Dragons' Den Episode 3 – The Air Mouse

This week’s episode of Dragons’ Den on CBC featured one of the smoothest deals I have yet seen.

Mark Bajramovic and Dr. Oren Tessler of Ottawa, Ontario, presented the Air Mouse. Originally developed in order to reduce Carpal Tunnel Syndrome, it has applications in a variety of areas. The invention looks like a glove, and works like a mouse on a dedicated pad. They expect to retail the device for about $100, which is a good price point for a quality mouse.

They came on the show asking for $75,000 for a 15% share in the company. To back them up, they pulled out a letter of intent from a manufacturer agreeing to produce the device, pending them getting sufficient funding. The investment was to be used to refine the prototype and to move into production.

Robert Herjavec and Kevin O’Leary got into a brief debate about how to market a product like this. Robert felt that it could be marketed as being a “cool” device, appealing to the gaming industry. Kevin disagreed, saying that for people who suffered from carpal tunnel syndrome, a device like this could become a necessity, thereby pushing up the price.

Jim Treliving was concerned about the asking price – why weren’t Mark and Oren asking for more money? (Their response was that rather than get into an argument with Kevin O’Leary, they just made a fair evaluation.)

Brett Wilson was quiet for this deal – only saying that he liked the idea, but wasn’t going to invest.

Arlene Dickinson then made an offer – $75,000 for 15%, with the caveat that there was not yet another such product on the market (there isn’t). With such an offer, the other Dragons did not have much room to counter – after all, Arlene was offering exactly what Mark and Oren were asking for.

After some pushing, Mark and Oren managed to get Robert to go along with Arlene on the deal. Robert, with his experience in the computing industry, could really help them move their product through the computing world. Arlene’s marketing expertise would balance that, pushing the product out at the gaming industry.

The deal was struck.

This deal shows that if you know what you have, and know what you’re worth, it doesn’t have to be so tough on the Den!

Self Motivation Begins with Vision

Frankly, I was expecting something a bit more sophisticated.

Frankly, I was expecting something a bit more sophisticated.

As the leader of a business, whether it’s just you and your goldfish, or you and 100 employees, it can be lonely at the top. After all, you’re the one who’s put in more hours, taken more risk, than anyone else around you. You may have more at stake in your business than anyone else. You have a limited ability to communicate with those around you.

In such an environment, how do you stay motivated, how do you push yourself to keep going?

It’s not where you come from, but where you’re going that matters.

To stay motivated, you need to focus on the goal, not on where you came from. Sure, there are lessons to be learned from the past, but they won’t keep you on the road, and they won’t get you to your goal.

When I was a teen, I went hiking with my father in the White Mountains in New Hampshire one summer. After climbing to one peak, we decided to cut short the hike because of the time, and headed down to complete the hike. When reaching the bottom, we followed the trail, reading occasionally from the trail guide for the landmarks we should be seeing.

After hiking for a while, we reached what seemed to be a dried riverbed, which was not on the description of the trail. There was a sign, however, pointing into the woods, indicating a ski trail. Although the ski trail appeared to be non-existent, we looked at the map, estimated that we were about 3 miles from the road, and figured we would take the chance and hike through the woods.

Needless to say, that was a bad choice. The road curved near where we were, and rather than being 3 miles from the road, we were about 6 miles out. The result was that we had to spend the night in the woods (this is black bear country) until morning, before we were able to continue to reach the road.

What kept us moving forward, however, was that we didn’t focus on the past. Sure, we should not have left the trail. We should have read the guide more carefully, and would have realized that we were actually supposed to hike along the riverbed (the mile markers were incorrect). But that would not have gotten us out of the woods.

In order to succeed, you must look forward toward your goal. As long as you know where you’re going, you can find the strength and motivation to get there.

Site Review: SCORE

This week’s feature article is about a great business resource that I use time and time again – SCORE. The basic description of SCORE comes from their site:

SCORE, the “Counselors of America’s Small Business Owners”, is a national association dedicated to helping small business owners form and grow their businesses.

Unfortunately, their own description of themselves falls well short of reality, although it is everything that they claim to be, but also so much more.

I first came across the site when browsing through the Answers pages on LinkedIn where it would be listed on occasion as a resource for small business owners. After that, I started noticing references to the site on a variety of websites I frequent, and decided to check it out. My delay in looking at the site stemmed from the fact that I am in Canada, and the organization is clearly an American organization.

I was delighted to find that, while I could not take advantage of the various counseling and coaching opportunities (extra for all you American readers), there were still many resources that I could make use of.

Business ResourcesThe one feature that I found most useful, however, was the resource section, which includes dozens of document templates, from business plans to sales forecasts, balance sheets to board of advisor drafts. There are also dozens of podcasts on a variety of topics, and I’ve started listening to them as often as I have time. For days when you need some extra motivation? Check out their success stories.

All in all, this site provides many excellent resources for small business owners, regardless of whether or not you are able to make use of the advising facilities offered.

Communicate Clearly – or Don’t Bother

In any endeavor, it is of critical importance that you be able to communicate clearly, and that you exercise that ability as often as needed. There are two parts to good communication, and either without the other can lead to avoidable problems.

The first component is the ability to clearly express ideas, concerns, requests, or questions. While this skill is needed in both the oral and written form, it is possible to develop one without the other, and have it suffice.

The second component is the ability to deliver communiques as often as necessary, and to be available to receive and respond to such communiques when needed. Within an organization, this extends to knowing who to send a particular request or piece of information to. The chain of command needs to be known, and each link in the chain must be able to access the surrounding links whenever needed.

Where these two components become particularly important is when the various people communicating are not located in close proximity to one another. The more difficult it is to establish a line of communication (point two), the more important it is that what communication does occur be particularly clear. As the clarity of communiques decreases, the frequency of communiques, or, more particularly, the ability to request clarification, must increase.

I have witnessed one business suffer because of a failure in this area – with an absentee decision maker, the chain of command began to fail. While everyone in the business knew who made certain decisions, they were unable to communicate with him easily, and often significant amounts of time were lost just waiting for a response. Additionally, some of the communiques were difficult to understand, leading to mixed messages being sent, and many people in the business unclear as to their duties and responsibilities.

If you want to ensure that this doesn’t happen to your business, ensure that you know who is ultimately responsible for each segment of the business. Next, ensure that all communiques issued are clear and sufficiently verbose to avoid mixed messages. No, you don’t need an essay to explain each decision, but don’t assume that “sure, okay” means the same thing to the person reading it as it does to you.

Dragons' Den – Musical Mayhem

With perhaps the most gutsy presentation on Dragons’ Den from CBC so far, two friends made an audacious offer, and secured a deal. Interestingly, however, Arlene Dickinson, the marketing maven, did not participate in the deal, despite the fact that her background might be exactly what the entrepreneurs needed.

John Marr and Jonathan Mackenzie of Mackenzie and Marr Guitars came on the show with a handmade guitar that retails for about $1,000. In a daring attempt to prove the quality of the guitar, they had Kevin O’Leary do a blindfold test of their guitar against a $5,000 guitar made by an established brand. When Kevin was informed that he had chosen the $1,000 guitar as the better instrument, he was sold.

The two friends were asking for $35,000 for 35% equity – valuing their business at the price of 100 instruments (of course, costs need to be subtracted, but still, not a large amount). Their plans for the money included moving manufacturing to China, and increase their ability to build more of the instruments.

The catch is that they are selling their guitars solely via their website, which means that potential buyers aren’t going to be able to try out the guitars. Therefore, they will need endorsements in order to encourage potential buyers that it’s worth the risk. Arlene Dickinson, concerned about precisely this issue, declined to invest. Likewise, Robert Herjevec declined for similar reasons.

Jim Treliving, Brett Wilson, and Kevin O’Leary decided to put in a group offer, but not at the terms on the table. Each of the three investors would put in $5,000 for 5% equity in the company. The balance of $20,000 would be given in exchange for a royalty of 5% once the initial investment had been paid off. Until then, the Dragons wanted a 10% royalty.

John and Jonathan felt that 10% was too steep, and wanted to start at 5% from the beginning. The Dragons countered back with 7% from the beginning, with 5% once the investment had been repaid. The offer was accepted, but not before it looked like the two friends would talk themselves out of a deal.

Putting your product to the test on national TV is a big risk, especially when you can’t do a dry-run beforehand. But when it works, the risk can prove to be very rewarding!

Establishing Credit

The owner of a small business posted the following question earlier this week:

My partner and I have established an LLC as an umbrella company for two online retail companies. One of the companies will be drop shipping products from various suppliers. These suppliers require a credit card since we are a startup company. What is the best way to go about acquiring a line of credit without using personal credit cards? Also, my credit score has taken a beating over the past year.

First, the individual posting the question mentioned as an aside a very important point about running a business – you need to keep your business finances isolated from your personal finances. What this means is that not only do you need to keep accurate records for your business, but you also need to keep separate accounts for your business, separate lines of credit, separate loans.

I'd like a no interest loan, since I have no interest in paying it back.

In answer to the question asked, however, it is important to know how credit is given. Credit is issued either because the creditor trusts the person borrowing the money (where the borrower has a good credit rating) or because the creditor can collect from the assets of the borrower (where the borrower has something of value, such as a house, that can be held as a collateral on the loan).

A good credit rating takes some time to establish, especially if there is a negative rating to begin with. Additionally, with a small business that does not have many assets or a strong revenue stream, financial institutions will look at the owners of the company when deciding whether or not to extend credit. Often, financial institutions will require one or more of the  shareholders to personally underwrite any credit extended – which overrides any buffers of liability created by having a corporation in the first place (although there are other reasons to incorporate).

For that reason, as the owner of a small business, it’s important that you be prepared to underwrite the loans your business requires, at least in the early stages. Once your business is established with a history of making profits, the corporation may be able to borrow money on its own. In the meantime, however, you will either require an asset of value to back the loan, or a good enough credit rating on your own to acquire the loan on behalf of the corporation.

Pay the Debt or Save Away

It’s early 2010, about the time that bonuses are paid, and you may be wondering what to do with the extra cash. Hopefully, you weren’t depending on the bonus for your budget, and so you can use it for some of the long-term plans you have.

There are, essentially, three uses you can put the extra cash to:

  1. Splurge it on something – it’s extra, you don’t have a long-term plan for the money, so why not enjoy it.
  2. Save it – the extra $5,000 might help toward a down payment on a house, or pay for your child’s university.
  3. Pay the debt – after all, it costs you to keep that debt around, and if you’re like most people, you don’t like owing other people money.

This pretty much guarantees we'll be left behind.Now, each person’s situation is unique, and there’s no rule for what to do. However, I’d like to address a reason to save when you might be inclined to pay debt which you may not have thought about.

Assume for the moment that you have a $5,000 balance on a line of credit which you pay 5% interest on, and you just received $5,000. The current rates of return on a GIC are about 2%, which means that by paying off your debt today, you’ll essentially save yourself 3% annually on ridding yourself of that debt today.

However, look at your monthly obligations to that line of credit (and this assumes that you are not continuing to borrow against it). On $5,000 of debt, your minimum monthly payment is probably in the area of $150 to $200. This is already in your budget, and you are already setting aside that money each month.

If you pay off your debt today, you will, in theory, free up that money to invest in a long-term plan. However, saving money is generally not treated as an obligation, while paying a debt is. That means that if you remove this debt from your monthly payments, you are not as likely to put the money into an investment.

For that reason, you may want to consider putting a portion of the bonus into an investment today. Sure, it’s going to cost you 3% to do that, but this way, you’ve managed to save that money, which otherwise might have been spent. If, on the other hand, you can convert your monthly payments for the line of credit into a monthly contribution to an investment, thereby ensuring that you do, in fact, contribute the savings each month, then by all means you should get rid of the balance on your line of credit as quickly as possible.

Blogging Guide

Actually, this document is titled “The Income Blogging Guide” and contains a mix of text, audio, and video. It’s free, and was sent to me by Robb Sutton. Considering that Robb generally sends few links, and he gave his recommendation for it, I figured I would give it a look.

BlogTo get your copy, go to the book’s site and enter a name and an e-mail address. Within a few minutes, you’ll have access to 95 pages of instructions, videos, detailed images, and all  the information you need to get your blog up and running.

You can watch a video of Matt Cutts from Google giving a talk at WordCamp 2008 in San Francisco.

Not sure how to set up a website? Click-by-click instructions are included (along with screenshots to help you).

Wanted to know how to find good keywords? What to do with those keywords? The answers are all there.

Best of all, the authors, Andrew Rondeau and Joel Williams, aren’t charging you for this information – because it’s not a trade secret. This is how information about blogging should be distributed – for free, because the answers are all available for free already. In the process, they save you time performing searches of your own, collecting all this information on your own.

So check it out, it can help you get up and running as fast as you can read!