If you have ever seen the BBC 2 show Dragons Den you will no doubt have shared the anguish that the majority of would be entrepreneurs feel when pitching for investment capital as an opportune method of financing their entrepreneurial venture (or misadventure as often turns out to be the case). On the surface the show is presented in the form of a reality TV program where winners walk away with a modest sum of money in return for a percentage of their business reassigned to the most willing Dragon.
For those entrepreneurs who fail, retribution is merciless. Pitch a proposal that offers no point of differentiation of any sort, no technical expertise, no history of success, no realistic business model and no idea of a budget and you are toast. One example of this was a hapless engineer who sought support from the Dragons for his flashing lights system that he presented as a support to the “No Entry” signs that are typically placed at the entry to one way streets for example (a proposal by the way that by his own admission had already been rejected by the authority responsible for those signs). Another was the author and distributer of children’s books who as a self-publisher had been inconsistent in her spelling. Worse still, she had been found guilty of introducing story lines that the Dragon’s deemed to be harmful, rather than helpful to young readers.
In contrast, the outcome for the successful entrepreneur is one where the Dragons are the ones left vying for attention. Rather than being the subject of ridicule, the high potential entrepreneur will find themselves feted with competing offers from more than one Dragon, each eager to make above average returns on their spare cash. Not only does the entrepreneur benefit from an injection of cash from this scenario, they also walk away with an instant channel to market that the Dragon’s already have in place. This then is the real and often unappreciated source of value to the next Richard Branson.
A pitch that had the Dragon’s sitting on the edge of their seats was one that displayed all of the aspects of what we at the SMI call a Dynamic Model of Strategic Equilibrium. This model is representative of a Strategic Architecture: literally a structured approach to Long Term Strategy that defines what the firm’s physical resources and competences must be if it is to successfully enact the (ideally differentiated) activities necessary to deliver its goods and services into a preferred market position. At the same time, the model assumes that internally, transformational activities are being applied to improve both the resource base and competences of the business, as well as the transforming activities themselves. It is unlikely that all of these elements of the strategic architecture will be afforded full attention at the same time; hence the notion of equilibrium. At the point of development for example, a new business is likely to be focusing most of its energy on building its manufacturing or sourcing prowess before seeking to realise a position in its chosen market. Alternatively, a mature business will most likely have its resources well established and its primary focus will be on growing market share; or developing points of differentiation in its service delivery solution. Inevitably, the area demanding the focus of greatest attention will be the primary content of a firm’s short term Strategic Plan. Interestingly, although one of the most used management tools in business, it is our experience that the difference between an aspirational, long term strategy and a performance focused, short term strategic plan is not well understood.
An illustration of the way that a dynamic model of strategic equilibrium worked in favour of one Dragons Den contestant is that of a 24 year old mother who based her pitch on her story that described how she had held down two and a half jobs to pay for her product development costs; a commercially ready, frozen desert. Whilst working in those activities she had also managed to bring up her child and attract a new life partner. Based on a Strategic Intent that can be described as being to “develop tasty, organic food products that are safe for high allergenic people” this young woman had applied her capabilities in cooking to develop a recipe for her product that could be produced (on an albeit outsourced resource base) en masse. She also demonstrated an intention to continue the development of new products (an example of a transforming activity) while also acknowledging the need to differentiate her product offering from competitors through the use of tasty, but unique ingredients, flavours and a packaging designs that clearly stood out from the more voluminous providers of similar product lines. Most importantly, this entrepreneur could demonstrate she had already conquered a critical element of the strategic architecture; that of market positioning or in this case, market acceptance. This was in the form of an endorsement from the UK’s biggest supermarket chain, Tesco. The Dragon’s flames turned to salivation resulting in this entrepreneur securing two of the UK’s most successful business leaders as business partners; the bonus being access to their considerable channels to market – on a global scale. There was a lot that they admired about this young woman; her commitment, entrepreneurial flair and passion were ultimately the stand out appeal for the Dragons who literally haled her as having the potential to become the world’s next most successful business person.