Lessons from the Dragons' Den

Have you seen the TV programme The Dragons’ Den? It’s one of my favourite shows (the UK version that is). Here’s how it works; contestants get two minutes to pitch their million dollar idea to a panel of billionaire entrepreneurs. They then ask the panel for funding in return for a stake in their company. After the pitch, the “Dragons” subject the contestants to a series of questions to see if their business proposition stacks up. If they win over the Dragons, the contestants can get the funding, contacts and expertise that they’re looking for to take their venture further. If they fail to impress, the Dragons simply say, “I’m out” and it’s game over.

Here are 7 key business lessons I’ve learnt just from sitting on my couch watching the Dragons’ Den:

Lesson # 1 - Know your numbers...
One of the first things the Dragons do is grill the contestants about their numbers. Here are the questions they almost always ask... “How did you come to the valuation of your business? Is the valuation based on reality or fantasy? What are your projected earnings, revenues, gross profits and net profits? How many confirmed orders, forward bookings and sales has your product or idea made already?”
If your numbers don't stack up, the Dragons are out.

Lesson # 2 - Practice your pitch...
With only two minutes each to impress the Dragons, many contestants fall short because they don’t practise their pitch. There have been a few contestants that the Dragons turned down who, in later episodes, proved their idea to be a great successes.  The contestants in question failed to get funding at the time because they had a dud presentation. In business you’ve often only got a few minutes to make an impression.
If you don’t practice your pitch, the Dragons are out.

Lesson # 3 - What problem are you solving?
One of the key things the Dragons want to know is, “What problem are you solving?” Is it just a crazy idea, or does it solve a legitimate problem out there in the marketplace? If the idea does solve a legitimate problem, they ask themselves, “Is the solution to the problem significant enough for people to pay money for?”
If your idea doesn’t solve a problem that people will pay money for, the Dragons are out.

Lesson # 4 - What’s the potential size of the market?
If your idea does solve a problem that people will pay money for, the Dragons then ask, “Is there enough people with that problem?” One of the Dragons once said to a contestant, “Yes, I agree, there is a gap in the market for your product, but I don’t believe there is a market in the gap, so I’m out.”

Lesson # 5 - What makes you unique?
What makes your idea different from everyone else competing in same market? The Dragons want to know that they’re investing their money on the fastest horse and that it’s going to win the race. Your idea has to have a clear point of difference that’s good enough to give you the edge over everything else on offer.
If your idea isn’t unique, the Dragons are out.

Lesson # 6 - What’s stopping someone stealing your idea?
Is your point of difference sustainable? Even if you have answered all of the above questions, your idea will fall flat on its face if it’s easily copied. The Dragons want to know if you’ve got patents, tacit knowledge or unique capabilities that protect your idea from being ripped off by competitors.
If someone can easily steal your idea, the Dragons are out.

Lesson # 7 - What’s your background?
The biggest gamble the Dragons are making when investing their money is in the people that will execute the idea. To reduce their risk they want to know if the contestants have integrity and competence. They know that the best indication of future performance is past performance, so they want to know what your track record is in business or the markets you are selling to.
If they smell a rat or they're not confident in your ability, The Dragons are out.

Here’s my question to you... if you were standing in the Dragons’ Den today, pitching the idea of your current business, would it stack up, or would they be out?