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Lessons Learned from the Dragons Den (Shark Tank)

If you’re anything like me, you’re glued to the TV when an episode of Dragons Den or Shark Tank is on. For those of you unfamiliar with the show, it’s a show where entrepreneurs “pitch” their ideas to venture capitalists (dragons/sharks) in the hopes of walking away with some money and new partners.

Season after season, it seems that entrepreneurs on the show do not learn from the mistakes of those before them.  Here are some of the lessons learned from The Dragons Den (or Shark Tank for US residents)

1. Know the value of your business – The number 1 mistake that entrepreneurs make when approaching venture capitalists is putting a crazy valuation on their business.  There are some entrepreneurs who put insane multiples of annual sales on their company worth usually based on “emotional” value.  Do the research and find out the accepted multiple of sales/profits for your industry.

2. Be prepared to give up 50% of your business – Every deal that the dragons are interested in, they almost always ask for 50% of the company.  However, for some reason, the presenter always seems surprised by this fact.  Investors want control or at least be a significant partner – be prepared to negotiate for it.

3. Know your Numbers and Details – This coincides with knowing the actual value of your business but one step further.  Know all the statistics of your business, who your customers are, your annual sales/profits and expenses.  Investors need to know the details of your business in order to evaluate the deal properly.  As well, it shows that you are serious about your business and pushing it forward.

4. Get Sales – Before venture capitalists want to invest in your business, it needs to be proven.  That is, it needs to have sales.  How many times have people pitched an idea with zero sales to just have the door slammed on them.  Go out and make contacts, get some sales/contracts, then look for additional capital.

5. Have a Good Story – Even if your business idea is mediocre at best, if you have a good story behind your pitch, it can turn a a maybe, into a possible yes.  There have been numerous times that the Dragons invested in a business because of the person behind it and their story.

6. Know your Dragons/Investors – This is key for any presentation – know your audience.  Know the businesses that the investors own and what they specialize in.  With that, you can tailor your presentation towards the investor/dragon that would match your business best.  Stroking their egos can go a long way.

Do you watch Dragons Den or Shark Tank?  If so, what are your thoughts on the show?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 24 comments… add one }
  • Audree September 14, 2009, 9:57 am

    Love the show! And yes it’s always suprising to see presenters make those mistakes. Good list

  • Mat September 14, 2009, 10:08 am

    Dragon’s Den is one of my favorite shows on TV. I think what differentiates it from other reality TV shows is that’s its ‘real’. A lot of reality TV seems so fake, with contestants who are really just wannabe actors and ridiculous premises. But Dragon’s Den is real average Canadian entrepeneurs with real products – in fact, I’ve seen some of the products from Dragon’s Den on the marketplace which I think its pretty interesting.

    I haven’t watched Shark Tank yet – is it better/worse?

  • FT FrugalTrader September 14, 2009, 10:12 am

    Shark Tank is very similar where they use Kevin O’Leary and Robert Herjavec. However, it does have a slightly different feel to the show… not as good as Dragons Den IMO.

  • In the Money September 14, 2009, 11:25 am

    I heard that Shark Tank is not as good as Dragons Den, although I have been meeting to watch them and have not had a chance to yet. People were telling me Shark Tank is much more dramatized than Dragons Den

  • jubjub September 14, 2009, 12:19 pm

    Shark Tank is definitely more dramatized than Dragons Den. It also seems like they really play up the personality differences and philosophies between the different sharks/dragons in an American Idol/So you think you can dance type way. Kevin and Robert are the best, followed by Daymond (Fubu). The other two are pretty useless.

    I think the original concept was great. I hope this doesn’t go the way of Celebrity Apprentice.

  • Sampson September 14, 2009, 12:40 pm

    I’m a sucker for this show – don’t really watch other reality tv although the ‘entertainment’ factor sure is similar – rooting for those good stories and interesting ideas, then jeering the fools that inevitably end up on the show (did you see the ear implant fella? ;) poor guy).

    I think the show is particularly interesting because of the differing levels of fog people seem to put between their ideas and the financial realities. Some see clearly the value of their idea and they often get funded. Tough for those that pour their heart, soul and personal capital in and fail though – but hey – not everyone can win at the American dream.

  • nobleea September 14, 2009, 1:08 pm

    I’ve never watched either of these shows. I always felt that if you had to go on to a reality tv show to get extra capital, it’s because your product isn’t very good and no one else would give you money.

  • FT FrugalTrader September 14, 2009, 1:09 pm

    I think a lot of these companies try to get on the show due to the TV exposure. I’ve watched a couple of “where are they now” recaps, and a bunch of them mentioned how the show gave them the exposure that they needed to put them to the next level… even without the dragons.

  • HalfHourEarly September 14, 2009, 1:43 pm

    I think you’re absolutely right FT, some of the companies are simply lacking a marketing budget and the exposure gives them that boost for free. It is important that entrepreneurs know what they lack and ask for investment to deal with it. Many hope that $$ will be the pill that cures all and the dragons pick up on that. That’s when you will usually hear Kevin say “You know what your real problem is?”. And it’s downhill from there.

  • Ms Save Money September 14, 2009, 2:03 pm

    Wow they have to give up 50% of their business – doesn’t seem like a good deal at all then.

  • Will @ Cheap Date Ideas! September 14, 2009, 2:10 pm

    I always cringe when you see some poor soul trundle onto the set with their cockamamie idea they’re trying to pitch.. you just *know* when they’re going to be ripped apart by the Dragons…

  • Susan September 14, 2009, 2:31 pm

    I just found the “uncut” interviews of the Dragons on the dragons den website and watched the Kevin OLeary one (its about 1/2 hour with a displayed question and then his answer format). It was very very educational in what they are looking for. Questions he answered included “why did you like the potato chip man so much” and “what is the biggest mistake pitchers make”. What I learned from it is that if I ever need to pitch for venture capital, I need to articulate in the first 90 seconds what the business idea is and how the investor will make money.

    On another note, did anyone watch the Sharks Tank episode with the nutrition bar guy? I’ve never seen anything like this guy’s maneuvers in all the years of dragons den. Robert was falling off his chair in amazement at the guy’s “hutspa” (sp). But Robert also let it slip with the BBQ sauce guys that he “once invested in a sauce because it was good and now all his money is gone”. Could he be talking about Buster Rhino? I hope not. They are a local biz here in Whitby (as well as the pink work wear lady).

    Susan

  • wags_in_the_peg September 14, 2009, 3:05 pm

    my brother is going to be on Dragon’s Den this year! (it was filmed in May) They are only giving him 2 weeks notice on when it is going to air.

    love the show…and “knowing the value of your business” is what kills almost 80% of the deals. your business is not worth 3 million if you’ve done 100k of sales every year for the last 3 years. some people….

  • wags_in_the_peg September 14, 2009, 3:08 pm

    @ MS SAVE MONEY – giving up a % of your business is part of life. the experience that you get from the dragon’s and the $ can possibly make your business take off. if you were already happy with your business and you don’t see growth, then don’t go on the show.

  • Four Pillars September 14, 2009, 3:40 pm

    I’ve never heard of this show but I’d like to check it out. Can anyone tell me when it is on? And if you know the Toronto channel (Rogers) that would be helpful as well.

  • Thicken My Wallet September 14, 2009, 3:59 pm

    I would add “know the odds are against you.” The shows tend to obscure the fact that the % of people who pitch before investors is most likely in single digits and the % of people who obtain money is a tiny fraction of those who apply.

    There were 3813 VC deals in 2007 (a great year for VC financing). That is tiny compared to the number of business plans even one VC firm receives a year.

  • Brian September 14, 2009, 4:22 pm

    Great show! It has some very funny moments. I believe its scheduled for Wednesday 8pm (EST).

  • Mat September 14, 2009, 4:37 pm

    @ Four Pillars

    Dragon’s Den is Wednesday’s at 8 PM on CBC (was on Mondays last year, but I guess they changed it). I’m pretty sure CBC is channel 6 on Rogers in Toronto.

    Shark Tank is on ABC, I think Tuesday’s at 8 PM from the looks of the website.

    Dragon’s Den – http://www.cbc.ca/dragonsden/
    Shark Tank – http://abc.go.com/shows/shark-tank

  • Steve September 14, 2009, 10:23 pm

    > Kevin and Robert are the best, followed by Daymond (Fubu). The other two are pretty useless.

    Are you kidding? Daymond, the guy who can go an entire episode without saying anything? Sorry, but the real estate lady comes third after Kevin and Robert. The infomercial cat is neither here, nor there.

  • lister September 15, 2009, 11:34 am

    I’ve watched both shows. Shark Tank has two problems which I wasn’t surprised to see since it’s typical for American shows. 1) Some pitchers have backstories. Ugh. I don’t want to see that. I just want to see the pitch and the process of the deal. I don’t want to know the lifestory. 2) The quick editing and showing the facial reactions along with dramatic music. That happens far too much.

    Kevin and Robert are good and have carried over what makes DD good. The Fubu and informercial guys are meh. The real estate lady is okay.

  • Aluminum Case September 16, 2009, 4:41 pm

    I don’t really watch Dragon’s Den, but I have seen an episode or two. These kinds of tips are great for anyone looking for an investor. You have to put yourself in their shoes and figure out what they want to hear. You may be sold yourself on your idea, but you need to sell it to them too.

  • cannon_fodder September 19, 2009, 7:01 am

    FT,

    You’ve summed it up quite well. I, too, find it a fascinating show and I would have to believe, for entertainment value and perhaps for a little wakeup call to would-be entrepreneurs, that they also show some of the worst presenters.

    I also like the differing personalities – Kevin is merciless and a mercenary which contrasts with some of the more gentle characters on the show. While I also prefer Dragon’s Den, I could see that Shark Tank will improve as the non-DD panel members get more comfortable. It seems to me that Kevin and Robert get a disproportionate amount of airtime – and I’m sure the American audiences are eating Kevin up (shades of Gordon Gecko).

    I would like the show to perform at least once a year a recap of the highlights from the various entrepreneurs – both those that got VC and those who don’t.

    I get the sense, though, that the vast majority of the people who are unsuccessful in getting their capital injection also won’t heed any advice given to them. And this advice is rare in that it IS worth something.

  • ajc @ 7million7years October 15, 2010, 8:33 am

    I buy (or try), back (mostly knock-back), or pitch lots of businesses … your list is spot-on. The reason why we want 50% is control + returns:

    1. The aspiring-entrepreneur pitching the idea usually is a technician with a great idea. We need to be able to guide them and replace them, if necessary. I MAY relax the %, but I will want right of veto over any capital raisings/shareholder changes, etc.

    We don’t take these steps lightly … on the other hand, if we can make the business make money with GREAT management, then the founder also wins (financially) even if their ego takes a hit.

    2. We need a HUGE return on our capital, to cover all the times we lose (7 out of 10) or merely break even (2 out of 10) … for the one out of 10 businesses that breaks out, well you do the math!

    BTW: I will also want to be able to trigger a sale, because there’s no way I’ll get my financial returns from cashflows, so you had better have a 3 to 5 year exit plan before you even come talk to me ;)

  • brian October 18, 2010, 12:50 pm

    UseMyBank went on Dragons’ Den and we turned down the million dollars they offered us. The problem was they wanted 40%. That was way to expensive for us.

    We were invited back by the show’s producers to p;itch again!

    Look for us in January.

    Brian Crozier

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