Dragons Den Episode 3: Six questions Entrepreneurs need to answer

Episode 3 included an online magazine hoping to go against the flow in the publishing industry by moving to print, a new type of toilet brush, a tummy time platform for babies, a password USB key, organic ingredients to your door, a board game, stone-paper, cuddly toys and a therapy concept for dementia patients. An eclectic mix of product and service that boiled blood and sharpened tongues.

Despite the fact that this is clearly theatre, rather than a credible investment presentation forum, there are still valid lessons to be learnt from this episode.

There are six key questions that all businesses need to answer in describing themselves:

 

-       What is the problem you are solving?

-       What is your product or solution?

-       Who are your customers?

-       What is your USP?

-       How does it scale?

-       How much money do you need and what do you need it for?

 

It’s the first three that determine whether you have a business and the last three that are relevant in determining the value of the business.

If you answer those questions, simply and clearly, you have the best chance of starting the conversation that is the investment process.

 

What is the problem you are solving?

It was hard to see that any of tonight’s pitches were actually solving problems, other than the interesting idea that “reminiscence therapy” could help with dementia patients. Despite failing to prove either the science of this or the claims that his “RemPods” (Reminiscence Pods) delivered savings on anti-psychotic drugs to the NHS, Richard Earnest, had sold pods to 30 NHS Trusts, Care Homes and the Alzheimer’s Trust. I failed to understand what exactly the product consisted of beyond a 1950’s living room set.

Ideally, claims made about your product or service should be substantiated by data and/or expert opinion. Where products are in the medical field, it would be normal that these were supported by clinical trials.

If you’re not solving a problem, then your product needs to be attractive to customers.

 

What is your product or solution?

A products’ attractiveness may engage an investor to be a customer, but not to invest. The portioned “organic food to the door” with respective recipe, only enticed Duncan as a customer. As was the case with Kelly Hoppen’s personal surprise at being interested in the game “Linkee”. Both products demonstrated good concepts that had quantified interest (1,500 meals per month and 2,000 games, respectively).

Each investor considers a pitch through the lens of their positive or negative experiences. Peter Jones’ experience in both lifestyle magazines and board games impacted his investment decision-making.

Initially “Urban Coco”, a fashion-blog, had an online presence with 8,000 unique visitors per month. However this failed to generate revenue. On moving to a print copy of the magazine, costs surge along with business risk.

Three products barely made it out of the edit-suite suggesting they fell at the first hurdle.

Although determination and tenacity are necessary to the entrepreneur, flexibility and rejuvenation of product in response to the market are vital. A strong belief in your product alone is sometimes not enough to convince investors.

 

Who are your customers?

Even if you have customers, it doesn’t always follow that you can make money from the business. Where fixed costs are high and margins are slim, the volume of customers necessary to achieve profit can sometimes be unattainable.  This is a potential problem for Urban Coco, Gousto and Linkee.

 

What’s your USP?

Knowing your unique selling point requires attention to detail and awareness of the market and competition.

 

Was Urban Coco providing a “me-too” service in a crowded market?

Does the extra step that Gousto provide offer a robust USP?

Is paper made from stone, still only paper?

Is a cuddly-toy for a hobbyhorse still a cuddly toy?

And we don’t even need to ask about the Toilet Mate!

 

How does it scale?

Products or services that have large distribution costs are difficult to scale. What works well online, doesn’t necessarily translate to sales offline. Products delivering to a consumer’s door are notoriously expensive to scale. Delivering individually portioned ingredients to the consumer is both labour and capital intensive, including the potential high carbon footprint.

 

How much money do you need and what do you need it for?

The only real interrogation of what the money was needed for fell over on lack of knowledge of costs. Demonstrating the theatrical nature of Dragons Den, no one asked any questions about the costing of the one business that received an offer. There was however a lot of debate about commercial viability versus social welfare. There are moral questions when entering into areas of business better served by the not-for-profit or social enterprise sector.

 

This artcile first appeared in BusinessZone on 26 August 2103

 

 

 

 

 

 

 

 

 


All material copyright David Hulston Associates Ltd.  @davidhulston1
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