DRAGONS’ DEN REVIEW – Episode 703

This review makes for a great forum for a critique and learning experience valuable to all entrepreneurs. This review also compliments my book, The Small Business Planner (which everyone going on the show should read), plus this 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 as reader feedback can be very valuable if presented for all to learn from. This is a great opportunity to ask your own questions or provide helpful answers to others.

Episode 3 – Series 7.   Original air date: Oct. 3, 2012

Pitch One:

Coco Shoes - Asking $50,000 for 5% – Valuation: $1 million.

Pierre Thompson from Edmonton, makes unique footwear from coconut fiber and he has a patent on theunique coconut fiber sole. Durable flip flops sell f0r $20.00 a pair and he currently makes them at his home. He can have them manufactured in Thailand for $2.00 per pair but needs Dragon investment to move forward. Bruce tried on a pair and agreed that the fiber exfoliated his feet as he walked and liked the product. Pierre was asked if he was sober when he came up with the million dollar valuation. Kevin asked about sales.

Sales to date: $10 – 15K

Kevin told him he was so not worth a million and he agreed. (Very comical presentation). Kevin and Jim admitted that they were entertained but opted out. Bruce dropped out then David offered him, to Arlene’s amazement, the $50K for 50% saying he liked them and felt that they would sell. Pierre countered with 30% but David stuck to his guns and Pierre walked because he didn’t want to give up control of his company! What company? Another case where 50% of a lot = rich and 70% of nothing = poverty. You be the judge.

My entrepreneur ratings:

Idea: good; Competence: moderate – questionable business skills; Knowledge of Market and Competition - moderate; Competitive Advantage: unique; Preparation / Planning: low; Chance of Success: low.

Pitch Two:

wizof.biz - Asking $50,000 for 10%

Valuation: $500,000

Sales to date: $0.00         Haven’t launched.

Reg, the CEO showed up with two colleagues from the company to make the presentation for their Internet based company that provides businesses with extraordinary advice at an affordable price. It centres on a review with discounted re-writes but was very vague. His younger associate, Peter, director of marketing, started to stumble and had a difficult time explaining the business concept. We did get out of it that they plan to offer high end consulting services at a discount and when Kevin asked how they are going to make money they really started to stumble. Arlene told them about a dozen other networks offering the same thing and wondered how they were going to get experienced high end consultants on board. The CEO was even worse than the marketing guy in explaining the revenue model as he confused everyone and did not answer questions directly. Peter tried to help Arlene understand and Reg rudely cut him off and continued to make a mess of it.

Kevin wondered why none of them could articulate well. Asked by Jim about sales and Peter said they were in “commercialization mode right now”, a term that no one had heard before. He explained that they had a working prototype but it had not yet launched. Bruce asked how $50K could help them promote and Peter said they were planning a viral campaign, whereas David chided that everyone is doing that. When the Dragons learned that they had put $500K into the business according to Reg, their jaws dropped. When asked where it went, Peter said, “patent pending technology.” Reg then described the R&D costs and Arlene commented on never hearing so much rhetoric.

Jim wondered how you spend $500K on a sign and a program nobody understands and dropped out. Arlene wanted to know what the patent was on and Reg went back to the confusing business reviews they provide and made it more baffling, not answering the question. Arlene wisely advised them to disband because it was really bad and their ability to get money will be zero and she opted out. Bruce said the presentation didn’t go well – that they didn’t have the right team, and passed. David commented that they didn’t seem to get along that well and bowed out. Kevin said, “You guys really suck” and that they couldn’t articulate the business model after many attempts. Since they couldn’t show how he could make money he told them that they needed help from the bizof.wiz and asked them to exit stage left. Ironically, on exit, Reg said that there is a gap between having an idea and executing a plan effectively. “The only way businesses will be able to do that is with good advice and that’s what they are trying to provide.”

Wow – where do I start? This is the perfect example of what not to do on a grand scale in every way! There was no planning – no business model – no revenue model – no competitive analysis. These people were not prepared; they were not cohesive as a team and could not describe the business or revenue model. The idea is bad – plain and simple. It is extremely hard to make money on the Internet today. You don’t just pop up a web site and expect people to flock to it. Unless you come up with something that is totally unique, you are competing against millions of sites and billions of key words that will rank higher, unless you have an unlimited marketing budget. To think that high profile professionals would discount their fees to come on board a start-up, even if well funded with a solid model, is absurd. Arlene was right about several other established networks they would compete against. I even had the same idea many years ago when I registered consultbiz.net, but after a comprehensive market and feasibility study I wisely abandoned the idea before sinking any money into it. These people obviously omitted this very important exercise before investing $500K of their own into a bad idea. (Where could they blow that kind of money?) I emphasize in the Starting a New Business section of my book, The Small Business Planner, that everyone starting a new business should complete a comprehensive Feasibility Study which includes a Market and Competitive Analysis along with a detailed Cash Flow and Profit and Loss Projections and Start-Up Cost Analysis. It is imperative that you have competent people on board to execute the plan, and $50K was only a fraction of what they would need to launch.

My entrepreneur ratings:

Idea: bad; Competence: low – presentation skills very low; Knowledge of Market and Competition - low; Competitive Advantage: none; Preparation / Planning: very low; Chance of Success: none.

Visit their web site http://wizof.biz and be the judge. There is at least one obvious grammatical error on the Home  page, a major no, no. I’m not sure why they advertised their visit to the Dragons’ Den on the site along with a number of very critical comments from viewers and professional practitioners. Definitely not an enhancement to their credibility.

Pitch Three:

BEAUTYGRAM- Asking $100,000 for 30%

Valuation: $333,333.

Jennifer and sister Nicki from Calgary, developed an on-line gift that is wrapped in their brand of pink and is delivered to the woman that the sender wishes to pamper. Similar to ordering flowers on-line, customers can order anything from cosmetics to chocolates. Currently delivered in Calgary via two branded pink Smart Cars and now available across Canada.

Sales: (Last year) $50K    This year projection $150,00K

Retail: $30 to $250         Margins: 30 – 50%

Kevin questioned competitive advantage as there must be tons of other sites offering gifts for women and Jennifer replied that it was their beautiful packaging, personalization and unique delivery method with the pink branded car and uniforms that sets them apart. Bruce asked how many clients return and the answer was 80% – mainly women buying for women. Arlene questioned about getting deliveries right to the person and losing some specialness. It was agreed that it was a problem delivering to corporate recipients but that many go to their Facebook page and comment positively. Bruce mentioned that they would need to do half a million to break even at 30 – 40% and Jennifer replied that their costs are currently low. David questioned the high valuation.

Bruce said they were not quite ready for $100K – need more of a track record and not surprisingly was the first to opt out. David said he likes the idea, felt the valuation was high, thought they would do well but bowed out. Jim also thought the valuation was high and said they were still 6 months away and dropped out. They pressed Arlene who said she gets the idea but also thought the valuation was high. For $100K she would need 100% and opted out to their disappointment. They braced themselves for Kevin who said he didn’t want to tear them to pieces because they were so cute. Bruce defended their business idea as sound but not investable. Doing them the favour of a reality check that none of the other Dragons would provide, he said there was no way he would give them $100K. He said they would need sales of a million bucks and prove that 50% were coming back. He interrupted her reply with, “I’m out – Nicki and Jennifer!”

Can you see the problems here that set them up to be turned down by all Dragons? Again, we have an Internet business where more and more people think that they can make money on-line. In this case they have an interesting idea, but we learned little about competing web sites and there were some flaws in the model. The big problem which we see over and over again is an inflated valuation, which along with low sales, is the primary reason why entrepreneurs are turned down.

My entrepreneur ratings:

Idea: good; Competence: high; Knowledge of Market and Competition - moderate; Competitive Advantage: good – if unique; Preparation / Planning: high; Chance of Success: high (if costs are kept in check).

Visit their web  site at http://beautygram.com and judge for yourself. Well branded and professional – good luck!

Pitch Four:

NakedRealty.ca - Asking $150,000 for 20%

Valuation: $750,000

Glen Nelson from Oakville makes a presentation for his on-line realty company which provides a self-help site with Internet exposure and marketing tools to sell your house. A DVD walks customers through the process, and how to’s. Unique marketing strategy is to get the DVD (which includes on-line listing) into the big box stores, including The Home Depot, Rona, and others.

Suggested list price: $500.00          Profit: $200

Sales: nil

Arlene brought up the fact that there is a lot of competition with numerous sites where one can list a house for sale. The only question in her mind was the way to go to market – traditional vs. the stores. Of course, Kevin questioned the sales and a $750K valuation asking why should anyone give him money based on such a figure? Glen’s reply was because he had trade marked the brand and a lot of people want to rip off his brand. Arlene asked about his investment and he replied $70K. Jim mentioned that he was in the real estate business in a big way and would prefer to deal with a trained professional who knows the business and dropped out. Kevin asked a great question after telling Glen that he liked the idea, “How do I make a fair deal with you when you don’t have any sales?” Should he spend $150K to just buy the naked brand? Kevin then offered the asking price for all of the business and he wanted the presenter to be no part of it – don’t even call him. (Obviously Kevin sees some value here.) After saying that he was the passion behind the business, Bruce asked if he would consider Kevin’s offer and he replied that he would be foolish not to consider it but didn’t want to go that way because he wanted to be part of the anticipated success of the business. Bruce opted out, as expected.

Arlene asked which big box stores he has approached and he confirmed that he hadn’t met with any yet. She questioned why he would come on TV with that part of his strategy and not have tested the water. He said he didn’t have the connections and didn’t want to take a chance that it would be rejected. His self-confidence started to wilt when Arlene said, “You know what your problem is?”, and he interrupted, “You don’t like me!” She denied the notion but said that his entire marketing success and competitive advantage relied on a unique distribution through big box stores – spent all that money but never approached them – and for that reason she bowed out. David reminded him that there was no barrier to competition and the valuation would keep dropping as others copied his model with a different brand and he was out. Back to Kevin wondering about his offer and Glen asked if there would be a royalty include. “No – I’ll buy the web site, take it over myself and hire some people.” He accepted Kevin’s deal to the amazement of the other Dragon’s and Arlene reminded Kevin that he paid $150K for a url! (nakedrealty.ca)

My entrepreneur ratings:

Idea: good; Competence: moderate; Knowledge of Market and Competition: moderate; Competitive Advantage: unique if executed properly; Preparation / Planning: moderate – had not approached channel partners; Chance of Success: moderate on his own – better for Kevin.

Check out the web site at http://nakedrealty.com and you will notice that there is no mention of any big box stores in the distribution
channel.

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5 Responses to DRAGONS’ DEN REVIEW – Episode 703

  1. Rudy Williams says:

    I love watching Dragons’ Den but don’t always have time to watch every episode. Your blog helps to keep me up to date and I learn quite a few pointers on what to do, and especially what not to do. I plan to get a copy of your book. Sometimes your crtitique is too kind. Thank you.

    • Larry says:

      I’m glad you find the reviews helpful. It is a great exercise to examine the pros and cons of these presentations and how much planning they have, or haven’t done so we can learn from their successes and failures. I generally prefer the constructive approach whenever possible, however, it is difficult at times.

  2. Kristi Chan says:

    Hi Larry, I enjoy your reviews and often refer to them in my accounting courses (with your website as a source, of course!). I’m trying to find your review of Ten Tree Apparel’s appearance on the Dragon’s Den, in October 2012, Season 7, episode 3. But it isn’t on your site. Do you ever miss episodes? Your library is very comprehensive. thanks!

    http://www.cbc.ca/player/Shows/Shows/Dragons'+Den/Pitches/ID/2294087404/

    • Larry says:

      Hi Kristi
      I am pleased to hear that you are a fan of my reviews – thank you. The blog main page provides a search box which came up negative for Ten Tree Apparel. You can also check the archives listed on the right, which I did under October 2012 and reviews of Dragons’ Den where I found no reference to this company in Episode Three. Check to make sure you have the right episode and check the archives again. If there is a review – it will be there.
      Best of regards …… Larry

  3. Larry says:

    Hi Kristy

    Occasionally I limit my reviews to two or three pitches during the weeks where there are also Shark Tank episodes. Each review takes me a few hours to view, digest and write, especially now that I am also critiquing their web sites where available. I generally look for the pitches that have an obvious lesson (pro and con) for entrepreneurs to avoid or emulate. The reviews are meant to compliment my book The Small Business Planner – a Complete Entrepreneurial Guide and the companion website, thesmallbusinessplanner.com which has all kinds of valuable free resources.
    Thank you for the feedback.
    Larry

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