Dragon's Den REACT #2 = The product costs HOW MUCH?? (bad maths)

All right, how are you feeling?

I'm ready to go. I'm Reid, I'm from Michigan, the middle of America, but I'm living in London currently.

All right, Good energy, good energy. I'm Tripp, I'm from Middlesbrough but living in London.

We are revamping an outdated, undervalued industry.

Could be you up there, Linda.

It might be. We'll see how this pitch goes first.

So they're planning to sell umbrellas. I think they've sold some already. There are a lot of things about umbrellas which I think could be improved. There's a lot of fundamental issues. Number one, if you're in the uk, almost every umbrella I've used has broken in the wind at some point. Haven't seen that solved. And then I guess portability, they're. They're a bit awkward to take with you, but I don't really know if either of those things can be solved. It's like a lot of products have these fundamental flaws. Doesn't necessarily mean there's always a way to fix them. So I'm curious to know what they've done to improve on your standard umbrella. Also I'm interested to know their price point as well. Yeah, this is an interesting one.

Triv and I met on a co founder matching dating site, kind of Tinder for business people.

It's good to meet somebody who has such a love hate relationship with umbrellas that I do. So it's a good partnership.

It's a very, very British product, this as well. So it's probably good that you can use Columbia Thunder. They're actually quite likable, these two. And actually like in business that's really very important. Like ultimately when you're going into a partnership, which is what these guys are intending to do, the Dragons and these two, a lot of it is about the personality. Can you work together? Can you stand to run a business with this person? Do you gel? And so far they seem like pretty cool, pretty like little humble fun, like, I mean we've only seen a minute, but that actually really matters.

Hey, Dragons, I'm Reid.

I'm Tripp and we're the co founders of Gili. We're here to ask for £50,000 in return for 3% of our company.

I moved from New York to London in 2019 and was regularly sopping wet in this town.

Couple of things. So 50k, not a lot of money really, although you can do a lot with it. I mean to grow a business. 50k, not, not necessarily a ton. 3% is really interesting. I very much doubt that the Dragons would agree to do it for 3%. Not because of the amount of money, but because the amount of time and energy they're going to use up with the partnership. But yeah, again, I'm curious about how this plays out.

Terrible British weather because I couldn't find an umbrella I liked. They break, you lose them. And a wet umbrella is hard to put or carry anywhere, so you don't bring one when you leave the house, then end up buying one from a corner shop for 10 to 15 pounds. And that cycle goes on and on.

This is really true. I was in central London two weeks ago, terrible weather, it was pouring it down. I was standing outside Selfridges and a guy came out wearing full on waterproof gear and just had a rucksack full of umbrellas and was just trying to flog them for like £20 outside Selfridges. So this has become like a full time hustle for some people in London. And honestly, I kind of respect it. Like, people needed umbrellas, I mean, they were there to supply where there was demand, so nothing wrong with that. But he's right. Like, this is something you don't always have on you, right?

However, now with the consumer shift in desires for durable quality products that you see in reusable water bottles in so many other categories, at Gili, we're redesigning the umbrella by creating one that works better than others and won't end up in landfill as so many do annually.

Now, there are a few things that make Gili a very unique umbrella. Our core innovation is a completely dry after use umbrella through a hard watertight case, which then doubles up as an optional handle. This means that once you've used the umbrella, you simply close it, pop it away into the case and it doesn't drip everywhere and make all your things soaking wet.

It's quite an interesting take on the design of an umbrella. I've got to be honest, that optional handle to me looks really unappealing and kind of ugly. That's just my opinion though. And one thing you have to remember when you're creating a product for a market is to kind of take your opinion out of it and be objective and test and see what the buyers think, which can be hard. Right. There's those, those things, moon boots, that are really popular right now and I think they look kind of ridiculous, but who am I to say, you know, what looks good and what doesn't? If those things sell more power to the company and more power to the people who want to Wear them. Remaining objective can. Can be difficult.

It's also highly wind resistant and it's compact and lightweight. This all means.

That's. To be honest, a lot of umbrellas say they're going to be wind resistant, so whether this one actually is point of contention for me, hopefully it will be. But we have heard that before. Light and compact. It kind of is. It's a bit bulky, though. Would it fit in a handbag? I don't know. I don't know.

It's conveniently on you at all times, not sitting in a corner or at the front of a restaurant somewhere drying out, where you inevitably end up losing it.

After two years of product development, we had a really successful launch on Kickstarter late last year and I've sold over £100,000 to date to 1700 customers in 46 countries.

And so let's do the maths. 100k in sales, 1700 customers, an average order value of £58. It's pretty, pretty good. That's on the high side, particularly for a product like this. I'm assuming there were some add ons and some upsells and stuff, but it's really not that bad.

And now we're ready to take the.

Umbrella market by storm.

Thank you.

It's like cheesy, but also endearing and kind of lovable. So, yeah, I think these guys, they seem like they'd be be fun to work with.

An update on the umbrella with a hard cover, which doubles up as a handle, is the brainchild of Reed Jacoby and Trip Gossen.

Thank you.

The duo.

The voiceover guy really does sound like he's on a hangover in this episode.

Seeking 50,000 pounds in return for a 3% share in their business. And their product certainly appears to have struck a chord with Deborah Meaden.

Guys. Hi, Reed. Trip. Hi.

So.

So you're absolutely right. How annoying is it when you. When you take your umbrella down and it goes all over you and it's in the car. So congratulations if you've nailed it. Have got. You have got something. What I would like to understand, and it might be a naive question, but what is the difference between this and those umbrellas that I simply wrap up and put in a little case?

So this is a question that your customers are always going to be asking themselves and they see your product on Amazon, they're like, why would I buy this one? Which hopefully you found a way to charge a premium. Offer something at the top end of the marketplace so you maximize your profit. They could be saying, why Should I spend all this when I could just buy your bog standard option? And so your listing really has to make it clear and you really have to be able to illustrate the value and answer that question in the pictures and the text on the listing. If you can do that, you'll get the sale. Now the product has to fundamentally give those reasons first. So you have to create something like they have that supposedly does the job and then you have to convince it. So let's see how they. Let's see how they explain themselves.

Sure. So it's a hard based cover that doubles as an optional handle because the seamlessness of the interaction is super important here. People are going in and out of the tube, in and out of the office, in and out of their car. And it's far too annoying to have a separate sleeve with this umbrella. The canopy has a hydrophobic coating on it, so 95% of the water slides right off. And then there's a microfiber cap for moisture containment on the top. So when you put it away, that helps to soak up the excess moisture.

Few things I'm interested in. Cost of landed goods, price point, marketing costs, profit per unit. Also the distribution channel plan. Where. Where do they want to sell it? This, if I was gonna invest, this is what I want to know. How are you getting it out there? I'd assume they've done sales online. They said they did Kickstarter, which is great because that gets. That got them 100k. Obviously had to then go and produce it. I'm just really curious what they're gonna do next. And. Yeah. How the numbers look. And does the thing. Does it do what it says on the tin? That's, that's what I'm really curious about.

Read and triple. Give me your last three months sales.

Yeah, our last three months have been 23,000.

3,000 units.

Sorry, 23,000 in revenue.

Revenue.

Wow.

Okay.

And that's been 700 units.

What are they.

Hang on. So 7k a month. 700 units. So doing the maths, is that 32 pounds each for this round, they cost.

To bake to make nine pound per umbrella. And that's for.

Okay, it's cost of land of goods. Oh, well, that's the cost to make it. What about the shipping?

A minimum order quantity of 5,000. So that goes down substantially with greater volume.

Nine pounds.

Yes.

Well, you're gonna have two bullets of bot. He can have that done for $33.

Well, we'd like to talk to him about that at some point.

3%.

Oh, my God.

So £9 cost per unit is high. Like you could buy a bog standard umbrella, probably for less than that, fiverr. Maybe not in London. Right. But in a discount shop or whatever. So if your cost to produce each product is nine, then you got to think about shipping, customs, import, VAT packaging. I don't know if that's included in the £9. Haulage, distribution costs, marketing costs. I mean you're gonna have to charge a lot to make this worth it. So yeah, I'm just so curious about the numbers.

God. I'm looking for the gold inside the pot at what does it retail for?

37.

Because to be honest with you, when I look at this, the quality of it I think is very basic. Looks cheap, the plastic looks cheap. It feels more like a 12 pound 14 umbrella.

We wanted to get out with version one. We wanted to get it into the hands of customers. This is the 14th prototype and nothing beats having it out on the street. And so we launched with that. We've taken feedback like that into account and we have version two well underway. And that case specifically is now going to be made of a stainless steel.

That actually changes the game. The fact that they keep throwing it out into the market, seeing how it performs, getting feedback, reiterating the design and then selling it again. And then with this process, it's just the best way to start your business and to make the product better and better. The fact that now they're going to be on their 9th or 10th reiteration of the product, I mean that's, that's incredible. They've got so much knowledge and real world feedback from the customer and yeah, that would make me feel a lot more secure about where the products headed. I think they're doing something right, I'm sure.

With a valuation of 1.6 million, I haven't quite worked it out.

Yes, yes. Yeah, 1.66.

So these valuations are fascinating. So usually what you do is you'll take the net profit, annual net profit of your business and then there'll be a multiple. So the multiple was usually decided on okay, how many years is your company likely to last? Which is in a way kind of like having a crystal ball, because who actually knows? Is there a pandemic around the corner? Is there a huge crash coming? Do people not going to want to buy umbrellas next year? I mean, we don't know. So it's kind of everybody's best guess. So in the UK we'd probably be looking at maybe a three, four times multiple. So for a 1.66 million valuation, which is really high. I mean, they'd have to be making about 400k a year profit right now. So are they doing this off projected profit? I mean, I don't know. To me, that these valuations sometimes are just laughable, whether the company actually would sell for that. Completely different matter.

Did you get drenched that day when you worked out the valuation? Because how do you get a company that's done 100 grand turnover to be worth 1.6 million pounds?

Well, we have previous investors that came in at 1.535 million.

So you're valuing it on your previous investors.

Well, and we also feel that that reflects the intellectual property protection of it.

This is another thing I'm interested in. So why can't I go out there, find a supplier, just rip off what they've done and launch it? The answer would hopefully be because they have some kind of patent which protects usually one or two elements of their design. They can't patent the umbrella because it already exists. Right. But maybe the sleeve handle, maybe out of plastic or a certain shape. If they've patented that, I think that they're on well onto more of a winner, because then people can't really directly compete with their. Their unique selling proposition, their way of adding value.

I'll be honest with you guys. I've just come back from a massive product fair in China and I'm sure I saw similar things there. So would you say that's unique?

Yes. Yeah, absolutely, I would.

So I can't find anything like this anywhere in the world.

Not that we're aware of.

Can we just check what the IP is? Is it a patent or a design? Right, Design.

It's a design. Right.

It's designed.

Right.

So what exactly, in terms of your protection, what exactly have you got?

So what we have is we cover generically a cylinder case with an umbrella that doubles as a handle. And so.

Okay, so it's the silicone. Okay, so does that mean if it's stainless steel, it's not covered? Could I bring out a level one, a metal one? That's interesting.

Somebody could create this idea in a square or a hexagon, but if they want to create a cylinder as a handle, they cannot do that. That is.

Oh, we said cylinder, not silicone. Okay. That makes it a lot. A lot harder to copy them. But, yeah, you could do it as a square, you could do it as a hexagon. I'm interested to know how hard this would be to rip off first, but.

Only if it looks like that and is a round cylinder. But if it had hexagonal. Hexagonal outside.

Well, it would. It would have to be demonstrably different in the eyes of.

No, I understand. Design that. It's very different to a patent.

Deborah's not happy. Deborah's always the one that asked about the patent. I noticed.

It's very, very trip when you think about where you'll be in five years. Can you just paint that picture for me?

Sure. So we're trending towards 900,000 units in.

Year five, which will deliver what in revenue?

26 million in revenue.

Now tell me how we get.

I wonder how big the umbrella market is in the uk. I wonder if we can get stats on that globally looking about 5.6 billion. I wonder what that is in the.

UK from today, where we're making 23k to 26 million a year.

Yeah. So product expansion, an optimization of our own marketing and geographic expansion as well.

If we were to sit down again in five years and you told me you know where the business is at, what would you be saying to me?

Phone, keys, wallet, Gili. The idea is for Gili to be the world's best umbrella at an attainable price and for us to become a global rainwear brand because.

So this is one of the key questions when you're looking to invest in a business. Right. Is what is the vision that the entrepreneurs have? Because in five years time, their goal is to make this a staple. Everybody has a gilly umbrella right now. That may or may not happen. But if they have the vision and the determination and the skills and the resources, then the company might evolve to a point where they make something else that is a staple that everyone carries around with them. And if you're an investor, you're looking for that kind of spark and drive, which in a way is even more important than the product. Because where it is now, the numbers, the product itself, the market, super important, definitely. But if the business could involve maybe pivot, change direction and become even more successful because of the vision, and then that could be even, even better to invest in. Like when you're investing in companies as an angel investor, usually you'll invest in like 10 different companies. You'll put a relatively small amount of investment each, maybe five of them will like, do minimal results and kind of maybe break even, Just about a couple of them will completely bomb and then maybe one, maybe two will take off. And that is usually where you make back all of your money. If you have entrepreneurs with a vision and the skills and a product that has potential, then it's just much more likely that that's actually going to happen. So I actually really like these guys vision. I think they're, they're thinking in the right, the right way.

If we go back to the reusable water bottles, you know, it has to be a Stanley cup, it has to be a Yeti, it has to be a Chiliz. And I think that that's where we want to go is it has to be a ghillie.

Only difference between umbrella and water bottle is I don't know about you, I have to bring my water bottle everywhere. Not true of my umbrella. And yeah, it's a different market but that is the difference. But yeah, I mean could it be that one day if you are going to bring an umbrella, it's going to be a ghillie. Well, hopefully for these guys sake, they can do it.

So this is a really good point. Yeah, this is one of the things I was hoping you'd say.

Okay.

Because I think one way to defend your product is the innovation of the product itself. But the other way to defend it is brand. And that's exactly what Stanley cup have done.

Yeah, yeah.

And they've made a reusable water bottle culture. And there's this is doing nothing in terms of brand.

I think he's right. It looks, to me it looks ugly. The other thing is betting on your brand becoming a cultural staple is a huge bet. I mean that stuff is fickle. Who would have been able to predict that Stanley cups, those giant ugly like builder things would be used by women everywhere? I mean I would never have been able to predict that. And I guarantee in a couple years we're gonna look back and like why are we using those ugly things? It's very fickle. Kind of like fashion, kind of like trends. And I wouldn't bet on, on that necessarily. I would bet on these guys vision and ability to make the product better. But I don't know if I would bet on their brand becoming a staple of culture.

So how do we get from here to Stanley or here from Yeti or one of those really iconic cups?

Yeah, for sure. So I think a big part of this is getting a community of people who love the product and being laser focused on who those people are. And so our customer is probably aged between 25 to 45, the kind of modern commuter. These are people who are on the go and above all else they value high quality durable products that are aesthetic and functional over cheap disposable rubbish essentially.

Guys, I am I think the audience you're targeting are an audience that care a lot about brand. That audience, that sort of Gen Xennial, Gen Z, millennial audience that are early 20s to 40s are really, really going to I think make a lot of their decision based on whether they think this is call or not cool. And I play out the scenario in my head that one of those reusable water bottles had walked in here. That's now all the rage. I would have thought, absolutely not a water bottle, it's never going to make it. There's loads of water bottles. But the reason they did is actually because of something quite unintentional. They just caught culture and that sometimes happens. And honestly it's almost impossible to do that intentionally. It just happens to brands. And so when I think about them.

I'm really glad Stephen Bartlett agrees with me about that. Yeah, it's a bet, right? I mean Stanley cups are ugly. They're like meant for like builders, aren't they? I mean they literally make tools, don't they? Stanley? This is equally ugly, this umbrella. But betting on whether it's going to blow up because of that, I think their best bet is to make it look kind of timeless. Really nice function, a really nice form going in the direction that barbel would go in, maybe with an umbrella in terms of looks and go away from the horrible plastic looking thing because it looks cheap. Right. And 25 to 40, they're image conscious, probably the most image conscious people on the planet, certainly the ones who have the, the budget to do something about it. Right. And I just don't know if they want to buy a cheap plastic looking umbrella.

The possibility that you're going to catch a wave like those companies have. You're gonna have to do some stuff to put yourself in a position to find that kind of luck. I don't see experience between you that you have that sort of creative marketing zeitgeist in your DNA and can't see the journey to that 26 million in five years. So for that reason I'm gonna say that I'm out.

Go.

Thanks.

So barlets out 26 million seems insane to me. I mean I'm assuming they're aiming to go global, which is, I think you'd have to to sell 26 million of umbrellas even so, I mean that is a stretch.

But guys, I'll tell you where I am. I've looked at this and said to myself, good idea. However, the valuation is something that really, really puts alarm bells to me and for that reason I just Wish you guys all the best, but I'm out.

Thanks, Duka. Tuka's gone because of the crazy evaluation. I think if you, yeah, if you reach too high with your valuation, it can be a bit of. It can be a bit off putting just because. Seems a little delusional based on what they have now. That kind of adaptation to me seems a bit, a bit delusional. Guys, for me, it's all right.

It's just not like, oh, I've invested.

In a broly company, you know, it's.

Just, it's just not sexy, it's not exciting.

I think I need that passion to want to get involved. So it's not a one for me.

Today and I'm out.

So that's a very personal decision. Right. Can she really get her teeth into this business? Can she really get involved? There's no right or wrong with that. If you feel like you can't be passionate about it, then that's fine. And because she's an investor, I think that is a big deal. If you're looking to sell a product, though, I wouldn't necessarily worry too much about the passion, you know, to get things moving. I would just worry, is this thing going to make me the income I can have to quit my job and does it work financially? And just worry more about learning the skills to become an entrepreneur first and then you can always pivot to something you're passionate about later.

So you've definitely got something. Had you had a patentable step in there, I would have been much, much more interested because design. Right protection is not really terribly protected. So I'm really sorry, but I won't be investing. I'm out.

Deborah's out. Thanks, guys.

I think it's very easy to look at this and find holes in this, but the reality is that I think you've invented something that is really clever. I think this is. It is definitely. It's one of those where with the right help, you, you know, you can see this potentially doing well. But I think you're going to need a lot of my time and a lot of my team's time for this to have a chance of success. And that's the bit that I'm weighing up.50k, 30%.

Is that what he's gonna say? I don't know.

That's the struggle that I've got. But I, I think, God, it never rains, but it pours. I'm gonna make you an offer. But my offer does come at a price.

Or is he gonna make it conditional and Go. We have to make X amount in the, in the first year or two. I don't know. He's definitely not gonna take 3%.

So my offer is 50, 000 for 20%.

Okay. Okay.

Do you want to go to the wall and have a chat?

If it was me, definitely take it. Obviously, negotiate. But to have Peter Jones and his network involved in the business, I mean, if I can do it for 15, 10%, that's a disproportionate return on. Maybe have a buyout clause at some point as well, maybe just to protect them in the future. Seems like a good deal, an offer.

For Reed and Trib, but Peter Jones wants considerably more equity than the 3% they were originally looking to give away.

20 is a lot.

Do you think we could do 10%?

Could a counter be on the cards?

Okay. Yeah.

Peter, thank you for the offer. We appreciate it. We feel that the percentage is a bit steep and so we'd be willing to counter for 5%.

Well, negotiation is negotiation, but he's never going to do five. I think he'll do 15, maybe 17.5. I don't know. Your guess is as good as.

Guys, look, this is, this is a tough one. For this to have a chance, you, you are going to need more money. That's going to mean dilution. There's no doubt about that. And on top of that, you're going to have to cover off Deborah's point, and that is you're going to spend a lot of money on patent lawyers. And when I say a lot, you could end up spending a million dollars here just on lawyers. And I get that, and that's okay. But I think to go on that journey, you're going to need somebody that's got a lot of experience and the cash, hopefully, to make this successful. So I think, I generally think 20 is fair.

Thanks for the offer, Peter.

Thanks for the offer, but we can't accept.

Okay. I think they're making a mistake. I really do. I think to get that much manpower on board, even if they were going to hire, they'd probably be putting more than 20% of cash to do that. I mean, I don't know if you can get a better deal than that. They obviously really believe in it. We'll see.

All right, on that basis, I'm out.

Thank you.

Thank you, guys. Good luck then. Thank you.

The 17% gulf in equity between entrepreneurs and Dragon proves too wide to bridge, and Reed and Trib must leave the den without a deal.

Onwards and upwards.

Yeah, yeah.

The brolly Business founders having effectively rained on Peter Jones's parade.

I thought it was a pretty fair offer.

Yeah, I thought it was fair.

It was.

I think it's fair. I think, I really think they missed a trick here by, by turning it down. But ultimately they have a plan. They have their own set of values and they probably came in with a percentage they were happy with. I hope they smash it. You know, in spite of that, one of the reasons, let's be honest, people come on this show is for exposure. Millions of people will watch this and then probably go check out their products. So they win either way. But I don't know, man. I would have taken that deal.

Steep offer, I think. And we believe in the product, so we're really going to build something great here.

Cool. Well, I hope you enjoyed that episode. If you want to watch more hit subscribe like comment and I can't wait to catch you soon on another video. Take care and I'll see you soon. Now, if you enjoyed this, this video and you want to get some help launching your Amazon business, click the link below and you can book in your Amazon Amazon Accelerator call. What we'll do on this call is we'll talk about your goals first and get really clear on where you want to go, what kind of business you want to build and where you want to live, how much you want to earn, all that kind of stuff. When we're clear on your goals, then we'll talk about where you're starting from right now. So how's your life at the moment? What's good about it? What's bad about it? What budget are you starting with? How much stuff have you done with Amazon so far? If it's nothing, that's fine. As long as we know where you're starting from, that's good. Then we could map out the steps it will take for you to get from where you're starting from now all the way to hitting the goal. Right. And once we've done that, we'll get really clear on the plan for you to build it and we can talk about how I can actually help you with that. I can actually help you research a product that will be way better than this product. Right. I can help you get the products shipped from China using my product concierge service and into the Amazon warehouse. I can help you get a listing created to give your product the best chance and get it loads of sales as soon as it gets live on Amazon. And we can help you with the whole process. We can even give you one to one coaching. So if you want, click the link in the description book in a call, we can have a chat. Can't wait to help you build your business and I'll catch up very, very soon.