What do dragons, sharks, tigers and lions have in common? They have all been used in the title of the local version of the same business reality TV show. Launched in Japan in 2001, as The Tigers of Money, it is called Dragon’s Den in the UK, Shark Tank in the US, Lion’s Empire in Romania and, much more prosaically 'Qui veut être mon associé?' (Who wants to be my business partner?) in France.
It relies on a simple concept. People looking for cash for their startups, and owners of existing companies, pitch to a regular panel of real venture capitalists who decide – on camera and quite quickly – whether to risk their own money in return for some equity.
I hadn’t watched the show for over a decade, and only two of the British dragons I remembered were still involved, but the setting and the format hadn’t changed. And, as I realised slightly to my surprise, it still had lessons to offer for anyone – including wine businesses – that cared to listen.
Impatient investors
First, and most obviously, there’s the disconnect between the traditional wine world – and arguably most agriculture – and the panel. These men and women are impatient. Investors want to be able to get their money back with an attractive return on it within three-to-six years with, in the case of private equity – PE – the likely option of selling their share or the business within a decade.
Outsiders often imagine that the private equity model relies exclusively on stripping out assets and boosting profits unsustainably prior to a sale to an unsuspecting buyer. Some might see Chateau Ste Michelle which was bought in 2021 by New York-based Sycamore Partners Management for $1.2bn in this light, though few would deny that the Washington State business was in desperate need of some kind of solution when that deal was agreed. In fact many PE purchases, even in the wine sector, succeed surprisingly quickly, simply because the previous owners had run out of ideas, energy and/or cash to implement them.
Maybe for this reason and because of a generation of owners having had enough of winemaking, there are actually rather a lot of PE-acquisitions in California, including some in which PEs actually sell businesses to other PEs. In 2016, for example, TSG Consumer Partners bought Duckhorn Wine Co. from GI Partners, another private equity firm.
Interestingly Private Equity acquisitions are far rarer in Europe, which raises a number of questions I plan to come back to in another column.
Too many eggs. Too few baskets
The second – and rather obvious - lesson I noted from the programme was given to a very personable participant who turned up in the studio with his dog and a pitch for investment in a healthy pet food brand. At first, he seemed to have built the business from scratch to revenues of around a million pounds surprisingly quickly. Who are your customers? asked one of the dragons. Well, came the answer, there are basically two: Aldi takes 60% and Lidl 30%. The dragon was unimpressed. So, she said, if you lose either of those, you’re in trouble, and if you lost both, you’d be dead in the water.
Any Australian wine professionals reading this might hear a few bells ringing. First, their country focused its export efforts almost exclusively on the UK, then the US, then China. I recall Christian Lopez, now Corporate Export Director at Concha y Toro, telling me, probably 15 years ago, that his policy was to avoid ever having too many eggs in one regional basket. However tempting it often was to put a lot of effort into picking apparently low-hanging fruit in one country, he preferred to reduce his risks by climbing a few trees and a few more elsewhere.
Where's the brand?
Another man came along with an organic spirits business. There was much to like about it and him, apart from the fact that some of the dragons didn’t think he had a brand – a memorable and recognisable name and logo – and without one, could he fend off competition from others who could simply copy his idea? How many wine companies really have a brand, as opposed to a name on a label? Anyone looking for an answer to that question need only look at the ease with which retailer private labels are able to supplant independently-produced products in the affections of supermarket shoppers.
And the profitability?
Finally - and directly related to branding - though this was not a point made during the programme - there was the question of profitability. A lovely couple wanted backing for a business that provided people suffering from the early stages of dementia with prepaid debit cards to protect them from accidentally overspending or, worse still, being scammed by fraudsters. All the dragons loved the concept – until they realised how unrealistically tight the margins were. As one of the dragons said, “I’d give you a donation, but I couldn’t invest in you.”
Of course, the dragons don’t always get it right. Sometimes, there are pitches like the Trunki ride-on kids’ suitcases that go onto succeed brilliantly after being rejected on the UK show. And ones like the Zipz single-serve wine glasses that failed to live up to its promise, despite being the biggest deal ever signed on the US Shark Tank at the time, with investment of $2.5m. TV show business is no different to ‘real’ business. Nothing is ever certain or predictable.
Try this at home
But, even if they don’t think they have any immediate need for investment from dragons or anyone else, it would do many businesses in the wine, and every other sector, a lot of good to go through the same process as the succession of men and women who nervously set out their stall in the show I watched.
How profitable is their winery or distribution business? What would a non-destructive PE do to improve its profitability over a decade? Would it be worth the current management considering some of those initiatives – if it could afford them? How broad is the range of customers? Could the business stand one or two of them simultaneously failing to order or pay? How strong is the brand? Is it time to put some effort into strengthening it?
Far too many of us tell ourselves that we have a good business and are sustained by our friends and family who, not unnaturally, tend to see the best in it. What makes shows like Dragon’s Den maintain their audiences across the world, and for such a long time, is the spectacle of often highly attractive people and projects slamming into the uncompromisingly tough world of real finance. It's like most of us wandering into a gym and encountering a fitness coach who reveals just how much effort we are going to have to do to reduce our risk of a heart attack.
Of course there are business coaches who fill this role and make a very good living out of helping small companies to consider all these and a wide range of other such questions, but if you prefer not to employ one of those professionals, maybe you have a friend who has been successful in another business and who might be prepared to take on the role of a straight-talking dragon in return for a few cases of decent wine.
Or, at the very least, you might do what I did from the comfort of my sofa: ask yourself how you'd pitch your business to those investors in the TV studio, and what they would make of it.
