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 8. Original air date: November 20th, 2013
With a couple of exceptions, this episode consists of pitchers who waste the time of the Dragons and viewers as the valuations are ridiculous. You would think after the eight years that this program has aired that people would get the hint and ask for a fair investment for a fair stake in a new business. It is mind boggling how greedy people are who sacrifice a possible life changing investment for a minute chance at getting a deal on an inflated valuation. Unless the idea is so ingenious with huge market potential, a new business without a positive track record of sales will not be worth a million dollars. Many of these greedy people could end up wealthy with a deal from a Dragon if they lower their expectations and put more value in a partnership with one of the investors. Therefore, I am only going to review the pitches that were reasonable. I will only mention the ones that are ridiculous and the outcome could be guessed even before they started their presentation.
Hunky Haulers - Asking $300K for 30%
Valuation: $1 million.
Anthony Jones from Vancouver, BC, has a haulage company with offices in the Fraser Valley of BC and just opened an office in Edmonton, AB specializing in junk removal and any other type of moving services including recycling. He is breaking into the market by undercutting the competition – a dangerous way to position yourself as I explain in my book, The Small Business Planner. They operate currently with three mid size trucks.
Sales: $230K (prev. year.) $1 million (projected this year.)
Kevin reminded Anthony that anyone can start a business doing what they are doing so it is just the brand that creates value for them. In answer to Bruce he said the goal over the next few years is to franchise the business. Jim thought it was too early for them to franchise and Anthony didn’t seem so sure about the company’s goals for the investment as he said that marketing was now important. Arlene asked about his business background and they were impressed to learn that he had started another venture which failed due to the economy and now he was back on his feet with another entrepreneurial venture. Bruce agreed that he had the character worth backing. Kevin said the entire company was only worth $300K – that they were asking for way too much money and he dropped out calling him a greedy pig because there was no way to structure a deal and give them the money they were asking.
David made an offered that included Arlene for 10% royalty until they are paid back and only 25% equity. Arlene emphasized that she was only making the deal because he was a determined second time around entrepreneur who could make it happen. Bruce said he likes to do business with two and three time entrepreneurs but thought he had a good deal on the table and opted out. Jim, the franchise expert, offered the $300K for 50% making the valuation $600K stating that they had to get focused first and foremost at establishing the existing brand. Anthony accepted David and Arlene’s deal.
My entrepreneur ratings:
Idea: good; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: brand only; Preparation / Planning: questionable – (high valuation); Chance of Success; good with David and Arlene.
If it wasn’t for his story, Anthony would not have been offered a deal because of the high valuation that could not be justified with sales and protected market opportunity. He was quite fortunate.
Web Site: hunkyhaulers.com
The web site is functional and easy to use promoting the use of their service and how to obtain a franchise. If this is the web site for the entire franchise and all franchisees, they may want to remove the head office phone number from the title tag unless they are planning to take all calls and forward to the appropriate area franchise.
Fero Face Fit - Asking $1 million for 10%
Valuation: $1 million.
Mother and daughter Zuza and Aga Fero from London, ON, pitched their all-natural face lotion / drink to the Dragons. The sales were $26K to date in a saturated market. Obviously the valuation was ridiculous and there were no offers. This is not unlike people selling a home and listing it for a crazy amount of money that no one will pay. It happens all the time and eventually they lower the price to a realistic amount and it sells. Most people think their property is worth more than it really is and want to get as much as possible. These company valuations are similar in a lot of ways and Arlene hit the nail on the head when she said they had to come down to reality from the dream world that they created around their product and there wasn’t a hope in hell that they were going to get a million dollars.
Love Child Organics - Asking $300K for 10%
Valuation: $3 million.
John and Leah Garrad-Cole from Whistler, BC, look for investment in their line of organic food for infants and young children. There are six varieties in a unique packaging. They have launched in a number of large retail locations and have shipped or are about to fulfill purchase orders totalling $600K since January with a gross margin of 40%. They need more production capital to meet minimum manufacturing run requirements to keep costs down.
Kevin didn’t think they needed an investor and also to avoid valuation issues made a loan offer at 12% with warrants to guaranty 10% equity after the debt is repaid. Bruce offered the same and Jim and Kevin were included then David made an offer for 5% equity and 5% royalties and Arlene joined him in the deal. They countered against royalties and thought 12% interest was high on a loan. Arlene changed their bid to a loan at 5% and 7.5% equity and they accepted the deal.
My entrepreneur ratings:
Idea: good; Competence: high; Knowledge of Market and Competition: high; Competitive Advantage: brand – packaging – quality; Preparation / Planning: good; Chance of Success; good with David and Arlene.
Well established business now entering the growth phase with a reasonable valuation.
Web Site: lovechildorganics.com
The site is clean and easy to navigate. It is not optimized for search engines and as is usually the case, it is used to try and brand the name instead of utilizing key words in tags – okay if you are sending people there and not depending on searches.
Arm and Leg Exercise Device - Asking $300K for 10%
Valuation: $3 million.
Frank Rosati from Niagara Falls, ON, invented an exercise device. Like the second presenter on this episode of the show, the valuation was absolutely crazy on a prototype in a market that is almost impossible to break into. The presentation itself was also terrible: okay – okay. Even the proto type was Mickey Mouse held together with electrical tape. The Dragons treated it for what it was – a big joke. The producers must be short on good ideas to feature.