Lessons from Dragons’ Den, week 8: Young music moguls show us any investment offer is worth considering
Owning part of something is always better than owning all of nothing
Imagine the situation: you’re just starting out in business, with no name or career pedigree behind you. Driven on by the desire to be your own boss, you pour hours of painstaking work into the company. Eventually, you reach the stage where you can see profit on the horizon. Then some beady-eyed old-timer comes along and takes over.
For many entrepreneurs, this represents a truly galling scenario. But for rookies Ryan Ashmore and Liam Webb, co-founders of RVA Records, it’s a dream come true. The young music buffs, both aged 18, managed to secure investment from Duncan Bannatyne on last night’s episode of Dragons’ Den. Although Bannatyne took a whopping 79% of their record company, the wannabe music moguls were more than happy to sacrifice such a huge chunk of equity.
Other applicants would have faced a tortuous decision when faced with such an offer, but these two young men made a decision in seconds. According to Ashmore, “we just said to one another, ‘we’ve got to do this!’ That was it, that’s all we said. It was a no-brainer”.
When we asked Ashmore to explain the thinking behind this snap decision, he gave us a fascinating insight into the mindset of a teenage business owner – and touched upon each of the major factors you, as an entrepreneur, must bear in mind when deciding whether to accept an offer.
Factor one: your current position
Ryan Ashmore is not short of confidence. When we asked him what he and Liam Webb bring to the table as entrepreneurs, he said: “We can bring an insight into what’s hot and what’s not. We’re a breath of fresh air.”
However, he is also brutally realistic, telling us: “We accepted Duncan’s offer for the obvious reason that we’d run out of money. If we’d left without accepting his offer, we’d have been back to square one.”
Ashmore and Webb refused to let youthful hubris get in the way of their decision. They knew they had a good idea, but that RVA Records is nowhere near commercial fruition, and, as the Dragons pointed out, competition in their industry is fierce.
When you’re weighing up an offer, you need to take a long, hard look at your business. Don’t just think about how good your idea is; think about where it’s already got you. If, like Ashmore and Webb, you’re still working out of your bedroom, living off a handful of customers, any offer is worth considering – even if it seems unfavourable at first glance.
Factor two: your future aspirations
When we asked him to cite his inspiration, Ashmore was clear: Simon Cowell. Just like the X Factor judge, Ashmore and his partner Webb want to nurture a stable of chart-topping pop sensations. RVA Records has just signed a promising boyband, and they want their first single to chart top 10.
To realise this ambition, however, they’ll need cash. Lots of it. As Peter Jones pointed out, it’ll cost them $45,000 to engage the services of a US record producer – a huge sum given their business has yet to reach profit.
If, like the young record company owners, you’ve got visions of global expansion, you’ll probably need an investor to come on board and give your dreams a jump-start. Even if someone demands a huge equity stake, the sacrifice may be worth it; after all, you’d rather own part of a successful business than all of an ailing one.
Factor three: the investor
As Ashmore happily pointed out, “we’re only 18. We’re in business for the ride and the fun”. In contrast, Duncan Bannatyne is one of Britain’s most successful entrepreneurs, with a personal fortune of £430m.
During last night’s show, Bannatyne admitted he doesn’t know much about the music industry – but he’ll have scores of contacts who know it like the back of their hand. Having spent years building his spa business, and recently opened his own digital agency, Bannatyne can offer his new investees a lifetime’s experience in consumer commerce, as well as a first-hand insight into new media – a crucial asset for any modern record company.
Because Bannatyne is now a fully-fledged celebrity, with a business track record known to millions, Ryan Ashmore and Liam Webb entered Dragons’ Den knowing exactly what they’d be getting with his investment. In real life, it won’t be this simple; you’ll have to carry out hours of research into a prospective investor, before deciding whether or not to accept their offer.
But the research is always worth it. If you do your homework on the investor’s history, their key achievements and personal interests, you’ll be able to build a clear picture on whether or not they will be an asset to your company. This knowledge may give you a new insight – an offer which initially seems derisory could ultimately transform your business.