However, when the spiral has existed from the day of the business launching, and despite positive feedback on the product, making a few dollars has always been difficult, the sharp reversal can be another recipe for disaster. After all, if your customers like what it is you’re providing, then perhaps a tweak or adjustment is needed, but a reversal can merely drive people away.

If, however, due consideration indicates that a reversal may be in order, the business owner would be prudent to do two things:

1. Look at what the true problem with the current business model, and determine whether or not the reversal will result in the same scenario from a different perspective. As an example, if a site has little to no direct revenue, changing the structure of the site will not help bring in money unless the business model is adjusted as well.
2. Warn your customers of the pending change, so that you can gauge their feedback prior to making the change. This allows you to measure the effect the change will have on your existing clientele.

Building trust with your client base is critical if your business is to succeed. If you suddenly change attitudes with them, many customers will feel betrayed. If you take something away, whether a product or a service, customers will notice the absence of that item. Some may stay, but others will leave – because they truly were there for that particular product.

Related posts:

1. Customer and Market Research
2. The Entrepreneur’s Prayer
3. Question: How do you ensure timely payments from clients?

The price, however, is what hit the business hard. A typical home would cost about $500 to get set up with the system, significantly more than what the average homeowner would pay. While cheaper that hiring someone to put up and take down the lights each season (which was estimated at about $750 for the same home), most homeowners are hanging the lights themselves to save the money.

However, one Dragon saw past that flaw, and focused on a market that would be only too happy to pay for such a product. Stores and offices, which typically do hire people to hang the lights, would see this product as saving them money. While in the first year the savings might be relatively minimal, by the second year, the savings can be quite significant.

Jim Treliving, with 350 branches of Boston Pizza to outfit with lights, calculated the savings in his first year at about $80,000. The following year, this number would triple with no more outlays needed. The money for the investment ($200,000) could come directly from the savings in the first two years of using the product.

The problem, however, was valuation. While the product was clearly good, sales were still non-existent. The million dollar valuation had to go, but the question remained how to balance out the $200,000 with the company. On air, the counter offer of 35%, which converts to a valuation of about $570,000 was accepted. The premise, of course, is that the business can do quite well.

It’s unclear from the site whether or not the deal has gone through. While they are clearly celebrating their airing on CBC, there is no indication that they have actually adapted their business model to approach businesses rather than homes. Why they would choose not to target stores is, to me, a mystery, since those are the customers who can afford their solution, and are likely willing to spend it to save in the long run.

However, more interesting is the fact that Carl and Maria learned on the Den that the focus of their business, or the market they should be aiming for, was not the same as what they came on the show airing. The question, though, is how well they learned that lesson, and whether or not it will translate into a stronger business, with or without dollars from the dragons.

Related posts:

1. Solid Business Wheeled Out of the Den – With an Invitation to Return
2. Reduce Debt or Increase Savings
3. Say No to a Million Dollars – Again

How do I know you won’t just take my idea and build it yourself (leaving me out of it)?

A valid concern, unless you’re actually in my business.

A typical day for me is as follows:

• Get to work by 8:30 AM
• Work for 8-12 hours for various clients – this is what I get paid for, so I have to work on projects that I’m being paid for or I won’t be able to pay my bills
• Get home, eat dinner, spend some time with my wife and daughter – this time is strictly family time, so no working on projects
• If I feel up to it, put in a couple hours on writing articles here and on my single pet project
• Sleep

First, there isn’t really any time for me to work on your idea unless you’re a client. I won’t get paid for it, so the only slot left for it is during my project time. I already have a project that I would like to complete, so even if I decided your idea was better than mine (and many times this is true), I would still want to finish my current project before starting another.

Second, there are all the reasons to keep you involved. You thought of the idea, and probably have some vision of how the entire project will work. Building an application is only part of it – you still need to define your target market, and reach out to them. I could spend time figuring out an angle, but you are likely far ahead of me in that direction. You also have likely thought of how the business will grow, something you haven’t told me about. So I can only guess in that direction.

Third, it’s not my business model – at all. I’m in the business of helping clients build their ideas into realities, not running those businesses for them. A perfect client to me is one who has a good idea, needs some help getting it off the ground, and plans on running the project themselves once it is built. Running an online business can be more than a full-time job, and it’s not what I’m interested in doing. That’s what my clients like doing, and I help them get the technology they need to make it happen.

Fourth, it’s really bad for business. If I took even one client’s idea and executed it on my own, word would quickly get out that I stole the idea. I would lose the trust of all my current and potential clients for a potential momentary gain. It’s not even a guarantee – no matter how good the idea is, there’s never any guarantee that it will be profitable.

Am I saying that an NDA (Non-Disclosure Agreement) is unnecessary? No. You should still have one signed. But it’s not so much as to enable you to protect your idea as it is to inform the other party that you intend to execute the idea, and whatever you tell them about it should be considered proprietary.

Is it enforceable? Probably not, in most cases. But it does make it clear that you consider the information given to be privileged.

Related posts:

1. The Value of an Idea
2. I Have a Great Idea – What Now?
3. It’s a Good Idea, Now What?

This can apply to business as well. If you have a product that you sell for $10 with a margin of $6, then selling 10 at once would give you a higher margin, since some of your costs would overlap. So your margin might be $65 or $70 in that case.

Unfortunately, it also works in the other direction, and I’ll illustrate with an example (I heard this on a tape of a Jackie Mason show):

My friend bought a new watch, and I asked him how much he paid for it.

“Below cost!” he exclaimed triumphantly.

“Below cost? How does the guy make any money?”

“He sells a lot of watches…”

Sometimes in business this makes sense. A store might offer a product for a price at which they lose money. But the objective there is to get you into the store, where you’ll buy other products at a higher profit.

Sometimes in business this is a sad reality. Take Dale Barker from Hamilton, Ontario, who renovated a building to be a beautiful movie theater. He came on Dragons’ Den last week looking for an investment to add a second screen to his theater. The problem, however, is that he was losing money on the existing theater.

This is a classic case of throwing good money after bad. He had a large debt acquired in order to make the renovations, and was dealing with delinquent tenants. His theater was one of the cheapest in town, despite the extra decor. If he spent more money on adding another screen, he would find himself losing money twice as fast. In other words, his business model was losing him money.

In such cases, where the business is losing money, before acquiring additional investments, you need to take a reality check to see if the model itself is sound. If the model itself is not sound, you need to fix it before giving away part of your business and prolonging the agony.

Related posts:

1. Dragons Flush a Good Idea – Bad Business Down the Toilet
2. Parks and Membership
3. I Have a Great Idea – What Now?