How do you get them to invest in your idea? Last night’s episode of Dragons’ Den (from fashionable wellies to bike/pram) shows us exactly how to get an investment and how not to!
The 3 Ps are:
The ratio of importance is about 70:20:10. If they don’t buy into “you” as a person, “I’m out” is all you will hear.
The product could be very good, but since you are going to run it as a business, if you don’t convince them about yourself, no deal.
Entrepreneurs often fall over on the numbers (performance) but that’s not the whole story. Successful trio Sarah Mike and Laura, with their wedge wellies, tripped up a bit on the numbers too. Net profit seemed a bit low and Sarah incorrectly interpreted this as being caused by an investment in stock.
But the Dragons, shown more as a team this week (by skillful editing), saw through the lack of understanding of the numbers. The product was good, and they already had an expandable order book.
You have to look at it from the Dragons’ point of view. The cross-examination is not always an attempt to put you under a critical spotlight. They really are really trying to grasp a basic understanding of whether this is a runner or not!
When I receive an answer I don’t quite get, I owe it to myself to figure out whether you don’t get it or whether you do get it and are trying to pull the wool over my eyes. Now that would be upsetting. By default an investment banker probably would get it.
Investment banker Mike tries to gloss over the substantial losses against plan. Any interest in the product is extinguished by the lack of apparent openness about the numbers.
I’m recommending being open about setbacks we have had. If we are open and up front, there is no place for our questioners to go.
But that would require a much more realistic (downwards) business valuation by the partners. It is very hard to come to terms with this, especially if you have invested $1.3m of your own money.
So in reality, to start to be successful, we have to start to be honest with ourselves. Both Deborah Meaden and Peter Jones illustrate the power of honesty in this episode.
I counted two instances where they conceded they could not add value. Why do I find this powerful?
I suppose it builds credibility in their opinions. If they are prepared to admit when they don’t think they could add value, this gives me much more confidence in what they say when they do think they know.
The worst thing you can do is allow them to draw attention to the numbers, especially when there are big holes in them. In Evan Davis’s post-fight debrief, the pram/bikers expressed disappointment that the Dragons focused on the numbers and not the product. Whose fault was that?
Back to the 3Ps. Credibility starts by being honest with myself.
This is TV though. The programme would not be so watchable without the courage of those who allow us to sit back and analyse their setbacks. Far braver do be a do-er than a spectator!