I love Dragons’ Den because of the stories you hear from some amazing Canadian entrepreneurs. But I also love the show because it’s great tv: dramatic, funny, occasionally over-the-top, sometimes sensationalistic. The stories on the show also happen to be true. Like the best reality tv, you couldn’t make this stuff up if you tried.
It would be easy to make the focus of this recap about Cris Rowan because it was the most dramatic story of the night. But it’s also reflective of what many entrepreneurs face. An occupational therapist from BC, Rowan started her company, Zone In Programs, to help kids unplug from their electronic devices – a noble idea on the surface. But when the Dragons’ dug a little deeper, they learned that Rowan has invested almost $500k to get her business off the ground. To date, she has had some sales, but currently stands about $400k in debt. To bring her business this far, she has refinanced her house four times. She is at risk of losing her home.
Sound like a stretch?
I’m afraid not. Danielle and I have met real women facing situations just like this.
While we would never judge another woman’s motivations for going into business for herself, we do put our feet down here: Do not put your major financial assets at risk for your business. As we discuss in Mom Inc., starting a business as a mom is not the same as starting a business when you’re not one. The demands inherent in motherhood mean you need to look at your business in a different way. Whether or not the business works out you still need to have a roof over your children’s heads, and food on the table. When kids are in the picture the stakes are just greater.
On the show, dragon Jim Treliving said he learned a lesson from his father a long time ago. To paraphrase, he said, “Never take the biggest asset you have – your household – and put it in jeopardy. There isn’t a product or a service in the world that should potentially destroy your family.”
Dragons’ Den is great tv, but it’s also reality. We’re with Jim on this one. Every business has an element of risk, but keep the family home out of it.
A few years ago we found ourselves invited to admire our most senior employee’s brand new bedroom set. It was lovely. Believe us, we were delighted for her. But at the time, it made us wonder if her grass wasn’t just a little greener than ours. For example, at that point in time, we both happened to be sleeping on box springs - sans fancy bedroom sets. How was it that our employee was having sweet dreams based on her paycheque while we were still juggling the need to grow our business with the cash we were taking out personally?
When we founded our personalized blanket company, Admiral Road Designs, almost 10 years ago, one of the first things we did was build a financial model. Like we learned in business school, we took our best guess as to what our sales would be as well as what we imagined our growth would look like. In this way we determined that if could sell “X” number of blankets per week, we would be able to meet our financial goals.
The good news is that we surpassed that sales target early on and are thrilled by the way our company continues to grow. Here’s the bad news: When we hit our sales goal, we weren’t drawing the salaries we had hoped. How did this happen? Really, it was a variety of reasons, none of which we considered on day one of the business.
When we made our initial projections, we didn’t factor in that making more blankets would cost more money. Back when we sold 500 blankets a year, we could manage most of the process on our own. We cut all the appliqué ourselves, packed up every single blanket and brought each box to the post office. Fast forward a few years and we have to pay a lot more people along the way because we simply can’t manage every aspect of the process by ourselves.
We also did not map out how much money we would re-invest in the business. Yes, we’ve been profitable since our first year in business, but some of what we have earned we’ve thrown back into the business to facilitate growth. You can build it, but it’s going to cost you to make them come.
We don’t regret any of our business decisions or how we’ve gotten to where we are now. It just would have been helpful to consider at the outset that it costs money – often more than you think – to start making money.
Have you been surprised by how much money you’ve had to re-invest for growth?
The take-away from this week’s episode of Dragons’ Den reinforces one of our long-held beliefs: There is nothing wrong with starting small. In business, starting small can mean flexibility, control and even freedom. One woman we interviewed for Mom Inc. told us, “I never wanted to be so tied to my business that I couldn’t walk away from it if I needed to.” For better or for worse, the benefits are starting small were evident in tonight’s show.
Ingrid Johansson and Raf Khoury came into the Den looking for $150k for 20% of their company, MatchMaker Pet, an online ‘dating’ site for dogs. Despite the fact that other Dragons couldn’t see the value in this business, the duo landed a deal with Arlene Dickinson. How? Well, Arlene didn’t offer up a single dollar in cash. Rather, she offered up marketing services – which is exactly what the company needs. They’re small – so they don’t actually need a lot of cash right now – they need to get the word out.
The team from Hart Bros Wrestling did not land a deal. They valued their wrestling entertainment company at over $1 million, despite having little revenue today. And even though they have an excellent reputation in the industry, the Dragons recognized that this small management team simply wasn’t up for the job of putting on large-scale UFC and WWE-style fights. These entrepreneurs were big dreamers, but in reality, a very small company. Big dreams are okay – but these guys just didn’t have the structure in place to support the kind of ask they were making.
Finally, in came Mitch Miller asking for $350k for 10% of his company, North American Card Solutions. With a new software concept, Miller believed he had found the answer to providing gift cards for small businesses – typically a very expensive endeavour. With a valuation of $3.5 million for the company and no sales, the Dragons were insulted. It doesn’t matter how big your business can become, if your business is small today, that is how you should portray it. There is nothing wrong with starting small.
And speaking of starting small, I’m excited for an upcoming episode of Dragons’ Den featuring young Canadian entrepreneurs. They’re teenagers! It’s interesting because when we were conducting research for Mom Inc., one point that often came up was that self-employed moms were proud to be role models for their kids. So who knows? Maybe we’re fostering the next generation of Canadian entrepreneurs right under our own roofs.
Until next week,
Amy
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