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The Business Twins drew my attention to this story in the Daily Mail about Rob Law and his ‘worthless’ invention. You see a little less than a year ago he appeared on Dragons’ Den to pitch his Trunki, a wheeled suitcase for kids. Law had spent 11 years – and £17,000 of his own money – refining his design for a wheelie suitcase which doubles up as a child’s ride-on toy.
The Dragon’s gave him a typically fiery dressing down. Theo Paphitis was highly critical of the product after managing to pull off one of the straps, while Deborah Meadon, head of a holiday firm, declared bluntly that there was no market for the case. Tycoon Peter Jones said:
“I meet people like you all the time – you think you have something. I tell you, you don’t.”
He added: “Within seven days I could do a better job than that. Your company is currently worthless.”
I remember watching this pitch and I wondering about Meadon’s claim there is no market, as it was pretty clear to me there is a market and a significant one at that – maybe she doesn’t have kids? However based on his pitch I would not have invested my money in the business because the product looked unfinished and I believe it’s too open to copycats.
Jones was harsh, but it might also have been intended to give Law a reality check with regards to his valuation, which is a common negotiating tactic.
The Daily Mail sums this up with:
The panel declined Mr Law’s offer to give up 10 per cent of his fledgling company in return for a £100,000 investment – an offer which valued the firm at £1 million.
However, it now appears that the experts missed a valuable trick.
After a succession of positive press reviews, Mr Law has sold 85,000 of his Trunki suitcases. It is marketed in 22 countries via a network of distributors.
He declined to say exactly how much the company – which is 100 per cent owned by him – is now worth, but said that it was more than £1 million.
Just like I did for StableTable, I’ve done some rough calculations based on the quoted retail price of £24.99. If we then make allowances for VAT the retailer will be left with £21.24 per unit, given the retailer will typically have sought a 50% discount on the in order to cover their costs and make a profit I’d assume they buy at roughly £10.62 per unit. If we then assume a generous 70% gross profit margin that leaves a gross profit of £7.43 per unit which if we deduct 20% for overheads and the minimal 19% tax gives a net profit of £4.82 per unit. With 85,000 units sold that would mean a profit of £409,493.64. If we assume we could value the company at three times profit then the valuation would sit around £1.2M.
Unfortunately Business Angels base their investment decisions on the likelihood of a significant positive return on investment and in this case if they had invested £100K for 10% they would now have a nominal paper profit of £20K which is just not enough to justify the risks involved in investing early stage businesses. The actual value of the business however will not be known until it is sold, as a business is only ever worth what a buyer is prepared to pay for it. So it’s a bit too early in the businesses life to say the Dragon’s were wrong.
All based on assumptions of course, but I doubt my numbers are significantly out. My congratulations to Law on getting a great idea out there and making a success of it. I’m sure I’ll end up buying one in a few years once my son is a bit older.
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This blog is about business opportunities and ideas that I spot, think of or hear about and think are useful and interesting. It is intended to provide ideas and inspriation for you to help you find the right business idea for you to then grow it into a successful business.
Hi John
Once again a very succinct Post on the business case, and I personally think Trunki is a fab idea, but once again all these Press articles and subsequent web comment/discussions completely miss the point.
Series 1 of Dragons’ Den (filmed back in 2003) had the feel of a real business investment show. None of the original Dragons knew that it would become cult (and therefore that they would become famous), and I would say pretty much all of the original contestants were genuinely there to raise seed funding.
After Series 1 had aired and we started filming series 2 all that changed. Suddenly the now ‘celebrity entrepreneur’ Dragons were super groomed with teeth which had been cosmetically whitened, sitting there trying to think of ‘one line’ put downs (a la Simon Cowell) that would guarantee them more chunks of the airtime (100 hours are filmed to make c5 hours of telly so there is big competition among the Dragons for the biggest slice of the final edit, and you don’t get airtime for making bland polite statements); while most of the contestants were blatantly there for a free BBC primetime ad (as I recall you yourself pointed out in a previous blog).
Thus Dragons’ Den no longer really merits discussion as a serious business investment show -because the premise is now so much more about PR & TV entertainment & egos, than it is about serious angel funding.
But, hey, it does make great TV – and in terms of the BBC’s own ‘return on investment’ they have done phenomenally well out of their joint venture with Sony – selling the 5 series to date to TV networks worldwide, as well as licensing the programme concept to various other production companies.
Not to mention spin off books #1 and #2 (due out this Autumn), plus the soon-to-be-released DVDs coming out on the Odeon Entertainment label (I received an email on this just last week for my input on the accompanying biographies – no fee for any of the Dragons’ participation of course!!!).
So when series 6 comes out, let’s all settle down with our popcorn and enjoy it for what it is – a modern day Coliseum, created for our entertainment. And not anything that should really be taken seriously by the real business world.
Rachel,
Thanks once again for the positive feedback, as you point out I believe the best reason to appear on Dragon’s Den is the publicity, i.e. Lings Cars.
Although you and I clearly see it for what it has become, the reality is that most people (including the “business” press sadly) believe it is the reality of business and raising finance.
We have just begun the series down here in Australia, and whilst it is getting very high ratings, I wonder if turning the raising of venture capital into a spectator sport really helps… or turns into the same ugly process as the American Trump trash.
I think it started as a good idea, but it’s become a victim of it’s own success, I can’t help thinking that if it was shown on BBC3 it would be much more business focused – and perhaps less “entertaining”.