Dragons' Den 2011: Episode two review

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Week two in the Den and the ego-clashes are still going strong. The Dragons spoke a lot of sense this week, providing viewers with some genuinely valuable insight into pitching to banks or investors. There were lots of lessons to be learned and here are my top five:

 

1. A business needs to make money before money can be reinvested or given to charitable causes 
I think this is where the first business, a music training academy, lost the interest of the Dragons, who are already philanthropic and are on the programme to make investments that will give them a significant return. Hilary Devey looked tempted at one stage, given her emotional connection to the idea, but the ladies suggested that they weren’t in it for profit, which is the reason that the Dragons are there. Also, they were unable to explain how they were going to make the leap from £40,000 profit last year to £440,000 profit next year which made the dragons worry that they didn’t have a robust business plan. Which leads on to lesson two...
 

2. Have a business plan
Sounds simple, but every business needs an ongoing plan that is regularly reviewed and amended. Last night, a startling number of the pitchers didn’t have a business plan or didn’t have one that was robust or well thought through. Love Da Pop, the quirky popcorn company formed by three charismatic advertising creatives, for example, had a fantastic product with amazing margins but they hadn’t considered the logistics of getting the product into cafés, bars and retailers, demonstrating to the Dragons that they hadn’t properly thought beyond stage one of their business plan.

 

That said, at least they had a business plan, unlike the fifth entrepreneur to enter the Den, the maker of a selective tanning device that enables sunbed users to achieve a deeper tan in certain areas to give the impression of muscle tone. Interesting idea, and perhaps one with a lot of potential, but the entrepreneur admitted he hadn’t done anything with the patent for 14 years, had no sales projections or business plan, and just wanted the Dragons to do all the work, which didn’t go down well.

 

Every series, we see increasingly flustered entrepreneurs grilled by increasingly frustrated Dragons when the former can’t recall, or explain, the figures in their business plan. This was most evident last night in the caravan duvet pitch when Deborah Meaden really bought into the product but couldn’t make the investment, as the business owners weren’t able to tell her how much they spent a year on basic costs like staff, factory, production, shipping.

 

The business turned over £800,000 last year with a £110,000 profit, which to a Dragon's eyes means £690,000 is unaccounted for. It’s crucial to know how much and on what a business is spending, otherwise it can’t control its profits. It was Hilary Devey in the end who threw the couple a lifeline having seen the product’s potential and recognising that with some guidance the business could become hugely profitable. Her move to own 26% of the business was a shrewd one as it’ll give her the control she and her team needs to set the company back on the right course and help it diversify into the boating and trucking markets.

 

4. Analyse the market looking at everything from its size to the players already in that space
The downfall for the blow-up car bed, hilariously modelled by Peter Jones and Theo Paphitis, was that the market was far too small; how many people will actually have a need for that product? The attraction of Love Da Pop for Peter Jones, however, a business in which he eventually invested £70,000 was multi-faceted; the popcorn market isn’t saturated but sees a healthy level of demand, and the entrepreneurs were making a massive margin on every bag sold. Even factoring in paying for delivery to retailers for stage three of their business plan, the margins would still have been mind-blowing.

 

5. Investors buy in to the person as well as the business plan or product
Another lesson exemplified by the Love Da Pop boys, who charmed all the Dragons with their creativity, eloquence and understated confidence, but who secured Peter Jones’ investment with the revelation that they all work at top advertising agency, Saatchi and Saatchi. Not only has he invested in a product with diversification potential (a condition of his offer was that they branch out into ‘Love Da Candy, Love Da Drink etc), he has invested in a formidable trio with a huge amount of potential. He’s essentially head hunted three super-talented individuals for £70,000; bargain!

 

Finally, I thought it was a little strange of Evan Davis to let viewers know that there’s a Dragons' Den Twitter feed at the end of the show – surely this should have been announced at the beginning, along with a hashtag to get the programme trending on Twitter like other Beeb favourite, The Apprentice. A missed opportunity by the producers?