CNBC’s “The Profit” aired February 2, 2016

In the first segment of this episode, Marcus travelled to Silicon Valley to visit Christina of Farmgirl Flowers. Christina founded the company in 2010 and has built a very successful eCommerce flower business that employs 30 people. She buys only domestic flowers and minimizes waste by offering just one daily arrangement.

Despite Farmgirl’s rapid growth, Christina has not been successful in her quest to raise Venture Capital to fuel future growth. She feels this was because she’s a woman, and she said it is difficult, if not impossible, for women to raise capital.  Here’s when the fireworks began.

Marcus suggested that it had nothing to do with the fact that she’s a woman. He pointed out that he knows many women who fund and get funded. Marcus also showed her how her mistake in calculating her gross margins played a part in the no-funding decisions. She had been significantly understating her margins by not calculating them correctly.

Christina placed a value of $20 million on Farmgirl. She was comparing her company’s valuation to some well-funded VC-backed competitors that had raised millions of dollars. Marcus placed the value at just $5 million (about 1X annual sales) and wouldn’t budge.

As the “negotiation ” unfolded, it became obvious that Christina was only concerned with the money and didn’t seek Marcus’s value-add potential. She also said she didn’t want to give the appearance that her company was “saved by a man”.  I made a note just as the meeting began……. if I were Marcus, I would have set-up a meeting for Christina with a woman investor, charged a transaction fee, and hopped on a plane to go back home.

No deal here.

The second segment was a follow-up story on My Big Fat Greek Gyro (renamed The Simple Greek). They had adopted a “Chipotle-like” business model and were now selling franchises. Marcus estimated that they could have 500 franchises within five years.

Marcus had to rattle a few cages to a) start receiving the royalties due him and to b)to get the original owners (who now owned 45% equity) more engaged in running the business.

Marcus is a very good cage-rattler. This could be a huge success.

 

CNBC’s “The Profit” aired January 26, 2016

Marcus Lemonis travelled to Indiana this week to visit 240Sweet, the maker of gourmet marshmallow-based products. Alexa and Sam are a married couple that owns and operates the business. Alexa’s Dad owns the building where they make their marshmallow products. Unfortunately, his company makes spices, and the smell of onions and garlic permeate the air and adversely affect the smell and taste of 240Sweet’s products.

Sam and Alexa of 240Sweet

 

They also pay more than their fair share of rent and utilities. It was pretty obvious that Alexa had never put her foot down and had never insisted that her father treat them fairly.

Marcus agreed to invest $100K and to give their key employee, Dede, a 10% stake in the company. That left Marcus with a 46% stake and Alexa and Sam with a 44% stake.

Of course Marcus brings more than cash to his deals.  In this case he brought in Pete of “Sweet Pete’s” fame to help Alexa (the chef) improve her recipe’s and upgrade her ingredients. Alexa did not like this. Many creative people are not open to suggestions that may alter their work in any way. Alexa was no different.

This was the first indication that Marcus may have misjudged Alexa and Sam, and their intentions.

Marcus, Alexa, and Sam convinced Max (Alexa’s Dad) to move out and let 240Sweet utilize 100% of the space. Max begrudgingly agreed.

Then, out of leftfield, Dede quit due to some things that Sam had said to her.  Apparently, Sam didn’t like her talking to Marcus and sharing financial information with him. Marcus wanted to understand why she quit. When asked about Alexa and Sam’s motivation for doing a deal with him, she summarized their intentions very nicely in one sentence. “They wanted money, publicity, and to have you help get Max to move out”.

Marcus then confronted Sam and Alexa, and realized that Dede was right, and that these two had manipulated him (and spent his money).  Marcus had heard enough and bailed.

This episode was more like a soap opera and less like a business rehab story.

Not even Marcus bats 1.000. In baseball, batting .350 wins the MVP. I would say Marcus bats well over .500.

Time to visit another struggling company and turn it around.

 

 

 

CNBC’s “The Profit” aired January 19, 2016

Marcus Lemonis visited Innkas in Brooklyn, NY this week. Innkas makes and sells sneakers featuring fabrics and patterns from around the world. The company was founded in 2012, and had sales of $1.8 million in 2014. Dan is the CEO and his brother and best friend make up the management team.

The company was running out of money and had over $500K in debt. They were anticipating a down year in terms of sales, and they were a few months away from closing their doors.

To use a basketball term, this was a layup for Marcus. He invested $600K for 40% of the company and went to work.

He used Pareto’s Law (aka ABC analysis or the 80/20 rule) to “separate the vital few from the trivial many”.

First he determined that 5 of their 50 SKU’s accounted for over 80% of their sales. 45 SKU’s were immediately dropped from the product line. Marcus realized that if they could concentrate their resources on the 5 winners and dump the 45 losers they could increase sales, decrease costs, and eliminate slow moving inventory and stock-out conditions.

Next he determined that retail sales represented less than 3% of their business. Almost 70% of their business was wholesale and nearly 30% was online sales. Retail sales were eliminated as they have the highest cost and a negative impact on cash flow. The store in Brooklyn was shut down and Marcus moved the company to a showroom in Manhattan, which is closer to customers and potential buyers.

He then changed the design process to focus on four designs for each of the five SKU’s. There would be one design for North America, one for South America, one for Europe, and one for Africa.

Marcus’s management challenge was trying to get Dan, the CEO, to listen and focus on the task at hand.  Dan is a great designer and a very creative guy. He was tasked with creating the four designs for one of the featured SKU’s. He came back with over 15 instead of four. His brother said he was trying to wow Marcus. It left Marcus wondering if he was capable of following instructions.

Eventually, he got it, and Dan delivered four interesting and unique designs.

The end result was outstanding, and their biggest customer loved the new product line.

Innkas is well on their way to becoming a dynamic, profitable company.

This layup became a slam-dunk!

 

 

 

 

CNBC’s “The Profit” aired January 5, 2016

Marcus made a trip to Long Island, New York this week to visit Vision Quest and to meet with the founder and owner, Larry. Vision Quest designs, manufactures and installs custom lighting fixtures for business and industry.

The company was founded 20 years ago and was quite successful until several years ago when their largest customer cut their orders from $3 million a year to $1 million a year.

Larry knew he had to cut expenses to stay afloat, but wasn’t really sure how to do it. He ended up laying off too many key people, and hurting the business’s ability to meet customer requirements. For example, he ended up laying off his production manager and his general manager and tried to do his job and theirs at the same time. It wasn’t working. Communication was poor and performance was sliding.

To make up for the poor cash flow, Larry borrowed money from the bank, his parents, and even his daughter’s college fund. Even worse, he had to pledge his house as collateral to get the bank loans. He was $575K in debt.

Larry got to the point where he didn’t know if he should declare bankruptcy or perhaps shut down the entire business.

Marcus to the rescue!

Marcus convinced Larry that his cuts were too deep and had him hire a new Production Manager. This allowed Larry to concentrate on what he was really good at……designing innovative lighting solutions. This move helped fix the production problems and increase the company’s design capabilities at the same time.

Marcus also taught Larry that “cheaper isn’t always better”. Instead of buying and maintaining the cheapest piece of equipment, buy a more expensive piece if it provides an acceptable return-on-investment thru increased efficiency. By the end of the show, Larry was even doing his own return-on-investment analysis, and buying equipment that would pay for itself in less than two years.

Marcus also realized that Larry had accumulated lots of inventory over the years that was now worthless and consuming lots of warehouse space. Larry admitted to being a “pack rat” and was using his over-inflated inventory as collateral for the bank loan. Marcus helped clean out all the obsolete inventory and free-up space.

Now all they needed was some more customers. Marcus introduced Larry to a large NYC lighting business and later brought him into Sweet Pete’s to light the grand opening in Chicago. Larry did a fantastic job on a very short time line.

It’s hard to keep a business growing for 20 years. There are always going to be set-backs along the way. For example, my internet software business went thru five recessions and four major technology shifts in our 28 year history. I outline how we rode out the tough times in my book, “Unlocking Your Entrepreneurial Potential” (see Stage 6: Decline (and Cost Cutting).

In addition to being a talented designer, the thing I liked most about Larry was how he was always open to change, and wanted to learn how to do things better. He knew he needed help. He was what I call a “willing patient”….one who welcomes the opportunity to improve and get better. Larry knew what he knew, and knew what he didn’t know. This is critical for every entrepreneur.

For that reason, I think Larry might be my favorite entrepreneur to be featured on “The Profit”. He was clearly the one who pushed-back the least and welcomed new ways of doing things.

CNBC’s “The Profit” aired December 15, 2015

Marcus visited Kota Longboards in Denver and made an offer to invest $300K in the company. Unfortunately, he ended up having to withdraw his offer due to the shortcomings of the owner, Mike Maloney.

Mike was deceptively inept. On the surface, he appeared to be a great leader and seemed to have it all……he was a Navy F-14 fighter pilot (think Tom Cruise in Top Gun), he was a tall, athletic, good-looking guy, had a good-looking wife (Nikki), and he owned a small, but growing company.

I would describe Mike as a guy that was too cool for school. He showed little passion for his company and his employees. He communicated in military terms. He sounded like he was speaking to the control tower as he was preparing for a landing….very slow measured words with zero passion. He always wore his sun glasses on his head….even in the factory.

Of the 4 M’s of Entrepreneurship (Mindset, Marketing, Money, Management), I would give him a failing grade on each. The only thing Mike had going for him was a high quality product and a bunch of great employees.

Unfortunately, all of his employees left the company because of Mike’s incompetence.

At one point, he had 100% employee turnover in a five-week period and had no idea why. What was even more disturbing…… he didn’t seem to care.

Mike didn’t seem to realize the importance of having a happy, dedicated team. This was very surprising given his military background. On the other hand, he might have believed his underlings were only there to make his life easier.

Marcus had structured his offer in such a way that the three key employees would get a 5% stake in the company so they would be motivated to help the company grow. Mike agreed to the deal but then changed his mind and told the employees the deal was off.

Mike was beyond tone-deaf. He was actually clueless. At one point he admitted he was learning on the job.

Not everyone is cut out to be an entrepreneur. Mike should have stayed in the Navy where he was successful and valued.

 

CNBC’s “The Profit” aired December 8, 2015

This week’s episode demonstrates that just because someone is very talented as a designer, and possesses technical expertise in a given field, doesn’t mean they will become a successful entrepreneur. Mark and Sam from Wicked Candles fit that description to a tee. Mark was a brilliant designer, and his partner/wife Sam had a great personality and was an excellent candle maker. Their “drip candles without the mess” were a thing of beauty.

Their business was not.

After 5 years in business they had accumulated $30K in debt, had $600 in the bank, and couldn’t afford to pay themselves. With all of their talent they lacked skills in 3 of the 4M’s required for entrepreneurial success. They were virtually clueless in the areas of Marketing, Money, and Management.

I will say, they had great passion for their business and so I’ll check the Mindset box  They were clearly committed to the business and to each other.

Of course Marcus provided guidance in their three weak areas (and wrote a check for $200K). In return, Marcus took a one-third equity stake in the business.

The most interesting part of this episode was how Marcus helped Mark improve as a manager and a person. Both Sam and Marcus repeatedly concluded that Mark doesn’t listen very well. For example, he ignored customer, reseller, and co-packer feedback on his products. He also did the exact opposite of what Marcus asked him to do on two separate occasions.

Of course this was a non-starter for Marcus.

In addition to providing what I call “Marcus’s Merchandising Magic”, Marcus is great at “peeling back the onion” to find the root causes of management short-comings. In talking candidly with Mark, he discovered Mark had trust issues. He just couldn’t bring himself to trust anyone besides Sam. This was THE problem, but what was the cause of the problem?

Marcus continued to dig and Mark told him it dated back to childhood when his father and brother continually criticized everything he did. This effected his business behavior, and caused him to think he had to do everything himself because he simply couldn’t trust anyone else to do things “correctly”.

I sensed Marcus had experienced some of the same pressures growing up and perhaps had to deal with some abusive family members. I know I did too.

My father continually put me down verbally and emotionally. In his defense, I would say it was part of that generation’s style of parenting. It was very unlike today’s “everyone gets a trophy” style of parenting. WW2 parents used to say things like “children should be seen and not heard” and they didn’t want us to get “a big head” if, and when, we were successful. Enough about me.

As Marcus said to Mark, you have to separate your personal life from your business life. You actually can use your crazy childhood as a positive force and a motivator. Fear of failure has helped many people achieve great things in business, sports, entertainment,and life. Working with a “chip on your shoulder” can lead to greatness if you can open up, trust people to do a good job, and delegate appropriately.

I’d bet Marcus faced many of these same challenges, and look how he turned out!

Oh BTW, Marcus changed their company name to Biren & Company, streamlined their products and processes, and has them headed in the right direction.

 

CNBC’s “The Profit” episode aired November 24, 2015

This episode used a different format than other episodes. The first business Marcus visited was Da Lobsta in Chicago (no deal), and the second was Betty’s Pie Whole in California (Deal).

Jay from Da Lobsta owned two restaurants and one food truck. His lobster dishes were outstanding and people lined up to get them. The problem with this business was the amount of debt on the balance sheet…..$431K to be exact. Jay had not paid his Sales Tax and owed $120K in back taxes.

While the debt was building, Jay was living the good life. He was running all of his personal expenses thru the business and not paying back his Father (who had invested $300K in a previous business), his Grandma (invested $150K), and his Sister ($35K).

Marcus knew to make this deal work, he would need to cut-off Jay’s access to cash and own a 51% stake in the business. Marcus also wanted to sell the brick and mortar restaurants and have Jay concentrate on running the truck. Jay declined the offer.

Up next was Betty from Betty’s Pie Whole (really). Betty was a great baker, but not a very good business person. People loved her pies but she couldn’t keep up with the demand. Her kitchen equipment was often broken and this resulted in lots of inefficiencies and loss of business.

Marcus made her an offer for 25% of her business and she took it. Marcus immediately closed down Betty’s second store……”Elizabethan Desserts” so Betty could focus on just one store. He did a complete redesign of the kitchen and replaced all of the equipment. The result was a much more efficient, profitable company with happy employees.

Despite having different businesses and different outcomes, Da Lobsta and Betty’s Pie Whole had two things in common.

Marcus likes to make sure that businesses don’t expand too quickly. He likes to make sure that the first location is optimized and can be duplicated before expanding to a second or third location. In both of these cases, the entrepreneurs had already expanded (unprofitably) and were spread too thin. As painful as it may be, Marcus will sell or dispose of businesses or locations so the owner can focus on the potentially more profitable business. This was what Marcus recommended in both cases.

Marcus also believes in the importance of family, and is always very concerned when entrepreneurs have had a falling-out with their parents or siblings. Of course money issues can exacerbate bad relationships. In the case of Jay, his Father didn’t even come to his wedding. In the case of Betty, she hadn’t seen her Mom in six years because she didn’t have the time or money to buy a plane ticket.

In a touching gesture, Marcus handed Betty a plane ticket so she could visit Mom.

CNBC’s “The Profit” episode aired November 17, 2015

Marcus Lemonis journeyed to California to visit Kensington Garden Rooms, a designer and manufacturer of high-end gazebos.

Marcus spent most of his time addressing Management issues, and structuring a deal that made sense to all of the owners..

The management issues centered around the relationship between the founding partners, Damion and Simon. Damion was feeling that he was doing the bulk of the work, and Simon felt that he was doing the bulk of the work. Resentment had been building for some time. This is a common occurence amoung partners. Priorities and focus often change over time.

They talked it out and cleared the air while Marcus was gone for three weeks. When Marcus returned, he could sense there was less tension in the air and that several positive changes had been made while he was gone.

One of the issues that was addressed was component shortages that were causing delays in the manufacturing process. Marcus encouraged them to pre-build an adequate supply of component parts so that they could reduce their delivery time and reduce costs.

Based on these positive changes, Marcus decided to invest in the company. The company was owned by Damion , Simon, and Kab, an angel investor who had invested to help the company get started. They each owned 33%.

Marcus tried to buy Kab out for $250K, but Marcus pulled his offer when Kab wanted Marcus to pay his son for building the company’s website. Marcus suggested that based on his generous offer, Kab should pay him. Anyway, the deal fell apart and Marcus invested $150K for 12% of the company and diluted Kab from 33% ownership to 12%.

Marcus also likes to give some equity to the key non-owner who is critical to the success of the company. In this case, he gave Jack, who worked 7 days a week in the shop, 10% equity.

Co-founders Damion and Simon each kept 33% equity.

Marcus got a meeting lined-up with True Value Hardware, and Damion did a great job presenting their product. True Value agreed to carry their product if they could reduce the price.

The team managed to configure a gazebo that cost $3,500 to manufacture. This will enable them to sell each gazebo at a 45% margin and allow True Value to sell it for under $10K. Marcus called it the “True Value Gazebo”.

Marcus is unlike most Venture Capitalists. VC’s usually want to invest in a company and they are very concerned about how quickly they can get their money back. They want the company to move very quickly toward a “liquidity event”. They want to know the “exit strategy” before they invest. Marcus, on the other hand, wants his companies to take their time to make sure they “get it right” before they grow.

Marcus made a point of telling Damion and Simon, “I don’t want you running too fast with my money”. He’s looking for them to debug and perfect their current operation before expanding to other locations.

CNBC’s “The Profit” aired November 10, 2015

Once again, Marcus worked his “Merchandising Magic”, this time at The Blue Jeans Bar, a struggling jeans store that had expanded too quickly. This is a recurring theme on “The Profit”. Young companies that expand too quickly tend to get in trouble. Marcus believes you need to “get it right” at your first store before expanding.

In this case, the expansion seemed haphazard with 13 stores popping up in random spots all over the United States, and the owner, Lady (yes, that’s her name), lived in a city in Colorado that didn’t have a store! Because most of these stores were losing money, 10 of them had to be closed and three remained open.

Lady had gone deep into debt financing the expansion. Her mother had passed away and left her a portfolio of blue chip stocks which Lady used as collateral to get financing.

Lady’s mother had committed suicide at the age of 43, and this has had a tremendous effect on her desire to make her mother proud of her. It seemed to me that Lady used the emotion as a positive force initially when she created her first store, but her desire to succeed outstripped her ability to adequately manage the company’s growth.

In this case, all 4 M’s of the entrepreneur’s world had to be re-examined…..Mindset, Marketing, Money, and Management. Marcus took care of the short-term Money part when he whipped out his checkbook (BTW, when is he going to get a cover for his checkbook?) and wrote a check for $900K for 50% of the company.

On the subject of Mindset, Marcus asked Lady, “If there was one thing you would not want to change about the business, what would it be?”. Lady answered by saying she wanted to make sure the business didn’t lose its soul.

That led to the Marketing improvements. Marcus started by changing the name of the company to “Denim & Soul”, thereby satisfying Lady’s request. Marcus hated the bar concept from the get-go, and now at least it was no longer featured in the company name.

Marcus then made numerous Merchandising (a subset of Marketing) improvements including creation of a new store layout for the Chicago store (he finally got rid of the bar!), disposal of all slow-moving inventory to make room for more inventory of the right SKU’s, and the introduction of more add-on sales opportunities by adding higher margin products such as sweaters, tee shirts, and hoodies.

The Management structure had too many levels and had to be flattened based on having 3 stores instead of 13. This is a common problem that many entrepreneurs face. The “org. chart” needs to be adjusted as business levels increase or decrease.

Lady had become very loyal to Tasha who was effectively her right hand. With only 3 stores, there was no need to have a COO (Chief Operating Officer) so Tasha was re-assigned to Dallas as store manager. Lady will now have the 3 store managers reporting directly to her, thereby eliminating a level of management. This should improve communication and decision-making.

 

 

 

CNBC’s “The Profit” aired October 28, 2015

This episode featured the married couple of Lisa and Giovanni and their business…..Bentley’s Corner Barkery. Marcus Lemonis visited their original store outside Chicago to help these two entrepreneurs improve their “Healthy Products for Pets” business.

I believe Marcus’s Number 1 strength is his merchandising expertise. He certainly worked his “Merchandising Magic” in this episode (hey, Marcus, this would be a great title for a new book!).

What Marcus saw when he arrived at Bentley’s made him cringe. The store was over-crowded (with product, not customers!) and was far from appealing. In spite of their merchandising issues, Bentley’s had grown very quickly. They had grown to 8 stores in a seven-year period…..mostly through acquisition. The business quickly outgrew Lisa’s and Giovanni’s ability to manage it.

Despite having 8 stores, the business was not profitable and the owners paid themselves just $34K annually ……hardly enough to pay them for the hard work and risk they took every day.

Of course Marcus saw opportunity here. He invested $1.7 million for 40% equity. When the owners pay back $1.3 million (earmarked for another acquisition), he will drop his equity to 25%. This reduces Marcus’s risk if they don’t pay him back. It was also a good deal for the owners because they needed cash and expertise to run the business and make the necessary changes to become profitable . They couldn’t have raised this money anywhere else. They surely didn’t have the expertise to succeed in the long run.

And then they went to work. Here are some of the more important merchandising changes Marcus and the owners made…..

1. Established a “Brand promise” to their customers. Marcus actually used this as a tool to help Lisa to re-consider selling products with better value propositions.
2. Made the original store more inviting through improved lighting, graphics, layout, and outdoor store signage.
3. Implemented an Inventory Control app to reduce inventory levels. This helped free-up space in the stores. It also helped reduce inventory investment requirements.
4. Changed the store layout in such a way that the high-margin products were closest to the entrance. This will help increase sales and profitability.
5. Implemented a central warehouse philosophy that would replenish each store with the SKU’s they sold the day before.

From a management standpoint, Marcus added an online tool (something like Face Time) that allowed Giovanni to communicate more effectively with the store managers. He also helped him become a much stronger leader and a better manager.

After each of these changes had been made to the original store, they had a grand re-opening celebration. Marcus and the owners are now ready to roll-out these changes to the other stores. He even made a comment that he could envision having 100 stores nationally some day. The platform for expansion is now in place.