Dragons Flush a Good Idea – Bad Business Down the Toilet
Further to my recent post about a successful deal on Dragons’ Den which was the result of good marketing for the business as a business, this article highlights a pitch which was quite the opposite. Reminiscent of Clair Copp and her accounting software, this pitch left a sour taste in my mouth, but for slightly different reasons.
This time around, it was Roslin Stewart and her side-kick Ralph Angotti who were the subjects of the disbelief in the den. They demonstrated their product, a disposable toilet seat cover, which had the Dragons somewhat interested, as it provided good value. With the addition of a plastic, yet bio-degradable version of the cover, they seemed poised to garner interest at the least, though an investment would have been difficult on account of their completely inappropriate valuation and request.
Asking for $2 million for a 30% stake in the company put the value of the company at approximately $6.5 million. The catch, however, is that they had no sales to back up that valuation, despite being in the business for 20 years. What made the five dragons shudder, though, was when they heard the amount of money put into the business – a staggering $1.5 million with no sales to speak of. Not only that, with an expensive product ($2 for the plastic cover, $0.40 for the paper) they were too expensive to become a standard, and the most they could hope for would be to be carried around in case of an emergency.
What Roslin and Ralph failed to hear, though, is that although they have put a lot of themselves and their finances into the business, it does not mean that the business retained that value. Since all the business has to its name currently is a pair of patents, the only value the business has is the cost of those patents, perhaps as much as $100,000 though likely lower. The other factor that could increase the value of the business – sales – was sorely lacking.
That’s not to say the product is bad. Quite the opposite, there are many public restrooms which keep a supply of paper covers next to every toilet, displaying a real market for their product. A plastic version which can be flushed is a step up, though the price would have to be lowered to keep it affordable in bulk.
However, competition does exist, and that in itself should not be taken lightly. Likewise, the fact that Roslin and Ralph would spend 20 years without sales shows that they don’t know how to run a business, and the dragons are not there to do that for them. The dragons will help finance businesses that are being run well, by a capable team or individual, but they are not interested in stepping in to run the business. In this case, other people might be able to turn the business into a success, but that chance will not appear on the den.