DRAGONS’ DEN REVIEW – Episode 902

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 2. Original air date: October 22, 2014

Pitch: Schnitzel Queen - Asking $250K for 50%

Valuation: $500K

Karl Hubsch and his sister, Michelle Srnec from Toronto, Ontario, pitched their schnitzel restaurant to the Dragons. It is only a four seat facility which was bestowed upon him a year earlier along with an age old recipe for several styles of schnitzel. He is grossing about $150K per year, yet wants to use the investment to start a franchise operation. To keep this review brief, he had no idea about franchise operations. Jim warned him that it required volume to substantiate franchising and obviously he didn’t have that. His knowledge of  restaurant management was equally as bad as he refused to work the second busiest day of the week, Saturday, to be with his family. He was equally as poor as an entrepreneur as he had no idea what his bottom line was and could not relate any pertinent financial information when pressed. Obviously all the Dragons were out – and surprisingly polite in doing so given the situation.

My entrepreneur ratings:

Idea: possibilities in the hands of an actual restaurateur; Competence: questionable; Knowledge of Market and Competition: questionable; Competitive Advantage: questionable; Preparation / Planning: poor; Chance of Success; very little chance for growth and zero chance for franchising at this stage.

This pitch is full of examples of; ‘What not to do!” Just add them up.

Web Site:     schnitzelqueen.blogspot

This is not an actual web site. It is a blog posting done through the site blogger. The company will need to establish their own professionally developed web site sooner than later if they want to take full advantage of the web as a powerful marketing tool.

Pitch: Pur Gum - Asking $1 million for 10%

Valuation: $10 million.

Jake Klein from Toronto, has developed a line of chewing gum that he claims has become number one in the health food market as it is sugarless but contains no Aspertame. It is also gluten free and diabetic friendly and still tastes great. The gum is manufactured in Switzerland and comes in six flavours and sold in over ten thousand stores. It retails for the same price as regular chewing gum. The ingredient substituted for Aspertame to provide the sweetness is Xylitol, which is roughly as sweet as sucrose with 33% fewer calories. The Dragons tried and liked the gum. Jake was in the marketing business before but had an eye opener when he got into this business with relation to the complexity of the supply chain and distribution channels.

Sales:  $10 million in 2013.   Launched in May 2010 and doubled every year.

Fifty percent of sales is in Canada but the gum is also sold in twenty-four other countries. Fifteen percent is in the U.S. where there is tremendous gross potential for them. The Dragons were curious as to the reason why an investment is required if the sales are so good. He said the main reason why he came to the Den is for the Rolodex of each Dragon, and a few dollars as well. He obviously wanted to partner with them for their contacts, but we haven’t heard anything about his margins and profitability. Even without that key info, David said he was in for the Ask amount. (Of course, the profitability will be revealed through the financials in the due diligence stage before any cheques are written. Vikram matched the offer saying that the proof was in the taste (not the pudding). Michael liked the packaging and Jake as an entrepreneur and thought they were going to make a lot of money but he wouldn’t pay ten times on a private company valuation and opted out.

Arlene admitted that there was real value for him to take multiple Dragons involved and asked to speak with her prospective partners in private. He returned from the back room and Arlene announced that her and Jim would partner but wanted 15%. David wanted to stay alone and give him what he was asking for but Jake countered Arlene and Jim’s offer to 10% resulting in Vikram’s ire and the withdrawal  of his offer. Arlene tried to talk David into joining them at 15  but he refused and Jake wisely gave up a little equity for a lot of experience and contacts with the two Dragons as partners.

My entrepreneur ratings:

Idea: good; Competence: high; Knowledge of Market and Competition: good; Competitive Advantage: unique; Preparation / Planning: high; Chance of Success; very good even without the Dragons.

When you can justify a valuation of ten million then you obviously have done something right – primarily established sales and great market potential. Jake had done just that and the deal was pretty much a slam-bang with four Dragons hooked. He started to get a little greedy and one got off the line but he managed to negotiate an excellent win – win.

 

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