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The Dragons' Den Traps

TL;DR Watching Dragons' Den is entertaining, but it’s also a masterclass in common business mistakes. Many entrepreneurs fail because they don’t know their numbers, run insolvent businesses, wildly overvalue their companies, neglect marketing and customer acquisition, or build products for markets that are simply too small. The lesson is simple: know your financials, validate your market, control your costs, and prove there’s real demand before asking investors for money.

Dragons' Eye - Dragons Den keeping an eye on businesses

You watch Dragons' Den, right? It's a go-to programme for us business owners.


You've all heard it:


"...and for that reason, I'm out!"


What seemed like a great opportunity for the Dragons to invest in unravels as one prospective entrepreneurs pitch just seems to fall apart.


As I sit here on a Sunday morning, having binge watched a few episodes last night on catch up TV with my wife, I cannot help but muse over the pitfalls and traps that so many entrepreneurs on that progress seem to fall into. Sometimes I am amazed at why people don't know certain facts or figures about their own business when they know that the Dragons will find out the truth in the end!


Which of the following traps resonate with you:


TRAP 1) DO YOU KNOW YOUR PROFIT AND LOSS?


"...tell me about the figures?"

On every single pitch, the Dragons ask about turnover, gross profit and net profit. Every. Single. Time.


Yet there are always those who do not know the financial statements for their own businesses. This amazes me. P&L are the one clear indicator of how well a business is doing and for a business owner to seek investment without being able to demonstrate growth or justify a negative figure is not going to result in a positive outcome. The Dragon will inevitably close their book, put their pen down and they're out.


I'm the polar opposit of this trap. The antithesis. I am constantly checking my accounts and running projections and scenarios. I know everything about my businesses financial statements. I think I would be a bit anxious if I didn't know them! Being able to account for upcoming expenses and taxes means that I can properly plan for other parts of the business that might require a budget. It also affords me some peace of mind knowing what is happening financially and what is coming up in the future. I don't like surpises with my business and prefer to minimise stress and anxiety so that I can focus on what I am doing.


TRAP 2) DO YOU REALISE YOUR BUSINESS IS INSOLVENT?


"...you don't have enough cash to pay your debts"

Sometimes the entrepreneur knows their financials. They proceed to reel of some figures to the Dragons which demonstrate that the business is running at a loss, they have already invested a huge sum of thier own money and also burned through what other investors have contributed (let's hope they mentioned those investors at the beginning of the pitch too!)


The business is insolvent. Yet their projections for the next couple of years shows great net profit, even though those projections don't match their existing profit and loss.


Making a loss in the first couple of years of launching a business can be perfectly normal but pitching that on Dragons' Den and then compounding it with the revelation of a complicated equity split between other investors (and maybe some other issues like IP or exclusivity etc) and I sometimes feel sorry for the entrepreneur and hope they find a way out of their current situation without losing too much more.


I have started businesses which have not worked. It happens. I've known when to call it a day and get out or wrap things up though. It is a valuable thing to know when to retreat, regroup and come back fighting with a different strategy.


TRAP 3) WHAT IS THE VALUE OF YOUR BUSINESS?


"I'm asking for £100,000 for a 3% share in my business..."

Sometimes when the client does their initial pitch and business valuation, I wonder how on earth they decide on the equity that they are offering. Sometimes I am aghast. Sometimes I even think they are possibly bordering on being arrogant with their valuation.


An entrepreneur goes in the den, sitting in front of Peter Jones, Deborah Meaden, Steven Bartlett and Touker Suleyman (and which guest Dragon they may have), offer a tiny percentage for a large sum of cash and then proceed to fall head first into trap 1 or 2.


I often hide behind a cushion when an obviously insolvent business owner values their business at £3 million because they had a meeting with a possible big new client or have some pie-in-the-sky projections for the next couple of years.


I believe there may be a few different ways to value a business:

  • projections based on existing financials

  • annual turnover multiplied by a certain amount

  • annual profit multiplied by a certain amount

I am sure there are plenty more.


What I do know is that there must be a quantifiable justification or business model that demonstrates how a valuation is acquired.


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TRAP 4) WHAT HAVE YOU DONE TO FIND CUSTOMERS SO FAR?


"...this is why I need a Dragon!"

I admit I am a bit biased on this one because of what I do. Having said that, I am self-taught and have sought out my own training and I am nothing special. I'm just diligent and know what I want.


When an entrepreneur stands in front of the Dragons with an established business that is either failing or stuck and is asked 'what have you done to find customers so far?', they had better be ready with a good answer!


If a business owner is not proactive in reaching out and finding new clients and pipelines then their business model is missing a vital part of the process.


Note: do not rely on referrals and word of mouth. If you really want to scale a business, referrals should be a nice bonus to a strategic method of achieving a pipeline of new customers (and nurturing existing ones)

Often when I am watching Dragons' Den, I am also looking up the business on my phone and seeing if they are active on social media or have a nice website. Sometimes all looks good and they just need some help to push their business to the next level. Other times they have a poor online presence with little to no engagement, sporadic posting or no accountability for what is happening online.


Only last night I watched a company dealing in second hand kitchens tell the Dragons that they had spend hundreds of thousands of pounds on a new website and were now locked into a £100,000 annual licensing bill as well as a full time sales & marketing person for about £90,000 salary and a huge marketing budget too. Their overheads seemed huge for what is essentially a marketplace website with a dropship model on the side.


My jaw hit the floor.


One of the Dragons actually said "Did you not think of Shopify?"


Shopify is around £30 per month. It could be designed by a professional for a lot less too.


They had paid a marketing company (and a separate branding company) a crazy amount of money to receive bad advice and an overly expensive product that they are now tied to. I felt sorry for them but they should not have been so ignorant as to have gone ahead with their new website without seeking several other quotes and options to have made a better, more informed decision.


Don't be ignorant. Perform due diligence, take ownership of your online presence and get educated about what to do and who can help (at the right price).


TRAP 5) WHO IS YOUR MARKET?


"How big do you think this could get?"

Another entrepreneur from my binge session last night was a GP who had started a business 2 years ago selling a high quality bag for female GPs. The bags sold for around £300 depending on which style was bought. The total UK market for female GPs was about 28,000 doctors. That was the upper ceiling of the market.


I think I am being generous if I say that maybe 10% of that market would buy her bags. That is 2800 female GPs. The total revenue for that business would be £840,000. The bags cost around £73 each to make which is £201,600. that leaves £638,400. Remove all other business expenses like wages, marketing, taxes, etc and that does not leave much of a business.


That is assuming that 10% of those female GPs actually buy a bag.


It is an unfortunate truth that sometimes a prospect on Drsgons' Den has a great product or good idea which serves a purpose but is not viable for a profitable business. There is a reaosn why some good ideas and products are not publicly available for purchase.


To extend her market, this particular business owner could have considered other professional healthcare practitioners or even create a range of high end hand luggage for travelling.


Any business must have a viable, ongoing market so that there is a renewable pipeline of purchase.


Dragons' Den is entertaining. It is also a masterclass in spotting the traps and pitfalls that many business owners fall into thoughout their entrepreneurial journey. A large percentage of my clients need help with getting found online via websites, social media, Google searches and now (as if things were not complicated enough) on AI platforms too. I am certainly not too proud to say that I learn from the mistakes of business owners that I see on Dragons' Den.


...but for now


...I'm out!


AUTHOR BIO

Adam Gold is the founder of Full Circle Website Design Ltd and a digital marketing strategist specialising in website design, SEO, AI search optimisation and online growth for UK businesses. He works with companies across a wide range of sectors to improve their visibility through better websites, stronger search performance, more effective content and a clearer digital strategy. With a practical, hands-on approach, Adam helps business owners make better marketing decisions and build an online presence that supports long-term growth.



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