The federal government’s recent $700-billion “bailout” of the financial industry has opened up a Pandora’s Box. Next in line for a taxpayer handout have been U.S. automakers General Motors, Ford, and Chrysler. On November 19, executives from the Big Three met with Congress to beg for an additional $25 billion in government loans to match the $25 billion they were granted this September. They, too, demand their bailout.
“Bailout” is a somewhat misleading term, however. But replace it with “investment,” and suddenly the task before Congress becomes clearer. Should we, the American taxpayers, invest our money in keeping the Big Three afloat? To answer that question one must learn to think like an investor. And there is no better introduction to this mindset than the endlessly entertaining BBC America show “Dragons’ Den.”
Spun off from the Japanese show “Money Tiger,” the British version of “Dragons’ Den” features five multi-millionaire investors who listen to pitches from entrepreneurs and inventors. The “dragons” then question their money-seeking supplicants, critique their product and business model, and decide if they’re going to make them an offer. In exchange for the dragons’ capital – usually the requested amount is between £50,000 and 250,000, or between $74,000 and $370,000 – and business guidance, the contestants offer a percent of equity in their company. The critical “Dragons’ Den” rule is that the entrepreneur must seal a deal for at least the amount they initially requested – otherwise, they get nothing.
“Dragons’Den” is the ultimate reality show because it’s a game played with live ammunition. The dragons are real investors with their own money at stake. Similarly, the products and businesses being pitched are real-life dreams to which their creators have committed themselves to pursuing. For many participants, the dragons are a live confrontation with the hard realities of the business world.
This realistic format is only half of what makes “Dragons’Den” so much fun. The show really gets entertaining when the personalities of the individual dragons are on display. The show’s 43 episodes, produced over the course of six series, feature a continually shifting group of dragons. The two constants in the den have been Duncan Bannatyne and Peter Jones, both of whom have remained with the series from the beginning. Bannatyne, a Scottish entrepreneur, is best known for his chain of health clubs, though he owns numerous other businesses, as well. Jones found success in the telecommunications industry. Both are worth several hundred million pounds. Other dragons include YO! Sushi-founder Simon Woodroffe, Californian software entrepreneur Doug Richard, Australian investor Richard Farleigh, Greek Cypriot-born Theo Paphitis, and Pakistani-born James Caan. The Den’s female dragons are Rachel Elnaugh and multi-millionaire businesswoman Deborah Meaden.
Most pitches go in one of three directions. The first and most common scenario is an entrepreneur who gets roasted by the dragons, leaving without an offer. The dragons punch holes in the business model or the product, and quickly declare themselves out. Sometimes, it’s an absurd idea. One entrepreneur, for instance, proposed a plastic cone for cucumbers to keep the ends from spoiling quickly. An unimpressed Theo Paphitis mocked the idea as a “condom for a cucumber.” It was laughed out of the den.
Other times it’s the entrepreneurs rather than their ideas that invite failure. A case in point was London-based Jonathan Aster, who sought an investment in his advertising company, but was told by the dragons that he was too confrontational. Dragon Peter Jones delivered what has become his trademark, sarcasm-laden rejection. Referring to Aster’s casual attire, Jones said, “I’m pleased to see you’ve clearly dressed up for the occasion today. It obviously means a lot for you to be here.” Then he dashed Aster’s hopes of securing an investment: “You get one chance and one chance only, and you blew it for me.”
Other contestants fare better. There are times when promising ideas are presented and the dragons actually show some interest. Still, this does not necessarily translate into success. Often the entrepreneurs are so confident in their business that they refuse to meet the dragons’ equity demands. When two young entrepreneurs presented a prototype for an inflatable concrete shelter, their idea attracted the attention of Richard and Paphitis, who joined together to contribute £40,000 to meet the £80,000 requested. The problem was that the dragons, given the high risk of the business, demanded an equity stake of 50 percent instead of the 10 offered. The entrepreneurs rejected the offer immediately.
Every episode features at least one successful pitch. In such cases, the dragons are impressed by the idea and make an offer that the entrepreneur is willing to accept. Sometimes the business idea is so good that several dragons present multiple offers and undercut one another to sway the entrepreneur. When an entrepreneur proposed his business of a wireless internet service for marinas, he received three competing offers from Richard, Paphitis, Jones, and Elnaugh. These role reversals – when it’s the dragons trying to woo the contestant – are an exiting change of pace in the den.
Aside from the personalities of the dragons and the creativity of some of the business pitches, much of the fun of the show comes from putting yourself in the dragons’ position. Presented with each business opportunity, would you invest your money? As Congress considers investing taxpayers’ money in the Big Three automakers, the lessons from the “Dragons’ Den” have never seemed more relevant.