Kirsty Bucknell, Enterprise Nation member and founder of AbsoluteVA, pulls outs the business lessons from the latest episode of BBC TV's Dragons' Den.
I must confess, it has been a while since I last watched Dragons' Den but I was looking forward to seeing some new faces.
The episode had a theme of duo pitching and Somerset was well represented, which made it all the more interesting for me being a Somerset girl at heart. All the pitches were slick and well executed. making the show easy Sunday evening watching.
Brothers Ben and Harry Tucker were first to pitch with a simple concept; they recycle decommissioned plane parts into luxury furniture, stationary and luggage from their base in Wiltshire.
They asked for £80,000 in exchange for 10% of their business.
You would be forgiven for thinking the Dragons' excitement meant they were sold. Peter Jones and Deborah Meaden even took a spin in their signature chair (made from an Boeing 747 jet engine) which looked so swish it even had me scrabbling for my chequebook (OK, until I found out it cost £19,000!)
However, excitement soon faded when Peter examined their new cheaper range of bags, which they had designed for the mass market and was disappointed with the quality.
None of the Dragons invested but Peter actually bought the jet engine chair for £10,000, proving that they had that product right for the millionaire target market. Interestingly, the Dragons all thought their signature product was undercharged.
If your business caters for the luxury market, it is exceptionally hard to then produce an affordable range without considerable research and development. Do one thing and do it well.
Millionaires and billionaires pay huge sums to have the most bespoke and unique luxury furniture. If you are operating in this market, your range has to be of premium quality.
In my humble opinion this is the company that got away. I immediately went to the Plane Industries website and looked through their entire range.
The company and branding are clear, each item has a story and is unique, has a specific target market (who are often obsessed with all things aviation) and the founders have a passion for their product. With the right mentoring, this company will do very well.
Husband and wife duo Mike and Zena Dean (complete with their dog Huxley) claim they are living the philosophy of 'go large or go home'.
True to their word, they sold their house to invest £150,000 into their business which, as they opened their pitch with, is the "world's first fully traceable organic vegetable treats for dogs".
A solid scientific explanation accompanied a nice story of the couple starting their business because there was nothing on the market meeting their needs for their dogs.
Deborah Meaden highlighted key areas that the packaging was missing and said that she previously invested in a similar company and found it an already saturated, competitive market. Unsurprisingly, this advice also immediately put Peter off, quoting Deborah's experience as the sole reason he 'was out'.
Which left two Dragons. Tej Lalvani feared £50,000 simply would not be enough but made an offer of £50,000 for a 30% share.
Undoubtedly, Tej would have had considerable contacts in the vitamin industry but Jenny Campbll offered better terms of £50,000 for 15%.
Mike and Zena took a moment away from the Dragons to discuss their decision and came back united in that they would accept Jenny's offer.
Co-founders will need to make hard decisions. Sometimes a decision will come down to a gut decision and founders are likely to have differing views. If so, you should always decide on a hierarchy for who makes a final decision in any given area; financing, staffing, sales, development etc.
Decide on a policy and have this drawn up by a solicitor, whether you are husband and wife, colleagues or family.
When William Pryor and his CEO Fenna Leake walked in and announced their book barn business, my ears immediately pricked up as I grew up in the same small Somerset village as the barn and regularly visited.
I instantly wanted them to do well. They asked for £100,000 for 10% plus free books for life as a humorous sidenote.
The Dragons were speechless when they learnt William is Charles Darwin's great great grandson and that 25-year-old Fenna started as a Saturday girl and was given a fantastic opportunity.
I felt the pitch was going to end well until the financial questions started. Slowly it transpired that an equity broker assured them he could raise £250,000 for much needed modernisation but the money never materialised.
Bookbarn International, whilst a promising idea, is £400,000 in debt. The Dragons were once again silenced.
You could see the Dragons wanted to invest with their hearts but their heads were number crunching and unsurprisingly, none of them invested. This was the underdog for me. You always want your hometown to do well.
Investors like a simple businesses with quick returns. Large debts are not appealing and you either need to clear them before approaching investors or have a very clear plan as to how they will be cleared, with an exact timescale and plan.
A business in large debt is far less appealing than a business making little money (or even a £1.27m turnover, in the case of the Bookbarn International).
Jenny was immediately taken with the accents of Liam Sheriff and Craig Newbigin from County Durham who asked for £100,000 for 10% of their supplements business, which claims transparency and no unnecessary ingredients.
Their £1m valuation was called into question, along with their minimal £2.50 profit margin with Tej expressing: "I have never seen a profit margin like this, ever."
The Dragons were disappointed to hear the owners had taken a £125,000 loan which would need to be repaid or an equity shareholding negotiated.
Peter drilled down further when looking at their terms to see that if the repayment was not made within two years, the loan repayment equated to a 40% interest rate.
I was shocked to watch three Dragons then proceed to make offers!
Liam and Craig went in wanting an investment from Peter and Tej, identifying that there were a good fit for Natural Nutrients.
Luckily, Peter and Tej worked together to come to an agreement, accepting a 17.5% stake in the business each. It was clear they both really wanted in on the business.
Know who you're pitching to by doing your research and going after the perfect investor.
Whilst the business lesson above highlights that large debt is not attractive for an investor; for the right business, with a likeable founder/s, investors can surprise you, look past your pitfalls and even fight for you.