DRAGONS’ DEN REVIEW – Episode 904

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 4.           Original air date:   November 5, 2014

Pitch One: Underworld LARP -        Asking $60K for 25%

Valuation: $240K.

David Ashby from Toronto, ON, seeks Dragon dollars for his Live Action Role-Playing business which include detailed story lines and quests for the participants. According to David, it is all about ‘escapism’ and players pay to use their intellectual property, stories, and rules. The players are provided with the beginning of the story, write the ending themselves, and live in the story for three days. They currently rent land near Lindsay, Ontario and are looking for investment to acquire their own property and facility to accommodate games. I don’t think the amount they are asking for comes even close. 

There are up to 150 players who pay $45 ea. for a weekend.     $6,750 Total.

That equals $375K for a full year. Participants supply their own food or purchase on site where they also have a tavern set up and many people meet at their events and date then develop relationships later. The company has been in  operation for six years and last year netted $55K in profit. David asked if that included a salary for him, and Mr. Ashby replied that it was currently a passion job or hobby. He said he was serious about making money and added that they also get a cut from vendor’s revenue on sales during the event. Vikram joked that he could barely manage in the real world let alone a fantasy world and was the first to opt out followed by Arlene who didn’t see it as an investment business, although she did like the idea.

Michael explored the potential by asking about other parts of the world where LARP was conducted and David told them about places in Europe where there are thousands of participants utilizing rented castles. They are hardly penetrating the market here with a chapter in London and potential for more.  Michael really liked it but wanted to think about it more allowing David to repeat Arlene’s concern that it was not an investable business and he was out as was Jim for the same reason who commented that they didn’t need to give away 25%. After some thought, Michael said he didn’t want to invest in a business unless there was a full-time commitment from the principals and he completed the sweep of disinterest.

My entrepreneur ratings:

Idea: good; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: unique; Preparation / Planning: good; Chance of Success; good with growth opportunities even without venture capital.

David has a very good hobby business which is well established and profitable. Unfortunately, that is all it is likely to be unless he can find someone willing to partner with him and bring a considerable amount of cash into the fold. He wasn’t asking for nearly enough investment for the envisioned growth. It can grow slowly and add new chapters, like franchises, if he re-invests money back into the business. He needs to charge more for participation – $45 for three days seems low.

Web Site:     underworldlarp.ca/

The web site was created from a WordPress template which is often problematic when it comes to search engine optimization. It is, however, unlikely that visitors will go there from a search – rather a link or an ad. The site is very busy and confusing. It is very difficult to figure out what they are about – and that is not good.

Pitch Two: The Rupture Seal -        Asking $500K for 20%

Valuation: $2.5 million.

Glenn Cox from Charlottetown, PEI, has developed an innovative plug to block hazardous spills. The rupture seal comes in a variety of sizes and shapes and is simple to use. Just insert in hole and pull back on the toggle until the clicking stops – the silicon molds to the surface with the pressure and the leak stops. It can be used to block ruptures in tanker trucks, boats and commercial shipping. The seal has been formulated to work with every substance, except nitric acid. It is currently sold to fire houses and industrial plants in thirty-three countries and it is patented in many as well.

Retail: $110.00       Cost: $18.00     Sales:  $352K  (2 yrs. primarily in Canada)

David wanted to know why he has such an optimistic forecast of $1.6 million and Glenn reported that Trans Ocean in the Gulf of Mexico would be using their product. He claimed that the Canadian Navy was also using the Rupture Seal and his problem was getting the cash to get the product into more markets. The Dragons applauded the innovation value of the product which is actually manufactured in PEI using all Canadian parts and technologies. Jim thought he articulated the pitch very well and Glenn, also an ex RCMP, equated it to being on the stand. (Myself, also being an ex PC, knew he was talking about giving evidence where police officers often spend hours and hours on the witness stand.)

David was the first to make an offer for 25% adding that he also wanted a 15% royalty until the $500K was paid back. Arlene made the same offer but added that if the company doesn’t hit the 1.6 million as forecast, her equity would jump to 30% but only wanted 12% royalty until repaid. Michael opted out because he didn’t like the valuation followed by Vikram for the same reason. This left fellow ex cop Jim who we knew was comfortable with the new entrepreneur and offered $500K for 25% with no royalty.  The brotherhood prevailed when Glenn immediately shook Jim’s hand.

My entrepreneur ratings:

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

There were so many things that Glenn did right. His product had tremendous innovative value by providing an inexpensive simple solution to a real problem. He has a track record of sales with the product and there is high global market potential. He also gave an excellent presentation – articulated well displaying much self-confidence. The only negative was the valuation, however, that was offset by the innovative value and he accepted the Dragons corrected valuation.

Web Site:     ruptureseal.com

The web site is very good according to current web standards. The look is clean and professional, it is easy to navigate and the, ‘How To’ on the Home page is also a good idea. Like many other web sites being created today, too much real estate at the top of the landing page is taken up by graphics. The site is not optimized for search engines and should be as this is a product that people may search for. Therefore, the prime key words should appear in the title and the Meta tags. The ‘Description’ tag is empty and should contain a brief paragraph with the key words. This is the text that is usually used in search engine returns. The search engine algorithms still put some weight on keywords, not as much, but enough to warrant utilizing them.

Pitch Three: P.E.T. Card -        Asking $100K for 25%

Valuation: $400K

Wayne Bacchus from Halifax, NS, enters the Den with his solution to create more wallet space with the Personalized Electronic Transaction Card which will hold the information from four different cards (credit, loyalty, debit, etc) and fold flat like a single card. The idea was untested, the business model is flawed, there are no sales, the valuation is ridiculous, and need I go on? I hope he didn’t invest much of his own money in this. DO NOT follow this example if you get an opportunity to make a pitch on the show.

Pitch Four: IcePad -        Asking $75K for $3 royalty.

Valuation: n/a

Archie Manavian and Stan Fong from Montreal, QC, made an interesting pitch offering no equity, but a $3 royalty until the investment is repaid and $1.50 in perpetuity thereafter. A different twist based on many of the offers made by the investors. Their product, the IcePad is a revolutionary curling brush design. They tried to explain the purpose of sweeping a rock and the reason for skips to yell,  ‘hurry hard.”  First Stan tried to explain but gi=ot tongue tied, then Archie tried and suffered the same fate. They then managed to finish the sentence and started to provide a demonstration on the evolution of the curling broom from the old corn broom to  the hair brush then the synthetic brush of the nineties. They then finally showed their brush insisting that it would be the next phase of the evolution and dominate the market within four years. It is touted to be the lightest brush with the least abrasive material making for fast sweeping. Jim gave it a try. The brushes are made in Canada and are competitively priced with competitive offerings yet they claim they last twenty-five times longer.

Retail: $70.00       Margins:  30% on wholesale – 60% on retail.

Sales: 2,600 units.   David reminded them that for the investor to recoup their money the sales would need to hit 25,000  - ten times current sales in a market where change is slow and most sales are at club pro shops which are low volume. They need to get one of the top teams to use and endorse the broom but most are under contract with other brands. Michael and Jim both thought the deal was too small to make money and opted out followed by Vikram. David offered the $75K saying that he would take the broom to curler Brad Jacobs but he wanted a $10 royalty dropping to $5 when paid off. Arlene offered to partner with David who accepted her as a partner. They tried to counter but wisely took the deal when they stood their ground.

My entrepreneur ratings:

Idea: good; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: quality; Preparation / Planning: questionable; Chance of Success; good with David and Arlene as partners.

The pair designed a great product and made an interesting pitch with zero equity. They stopped short in their planning to get a better deal because they didn’t get any of the top curlers to try and endorse it. They should have also done a test market, but in the end they did get a deal.

Web Site:     hardlinecurling.com

Their site is clean and well laid out, however there are several serious problems. The landing page offers the choice between English and French, however it is not optimized for search engines. A better alternative would be to have the English page as a landing, or home page (likely the majority of the visitors) then allow a selection to French with a prominent button. That way full optimization can be accomplished. The main site utilizes too much text that is far too small. Make it brief and make it prominent. Give detailed explanations on tier two level pages.

Pitch Five: BioSecrets -        Asking $20K for 20%

Valuation: $100K.

Sihem Benali from Ottawa, ON, cashed in $5,000 in her RRSP’s a few years ago when she got laid off in order to start her own business in Argan oil which is produced in Morocco and sold through health food stores. It can be used to beautify the hair, face, body and nails. Arlene reminded her that Moroccan oil is quite common and wanted to know what makes her Argan Oil different. She replied that it is 100% pure certified organic unlike the competitor offerings.

Retail: $30. per 50ml bottle.         Sales: $30K  (One year in the Ottawa area.)

She gives back a portion of each sale directly to the women who produce the oil in Morocco. Arlene applauded what she has done as a new Canadian and managing to maintain her culture as well. When he learned that she would be the face of the brand, Vikram offered Sihem exactly what she was asking for using his contacts to get the oil in all the stores. Arlene threw her hat in the ring with her contacts for the same deal. Michael and Jim partnered to offer $30K for 20% upping the valuation to $150K while David opted out citing the passion displayed by Vikram and Arlene. Sihem asked if the four would come together and Vikram joined the other guys while Arlene stood alone. She chose the three amigos. and rightfully so with all that clout and an extra 10K to boot.

My entrepreneur ratings:

Idea: very good; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: purity of product; Preparation / Planning: good; Chance of Success; excellent with three Dragons as partners.

She made a profound statement exhibiting her happiness at the end stating that ten years ago she was fighting for her life (during civil war in North Africa) and now she has three Dragons and is living the Canadian dream. She actually made the dream happen as can just about anyone who sets there mind to it and works hard.

Web Site:     biosecrets.ca

The web site is very clean and attractive in design. It is functional and optimized for search engines, however, like the previous site, the text is far too small and visitors will not spend time reading small print to find answers.

 

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