What Dragons Den teaches us about business, pitching and investment

Let’s be honest, we watch Dragon’s Den because we all still secretly harbour ambitions to be rich and famous.

Everyone has a great business idea in them, so we are transfixed by its blend of theatre, pressure, big business, innovation, acumen and sheer terror: grimly fascinated by the unique combination of beauty parade and car crash.

Dragon’s Den is, in itself a great product because it has been around for a decade, and attracts more than 3.5m viewers. The multi-millionaire stars are all household names, and are therefore rich and famous.

There have been 12 Dragons during the show’s tenure and no-one wants to count how many pitches they have sat through— but it follows that to occupy those sinister chairs themselves, they must be pretty good at pitching for finance.

One thing we know is that there is little difference in the approach to a potential investor, whether you are raising funds for a start-up from, say, an angel, or a big cash injection to grow an already profitable company from venture capital.

Here’s six pearls we have learned from the Dragons.

 

Be original

 

How many pitches are flat, clichéd and full of spread-sheets? Creating a bit of a buzz can work miracles. It’s a fine line though – many times you see the normally inscrutable Dragons wincing half way through some pitch with extra cheese.

A good example is probably the most famous Den alumnus, Brixton’s Levi Roots, who presented his Reggae Reggae sauce to the Dragons in 2007 with a self-penned burst of reggae on his guitar, and a good tale. He got £50,000 from Peter Jones claiming it was his grandmothers’ recipe for the tangy barbecue sauce.  Though that later ended up in court when sued by his former best mate – but within weeks it was in Sainsbury’s outselling Heinz Tomato Ketchup. Mr Roots is now richer than the molasses in his sauce.

 

Don’t over dilute

 

The classic Dragons Den dilemma seen time and time again on the show: it’s not just the money, you need the help and contacts a Dragon can bring. As a business owner you need to weigh up the value of that against giving up too much equity and risk of stifling future growth and choking off profits.

When Neil Westwood took his self-adhesive whiteboard on in 2008 he only really wanted the PR from appearing on the show, but Deborah Meaden and Theo Paphitis invested £100,000, with a dual promise to market the idea, and get it on the shelves of the latter’s stationary chain Rymans. It was easily Paphitis' best investment, and Westwood paid it all back in under two years. But he later said: “I shouldn’t have given away as much as I did – we’ve made them more money than any of the other Dragons' Den investments – but at the time it seemed a less risky way of getting the investment”.

 

Keep it simple

 

As the world’s richest investor, Warren Buffett is over-quoted as saying: “If you don’t understand something, don’t buy it”.  If the Dragon’s don’t, they’ll tear it apart, yet an idea such as James Halliburton’s straightforward Waterbuoy key-ring— a 2009 device which was designed to prevent valuables from sinking— instantly attracted £200,000 from Peter Jones and Theo Paphitis, though he later decided to go it alone. With variations on his design, he later sold 5 million units in under a year.

 

Research   

 

Without doubt the biggest maker or breaker in the Den is lack of proper research and financial planning. And not just your numbers, past, present and forecasted, but a deep knowledge of your market place and potential pitfalls. And rehearse them, too: every number should trip off the tongue like the birth dates of your children. No fewer than two contenders incurred the wrath of the beast in a very recent show by not doing their homework, one by trying to sell photo booths to Peter Jones when a quick Google would have told them he owns Jessops, the biggest photographic chain store in the UK. Really?

 

Don’t hear no

 

Probably the most successful Den reject - Rob Law (January 2008) - was elbowed off after Theo Paphitis pulled off one of the straps from Trunki, his wheeled suitcase for children. Not to be outdone, he redesigned it and now employs 50 people in the UK with a turnover of more than £7m. In this case, he was better off going it alone.

 

Where’s the exit?  

 

The investment world’s unique homonym. Definition one: All investors want their exit: how much money do I get back, and when? Get that right and you’ll be heading for the world of rich and famous, get it wrong and you will be looking for the door. 

By Steve McDowell