Two Dragons give their backing to an online tool that
connects parking space owners with parking space seekers - and Make It
Cheaper managing director Jonathan Elliott cannot curb his
enthusiasm.
Duncan Bannatyne is nothing if not his own man when it comes to
judging pitches on Dragons' Den - but it seems to me that his
personal portfolio of unreasonable objections to business
propositions grows with every passing episode. Last night's
instalment featured a doozy.
Harrison Woods - perhaps the most bright-eyed and bushy-tailed
investment-seeker in Den history - pitched an online tool that
allows individuals and businesses to rent out privately-owned
parking spaces when they are not in use. Bannatyne based his
objection around the fact that the apartment block in Covent
Garden, where he owns one of fifty residences, has only three
parking spaces.
The implication seemed to be that the supply of spaces is not
sufficient to make the business viable - and Bannatyne declared
himself out before Woods could remind him that the UK is a very big
place where not everywhere is as built-up as London's West End.
Personally, I warmed to the company immediately because it
presented a cost-saving opportunity for businesses - and anyone who
knows my background or reads my blog regularly will know that this
is an area that piques my interest. If you own a parking space - as
a business or an individual - you can use Primal Parking
to claw back some (or all) of the cost associated with it. If
there's no cost, the revenue you generate goes straight into
profit. On the flip side, you can use the service to save up to 75%
on the price you might otherwise pay for parking your vehicle.
Theo Paphitis and Peter Jones overlooked some of the company's
teething problems - including the fact that it had no obvious edge
over established competition and the website and smartphone
application were not yet live - and backed Woods primarily because
they were sold by his personal qualities. He demonstrated tenacity
and affability in abundance - and also impressed by having the
courage (or 'cajones', as Paphitis put it) to pitch to the Dragons
at just 22 years old.
For me, the most interesting aspect of the proposal - and the
factor that I believe clinched the deal - was the fact that Woods
had already given away 20% of his company to a web developer in
exchange for the online technology that allows customers to use the
service.
It might seem counter-intuitive to sacrifice such a large slice
of the pie when you're starting up. However, Woods evidently
accepted the reality that no website or smartphone app means no
business - and his decision struck me as an astute one for two
reasons. Firstly, spending no money is great when you haven't
generated any yet - and giving away equity instead of cash
eliminates the possibility of costs spiralling out of control and
giving the business a mountain to climb before it shows a profit.
Secondly, having a stake in the company motivates the developer to
deliver the product quickly and to a high standard, removing the
unwelcome prospect of any dispute about ambiguous specifications,
delivery agreements and so forth.
Woods' decision brings to mind graffiti artist David Choe's
famous choice to take stock in Facebook rather than a cash payment
in exchange for an office mural in the social network's early days.
This arrangement worked out very well for both parties: it helped
Mark Zuckerberg to establish his company's identity - and Choe's
stock is now reported to be worth more than $200 million.
I'd be interested to know what you think of "sweat equity" - and
whether or not you have experienced or would consider giving away
shares for anything other than cash investment. Let me know by
posting a comment at the end of this blog. For Harrison Woods, it's
a strategy that seems to be paying off: the Primal Parking website
is now live, working well and looking good. It can expect a spike
in traffic this week - and Woods should be on his way to the
success that Peter Jones and Theo Paphitis anticipate.
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