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, along with the Video Series on my You Tube channel can be very helpful to budding and seasoned Entrepreneurs. Of primary interest to those making a pitch on the program is the Feasibility Study as described in the book. If completed in detail, this study will indicate if there is a viable market for the product or service and if the business can be profitable. An added feature to my reviews is a rating on the company’s web site – if available. The web site has become the number one marketing tool for most businesses today and my observations are based on a quick overview whether accepted web design and development standards are met. Remember – you have a very short period of time to hold the attention of a new visitor. Therefore, the company web site deserves the appropriate investment and professionalism to be effective. Constructive comments are most welcome on any of these reviews. Larry Wilson is author of the best selling book, The Small Business Planner, and is the founder of Dynamic Performance Group, a strategic and marketing planning firm.
Season 9 - Episode 7. Original air date: November 26, 2014
Pitch One: Silhouette Swimwear - Asking $70K for 30%
Gabriella from Montreal has a solution to determine women body type by their silhouette which helps to find the right clothing. She brought out a number of models wearing her new bathing suit styles holding up a picture of their own silhouette, or body type with an older style suit that does not match the type, thus does not compliment the figure. She categorizes the body silhouettes into four types: the rectangle, hour glass, triangle, and inverted triangle. She has a degree as a fashion designer working for North Face but has been doing her own designs for some time. She launched her designs two months ago. David reminded her that it is a tough business to get distribution. She admitted that is why she is in the den and has five locations in Quebec that want to carry her line but she doesn’t have the inventory. She is also meeting with Hudson Bay but has low supply of inventory coupled with high demand.
Sales: $5,000. Retail: $210.00 Wholesale: $140.00 Cost; $70.00
Arlene illustrated how hard it is to get such a competitive category to market but did like the looks vs. the suits in photos. David said it would cost too much to get to market and Vikram thought the industry too competitive and both opted out. Arlene then dropped out citing that it would be too hard to get shelf space. Michael offered the $79K as a line of credit for inventory if she gets the order from Hudson Bay Company. Jim offered the $70K for 40% which will drop back to 25% equity when his investment is paid. Arlene was pointing for her to go with Michael, but she chose Jim stating that she wanted a partner – not a loan.
My entrepreneur ratings:
Idea: good; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: fashionable; Preparation / Planning: good; Chance of Success; good.
Great product and a great presentation. She was very articulate, knew her stuff, and showed that she was willing to do whatever it takes to make it work.
Pitch Two: Frylow - Asking $100K for 10% plus 20% royalty to double investment.
Valuation: $1 million.
Pete Heddon, VP Operations appeared with his with partner, the President of Frylow International from Victoria BC. (Couldn’t make out his name.) Their product is a ceramic device which is placed directly into the deep fryer and provides a savings in oil usage, improved food quality and lower energy costs. It is a Japanese product that they have been selling for eight years and they have rolled it out here in the past year. At $20 million in sales, Arlene didn’t know why they were in the Den especially with a 75% profit margin. David wanted to know what went wrong if they made $15 million gross profit. The Dragons finally learned that the twenty million was retail and they were selling to distributors and Arlene felt they were holding something back.
They had trouble making the quota upon which the distribution contract is based and all Dragons opted out due to skepticism.
My entrepreneur ratings:
Idea: good; Competence: questionable; Knowledge of Market and Competition: good; Competitive Advantage: unique; Preparation / Planning: poor; Chance of Success; questionable.
The pitchers didn’t come clean with the Dragons who saw through them right away.
Pitch Three: Drywall Axe - Asking $150K for 10%
Valuation: $1.5 million.
Adam from Aurora showed up in the Den with his son-in-law, retired major league baseball player Cliff Floyd. Cliff partnered with him three years earlier to put into production a dry-wall tool that is a utility knife, tape measure and pencil holder – all in one. Arlene snuggled up to Cliff admiring his World Series ring while Adam demonstrated how easy it was to use his revolutionary tool and in two quick moves cut and fit a perfectly sized piece of drywall. They are exclusive to Canadian Tire in Canada for two years but can sell anywhere else in the world and obviously wants the Dragons help to expend sales globally.
Sales: $160K (3 mths.) Wholesale: $9.50 Cost to make: $6.50 Retail: $30.00
He said they got beat up on the price by Canadian Tire because they helped set up the manufacturer. The pair has about $200K invested in the product which means that (without figuring in fixed costs and wages or paying off any outside investors) they would need to sell 66,666 unit to break even with these prices and margins. But seeing the opportunity in the U.S., Michael offered $500K for 25% bumping the valuation to $2 million. Jim offered what they were asking for and said he could get it into Wal-Mart and The Home Depot below the border. Vikram opted out and Arlene offered the $150K with no equity but a royalty only of 5% on all sales outside of Canada. David made a similar offer and Arlene with a $2 royalty on sales outside Canada until he has recouped (double his investment) $300K and no equity. The two huddled into the back then chose Arlene.
My entrepreneur ratings:
Idea: excellent; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: unique; Preparation / Planning: good; Chance of Success: excellent with Arlene as partners.
It is not often that a product knocks the ball out of the park from an innovative perspective – but this one certainly does. Even though they got beat up on the wholesale price to Canadian Tire, it got them started and is only for two years. But the market potential outside Canada is tremendous.
Pitch Four: Tangoo - Asking $75K for 10%
Partners, Jonathan Hill and Paul David Effew from Vancouver, B.C. pitched their special event planning service, Tangoo. It is a free on-line service that matches mood with venue for a special evening. It is being tested in Vancouver and they need investment for expansion. The revenue model is based on restaurants and venue profiles in three tiers from basic free through $50 to $150. They currently have only 25 subscribers at $50 making the valuation appear very high.
Michael, Vikram and Jim thought it would be just another app that would fade out in a couple of years and David was skeptical that they could be competitive down the road. Arlene thought their business model was flawed and made a suggestion that she may be interested if there is a membership and rating system that would provide data to a company she was familiar with. She offered $75K for 25% if they were willing to change their model. Paul David immediately countered to 15% and agreed tp the change. She refused the valuation and they were out of luck.
My entrepreneur ratings:
Idea: questionable; Competence: questionable; Knowledge of Market and Competition: questionable; Competitive Advantage: questionable; Preparation / Planning: questionable; Chance of Success: questionable.
Everything about this pitch is a question mark except for the valuation (too high) and logic to turn down an offer – any offer. David was right that everyone appearing on the show things their business idea or new product is worth a million dollars without a track record of sales.