How to survive the Dragons’ Den

Aside from the entertainment value, there are a number of valuable lessons to be taken from the BBC’s Dragons’ Den. Here are the top five from Smallbusiness.co.uk.

Aside from the entertainment value, there are a number of valuable lessons to be taken from the BBC’s Dragons’ Den. Below are the top five from Smallbusiness.co.uk and Alan Gleeson is the managing director of Palo Alto Software.

Prepare a thorough business plan – An essential component of starting up a business is the creation of a business plan. To stimulate interest from a potential investor, you must ensure that the plan is researched thoroughly, explained clearly and is financially robust.

Many entrepreneurs on the previous series’ shows have been excessively ‘product focused’, and when asked a broader set of questions relating to the competitive environment or the predicted demand, they struggled. A well-prepared business plan addresses a broad range of issues that investors will be interested in and will not just focus on ‘the product’.

Perfect that pitch – Once a business plan has been formulated, it must then be communicated effectively. Many entrepreneurs fail to clearly articulate the key customer benefits of their new venture.

In response to the opaque language used by many Internet-era entrepreneurs, business planners introduced the concept of the ‘elevator pitch’. An elevator pitch is your idea, supported by your business model, company solution and marketing strategy, all articulated concisely and clearly in the time it takes for a short elevator ride.

There must be something unique about the business plan and it must be pitched with conviction, to grab the attention of investors who deal with hundreds of plans every week. This was neatly summed up by Simon Woodroffe in a recent show: ‘You’ve got to make me feel like I’m going to miss out’.

Secure a route to market – It is vital you research how you intend to access your customer base. It is worth remembering that resellers and retailers are often reluctant to take on new products if no effort has been made to market them.

Internet marketing is one attractive route, as costs tend to be lower and can be tracked with greater transparency. Alternatively, identifying current suppliers who service a similar market niche can give some indication as to which marketing activities are most effective.

The prospective investor will be keen to understand how exactly you intend to reach your market. You will need to articulate the following:

– Is it a retail or business-to-business (B2B) sale?

– How will you secure direct sales?

– How much will distribution cost?

– Are there recurring revenues, or is it a one-off transaction?

Negotiate confidently –
In the negotiation, the presenter is on trial as much as the business plan, especially if the entrepreneur is seeking large amounts of funding and intends to continue to run the company themselves. The negotiation should be approached from the viewpoint of a possible ongoing relationship between you and the investor.

The negotiation process consists of four main steps:

Preparation – Before you begin to negotiate, you must have a clear idea of your objectives and your options. What is the best deal you can get? What is the point at which you cut your losses and leave?

Discussion – Given the relationship aspect of such investments, you need to ensure that the focus is not solely on the cash. Establish a rapport and assess exactly what the investor requires from the deal as well as voicing your needs.

Proposals – Don’t be afraid to ask them to make you an offer. This offer needs to be specific; how much are they giving you? How much of a stake do they want? What are they giving you apart from their money? There is no need to rush to a decision and it is perfectly acceptable to mull over it or to seek clarification before responding.

Agreement – Once you have finalised the deal, it is important to ensure that both parties feel that they have got what they wanted. The last thing the investor wants to hear is you telling your partners that you got a much better deal than you expected.

For further information on business planning, visit www.bplans.co.uk or www.paloalto.co.uk.

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Dragons' Den

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