DRAGONS’ DEN REVIEW – Episode 4

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, and the Entrepreneurship Video Series on my You Tube channel can be very helpful to budding 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 web site deserves the appropriate investment and professionalism to be effective. Constructive comments are most welcome on any of these reviews.

Season 8 – Episode 4.  Original air date: October 23, 2013

Pitch One:

Wike Bicycle Trailers - Asking $250K for 25%

Valuation: $1 million.

Bob Bell from Guelph, ON, pitched his bicycle trailer manufacturing business displaying trailers for many uses and the versatility (protected by patent) in the manner in which they become simple pull carts. The different trailer designs can carry goods, people, golf clubs, canoes and numerous other specific product types. His operation is the largest manufacturer of bike trailers in North America as others have gone to Asian production. Bruce asked about the demographic growth rates and Bob, who is a mechanical engineer by trade, admitted that the child sector is shrinking while others are growing attributing to an overall demand increase of 30%. Kevin wanted to know why they are the last ones standing in the continents and Bob told him that it was because of their business model where they sell direct to the consumer and avoid the middle man and keep margins healthy. In business for twenty years, they have 20 sku’s of which 4 provide 80% of the sales.

Sales: $650K (per year) The company makes a profit and employs 6 people.

Bob wants the investment to break into the European market with a revised web site and production capacity yet stay within the parameters of niche product. Arlene was immediately interested and made an offer for 40% equity and a 5% royalty. Bob replied that he didn’t need $250K in marketing. Bruce didn’t see the investment value, nor did David who both opted out and Kevin showed interest but only if Bob dropped some sku’s and stuck with the more profitable models. Bob wouldn’t bite saying that it was all models that made the company successful and Kevin was out leaving Jim was worried about Bob’s lack of focus and opted out.

My entrepreneur ratings:

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

This was a very confusing pitch. I am still not sure why he was looking for the money and how he would utilize it. After twenty years in business he also made it clear that he was unable to change his way of thinking which would make it impossible for a partner to work effectively and productively with him. He didn’t have a plan for growth that could be presented in a clear manner. His operation can continue to operate profitably in North America – and if he improves his web site it may even do better.

Web Site:   wicycle.com

The web site tried to cram too much fine print into the home page. On one is going to read it. Instead make the major points larger and let people select the page they want to find out more. The fonts are far too small. The graphic scrolls too quickly and the title meta tag uses too many characters. Only the first 60 count – so make them count and using your name – “Wike” at the start of the title is a waste of space unless you are highly branded. There is ample opportunity for branding when visitors arrive at your site because you traded vanity for sanity in selecting your title wording and your domain name.

Pitch Two:

Head of the Herd - Asking $80K for 40%

Valuation: $200K.

Nancy Cohen from Coldwater, ON, has developed a natural fly repellant, waterless wash and deodorizer for horses. It is a green product that does not contain the harmful ingredients of typical insecticides. It is sold in stores through Ontario and Quebec and through five distributors and she wants to create a new spray for dogs. Jim wanted to know what proof there was that it actually works. Nancy quoted the sales and the number of repeat customers. She wants the investment to launch the new product for canines.

Sales: $55K

Kevin did not like the odour from the product and would not bring his dog into the house (if he had one) after using it and was out. Arlene was out because she knows nothing about animals or the business. Jim was kind of blunt when he dropped out and Bruce opted out when Nancy could not guaranty that the spray would stain his white furniture. David was probably the most polite with her, providing at least a little credit for developing one half decent product (horse spray) but he thought the valuation would not support the investment and followed the other Dragons.

My entrepreneur ratings:

Idea: good; Competence: moderate; Knowledge of Market and Competition: moderate; Competitive Advantage: unique; Preparation / Planning: questionable; Chance of Success: good with the original product but questionable with the new product.

Nancy did not do her homework with the new dog product. She should have conducted a focus group after creating the prototype before investing in the commercialization and throwing money away. Obviously she can make a go in a small way by growing the niche horse product and should stay there. Also, the valuation could not be justified by the sales or market potential.

Web Site:   headoftheherd.squarespace.com

This is simply a web page on a sub domain.  (A domain name owned by another company.) In order to have a proper web presence – register your own name and take advantage of key words – not your business or product name in order to attain higher search engine results. The page itself does not utilize meta tags to help search engines and the font is far too small. It is difficult to navigate as the tiny text links at the top are in no particular order. In short – get some professional help here.

Pitch Three:

Dr. Joey’s Skinny Chews - Asking $150K for 15%

Valuation: $990K.

Dr. Joey Shulman from Toronto, ON, pitched the Dragons for an investment for her low-calorie snack. They are a gluten free dark chocolate flavoured chews which last in the mouth for a long time. They are currently in more than 450 stores across Canada. The Dragons samples them and agreed that they would fill that after dinner void.

Retail:  $20   (bag of 30)     Sales: $ 152K   (11 weeks since launch.)  Margin:  64%

One major store has reordered 5 times and people buy up to 6 bags at a time. Jim asked if they were available in the U.S. and the Doctor replied that she was hopeful to direct the investment in that area. Bruce thought she nailed the branding and she admitted that she was a nutritionist and needed marketing help to get to the next level. Arlene offered her marketing expertise along with $1/2 million in real-time advertising as a 40% decision-making partner and raised the investment she was willing to pay for this share in the business to $500K. ($1 million offer for 40%.) Wow! Bruce dropped out and David admitted he didn’t have the marketing expertise of Arlene but said he wanted to help out and offered the original asking price of $150K for 15%.

Jim made the same offer citing the high profile contacts he would bring and Kevin offered the $150K for 20% promising to open the U.S. market to her product. She countered saying she would like to work with Arlene and possibly have Jim in on the partnership but only wanted to give up 20 or 25% with a smaller investment. Arlene said she would only do the deal by herself for such a small stake and agreed to $375 for 15% plus $375 advertising and Joey wisely scooped it up.

My entrepreneur ratings:

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

Dr. Joey developed a real winner of a product – took it to market – had established sales – came into the Den with a good pitch and reasonable valuation, then got more than she was asking. What else can I say.

Web Site:   skinnychews.drjoey.com

The page is laid out ok and the navigation works, however the design is obviously targeted at a female audience. The site has not been optimized for search engines and the meta tags have not been completed. The title of the page is ‘Home’ - a waste of an opportunity that is far too common when sites are developed. I am sure that will change under Arlene’s tutelage.

Pitch Four:

Stunt Buxx - Asking $250K for 10%

Valuation: $2.5 million.

Ryan Bennett and his sister-in-law Rita Bennett from Vancouver, BC, are co-founders of what they claim is a viral media web-based business. The site redefines brand loyalty by allowing self-serve customers to run viral media contests in an easy to use platform with no software to download. The pair have $90K invested in the operation. They used as an example a Paintball customer that put up a $2,500 cash prize for a contest. Before being asked about sales, Ryan advised the Dragons that Stunt Buxx takes 12% from every brand contest price on the planet! Quite a statement. They then showed a scenario for the Paintball contest displaying the Dragons and which was the most feared and must be taken out first. It turned out to be Arlene who got shot up.

The Paintball scenario is currently running with 12 participants and Stunt Buxx makes $300 from it. But Kevin wanted to know how many views this particular contest was getting and Ryan disappointed them by revealing that there have only been 200 views. This would be the key indicator in a web based business that sells the advertisers or contest sponsors and 200 just doesn’t cut it. That’s like trying to sell a $2,500 ad in a magazine that only has 200 subscribers. Arlene tried to ascertain the cost per acquisition for a contest sponsor and I don’t think Ryan understood what she meant. Arlene educated him that it if there were 24 participants acquired for a $2,500 investment then the cost of acquisition to Paintball would be $100. Customer acquisition costs are important to know.

The Dragons continued their questioning on the current investment into the business which will obviously lead to substantiation of the high valuation. In addition to their own $90K, the co-founders admitted that family and friends boosted the total investment to $320K. They were offered 1.5% for $25K making the valuation at that time $1.6 million for an untested idea in a very competitive market. It was obvious that one of the Dragons would be outspoken about the crazy valuation and the first was Jim who said it was crap that they would get 10% for $250K. He composed himself to tell them he didn’t believe half of what they said and dropped out. Arlene criticized the lack of a business model and the rest of the Dragons all said the valuation was crazy and Kevin completed the barrage saying he didn’t hear how he was going to get a return on his investment.

My entrepreneur ratings:

Idea: questionable; Competence: questionable; Knowledge of Market and Competition: questionable; Competitive Advantage: unknown; Preparation / Planning: poor; Chance of Success: very low.

This is a prime example of individuals who think they can get rich overnight by coming up with a scheme and launch an Internet business. It is extremely difficult to come up with a unique idea for a web business followed by the resources and market potential to get visitors. They don’t flock to a new site when there are ten’s of millions of others competing for the same impressions unless you can pour millions of dollars into a campaign. These people did little if any planning. The valuation was absolutely crazy and you have to sympathize with the early investors. Or do you? Coming in to the Den with a valuation like this is for a start-up with no sales or track record is just asking for trouble.  They actually said on their way out, “This isn’t what I expected.” Have they never watched the show before? For anyone venturing into the Den for an investment, this is an example of what not to do. If you don’t have the business savvy yourself, get some professional help to develop a plan and go into the Den with a viable business model and proper valuation.

Web Site:   stuntboxx.com

Click on the link and it takes you to sharetv.com which shows the status of this business today.

Pitch Five:

Insolito Terra - Asking $50K for 40%

Valuation: $125K.

Eddie Lee from Thornhill, ON, has developed a line of stylish height enhancing shoes for men. They add up to 2.5 inches of lift with a combination of thicker insoles and higher heels. Kevin tried on a pair and he went from 5’8″ to 5’10″ with a compliment from Arlene that he was more attractive with the extra two inches.

Retail:  $229.      Wholesale:  $107.      Cost: $80.       Sales: $ 82K   (360 pair in 2 mths.)

His margins were a real problem that was immediately pointed out by the Dragons and he said that it was because his was an unknown brand the margins would improve. He needs the investment for inventory. ($50K will buy 625 pair and wholesale at $66,875. leaving him with a gross profit of $16,875 from which he still needs to pay fixed costs including himself. This may be a good number if the inventory turns over in a few months but the margins need to improve.) Since Eddie is involved in other businesses and not focused entirely on this one, Bruce didn’t want to invest. Kevin thought the competition would devour him once he got his line established and the other Dragons disagreed. David agreed with Bruce and Jim offered fifty for fifty because he wanted a say and said he would offer up another fifty for inventory if needed. Arlene partnered with David to offer a loan in return for 40% and he chose them.

My entrepreneur ratings:

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

This is another example of waiting until your business has established sales then  determine a fair valuation and the result is a deal from the dragons. The only problem here is the low margin and the entrepreneur not working on the business idea full-time. That will obviously change.

Web Site:   insolitoterra.myshopify.com

Again, this is an example of a sub-domain. Business should register their own unique domain and have it hosted for both branding and higher search engine ranking purposes. The site is very basic, but ok as it is clean – not cluttered, and easy to navigate. The title tag does not make good use of keywords and other meta tags that assist search engines in indexing the web site are missing. These are all explained in my book, The Small Business Planner.

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3 Responses to DRAGONS’ DEN REVIEW – Episode 4

  1. Nancy Cohen says:

    I certainly was interested in the comments that you posted after watching the episode of my pitch (October 23rd 2013)
    What is interesting is the 45 minutes I was in the den was seen as about 12 minutes on TV. The order of things happening did not seen the same as in real life. BUT this was my chance for exposure on national TV and the deal was a bonus.
    You did not see Jim and Dave praising me for my product!! You also did not see the 4 or 5 times Dave said, I really like you. Jim stated the smell was fine. BUT the commercial was successful!.
    Freedom Pet who services over 12,000 pets stores picked up my product. They service Ontario and east. There counterpart for western Canada is interested. We will ship in the spring to western Canada. A US investor is meeting me this year for the US rights.
    As we speak my product is in the pet stores. This was my goal.
    Dragons Den is a medium for small business to launch their product. Yes I knew my numbers. ( This was not shown on air). A test market had been done in the Pet Industry. It was successful so this is the reason for the launch. ( This was not explained on air).
    I will be back for second chance. This time bigger horse and Bigger dog and bigger sales.

    • Larry says:

      Good for you Nancy – go get em!
      Best of luck …… Larry

      • Nancy Cohen says:

        Update:
        After the show aired Freedom Pet distributor took me on. We had a great year!. This year we start out with pet distributors across Canada including the Pet Valu chain. Head of the Herd is now in Pet and equine stores across Canada.

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