What can investors learn from Dragon

29th February 2012

Of course, this is entertainment and not an accurate representation of the business world. But it comes closer than many business reality shows – and investors can learn some valuable lessons.

After all, the success of small businesses is purported to be the driver for economic recovery.

UK Innovations agency NESTA produced compelling statistics in ‘the vital 6 per cent' report, making a powerful case that a small number of high-growth businesses are responsible for the lion's share of job creation and prosperity. Entrepreneurs could provide some of the much-needed answers for investors during tough time.

The way of the Dragons

Of course, these shows are meant for entertainment – and the ‘entrepreneurs'  frequently walk away humiliated and without a penny.

However, tough economic times often see the entrepreneurial spirit flourish. And surely there's a lot to be learnt from self-made successful business folk – they demonstrate the thought process into making an investment.

The figures must stack up – and is the business a sound investment?

As The Altucher Confidential blog stresses, entrepreneurs – and investors – must do the maths. You don't need a university education to be a success in business – far from it. But you do need to be able to present a coherent story and have a grasp of the basic numbers.

What does any investor in a company want to know? Just how much is the company worth? Do you have a great product? Do you know the size of your market? Do you have some sense of a business model?

Selling the dream is important – but so it backing it up with facts. Just as investors holding an individual share want to believe in the company. But the figures must tally – with credible evidence.

Dragons back the enthusiasts

However promising the initial idea, the business still has to be properly managed and the product has to be sold – so it's vital to be upbeat. Just like investors need to trust a business and respond positively.

The personality behind a business will often bring in investment, after all. You need to make investors believe you have the ability to get things done.

A product that is needed

Many are the entrepreneurs who have entered the Dragons' Den and unveiled something that few people, if any, would ever want to own. You wouldn't invest in something that nobody was likely to want, after all?

A young man who had invented a battery-powered rotating shaving brush, for example, exited with no hopes of financial backing. Has anybody ever yearned for such a thing?

By contrast, there was an entrepreneur who had the Dragons fighting to back her after she exhibited a clever magnetic device that enabled wires to be threaded through cavity walls. This invention solved a common headache of any electrician.

…and don't overpay

The Dragons always drive a hard bargain, so that if the business delivers, they will make a handsome return. You wouldn't want to invest in something where the charges for doing so would wipe out any profits, would you?

Of course, while these are useful strategies to remember in the business and investment world.

Julie Meyer – online "dragon" for the BBC's Dragons' Den, chief executive of the investment firm Ariadne Capital, and a member of the Entrepreneurs' Forum – says that Investors and entrepreneurs can get a chance to sit in the shoes of the other side with programmes like Dragon's Den.  She adds: "By dramatising it, it heightens the trigger points for deals to get done, and showcases what's really right in a pitch, and also, what can be/or go wrong.  It also compresses time. In reality, the process of getting an investor to part with his/her cash can take weeks if not months, but Dragon's Den will pack this into 10 minutes if not shorter.  Overall Dragon's Den and similar shows have helped to broadcast and promote enterprise and get entrepreneurship talked about in the livingrooms of the UK. That's a great thing."

However following others' success is no guarantee that you will go down the same path.

Kim Stephenson, Mindful Money's resident psychologist, says: "The idea is the same point as
all the "how I made my millions" books.  People want to know how to make money, so they follow people who've made it.  Sounds OK, but you're not them.  There are principles that generally work – the sort that are taught at business schools, in MBAs etc – such as, have a business plan – keep it simple, etc.

 "You can learn things like "keep your pitch simple", "do the maths" etc.  But if there were rules that you could follow that guarantee a successful business, everybody would use them and they'd teach them in business schools.

 "Life is more complex than that, it doesn't do any harm, but it's like people reading Eric Clapton's autobiography and figuring that if you do what he did you'll become a rock star, the lessons are just not simple to learn or apply, and even if you learn and apply them, they still don't always work."

 

More from Mindful Money:

Is social media providing a ‘golden age’ for investors?

Can small businesses save the UK economy?

How valuable is 'Shareholder Value'?

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