Dragon’s Den: Scalability found to be the biggest barrier to business investment
A new study analysing the hit BBC show has found that scalability, or lack thereof, is the biggest barrier for the Dragons to invest in businesses.
The research, that was undertaken by the team behind global affiliate network Awin, looked at the latest series of Dragon’s Den to find out the most common reasons for the Dragons uttering the immortal words ‘I’m out’.
Alongside the research, the team spoke to ex-Dragon’s Den competitors, to get some expert advice for small businesses who are looking for investment, via the BBC show or otherwise.
Looking at the individual reasons for turning down prospective businesses, it was found that ‘not being able to scale’ was the most common barrier to investment, used 11.4% of the time during the series.
The top five most common reasons for Dragons choosing not to invest were:
1. No scalability – 11.4%
2. Business model – 9.6%
3. Profits/margins too small – 8.4%
4. Business was overvalued – 7.8%
5. No space/need for product in market – 7.2%
Looking at the individual Dragons’ biggest pet peeves when it came to business pitches, Deborah Meaden was found to question the business model more than anything else, while Tej Lalvani focused on current profits and turnover.
Touker Suleyman meanwhile took biggest issue to the businesses that overvalued themselves, Peter Jones questioned scalability more than anything else, while Sara Davies questioned the individual (business acumen, passion, etc.) most of all.
Commenting on the findings, Michelle O’Sullivan, Global Customer Success Director and spokesperson for Awin Access – Awin’s solution for SMEs and startups – said:
“While Dragon’s Den is not representative of investment pitches in general, it is useful for getting an idea of common reasons why small businesses fail when it comes to securing an investor. The fact that scalability came out on top is no great surprise – most small businesses that come on board with Awin Access do so to help scale their businesses and it is what we specialise in.”
Below, James Cadbury of Love Cocoa and Keval Dattani of MoBros, talk about their experience on Dragon’s Den, as well as giving advice to small businesses looking for investment.
On the hardest question they were asked, Cadbury said that it was “the old valuation question”, but qualified this by saying he was “confident in [their] valuation”, given that the company had raised finance in the six months leading up to the show.
Dattani of MoBros also highlighted the need to “know your numbers inside out”, but earmarked the hardest question as the one asking what their exit strategy was. At the time he said that they had no exit plan, but in hindsight realised that’s “not what an investor wants to hear – they want an exit plan, want to know your timescale [and] if you are … reasonable in your logic.”
Talking about learning from his experience, Cadbury said that “it was great … to get in front of five experienced business leaders …. and pitch Love Cocoa”, adding that he previously had “zero experience with presenting”, so this helped overcome his fear of speaking in public.
Similarly, Dattani said that he and his business partners had lots of public speaking opportunities following the show and, despite “still [having] a level of nervousness”, finds it much easier than before he went on Dragon’s Den. He added “put yourself in the uncomfortable zone, do things that you’ve not done before; that’s where we’ve always seen the result.”
Asked what advice he would give to small businesses looking for investment (from the show or otherwise), James Cadbury said “don’t listen to Dragon’s Den valuations”, following this up by advising not to “raise money at the last minute when you are desperate, as you may take an offer you would usually reject.”
Given the same question, Dattani responded that aside from being able to recite your figures by
heart, you need to “know exactly what you want the investment for – investors are only usually looking at taking a concept that is already working or showing strong growth opportunities during the early stages and amplifying that.” He added that it’s important for startups to “bootstrap your expenses – at the due diligence stage investors don’t want to see directors taking a more than justifiable wage.”
