DRAGONS’ DEN REVIEW – Episode 901

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.

Season 9 introduces two new Dragons as Kevin O’Leary and Bruce Coxon have left the Den. Culinary expert Vikram Vij, and financial mogul Michael Wekerle, have taken their place along side Jim Treliving, Arlene Dickinson and David Chilton. 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 1. Original air date: October 15, 2014

Pitch One: The Smart Cookie - Asking $75K for 20%

Valuation: $375K

Greg and Maya Liberman from Oakville, ON, introduced their cookie dough mold to the Dragons. The two part mold, keeps the dough fresh and in shape for storage in the freezer and they can be stacked to save space. When the cover is removed there are perfectly shaped cookies ready for the oven and Vikram tried it out admitting that it is very convenient. They are sold in over fifty retail stores across the country.

Sales:  1,500 units since November 2013.

Jim asked if there were any other products and Greg showed them the Burger Master which is soon to be launched. Arlene questioned the burger mold at this stage as the branding is all about the Smart Cookie. David loves simple solutions and thought they had done a good job. Michael thought they needed more than $75K and wanted to think about it while Vikram went ahead and made an offer of $75K for 30% plus 10% of all sales until his investment is recouped prompting David to opt out commenting that they had a good offer from a  famous chef. Jim also opted out along with Arlene who commented that they had a long hill to climb to get the business large enough to invest in.

This left Michael who asked to go last and said he had an interest in eight restaurants including a burger establishment but thought they needed $250K. His offer was that amount for 50% plus a 10% royalty for 7 years. Vikram made another pitch to get the deal by offering to use the tray on all his shows equating to free branding. They didn’t take long to accept the extra money and partnered with Michael.

My entrepreneur ratings:

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

They came into the Den with a good unique product which had established distribution and substantial sales. The actual numbers were not revealed but they waited until the business was operating profitably before approaching investors. They also were confident in making a good pitch and knew the industry. The next step before the cheque is written – due diligence.

Web Site:     shapeandstore.com

The web site meets all the requirements of W3C and design standards, with one small exception. It is easy to navigate and the landing page is not cluttered. There is a large window for a video, but they wisely allow the visitor to activate it. It is also easy to purchase the products right from the home page. The only negative is the key words are not included in the title or meta tag to help search engine rankings. Although the major search engines are putting less emphasis on this, it is still a factor that has some weight in the algorithms. Otherwise, well done – clean and professional – good first impression.

Pitch Two: Power Tabs - Asking $100K for 20%

Valuation: $500K

Luke Robak and Martin-Andre Young from Brampton, ON, developed a tablet that transforms any drink into an energy beverage. The pitch got off to a very poor start as the entrepreneurs did not show any excitement about their product and the presentation was on the dull side. They said that the tabs were approved by Health Canada and contain the same amount of caffeine as a cup of coffee. They are sold in hasty markets and convenience stores throughout southern Ontario. The Dragons tried a tab in water and Arlene winced while Vikram read out the ingredients and exclaimed, “Are you trying to kill us?” He also said the taste was nasty.

Retail: 20 tabs for $10.     Sales:  $22,000 to date.

They have $75K invested in the company so far which has only been operating three months and Arlene complained about a valuation that was seven times their own investment. The pitchers started making claims about their marketing head start on competitors and arguing with the Dragons. They also claimed that the company will make between a quarter and a half million dollars this year and then the Dragons were very surprised when the pair admitted that they had no experience in this type of business at all. Arlene said no, no, no because they had no experience, the price was too high and the model was flawed. David followed her lead telling them that the competition was fierce in that market and they should have industry experience and work at it full-time if there is any chance at success.

Vikram also repeated that it was a tough market prompting him to back away. Then Michael related a story about a product that he was involved with that was competing against Red Bull. The marketing budget was fifty million dollars but the company still folded after fourteen months indicating once more how tough it is to enter that market. He also felt that there was no protection for children over-indulging so he opted out leaving Jim who was seriously thinking about it but also passed because of the child aspect.

My entrepreneur ratings:

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

The pair had a number of strikes against them. They had no experience in the industry and any investor will want to see that the principals behind the idea are experienced and competent – one of the first things they will look at in any business plan. The also had no track record to justify a crazy valuation and had not addressed the child over indulgence through the sale at hasty markets where there is no control.

Web Site:     powertabs

The web site is good and meets standards for design and development. It is brief and tells the story immediately assuring visitors about ingredients, and it is easy to purchase.

Pitch Three: BitLit Media - Asking $125K for 5%

Valuation: $2.5 million.

Peter Hudson from Vancouver, BC, developed a smart phone app that offers discounted e-book editions of print books that customers already own. It allows the user to scan their own physical library of books (a shelfie) then locate and download the e-book version. His valuation drew a snicker from the Den when announced but his business model garnered interest as he displayed how their patented technology located the book when the cover was scanned. Signing and scanning the inside cover then completes the proof of ownership and a link to download the digital version is e-mailed to the registered owner of the app and their credit card is charged. The same applies to the ‘shelfie’ where all the books scanned on a library shelf are identified and matched to digital copies. The company will earn a commission, up to forty percent, from publishers.

Michael was the first to bring up the valuation. There were no sales as he is preparing to launch and looking for someone who can bring more to the table than money – contacts. They are in content acquisition mode and looking for contacts to publishers – something right in David’s ball park. Michael described products in three phases: wholesale, retail and fairy tale and classified BitLit in the latter with the valuation. He countered with the value in their database and identifying people with titles they read giving the example of GoodReads which was purchased by Amazon for its database. David concurred with the value comparison. Vikram thought the idea was great but couldn’t get past the valuation and dropped out. David met the ‘Ask’ with an additional caveat that he receive a 40% royalty on the sale of books from any publisher he sets them up with until his investment is repaid. Jim jumped in right away and partnered with David on the deal. Arlene said that she liked him (he did deliver his pitch with confidence), but let’s see how quickly this can change. She liked the idea of the app in the hands of OEM’s and downloaded upon purchase of new laptops, tablets, etc. She made the same offer as David, $125K for 5%, but wanted a 30% royalty on the sale of each book and an additional 10% royalty if an OEM deal was struck.

Peter surprised the Dragons’ when he said he would need to go in the back room and confer with his director. He discussed the two offers with a young fellow in the back room who was dressed smartly in a business suit. While they were discussing the offers, Jim was telling the other Dragons’ about a similar tech deal which netted the investors millions. The two agreed that David had the connections but Arlene’s was a slightly better deal. The plan was for Peter to go out and see if Arlene would sweeten the deal and use a little bluffing to get a higher valuation. Here is where the tactics are hard to comprehend. Sensing a sure deal, Peter’s confidence quickly changed to arrogance when he addressed Arlene directly and said he didn’t like the royalty and for her to come clean with David’s deal – the $125K for 5% even explaining that David could earn his 40% royalties with his connections. He continued that if he were to go with her offer then she would need to give him something more and she obviously didn’t understand where he was going. He wanted the $125K for less that 5% because he said she didn’t have the connections that David has and therefore less value. Of course everyone was astonished as he was now asking for more than when he first came in. It didn’t take long for Arlene to refuse the deal, and when the cocky pitcher turned to David, it was retracted because he insulted one of his colleagues. The result was anticipated when greed consumes someone and clouds the big picture: a possible multi-million dollar comapany if they were willing to make a reasonable offer to get the money and contacts from an influential partner.

My entrepreneur ratings:

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

This was another one of the high tech innovations that could really take off as it addressed a void in the market. The entrepreneur actually had a deal before greed kicked in. What more can I say.

Web Site:     http://www.bitlit.com/

The web site is good and meets standards for design and development. It is brief and gives visitors the story immediately upon landing on the page, and it is easy to download the app for either Apple or Android.

Pitch Four: Covergalls - Asking $75K for 20%

Valuation: $375K

Alicia Woods from Sudbury, ON, has worked in the mining industry for fourteen years and identified a problem from day one when she could not find any coveralls or safety clothing in a woman’s size. She resorted to small men’s work wear which did not have the convenient features for relieving ones self. She developed a rigged line of work wear strictly for women which were modeled for the Dragons who were very impressed. The new coveralls had the same appearance as men’s but the buttocks section released from the coverall dropping down for of using the washroom then attached back with a Velcro band. They are sold through all the major mining companies in Canada.

Sales:  $61K in 5 months.   $180K projected by the end of the first year.

Cost:  $70 to $160.          Retail :  $135 to $282

Users will purchase two or three pairs at a time and turn around up to three times a year. She also has mining industry contacts to start selling in the United States. Arlene didn’t like the fact that she was currently working full-time as the director of sales for a mining equipment manufacturer, but that was no problem for Jim who offered her the full amount for 20%. He didn’t feel she needed to quit her job but could handle taking it to the next level the way it is, commenting that she was a great front person for the products. David made the same offer but wanted her to quit her job and start selling right away.

Vikram thought there were good offers on the table and opted out and Michael boasted about his connections in the mining industry and matched Jim’s offer including keeping her job. Arlene beat the others by wanting only 18% and saw the applications of the apparel far beyond the mining industry. She was super impressed with Alicia as an entrepreneur and wants to work with her. Alicia turned down David as she was not prepared to leave her job right away and made a counter offer increasing the equity to 30% for the remaining three bidders to partner with her. They all agreed and Arlene, Michael and Jim were on board.

My entrepreneur ratings:

Idea: excellent

; Competence: high; Knowledge of Market and Competition: good; Competitive Advantage: unique; Preparation / Planning: high; Chance of Success; excellent with her new partners.

Alicia was prepared, confident and came across as an excellent entrepreneur with an superb tested product and huge market potential. She was not greedy and even improved the equity stake to get all three Dragons. Well done! She is an excellent example for everyone going on the show to follow.

Web Site:     covergallsworkwear

The web site is very good – professional looking and easy to navigate. It would likely be more effective if the large graphic was half the size as it takes up about 80% of the home page. That would leave room for several small static windows with brief  descriptions and the message – ‘What’s in it for the Customer.’

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