Dragons’ Den: Series 14, Episode 13
A gourmet soup brand secured investment while two entrepreneurs made an offer Jones' "10 year-old would decline" - Learn from this week's pitches...
There was only one deal in the Dragons' lair this week as Nick Jenkins took a bite into a gourmet risotto and soup brand with a charming backstory.
Elsewhere, a home security device struggled to excite the angel investor panel and a teacher looking for investment in a kid's language teaching franchise offered up “nonsense” projections.
Read on to find out the business lessons from this week's installment…
Concept: Home security device for conservatory doors
Investment sought: £90,000 for 10% equity
Investment received: None
This week's first hopeful was Yorkshire entrepreneur Craig Knott with Patlock – a home security device for conservatory doors.
Knott was inspired to develop the product after a burglary, when the police explained how easy it was for criminals to break the standard lock on a conservatory door. The device fits to the internal handles of the door and holds the lock position in place.
The company had sold 20,000 units in the last two years of trading, generating over £350,000 in turnover – a figure Knott said he expected to rise to one million over the next three years. He explained that with a Dragons' help he would look to boost his brand awareness and expand further into retail and overseas.
“If I was to open the window from the outside, I'd be able to open the door wouldn't I?” asked Peter Jones, to which Knott had to admit that he would but highlighted that it also served the purpose of showing that the homeowner was security conscious.
Sarah Willingham wanted to understand Patlock's sales growth, with the entrepreneur explaining that running a TV advert locally and on satellite had significantly boosted sales. The campaign had cost £25,000 and resulted in approximately £125,000 in sales and £60,000 in profit – “That's a business model right there” said a clearly impressed Willingham.
Yet Deborah Meaden was confused about the price point; £64 on the Patlock website and £50 to £60 through retailers – which seemed to suggest Knott was deliberately deflecting sales away from his own website. Knott responded that this was the case: “I don't want to deal with the postage and all the single orders”. “That is absolutely nuts!” exclaimed Nick Jenkins.
The entrepreneur went on to reveal he also owned a manufacturing business with “just under £1m in turnover”.
Meaden was impressed by Knott and his product but said she felt he too low in energy: “You haven't convinced me today in here you've got that in you. I'm out”. Jones liked the product but was “really not interested” in the business and also declined to invest.
Touker Suleyman said it would take too much time and commitment, while Jenkins didn't think Patlock would be a long term proposition: “In five years everyone who needs one will have one or they'll have different doors”.
Willingham then put an end to Knott's time in the De : “Where you lost me was when you said ‘this isn't my bread and butter'. In order for me to invest in something with you I don't just want it to be your bread and butter but I want it to be your whipped cream on top. I want it to be everything […] I'm really sorry I'm not going to invest”.
Start-up business lesson: Whilst he had an impressive business model and track record, Knott's business showed limited long-term potential and Knott was unable to convince the investors that it would have traction. You need to get investors excited about your product and excited to work with you if you want them to part with their cash.
Concept: Language classes for children
Investment sought: £50,000 for 10%
Investment received: None
County Durham teacher Angela Sterling was next to pitch in the Den with a choir of children singing in different languages. Sterling was pitching for £50,000 for 10% equity in her franchise Lingotot, language classes for children.
Lingotots teaches French, Spanish, German, Mandarin and Arabic to children aged 0 to 11 and currently has a network of 30 franchisees, teaching around 10,000 children every week. Last year the business generated £188,000 turnover, netting £88,000 in profit, with Sterling charging her franchisees 10% each. Up to the age of five, the company delivers lessons direct to to children and thereafter goes into schools.
Jones had some concerns about Sterling's “bold claims” and, after breaking down the figures, he calculated that each child was only generating the business £1 in profit per week.
Meaden was intrigued to find out what the teacher-turned-franchisor need money for. Sterling revealed that her ambition was “to get more bums on seats, more franchisees, grow the network as much as possible”. However, Sterling admitted was “really, really nervous” to tell them what the money would mainly be used for… exporting the franchise to Dubai.
She admitted that if she was in the Dragons' shoes she “would be saying ‘Angela come on you've only just got a tiny bit of the UK, why would you be wanting to grow in Dubai?' but her background as a teacher in Dubai made her confident it would work: “I used to teach in Dubair. Most of the schools there are great, big, international private schools full of expat children. The issue that they have is that because they're in the Middle East they need to teach at least four hours of Arabic a week but the teachers have been taught to teach in a very different way […] and it alienates children”.
A tearful Sterling then told Suleyman she needed support from a Dragon as she felt constrained by her lack of business knowledge: “What I would love from a Dragon is just answers”.
Willignham: “I think it becomes really complicated when you start to go abroad […] you're limited to the places with significant expat populations”. Sterling said expanding to Dubai would generate £2m, with a net profit of £1.5m by year three. Instead of a franchise model, the company would act as consultants, upskilling the local teachers.
Jones was highly sceptical of her figures: “Angela, I'm telling you it's nonsense […] to go from zero to hero in that one quick step is where your naivety kicks in […] If I ran it as a business today I would lose money and I don't think I'm bad at running businesses […] don't scale this to the levels you want to because you'll run out of cash […] I'm out”.
Jenkins thought her numbers were “entirely unrealistic” and also bowed out. Willingham followed suit: “There's still a really obvious ceiling on where the business can get to. I'm out” and Suleyman followed, encouraging Sterling to get a local partner on board.
Meaden agreed with her fellow investors and so Sterling was left to bid farewell to the Den and leave without her £50,000 offer of investment.
Start-up business lesson: Sterling lost the Dragons' confidence with her sky-high financial projections and highlighted her lack of knowledge in the area. Impressive figures will only impress if you have evidence to back them up. You should also consider why you're seeking funding in the first place; do you need the money or do you need help? If it's the latter consider finding a mentor instead.
Juma El-Awaisi and Anwar Almojarkesh
Concept: Exclusive rights to sell sound recognition products in the UK
Investment sought: £50,000 for 20% equity
Investment received: None
Next it was the turn of budding entrepreneurs Juma El-Awaisi and Anwar Almojarkesh with a company that had exclusive rights to sell Braci products in the UK – the sound recognition platform that allows users to convert sounds into visual and sensory notifications.
The Braci system has fed the development of several applications including one that can stop snoring, one that can act as a baby monitor and one that can alert the deaf or hard of hearing to sounds happening around them.
For example, if a deaf person is at home and the doorbell goes, they are alerted by a vibration and a flashing light. The duo claimed there was a potential global audience of 60 million people for Braci products..
Jones wasn't hearing what El-Awaisi and Almojarkesh wanted to hear though, as it was soon discovered that the pair had another company in Denmark that developed the technology and held the intellectual property: “So over there you're interested in building all the technology, new products coming out of it, all the real IP and the huge value but you don't want to offer that today […] You cannot come in here with a technology product and offer distribution deal. That is absolutely bonkers”.
Meaden agreed with Jones and noted that the duo had “failed to look at it[the proposition] from an investors point of view.” – “I completely get why you're stood here. You've got that stuff over there that you've come up with but is sitting in Denmark and could end up being really valuable, but you've got to prove the business model. So you think, who can I get on board to help prove that model […] in what way would that interest me as an investor?”
Jenkins shared the view that the Braci deal wasn't a very “attractive proposition”: “You don't want us to have any part of the what you think is the valuable part […] It's just not terribly exciting so I'm out”.
Jones followed: “You want to offer me something that my 10 year-old would probably decline […] I'm out”. Willingham and Suleyman were equally unconvinced and bowed out of making a deal.
Summing up the pair's time in the Den, Meaden advised: “You've done absolutely the wrong thing here […] It's not going to happen. I'm out”.
Start-up business lesson: El-Awaisi and Almojarkesh gave the Dragons no reason to invest in their business, dangling the possibility of a more lucrative opportunity – owning the intellectual property (IP) in front of them but not allowing them to be part of it.
Company: Watmuff and Beckett
Concept: Gourmet soup and risotto
Investment sought: £75,000 for 10% equity
Investment received: £75,000 for 20% equity
This week's final pitchee was Andrew Watmuff(pictured) of Somerset-based gourmet soup and risotto brand Watmuff and Beckett.
With his business partner Michael Beckett absent from the Den, Watmuff told the story of how the two founders had met at secondary school and had “a passion for food from an early age”. Fast forward 20 years and their food range could be found in Boots, Selfridges, Ocado and Asda.
Watmuff claimed the UK's fresh soup market was worth £186m and growing.
First to begin the investor Q&A was Jones who doubted the effectiveness of the business name and said it sounded more like a sportswear range to him. Jenkins shared Jones' view on the brand name but liked the taste and was keen to know more about what it was that driving sales: “What is it that's going to make me take this off the shelves?”.
Watmuff explained that the brand boasted the Red Tractor logo, a certificate to state that all the ingredients were sourced from UK farms and met certain animal welfare environmental protection measures. He then disclosed the business' financial success; announced that it had achieved £170,000 turnover last year by being stocked in Asda alone.
Willingham loved the concept but wasn't taken by the packagin, which led her to announced those feared final words: “It's got no preservatives, no additives. there's nothing in this but fresh produce […] but there's nothing in this packaging that makes me want to take it off the shelves […] It's not an investment for me – I'm afraid I'm out”.
Meaden agreed with Willingham and felt the range was veering towards “novelty” -“To become a mainstream product it needs to get a little bit more serious”. Meaden's view was that Watmuff was too wedded to the brand and what it had achieved so far to grow it into a sizeable opportunity.
Watmuff was quick to respond: “The premise behind the brand is we want to grow it. We want more people to eat produce that is grown in this country. We want people to go to the supermarket and buy something and know that it's from this country”. However, his answer didn't tackle Meaden's concerns.
Jones' issue with business name was a sticking point and he felt that a re-bran “would require serious capital” so declined to invest.
Suleyman, on the other hand, thought Watmuff was “very credible” but didn't think he ould add value to the and exited the deal.
The last Dragon remaining, Jenkins gave Watmuff a life line: “I think I'm going to make you an offer for all the money but I need 20%, I'm afraid”.
Watmuff attempted to negotiate with the Moonpig founder and asked if he would be able to buy back Jenkins' share at the same price at a later date if the business hit turnover targets of £1.1m. These negotiation tactics paid off and Jenkins said that he would sell back half the shares for the original price if Watmuff and Beckett could hit their profit targets.
Watmuff gobbled up the offer, leaving the Den £75,000 better off.
Start-up business lesson: Though the Dragons were divided over the strength of his branding, Watmuff's passion for his product and strong projections – backed up by previous success – won over Jenkins and enabled him to close the deal. Here are five important considerations when you're branding your product or service.