J.B. Loewen's Blog for Dragons' Den:
This week, Paul of Moyer Farms found himself in the foul Dragon's pit, blinking at the lights and trying to pretend with all his heart that this was where he wanted to be.
How Paul actually saw his situation was that his industry - agriculture - was in the dumps, his back was up against the wall. He needed cash to support all the orders flowing in for his added-value product of candied apples or he was in serious trouble.
As a business owner, before you decide to enter the Dragons' Den, do us all a favour and answer: "Do you want to be rich or do you want to control your business?"
You will thus spare the feelings of those sensitive viewers who think Kevin O'Leary is running a college frat house hazing ritual designed to humiliate. In fact, Kevin is sniffing out who really wants a Dragon as a true partner and who is there just for the cash.
I go over this issue in Money Magnet as it is critical.
The reason to be clear about your decision - get rich or keep control - is because it does determine what type of money you seek. If, like Paul, you want to keep the reins of the family business, then debt is fine. If you want to take your business up several notches and increase the cash flow, partner with a Dragon, but get ready to move over to let them share the reins.
Many family businesses have discovered that taking on a finance partner and sharing decision making does not mean their Granny gets turfed out of the family farm, a concern I sense was niggling Paul's family.
The JM Smucker Company, for example, has fifth generation family members still running the business, but hold a less than 8% share of the company. Did I mention that Smucker's is now the sixth largest US food company worth more than even Kevin O'Leary? Their steep growth did not start until they took on outside finance partners.
You may have noticed another trend.
The Dragons do tend to want more than 30% ownership. Jim Treliving asked Paul for 50% and could have settled at 40%. Imagine one year into the future, as the apple business progresses. Jim wants a say in how his money gets spent and his plans do not jibe with Paul and his family, the majority shareholders. If Jim only has 30% ownership of Paul's apple business, he may find his ideas voted down by Paul's grandma and young daughter who also share the 70% ownership.
But that is what happens and the Dragons have been there, done that and not doing it again.
As an owner, do understand that the higher the ownership that you dare to share, the more heavy lifting the Dragons will do for your company. Frankly, I would rather have 30% of a $10M company than 100% of a $1M company.
Maybe Paul got spooked by W. Brett Wilson's growl, "I want to own this town...errr...this business," or the first words out of Arlene's mouth, "I want to marry you!" For an initial conversation, these can be extraordinarily unsettling statements but again, if you are showing your business to the Dragons, get ready for fast, immediate action.
Foreplay is optional.
So if you just want a cash loan and not the skillful partnership, skip the Dragons' Den and go straight to EDC. Do not pass GO.
At the end of the discussion with Paul, the irresistible Robert Herjavec seemed to get confused and think he was in another type of reality TV show, nothing to do with venture capital. He threw Paul a life line of a cheap loan against inventory and tipped over Jim Treliving's applecart (sorry... really tried to resist cheap "apple" word play.) Even Robert's joke buddy, Kevin, sniffled, "You have offended the rules of capitalism."
Robert gave Paul the gift of cash because he knows the hard, painful struggle of owning a business. It struck me that Robert's kindness just delayed the inevitable. Agriculture is one of Canada's many industries coming to terms with the global marketplace. Those family businesses who embrace the big changes required will be the ones who thrive. Problem is that rarely do the ideas for this seismic change come from within the company. Paul is better than most farmers, but who does he have to help him make big decisions?
Here he had a chance to partner with a food mogul. There are many sharks out there claiming to take owners to new markets but Big Jim's pedigree shows that he is in a class of his own. Jim's not a shark, he's a whale!
Compare Paul asking Jim for marketing advice from his grandmother? Who do you think will help his company prosper more? What would Paul pay for an advisor with Jim's experience? A lot more cash than the cost of 50% of his current business. I can only shake my head for Paul. What a loss.
For the other big deal of the show, Essentia, we got to observe Brett up close, in his natural habitat, investing the way he does best, like a blackjack poker game. As usual, he holds back and waits for Kevin to run his course, Robert to stop, Jim and Arlene to give their points of view and then - wham - he slaps down his hand with a full house. Instead of alerting the other Dragons to his interest (unlike the loquacious Kevin O'Leary), he plays it cool. Since the other Dragons were already out, they did not have the opportunity to bid up his offer.
Did you see that one coming?
Mattress manufacturing can be a solid business. With its competitive advantage of patented safe and hypoallergenic materials, Essentia could find a proprietary spot in the industry. Brett recognized a winner and is sure to help Jack, founder of Essentia, well on the road to becoming rich. That's riches worth sharing with a Dragon.
Jacoline Loewen raises capital for companies and is the author of Money Magnet: How to Attract Investors to your Business.