Dragons’ Den: Series 12, episode 9
How perceived low profit potential proved a bridge too far and the fashion technology venture seemingly set for big things
There was a positive atmosphere in the den this week, with flamboyant thespian Charlotte King and passionate Yorkshiremen Andy Needham and Dan Cluddery walking into the lift under a hail of compliments but unfortunately not a shower of money.
Elsewhere, Startups 100 company Enclothed’s founders Dana Zingher and Levi Young almost managed the highly coveted full house of offers, with only Duncan Bannatyne choosing not to invest in their men’s clothes online personal shopping experience. In the end they decided Kelly Hoppen’s design experience and Piers Linney’s software experience was the perfect combination to take their business to the next level.
Concept: Stick on patterned soles for affordable high street heels
Investment sought: £30,000 for 25% equity
Investment received: None
Theatre performer Charlotte King gave quite a show as she strutted into the den to show off her ShoeLicks sole stickers, bringing out the theatrics in all the Dragons, but ultimately failing to bring out their wallets.
After an eye-opening entrance King launched into a confident and engaging pitch, describing her unique product as the best way to “pimp” your “high street high heels” for £2.99. Citing designer Christian Louboutin’s iconic Red sole as her inspiration, she explained the stickers were all her own designs and could be changed as and when the wearer wanted.
The ever-cynical Peter Jones was first to speak, dismissing the idea as “stickers… for people who buy cheap shoes.” But the flamboyant entrepreneur was quick to respond, explaining her demographic as 15-36 fashion-conscious women who can’t afford designer shoes in light of the recession. Even Bannatyne jumped to King’s side reminding Jones “not everyone is as rich as you”. Though contrite, and instead describing them as “good value for money” he still claimed they look “ridiculous”.
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However Bannatyne disagreed and after paraphrasing the bard, “to ShoeLick or not to ShoeLick”, gave hope to the pitch by saying he thought “they look great”.
Unfortunately for the young designer, some of the example shoes she handed out didn’t show the product in the best light, peeling at the corners and not lining up with the edge of the shoe. She explained it was “DIY”, requiring users to cut the sticker to the shape of their sole, with five to eight wears recommended for each one.
Design entrepreneur Hoppen was impressed, describing the idea as “creative” and “innovative”, but felt the DIY aspect was a flaw, although she could see it at high street tills like Topshop. Ultimately Hoppen didn’t feel the market was big enough to be worth her investment, swiftly followed by Bannatyne, Deborah Meaden and Linney for the same reason. Despite this, they all said she should continue to sell the product and wished her luck for the future.
This just left early detractor Jones who also opted out but thanked the young thespian “for the entertainment”.
Start-up business lesson: Sometimes, even when everything is right with a business it will still have limitations. Identify them before you decide to continue or put your time and money into something else.
Andy Needham and Dan Cluddery
Company: Approved Food Ltd
Concept: Website that sells food past its use-by date
Investment sought: £150,000 for 10% equity
Investment received: None
With an estimated five million tonnes of edible food thrown away in the UK every year, entrepreneurs Andy Needham and Dan Cluddery were seeking investment for a business which turns that waste into profit by selling it online. Unfortunately, that profit wasn’t quite enough to attract investment from any of the Dragons, though they were impressed by the business.
In contrast to their predecessor’s performance, the two burly Yorkshiremen’s was a low key and stilted affair, peaking in an excruciating moment when Needham drew a complete blank. Despite this, Cluddery came to the rescue, and they stumbled to the end of their pitch and managed to leave the Dragons suitably intrigued. Their idea – an online marketplace selling clearance and regular products for around 70% less than the high street. The funding would be used to increase their marketing activity, recruit further staff and facilitate the move to new premises.
Jones pointed out that former market trader Cluddery missed a trick in the pitch by not standing behind his table of wares and flogging them in the manner of his previous profession. He agreed and gave a brief demonstration.
Linney was keen to understand the target market and the quality of the food they were selling. Cluddery said their customers are savvy and best before was really a guide to quality before assuring them they don’t sell any products past their use-by which is illegal.
Bannatyne thought it all sounded “too good to be true” and upon crunching the numbers it looked like it might well be. Needham said they turned over £1.6m four years ago and made a £200,000 loss, up to last year when turnover was £3.5m and they made £130,000. On top of this they were expecting £5m in sales next year but with a predicted a loss of £100,000. Bannatyne was quick to point out this was slow progress for a business that had been trading for six years.
Further concerns were raised upon the discovery that while Cluddery takes a minimal salary, Needham takes nothing at all, and several loans had been taken out to make up for their £100,000 loss.
This prompted Meaden to exclaim “I take risks… You are braver than me”. Her main problems with the business were the margins and net profit despite loving its ethos and the passionate pair. She was first to walk away followed by Bannatyne and Hoppen who cited similar concerns. With gritted teeth, it was evident Linney wanted to find a way to invest but just couldn’t quite make the numbers work – regrettably he was next to drop out.
Once again this left Jones with the final word. He admitted that if it was further down the line he’d be more than willing to invest but didn’t want to be part of the long struggle he foresaw ahead of them. He concluded by saying that “it’s just the wrong time” and for that reason was the last to leave.
Start-up business lesson: Timing can be crucial – make sure your business is in a sufficiently advanced stage and you can prove its long term prospects, to make sure its attractive to potential investors.
Dana Zhinger and Levi Young
Concept: Online, premium, personal shopping service for men
Investment sought: £70,000 for 10% equity
Investment received: £70,000 for 15% equity
So far the show had resulted in no offers, and it was left to the final pitchers Dana Zhinger and Levi Young (pictured above) to turn the tides. Selling clothes online has been a part of internet since inception, but the young entrepreneurs’ unique approach saw them receive an impressive four offers.
There were no fancy gimmicks or showy elements to this pitch, just a solid, concise description of the business model. Their customer – men who want to look good but have “neither the time nor inclination to go shopping”. Instead they can go on the website and answer questions about size, style and budgets which is made into an individual profile. This is assessed by an expert stylist who curates a box of clothes which is then delivered to their door. The customer can choose to keep what they like and return what they don’t, only paying for what the former.
In one year the pair claimed to have secured 1,000 customers, 70% of whom return. They aimed to achieve £530,000 and break even over the coming year, forecasting £1.2m in revenue with £230,000 profit for the next.
Jones wanted to discuss margins, prompting an awkward exchange of question dodging which would make any politician proud. Their response was simply “a typical wholesale to retail margin on every product” which they repeated when asked for percentages before admitting that they’d rather not disclose their margins. Jones pointed out there was no way of knowing whether it’d be a good business to invest in if he doesn’t know. They relented and revealed margins were typically 60%.
Hoppen discovered customers keep about 30% of items they buy with the returned items re-circulated around their customer base. There was some bickering between the Jones and the rest of the Dragons about the risk this involved, concluding with Bannatyne telling the entrepreneurs that Jones “knows nothing about business”. Young waded into the discussion and silenced any concerns by saying they have credit terms in place with their suppliers and sell everything before they pay for it. So far she added they’d only been left with 1% stock.
Linney picked up on a different USP of the business, and commended the sophistication of the software the service used, replete with collecting key data on customer feedback and tastes – something the designer brands would no doubt be interested in.
A tense and protracted silence ensued as the dragons contemplated investment. Bannatyne was first to drop out, simply because he didn’t think he could offer what the others could. In an extremely surprising turnaround Jones was the first to make an offer – all of the money for 20%.
It was only up from there with Linney offering half the money for 7.5% under the pre-requisite that a female dragon get involved and match his offer. Hoppen agreed to this, with Meaden following offering all the money again for 15% or to share the investment with the others.
After a brief discussion they returned to suggest 6% for half each. The Dragons didn’t agree on the grounds that there was still a lot of work to put in to the business, “and time is money”. Ultimately they chose the dream team of software entrepreneur Linney, and designer Hoppen to aid them on their road to success.
Start-up business lesson: No matter how strong your pitch, there will always be difficult questions and differing views. Remain confident, answer honestly and investors will be confident in you.