Dragons’ Den 2011: Episode eight review - The seventy-nine percent solution

Ed Molyneux, founder and CEO of small business online accounting platform FreeAgent Central, reviews the latest episode of BBC TV show Dragons' Den.

No respite this week from the business equivalent of televised car-crashes that seem to constitute Dragons’ Den nowadays.

First up were 18-year-olds Ryan and Liam and their bedroom-based RKA Records, boasting a small handful of pretty listenable ‘signed artists’ but an 80/20 royalty arrangement (in their favour) that would make even Simon Cowell blush with embarrassment. 

A youthful combination of stage-nerves and naivety (“success is inevitable”, proclaimed Ryan) led to an early rash of Dragons declaring themselves out. Most agreed that there were simply too few winners in the music business to make the risks worthwhile, and while the pair were engaging, they never managed to demonstrate an approach that would differentiate them from the run-of-the-mill. But in an act that seemed to border on self-parody, Duncan Bannatyne offered to invest for an eye-watering 79% of equity, describing this as ‘a better deal than they were offering their artists’.

On the basis that two Wrongs don’t make a Right, natural justice would be poorly served if Duncan ever saw his money again.

Emerging from a forest of ‘For Sale’ signs, serial multi-level marketer Richard Williams and US-émigré Gill Ostrander proposed bringing the Realtor model of property brokerage to the UK’s fusty Estate Agency system. Despite the unlikelihood of finding any property-owner in the UK willing to defend Estate Agents, these two made the profession seem positively altruistic in comparison with the commission-only sales model they espoused

No Dragon liked the commercial rationale, and Hilary Devey memorably described such sales models as ‘the beast that must be fed’. But it was Gill’s dismissive style that really alienated each Dragon. Of course entrepreneurs must be prepared to fight their corner under questioning, but Gill’s petulance when interrupted, and childish ‘can I answer now, can I?’ set everyone’s teeth on edge and all but guaranteed an empty-handed departure.

More impressive were husband and wife team Steve and Michelle Ellis, looking for investment to grow sales of their Wings shoulder-wrap-cardigan-thingy accessory. Although clearly passionate and articulate about the benefits of their product, neither successfully convinced the Dragons that their market opportunity was large enough to justify external investment. Wisely, the Dragons advised them instead to press on anyway, using e-commerce to help build a healthy but niche business.

Finally, the somewhat unlikely pairing of greying-professor Aiden Quinn and bubbly-but-sharp Gemma Rowe offered us a vision of beehive-shaped ‘O-Pods’ strewn across the gardens of eco-conscious, short-of-space Middle England. Looking for £75K for 15% of their prefab structure business, they met with scepticism from Peter and Deborah, with Hilary only pausing to describe her own modest fishing lodge in bucolic detail before declaring herself also out.

However Theo Paphitis, sensing a modest investment opportunity and the chance to work more closely with Gemma in particular, employed the standard tactic of offering the full investment amount for about three times the proposed equity stake. Thus followed a rapid negotiation that left the nation’s heads spinning and that may or may not have involved a partial equity investment, an interest-free loan and a share buyback, all contingent on reaching planned targets. He may be offering us buildings that look like old water storage tanks, but that Aiden certainly knows how to haggle.

Mildly entertaining it might be, but I think Dragons’ Den does a disservice to both investment and entrepreneurial communities. Primarily it gives weight to the assumption that only investment-backed businesses can be successful. The reality is probably less conveniently stated as: ‘businesses that are suitable for external investment are sometimes better off taking external investment, sometimes not’. 

Meanwhile there are entire classes of businesses models that deliver their owners exactly what they want (modest growth, independence, healthy profits) that do not, and should not, take external investment. And perversely, the amounts offered in the Den would be unlikely to provide a truly investment-hungry business with more than a Kit-Kat’s worth.

So what should we learn from Episode 8? Probably what we already knew: Hilary Devey continues to stand out, with a level-headed Bolton-lass canniness that belies her stern features and intimidating ‘Krystle Carrington’ shoulder-pads. 

And that treating businesses like X-Factor contestants, with scant regard paid to outcomes for the talented and deluded alike, is still no way to encourage sustainable entrepreneurship.