DRAGONS’ DEN REVIEW – Episode 903

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 3. Original air date: October 29, 2014

Pitch One: Knixwear - Asking $200K for 10%

Valuation: $2 million.

Joanna Griffiths introduced her new line of lady’s underwear which are meant to protect from light leaks  after a laugh, sneeze or cough which is common in one third of women. Specially made for workouts and activity, they help guard against seat, odour and panty lines. The high-tech underwear can be purchased on-line or at Hudson Bay Company stores across Canada and are tagged to: Knix sweat, Knix odour, Knix worrying. David was curious about the technology and Joanna identified the unique panty liner which contains silver adheres to the odour causing bacteria and inhibits it from growing.

Sales:  $375K in 7 months.    Projected $1.2 million for this calendar year.

Retail:  $22 to $32 per pair.

The Dragons commented on the high price point and she stated that they had their own place on the market and there was a great deal of positive feedback once women had tried them. To convince buyers to try them on the shelf, she invites a trial with ladies in the office using them and the results have been favourable. Arlene thought Joanna was a great entrepreneur with knowledge of her product, the market and her strategy. Jim asked why she needed the money and Joanna replied that she cannot keep up with the demand. David asked if she had approached celebrities to try and endorse the product as it would be an ideal strategy, but she had not. Vikram was the first to opt out saying that he liked the business but not to invest in.

Michael then spoke up telling everyone that he would be the most qualified investor as he was once a model and he offered $225K for 10% adding the he thinks he can work with her. Arlene offered the $200K for 20% and adding extra value by include her name as an endorsement. Jim had been taking in the other offers with pen in hand until it was his turn and he said that Arlene was not her person as she needed an investor with International connections and he offered $250K for 20% because he wanted some control and also expressed the need for a celebrity endorsement. Joanna felt overwhelmed at the interest shown in her product but stated that she was most interested in growing the US market and countered Jim’s offer to $300K for 20% and he accepted.

My entrepreneur ratings:

Idea: excellent; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: unique; Preparation / Planning: very good; Chance of Success; excellent.

Joanna entered the Den full of confidence and she made an excellent presentation. Her business was at a perfect stage with an excellent track record to make a pitch for equity investment. The valuation was fair and everything added up to multiple offers. Well done!

Web Site:     knixwear.com

The web site is excellent and meets all web standards for design and development. It is graphically pleasing making good use of a rotating image bar – not too large but eye catching; – it is easy to find information as the text is a large enough size for all visitors to read comfortably; – there is an obvious method for purchasing; – the site is optimized for search engines including the proper use of keywords in the page titles; – they have adopted a way of acquiring names to build a direct marketing database that is not annoying.

Pitch Two: Sun Clipz - Asking $75K for 33.3%

Valuation: $225K.

Scott Hendrick, a Toronto inventor, has developed a portable device that clips on to the traditional visor with a swivel pad that blocks the sun , like putting up a hand in areas where the visor doesn’t work. Right away problems were identified. First Jim pointing out that the device would create a blind spot. Scott countered; “Just where the disc – the circle of the sun is.” Jim said a motorcycle could fit into that area and you could have a problem with liability. Then David pointed out that not only is the sun moving, but the car is at a quick pace and the driver would need to make subtle adjustments thus creating a distraction. Scott agreed that on a windy road it would be a limitation for the device. Ouch – not looking good so far.

Vikram asked the big question on the business side; “Have you sold any?. To which Scott replied, “Not so far.” He doesn’t have the packaging done yet, admitting that he is not a marketing person. He has invested $75K of his own money to this point which came from his savings, the same as flushing it down the toilet according to Vikram. Scott pointed out that industrial molds are not cheap. The Dragons unanimously opted out of this one with Vikram adding some advice for Scott not to invest any more money on the product, not even for packaging.

My entrepreneur ratings:

Idea: poor - it addresses a problem but creates more than it fixes; Competence: very low – he is not an entrepreneur; Knowledge of Market and Competition: low; Competitive Advantage: questionable; Preparation / Planning: limited; Chance of Success; minimal.

Scott is an inventor, and like most inventors, he gets very excited about his innovations because there is a great deal of  bias and limited objectivity. This is clearly displayed here – a product and pitch that is a prime example of several common mistakes and a picture of some not to do’s when developing a product. New product development goes through several stages which get progressively more costly from alpha (discovery & design), through beta (prototype and market analysis) to commercialization (mass production and introduction to the market place). The inventor is generally expected to fund the initial stage and if the idea had high innovative value and tremendous market opportunity, investors may be interested, especially in the area of new technology and really solves a problem. In other cases, the chances of commercialization are usually very slim and before the inventor invests any more money, extensive market research must be conducted. Had Scott followed this logical path, he would have discovered the problems inherit to his design, and corrected it or abandoned the idea before, as Vikram put it, flushed his savings (and retirement income) down the toilet. Too often people get blinded from their own excitement to see the real picture.

Pitch Three: Gorilla Cheese - Asking $150K for 25%

Valuation: $600K.

Graham Smith, from Hamilton Ontario, pitched his idea for Canada’s first grilled cheese food truck. He had a single truck on the set and his two helpers announced that the Dragons’ sandwiches were ready and promptly served them a variety including classics of aged cheddar and mozzarella. There is also a Lumber Jack with apple slices, bacon and maple syrup. Vikram, who has his own food truck, checked out the interior of Gorilla Cheese mobile. David and Arlene really liked the branding. He currently has only one truck in his fleet. He brought in $89K the first half year in 2011 and $375K in 2012 in gross revenue. His partner left the company and he struggled to keep it going through 2013 and didn’t make a profit after paying himself.  He wants to open a storefront and another truck.

Arlene advised Graham to make it happen on his own. He has the brand, the equipment and the loyal customer base to show a profit in another year. That’s when he related the story about maxed out credit cards and a poor credit rating. This is something investors never want to hear as they don’t often engage in bail out investing and they generally lend based on the strength of the principals in experience and character. David didn’t like the math and was the first out followed by Jim. Vikram liked Graham’s passion and offered the $150K with a 6% royalty to be paid after a year until the money is paid off, then 3% in perpetuity. There was a condition that he not open a restaurant, but concentrate on the trucks. The others passed as Vikram was the best partner and Arlene urged him to take the deal as he is obviously desperate and he quickly accepted.

My entrepreneur ratings:

Idea: good; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: unique; Preparation / Planning: good; Chance of Success: good with Vikram as a partner.

Graham was very fortunate to get an offer and if Vikram was not on the show, he would most certainly be out of luck for a bail out. He will need to provide solid financial management, if the deal goes through. There is a feeling that the due diligence process may expose even more problems

Pitch Four: Lost Dog App-   $500K for 15%

Valuation: $3.3 million.

I won’t take much time to review this ridiculous valuation. The app launched just six weeks ago on a subscription service so there is no track record of renewal rates and no revenue track record upon which to substantiate a crazy valuation like this. Some apps have a very high innovation value, but this one does not have the wow factor or even an indication that there is a market for it. Have these people not seen the show before?

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