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Sam Petter exemplifies where a lot of first time entrepreneurs get stuck. She says that she's been working on Tatty Pumpkin for 5 years, and she has idea for a clothing line, a TV show, and to franchise the concept. She is a dreamer and sees a world of possibility.

Normal circumstances would typically require someone like Sam to get one business up and running, generating robust free cashflows before expanding. However, she has invested £240,000 of her own money, so she has more capital to put into her business than the typical first time entrepreneur. With only revenues of £250,000 and a Net Profit of £19,000, she's seeking to value her business at £1 million. A twenty percent stake for £200,000 implies a cool million for 100% of the business. At 50 times earnings, her business would have to have enormous potential to secure outside investment. My personal sense is that she intends to continue to fund it using private means, and that's why she's offered a peak valuation.

Many people complain that it's hard to raise capital. I actually think it should be tough, as the scrutiny from a smart investor causes entrepreneurs to up their game. It prepares them for the reality of the marketplace.

If money is no hurdle, then inferior products, and I’m not saying this includes Sam’s business, come to market only to crash and burn later on in a very public way and at a higher cost.

Some of the areas where Sam's business plan and pitch went wrong include:

• She's making claims about the "ethical" nature of the product line, but it's not clear what that means, whether that matters, or if that makes it a premium product by adding to the cost.
• She's not outlined how one product line/revenue stream triggers the opportunity for the next. An animated TV show, a clothing line, and toys all are different businesses. To link them, a careful thread and domino effect needed to be presented in order to bring the Dragons with her in her thinking.
• She's focused too much on seducing the Dragons without explaining how she works as a general manager of a business they might invest in. Her switching to "mum" mode in singing with the props didn't work to bring the Dragons into believing that there was something special. She lost her credibility, and then couldn't switch into conveying seriousness in executing a business plan.

Net outcome - it was a failed pitch.

My advice to Sam would be to find a General Manager with strong financial abilities who could help to structure her business around driving profitability around one revenue stream/product line to the £500,000 level. Getting to that level will squeeze out the brand essence or not as the case may be.

One key question that an individual should ask themselves when they are considering setting up in business and putting a considerable amount of money towards a product business is - "do I get as excited about delivering on contracts secured, forecasts and profitability as launching products, meeting potential customers and developing the marketing?" If the answer is no, then you'll be at risk of getting going only to come crashing to Earth again at a future date. Find a Commercial Director or General Manager who can execute your vision, or keep your dreams for sleep.

Last updated: 26 July 2010

These are the views of Julie Meyer, not those of the ³ÉÈË¿ìÊÖ