the DVD content because he thought they were on to something. Kevin said he hadn’t agreed to this deal bragging that his brand in this area was stronger than the other four, he didn’t need them as partners and he told them through Jim’s heckling that he wasn’t interested in one fifth. His offer was the 40K for a 15% royalty in perpetuity in all markets.
David countered that his Wealthy Barber brand in personal finance was bigger than Kevin’s and Kevin said David was a nobody – a zero in the United States. David reminded him of the one million books sold through PBS in the US and Jim also bragged about being bigger in the US than O’Leary could ever dream of becoming. (Kevin has created some hostilities amongst the Dragons to the chagrin of the pitching entrepreneurs.) Bruce summed up the bid of the original four which includes the $40K and a 12% royalty in perp. (Up from Arlene’s original bid of 7%.) Kevin sweetened his deal a bit dropping the royalty down to 10% but he wanted the Canadian and US markets. While the partners deliberated Arlene felt that they would go for Kevin because of his B.S. and we overheard Jay wanting to go that way but Kevin (Cochran) was leaning toward the group because of David’s expertise. When they returned to the Den the partners asked if they could get all five Dragons in for 15% and O’Leary insisted that he had zero interest. They logically took the deal with the group of four leaving Kevin out in the cold – looking from the outside in.
My entrepreneur ratings:
Idea: excellent; Competence: high; Knowledge of Market and Competition – good; Competitive Advantage: unique; Preparation / Planning: high; Chance of Success: very good.
The partners proved that you don’t necessarily need a university degree to start and grow a successful business. Education and theory are great but there is no substitute for experience and Kevin Cochran proved that here. They came up with a great idea to fill a void in the market and created a professional looking package with impressive sales. (We didn’t see much of the contents but I’m sure the Dragons will before writing their cheques). This was the premise behind my book and offering the associated free resources. There was a void in the market of available books that were both comprehensive and understandable for entrepreneurs. Most were written by MBA’s – for MBA’s and concentrated on finance while neglecting marketing. The Small Business Planner covers all aspects of business and almost fifty percent is dedicated to marketing or generating revenue using a mix of practical experience and theory.
Rising Life Inc. Talking Encouragement Dolls
Asking $100K for 35% Valuation: $285,714.
Mandy Tanner from Edmonton, AB, pitched her line of dolls that she was told in a dream, eighteen years earlier, would become the hottest selling items. They are meant to promote self-esteem by speaking ten different statements that build positive thinking for adult life. The dolls were demonstrated through their interaction with five young girls who came into the den and interpreted the motivational statement each doll made. (The statements were similar to the motivational phrases found on the popular framed Successories series.) The girls gave a doll to each of the Dragons.
Kevin wanted to know how he was going to make money because the doll market is a very crowded place controlled by some very big companies. Simple – Mandy said, “We sell the dolls.” Bruce asked if there were any sales and Mandy reported that they had sold eighty dolls for seventy dollars including shipping. Kevin told her that it was too much and not nearly the quality of a seventy dollar doll. He said she had to get the price down between nineteen and twenty-nine dollars. He said the pricing model was insane and Mandy said that she was hoping to get the price down and was in the Den to get some marketing help.
Bruce reminded her that marketing was picking up the phone which Mandy had tried with the big box stores but they told her to come back with a track record. She was confident that it would get into the stores with help. Jim was the first to drop out commenting that it was a very niche market followed by Bruce. David liked the messaging concept but wasn’t sure about the delivery method so he opted out. Kevin said the chance of Costco delisting Barbie for the new talking doll was zero and he backed off leaving only Arlene who had been having fun in the meantime with the doll. The reality check came in from Arlene, however, who reminded Mandy that she needed the business sense and wasn’t there yet.
My entrepreneur ratings:
Idea: good; Competence: questionable; Knowledge of Market and Competition – questionable; Competitive Advantage: unique; Preparation / Planning: low; Chance of Success: very low.
This is yet another case of someone pursuing their dream and pouring money into it without the appropriate level of sound business planning. It all starts with a feasibility study as I have said over again and Mandy did not do this. Her marketing idea was pie in the sky and these people need to realize that to be a successful entrepreneur you need the dream and passion but also need to make money.
The lockHARD bit - Asking $60K for 30%
Ryan Lockhart from Victoria, BC, pitched the Dragons on his screwdriver bit which combines a Robertson head with a flathead in tandem so that screw heads never strip. He claims to be the first person to put the idea to market and passed out samples in two sizes. He has sold 6,000 bits in the past two years through electrical wholesalers. He demonstrated it to Arlene and she opted out as she didn’t understand the significance of the design, but David did as he couldn’t understand why no one had invented it before as it was so simple.
Kevin learned that he had no patent as he said it was not possible. The Dragons said that it would not work without protection. Ryan then showed them his stripless screw idea which also wasn’t protected. Arlene didn’t think it was a big deal that it couldn’t be patented – just be the first to market. David disagreed and felt that it would be copied right away and he dropped out followed by Kevin who thought the pitch man was going to get screwed. Bruce couldn’t get by the patent problem as well and felt that trying to make it an industry standard was too ambitious leaving Jim who said it was a great innovation but was out.
My entrepreneur ratings:
Idea: good; Competence: questionable; Knowledge of Market and Competition – questionable; Competitive Advantage: unique; Preparation / Planning: low; Chance of Success: low.
Ryan had created a great innovative design which has great possibilities. Like the Robertson head on screws, his new design solves a real common problem. The big dilemma was protecting the design and it didn’t appear from his responses that enough had been done to leap this hurdle. Without protection the business is dead in the water as both Kevin and David were right that someone else with deeper pockets would steal the design and run with it. There are ways to protect a design beyond the standard patent and he should have re-invested some of the sales back into the service of a patent lawyer.