Dragons’ Den SA episode 11: stop and smell the flowers

As an entrepreneurial show, Dragons’ Den SA is mostly there for the entertainment value. You only have to look at the similarities between the worst entrepreneurs who enter the den and the worst singers on other reality TV shows to realise that some people will never learn that they’re not destined to be entrepreneurs, or singers for that matter.

Once you get past that though, it is possible to take some value out of the show and learn important lessons from it.

In this, the eleventh episode of the series, for instance there are lessons about focusing your product range, knowing what kind of business you want to run, knowing when to go full-steam ahead into your startup project and exactly what kind of person you are if you have a government contract but no real grasp on what your business is turning over.

A steaming cuppa…

First into the den this week was Charl Rudman, who came in looking for R1-million in exchange for 15% equity in Blue Africa Trading, his South African health product company. The Stellenbosch-based company specialises in producing Rooibos tea-based products both for export and the local market. Earlier this year, it won an innovation award for its Rooibos tea packaging.

The pedigree was not, however, a guarantee that the dragons would be interested in the company.

Rather than focusing on the company’s past successes, Rudman pitched the dragons on a Rooibos Espresso capsule, which allows you to make instant rooibos espressos.

Following a taste test, the dragons seemed pretty impressed. The fact that Rudman intended to use the proposed investment to further develop the capsules while giving the dragons equity in the company as a whole also made a lot more sense than some of the pitches we’ve seen on the show to date.

The Creative Counsel founder Gil Oved did however grill the entrepreneur on why he hadn’t pitched the product to retailers. Gyft CEO Vinny Lingham meanwhile pointed out that there was nothing proprietary about the product, meaning that it could easily be copied.

Another major stumbling block for Rudman was unearthed by business speaker and private equity partner Vusi Thembekwayo and concerned his inability to provide a clear and accurate breakdown of the business’ numbers.

It was something that clearly had all the dragons frustrated.

“Just give a number,” Oved said at one point during Rudman’s diatribe.

“Charl, listen, I like this, I like the business and I think you’ve got something here but I’m losing my patience,” Lingham added.

That inability to provide solid numbers, along with an over-inflated product range meant that the Silicon Valley-based entrepreneur-turned-investor was out.

Blue Africa Trading’s product range was also an issue for media mogul Lebo Gunguluza.

“If I become your business partner, you will confuse the hell out of me every time we have a meeting,” he said.

The other dragons all followed suit soon after.

Watering things down

South Africa is a country which has always been a little water scarce. With a growing population, it’s a situation which is only going to get worse and could eventually result in a full-blown crisis.

Hoping to alleviate that crisis are Khanya Nqushu and Mawande Mendu, who came into the den asking the dragons for an investment of R450 000 in return for 15% equity in their company.

The product made by the company is called Lilidome and, the entrepreneurs claim, enables you to convert any conventional flush-urinal into a waterless one. With a fairly simple installation, the product promises to send urine down the drain without the smell coming back up.

Things quickly got complicated however when it emerged that the product had been developed by someone else, who had then given them sole distribution rights for seven of South Africa’s nine provinces.

“What happens when you start doing R10-R20-million worth of turnover and the person from whom you’ve got these rights, who’s manufacturing, begins to realise where the actual opportunity lies?” asked Thembekwayo.

A slightly muddled explanation of why that wouldn’t be a problem did little to help matters.

“The problem here,” said Lingham, “is that if I invest in you, I’m dependent on this other guy”.

What followed was probably the most heated debate we’ve seen between any of the dragons to date, with Thembekwayo claiming that the two had sold themselves short by only working as distributors and Oved pointing out that there was still serious money to be made by owning the distribution chain.

Gunguluza backed up Thembekwayo’s argument, saying: “The agenda is to take ownership, and you know that’s the country’s main objective is to create more ownership from black entrepreneurs. I’m not stopping from going out there and making money out of this product, but I’m say that at the back of your head, know that you’re still working for someone else.”

While Oved still disagreed, one thing all the dragons could agree on was the fact that the business was not investable.

Is a warehouse worth a damn?

Following those fireworks, things calmed down slightly with Sydney Maluleke pitching his business, which sources, warehouses, packages and delivers high quality products to township spaza shops.

Maluleke came in asking R100 000 for a 30% investment in his company, but ran into problems straight away.

As Thembekwayo pointed out, drawing on his own experiences running the same kind of business, the 10% management fee Maluluke told the dragons he charged simply doesn’t work in the real world.

“The second problem,” Thembekwayo told Maluluke, “is you’re fighting the grain…the large stores, most of them part of listed groups, are already moving into that space”.

Finally, he pointed out the prospective entrepreneur’s margins would be so slim that he’d need masses of warehouse space to even start making money.

The other dragons agreed and all were immediately out.

Sometimes it’s worth stopping to smell the roses

Next into the den was a business that we’ve covered before on Ventureburn. SA Florist aims to disrupt the online florist industry in a couple of ways: on one front, it functions as an online marketplace where traditional florists are given an online presence. On the other, it acts as a network for those florists, challenging the likes of Interflora, which is stuck in a world of faxes and printed sheets of paper.

The company was founded by Nicholas Wallander after watching his mother’s brick-and-mortar florist close down due to escalating costs and noticing that traditional florists had pretty much all missed the ecommerce boat. Together with his business partner Fraser Black, he came in asking for R3-million in return for a 20% stake in the company.

The pitch was one of the slickest on the show to date, with a deck designed to give the dragons all the information they could possibly need.

That slickness did not however put the dragons off grilling the pair about SA Florist’s prospects. Wallander and Black were however able to deal with all those questions pretty easily.

Even more impressive was the fact that they knew exactly what they wanted to use the money for.

That said, things did get a little tense when Lingham asked if Wallander would be willing to leave his long-standing corporate job to run the company full-time.

“So here you are doing a big sales pitch on me, I give you the money and you go and work on another company?”, Oved asked testily.

When that appeared to move them toward entertaining the idea of Wallander quitting his corporate life, the dragons only pushed harder.

“Can I just say,” said Thembekwayo, “you two have done a lot of work building this, I mean it’s really impressive…why would you have hesitated when asked the question ‘would you spend your entire day doing this’?”

“I want to see some sacrifice,” said Lingham. “I sold my house to start my first company”.

He did however show a little more respect once Wallander revealed that he’d failed at a previous business.

Lingham was the first to come in with a deal. The tech entrepreneur offered the full R3-million in return for 50% equity, with the proviso that there be an employee equity package. It’s far more of a Silicon Valley-style deal, but it would mean that the company could hire a team at a lower salary but with much higher returns down the line. He did however leave it open to all the other dragons.

It’s a lot more equity than they were willing to give away, but having all five dragons on board would give far more value than any one dragon. After a huddle, to consider the deal, they took it much to the relief of Lingham in particular.

Taking computer education mobile

The final entrepreneur in the den this week was Tebogho Masoko, looking for R1-million in return for 35% equity in his mobile computer literacy school. With a government contract, Masoko was looking to increase the pace at which his business could grow.

Things started to get sketchy however when he was asked about his figures and seemed unsure about the exact numbers. At one stage, he was unable to differentiate between turnover and profit, the more the dragons grilled him, the more he started sweating.

“You’ve come in asking for R1-million for 35%, how did you come about your business being worth R2.9-million right now as you stand there when you cam not even tell me how much money you’ve made over the past two years,” asked Thembekwayo.

A lack of projections only sunk Masoko’s ship further.

“I’m getting a sense that you’re a true tenderpreneur,” said Gunguluza before joining the rest of the dragons in declining to invest.

If there’s one thing that’s been evident in this series, it’s that you need to know your numbers.