Dragon's Den is back on our screens, the business pitch show has been going for a while now and it never fails to both educate and entertain. It is very easy to fall into the trap of shouting at the screen "how can you not know that?!". But there are many lessons to be gleaned even from the business that don't seem to look like they know what they are doing.
We were asked by Enterprise nation to review an episode of last's years season and a year later the lessons we drew from it still ring true.
I love watching Dragons' Den, if for nothing else for the variety of businesses that are featured each week. From the technically cool to the “wow I wouldn’t have thought of that” ventures, this week’s episode didn’t disappoint.
We live in an age where everyone wants to invent the next big thing. And with knowledge, advice and guidance readily >available online and through a plethora of entrepreneurial schemes. And as exciting as building your own business is >this weeks Dragons’ Den made it clear once again that business without the right numbers, no matter how cool your >invention is, will struggle, and ultimately fail.
As a company who works quite closely with investors, I’m fully aware that knowing the numbers in and around your business is vital to its success and one of the many places that entrepreneurs get it wrong is with over-inflated valuations or hugely optimistic year on year turnovers.
Crazy valuations and asking for tiny amounts of equity for huge amounts of money is pretty standard on Dragons Den. However, it's not just about the bottom line numbers as this week's entrepreneurs demonstrated.
Do you know the basics?
First up was Matthew with his instance travel mug coffee maker, Oomph.
The initial presentation of the product was good, with the idea having that cool factor. But it went massively pear-shaped very early on in the questioning section as Matthew didn’t seem to know very simple and very basic numbers on this business. How many units have been sold in order to get the monthly figures and what percentage of your business is distribution, is not something he should have struggled with.
I was at a bit of a loss as to why he couldn't tell us why this information wasn’t to hand as it was driving the basis of his valuations, with a lofty 4 times ROI in the second year alone. Trying to sidestep and avoid the question didn’t help and as usual Peter called him out on it. As the commentator said fumbling with the numbers never goes down well with the Dragons.
It's interesting to note that their Kickstarter raised about £61k last year, which is impressive because the product looks and sounds cool. However up close and personal with the Dragons exposed the product as poorly designed and not actually producing the amazing cup of coffee which it claimed to do. It's very easy to hide such flaws when crowdfunding for rewards as opposed to equity or debt.
In the end, it was Matthew’s previous experience as a businessman that saved his appalling pitch and was able to secure investment. But the offer was at three times the equity that was originally offered, clearly showing that while they can see that Matthew has business acumen, the level of risk the Dragons were taking with this venture was high and this was reflected in the amount of business that Matthew had to give away.
How big (or small) is your market?
Next up was Corner, a boxing tracking device which again, had the cool factor. The demo was good and it's easy to understand the rationale behind designing the tech. Unlike the previous pitch, the business duo had a firm grasp on the basic numbers, including how many they had sold, got orders for and how much they retail for. Having raised £300k and only spend £100k was good, showing that their tech startup wasn’t a money hole or that they were just burning away the money which can often be the case when it comes to tech ventures.
It did beg the question in my mind as to why they wanted £75k if they already had £200k in the bank but that wasn’t picked up on by the Dragons.
The issue with the numbers here was actually the size of the market. Combining the American and UK market brought >the total size to about 1.4m people, great as this means the market is big enough to scale. However when it was asked >just about the UK market that plummeted to a mere 400k. A huge difference.
Combined this with the fact they have spent 4 years on the wrong part of the technology (the IP and therefore real value of the tech was in the hardware, not the software which is easier replicated and therefore extremely difficult to protect). All together this gave them overly ambitious turnover figures which of course the Dragons saw though completely and the duo walked away with no investment.
How accurate is your price point?
Last up were husband and wife who had invented children’s cutlery under the banner Nana’s Manners in order to teach children how to use it. It was a brilliant invention which Peter demonstrated the value of straight away
It was such a good pitch and product that the only real criticism from the Dragons was on the range of products on offer and the brand name which wasn’t unique and would cost them a fortune to change to something more unique especially when searching for it online.
Their target market for school showed that their price point was a bit on the high side, but the duo understood this and knew they would be able to get the cost down and make the product more attractive to schools.
In the end, it , was the sustainability of their venture and how long it would take for the investors to get their money back which was the key issue with this product. The range would need to be extended quite a bit to make it more profitable more quickly and therefore deliver to the Dragon’s a quicker return on investment. Suliman did how, however, the potential in the product as it was but again showed the level of risk he was comfortable with by taking a huge 30% of the business.
Starting a business now is more attractive than ever. And the media tends to put a shiny veneer the real crux of the business and causes entrepreneurs to focus on the things that will not sustain their business in the long term. PR is great, support from a crowdfunding is great, having celebrity ambassadors is great. But those things in and of itself will not keep your business going, and its not even its primary function. Yes knowing the numbers its the boring, relativity unsexy part of the business, but at the end of the day its the only part of the business which will truly show how well you are doing. Unlike everything else, the numbers never lie!
For those of you who are business owners and entrepreneurs, what did you think of my observations?
The images used are from a photo shoot we did in collaboration with UKBlackTech to get more people of colour featured in tech situations. You can see more here: