Lessons from the Dragons' Den: Skin in the game

Written by Rick Spence

Tune in, read on, lift off

Capital connections

What Dragons want

Here be dragons: 
Jim Treliving
Kevin O’Leary

Laurence Lewin

Jennifer Wood
|  Robert Herjavec

Meet the multimillionaire entrepreneurs who rule the Den — and know a good business when they see one

Robert Herjavec
CEO, The Herjavec Group, Toronto

Best advice: “Focus. When you fit into too many categories, it’s not a good thing”

Robert Herjavec is a tech sales whiz who has built and sold several companies. He’s also an active entrepreneur who occasionally invests in the sector he knows best: computer security. With Dragons’ Den exposing him to a wider variety of market niches, he’s now excited about doing more deals with non-tech startups — but don’t expect him to relax his high standards.

“I always want to know how much money the founding investors have put in,” he says. “I want to hear that you have real skin in the game.” He also wants to know how you’re going to sell your product. “Everyone [on the show] put a lot of thought into their idea or product,” he says. “Nobody put the same amount of thought into how they were going to sell it. The average person seems to believe that if you build a better mousetrap, the mice will come to you.”

Chances are Herjavec will also want to know if the entrepreneurs have a good defence to match their offence. “Every deal I look at, I always ask, ‘If you’re successful, how will you protect your market from other people? What’s to stop someone else from coming in and taking over?'”

Herjavec’s own business career is the classic story of spotting a trend and exploiting it fast. In 1992, he founded Mississauga, Ont.-based BRAK Systems Inc., which became a leader in computer security services and was ranked by PROFIT as one of Canada’s Fastest-Growing Companies in 2000. That year, he sold the firm to AT&T Canada for $30 million. Herjavec moved on to Ramp Networks, an online-security firm based in Santa Clara, Calif., which was later bought by Nokia.

In 2003, he struck out on his own again with The Herjavec Group, which specializes in e-mail and Internet content security. By 2005, The Herjavec Group was one of Canada’s fastest-growing young companies, placing ninth on PROFIT‘s HOT 50 ranking.

Of course, it’s not enough to be in the right place at the right time: you still have to win the business. Herjavec says one key to his success is asking for feedback from prospects who choose not to buy from his companies. He likes to ask three basic questions: “What did you buy instead?” “What did you like about it?” “What could we have done better?” He admits the tactic isn’t new, but marvels at how few people use it.

Herjavec is often consulted by other IT security entrepreneurs. When he’s intrigued by a product, he likes to get in on the action. As a result, he has invested in about a dozen security companies — usually in the millions of dollars. “It’s a lot of money and a lot of work,” Herjavec says. “It could be a very sophisticated form of e-mail filter, something narrow and obtuse that only 20 people understand.” His strategy is working: several of the companies in which he has recently invested have been acquired by such industry leaders as Symantec and Secure Computing.

But Herjavec sees the security market turning down. So he was delighted, through Dragons’ Den, to discover all kinds of clever, non-tech investment opportunities — from doggy doo scoopers to three-wheeled motorcycles. As a result, he says, he’s likely to consider a wider variety of investment opportunities. And he knows that the publicity around Dragons’ Den will bring a lot of inventors and tinkerers to his door. “Most people think they can sing, many people think they can dance, and everyone believes they’re one break away from a million-dollar business,” he says. “During the shoot, I even had some members of the TV crew telling me, ‘I have this idea €¦’.”

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