In the second season of CNBC’s “The Profit”, Marcus Lemonis visited eight troubled entrepreneur-owned businesses. His goal was to invest his time, money, and expertise to help turnaround these businesses, return them to profitability, and eventually get them on a growth trajectory. In return, he took a stake in the company and stood to profit if the turnaround was successful.
It was a good second season, and I look forward to the third season (scheduled to start in October,2014). There were many lessons to be learned about how to energize a declining business. “The Profit” also had more than a few “cringe worthy” moments that demonstrated just how closed-minded and insecure some entrepreneurs can be.
I get it. I understand the entrepreneurs’ point of view (I co-founded and ran a software company for 28 years and my partner and our employees often thought I was a bit of a “control freak”) .
Many of the entrepreneurs appearing on “The Profit” had achieved some degree of success by being “control freaks”. Now along comes this knight in shining armor, Marcus Lemonis, to “save the day”. The entrepreneurs are thinking, “Yes he’s a smart guy with deep pockets, but what does he know about MY business? I’ve been busting my butt for X years and in strolls a guy with a check book who wants me to give up majority ownership of the business I built!”
Been there, done that. In fact, in the 28 year history of our mid-sized software company, I faced this situation at least a half dozen times . But I digress.
What separates the winners from the losers on “The Profit” is the mindset of the entrepreneurs. Those business owners open to change and with a positive “can-do” attitude typically do well. The ones that aren’t serious about making changes are a waste of everyone’s time. Here are my Best and Worst Entrepreneurial Mindsets in Season 2.
Best Entrepreneurial Mindset………..”Beat Profit Expectations”
Beat Profit Expectations
To be honest, none of the owners had very good entrepreneurial mindsets. I considered the two owners from A. Stein Meat Products for this award. They were very nice guys but didn’t have a real handle on their business (until Marcus arrived they didn’t realize they had over $1 million in receivables that they will never collect). I considered Tina Sena from Pro-Fit (Not Profit!). Despite having a “control freak” partner (her husband), she worked well with Marcus while creating a new and improved Protein Bites product line.
But the one who had the best entrepreneurial mindset was not even an owner. It was Tami from Key West Key Lime Pie Company. Tami did an incredible job holding the place together under very difficult circumstances. She only made $300 per week and had a second job to make ends meet. All of this was accomplished while she was eight months pregnant! Tami did whatever she had to do to overcome a tough situation. Marcus promoted her to Manager and paid her $1000 a week when she returned from her leave. And so….. the winner of the Best Entrepreneurial Mindset was Tami from Key West Key Lime Pie Company. She, more than anyone in Season 2, embodied a strong entrepreneurial mindset. She was focused, disciplined, and resourceful….all traits needed to succeed as an entrepreneur.
Worst Entrepreneurial Mindset…………………..”Missed Profit Expectations”
Missed Profit Expectations
This was a tough call. Almost every company appearing in Season 2 had one or more partners that was set in their ways and resistant to change. That said, Skulldugery took the cake.
Here are some excerpts from my original review of their appearance……
“Marcus Lemonis visited Skullduggery this week to put together a deal with brothers Steve and Pete who ran this second generation toy business. After some negotiating, they agreed that Marcus would pay off all of their debt ($1.1 million) and become a 30% owner. The deal included Marcus maintaining control of ALL financial decisions.
My analysis of the brothers’ business using the 4M’s of entrepreneurship….Mindset, Marketing, Money, and Management is as follows:
Mindset…..It is very difficult for any entrepreneur to “let go” after running a business for 20 years. It was especially difficult for Steve, (the President) to lose control of the business. He was a “control freak”. Many entrepreneurs are just that, so the idea of Marcus controlling all financial decisions was difficult for Steve to accept.
Marketing…..Steve and Peter had done very little marketing of their products. First, they didn’t use any focus groups to get feedback from real kids about their toys. If they had, they never would have made so many product mistakes. This resulted in obsolete inventory, inventory write downs, and bigger losses.
Money…….Steve and Peter had run-up debts totaling $1.1 million. They were losing money on sales of $1.6 million, and their revenues were decreasing. They needed help developing a plan to turn things around. Marcus wanted to do a licensing deal with NASCAR for the toy cars made by Skullduggery. This would have given them a huge market for their most popular product, but Steve botched the meeting with the Chief Marketing Officer of NASCAR. Again, he didn’t want to lose control.
Management……One of my favorite sayings in business is “know what you know and know what you don’t know”. Steve and Peter didn’t know what they didn’t know. If you “know what you don’t know”, and are willing to find someone who does know to help you, you can succeed in business. This requires you to a) know you don’t know everything there is to know (you’re not perfect) and b) to be willing to give up some control to the expert in that area.
Summary…..In reality, Steve and Peter were looking for a silent financial partner who had no control or influence over their business. They didn’t want someone like Marcus saying “No” to them…….even if that’s exactly what’s needed.
I believe in the “Willing Patient Theory” which says in order to get better, THEY have to want to get better and have to do what the Doctor tells them to do. Steve and Peter were not willing patients.
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Best Performance by Marcus Lemonis……………”Exceeded Profit Expectations”
Best Performance by Marcus Lemonis
How did I determine Marcus’s best performance? In a nutshell, it happened when he was bold, creative, and was allowed to “do his thing” and work his magic with minimal push-back from the owners.
The winning performance happened on the episode featuring Amazing Grapes, bar/restaurant and wine store in southern California. Here are some excerpts from that episode……..
“Marcus Lemonis had his most successful short-term turnaround in this episode of “The Profit”. He invested over $300K in Amazing Grapes, a combination bar/restaurant and wine store in Orange County, California.
Marcus helped save the jobs of 17 employees and increased the annual revenue run rate by $700K by redesigning and expanding the entire facility.
In terms of the 4M’s of Entrepreneurship……Mindset, Marketing, Money, and Management, the improvements to Amazing Grape included:
Mindset
The two partners that owned the business were not actively involved in running the business. The employees received no direction and were on their own. Every successful business requires a laser-like focus and a team that shares common goals and objectives. Marcus re-organized the company and minimized the role of the owners and gave a 25% equity stake to the current group of employees who were now empowered and incentivized to grow the business.
Marketing
The original store looked like it was two separate businesses……1) a bar and 2) a wine store. By redesigning the store, Marcus integrated the two businesses and increased cross-selling opportunities. The wine was presented in a way that encouraged in-store browsing. The bar and restaurant business was significantly expanded and Amazing Grapes was now a cool place to “hang out”. It was not a cluttered mess like the previous design.
Money
Pre-Marcus, Amazing Grapes had too many SKU’s (1800) which resulted in too much slow-moving inventory. Those prices were slashed to get rid of the older bottles. The margins were also too small to provide a profitable business. The restaurant/bar had adequate margins, but that was only 14% of the total revenue. Marcus increased margins by expanding the restaurant/bar business and by offering a private label wine made by an urban winery with the Amazing Grapes label. This wine is now sold at the bar by the glass and by the bottle/case in the wine store.
Management
There was no communication, no direction, and no objectives established in this company. I will give the owners (Greg and Bill) some credit…..they hired very capable and committed people. It was thru their efforts that the company had grown to $3.5 million in annual sales. With the new incentives and organization in place, the company is now poised for explosive growth.
Summary
Marcus unlocked Amazing Grapes’ potential by investing in the business, restructuring the organization, and providing the right environment for the new management team. The old general partner, Greg, no longer calls the shots and the team is now organized and motivated to succeed.
I love the expression, “Lead, Follow, or Get the hell out of the way”. At least Greg got out of the way!
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Worst Performance by Marcus Lemonis……………..”Missed Profit Expectations”
Missed Profit Expectations
This one was easy. The couple that owned Worldwide Trailers used to be married, was now divorced, and spent most of the episode fighting with each other. Marcus clearly lost his cool and had to get “bleeped” at the end of the show. I’m pretty sure he dropped an “F-Bomb” when one of the owners asked him out on a date. Some excerpts from my original review…….
“This episode featured WorldWide Trailers located in Waycross, Georgia and Tampa, Florida. The company is owned by Tom and Nancy, a recently divorced couple who continue to try to run the business together. This would be challenging under the best of circumstances, but this was a VERY nasty divorce, and the impact on their business partnership was predictable.
They thought the annual revenue of the business was about $4 million and the profit was about $400K. I say “thought” because they didn’t have adequate and timely Financial statements.
Marcus made them an offer that was later withdrawn when it turned out their profits were only $200K and their inventory was only $20K instead of $100K.
What was going on here? I will analyze this scenario by looking at the 4M’s of Entrepreneurship…..Mindset, Marketing, Money, and Management.
Mindset….Both Tom and Nancy just thought about themselves and their personal needs. They continually talked about their divorce issues, Tom’s girlfriend, their infidelity, Tom’s lies, Nancy’s tan, her need for a beach house, etc.,etc, etc). This consumed 100% of their time and energy. This left virtually no time left to concentrate on their business!
Running a business requires laser focus but these two continually focused on their personal history. Under these circumstances, any business is doomed to failure.
Marketing…..These two , while still married, had built a nice business that served a small but profitable market niche…..specialty trailers for the mobile food preparation industry. They built over 100 trailers a year and had made a nice living doing so. Given their current situation, they don’t have the time (or expertise) to grow their business.
Money…..A manufacturing company needs a system to track inventory and production costs. They didn’t have any system and hadn’t taken a physical inventory in years. They relied on their accountant to produce financial statements and he did so annually for Tax purposes (only). This is not sufficient to run a business. At a minimum, you need a quarterly Profit & Loss statement and have the ability to track how much each trailer costs to produce. This tells you whether you made or lost money on each unit produced. They had none of this.
To make matters worst, it looked like Tom had put his girlfriend on the payroll as a way to increase “his” compensation so he could recover some of the money he lost to his wife during the divorce settlement.
Management……Nancy and Tom lived in Tampa while the manufacturing was done in Waycross. They rarely visited the plant so communication with the employees was virtually non-existent. I personally believe that in manufacturing environments “People do what you INSPECT, not what you EXPECT”. It was clear to Marcus they needed to move to Waycross to reduce costs, increase profits, and be able to manage the business more effectively. Again, their personal issues got in he way and they resisted.
Nancy aired their personal “dirty laundry” in front of the employees. This is a big no-no. It is destructive and serves no purpose. Sharing business-related information can be a good thing, but never personal disputes among the partners.
Summary….. I kept waiting for Marcus to buy-out one or both of the partners, but he never did. I guess he figured Tom would go for it (but then he’d be left with Nancy), or Nancy would want too much money to leave if he tried to buy her out. Neither was a great alternative.
I forgot to mention….. in the midst of this train wreck, Nancy got the hots for Marcus. The final scene was hysterical. After Nancy proclaimed “the deal is off”, Marcus walked out of the office and Nancy quickly followed him. She asked him if he wanted to go out on a date with her!
Marcus dropped the F-bomb and left. A fitting ending for this episode.
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Best Episode of “The Profit” Season 2…………………….”Beat Profit Expectations”
In this episode he was working with Jim and Alison who each owned 50% of Key West Key Lime Pie Company. Their Revenues were $1.4 million but they weren’t profitable and hadn’t drawn a paycheck in seven months. Marcus agreed to invest up to $450K for 51% ownership.
The challenges Marcus faced can best be described by looking at the 4 M’s of Entrepreneurship…..Mindset, Marketing, Money, and Management.
Mindset….Jim was very defensive and a real control freak. He was not accepting of change and fought Marcus on every change he suggested to improve the business.
Entrepreneurs need to be disciplined but flexible. As someone once said, “Constant change is here to stay”. Entrepreneurs need to be two steps ahead of their marketplace and their competition. In Jim’s case, he kept doing the same old thing and expecting a different result. I believe that’s the definition of “insanity”.
Marketing…..There were a couple of Marketing challenges here. First, with all the Key Lime pies sold in Key West, Florida, Marcus realized that the business needed a distinctive competitive advantage. The business went from using ingredients purchased from other companies to making pies that were “hand-made and all-natural”. That differentiated the product from the competition.
The second challenge was to layout the store in such a way that the pies (high margin) were featured and the jars of key lime products (low margin) were not. The new configuration proved to be very successful with customers who attended the grand opening.
Money……Jim and Alison had two locations….one for producing and selling the pies, and one for shipping the products. The shipping location generated no revenue and cost an incremental $25K, which could be eliminated if they consolidated in one location.
Many entrepreneurs think you need to increase prices to increase revenues and profits. In this case, Marcus increased the cost to make the pies (by hand with all natural ingredients) and reduced the price of the product. This increased revenues and profits by generating additional demand for the product and therefore increasing revenue and profits. This strategy worked because the margins in pies was so high (almost 90%).
Management…..Perhaps the biggest challenge Marcus faced was strengthening the management team. Jim tried to micromanage everything and could be a nasty son-of-a-gun to boot. Alison’s main job (besides shipping orders) seemed to be to keep Jim from exploding.
Fortunately they had an employee named Tami who did an incredible job holding the place together. She only made $300 per week and had a second job to make ends meet. Did I mention she had twins and was 8 months pregnant?
Marcus recognized her potential and paid her a nice bonus, increased her salary to $1000 per week, and promoted her to manager. When she returned from maternity leave she ran the place like a pro. Now Jim worked for Tami!
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Worst Episode of “The Profit” Season 2………………”Missed Profit Expectations”
The episode featuring Athans Motors was a snoozer. It was anything but memorable. I can’t remember much of it. I do remember that Pete, the owner, was very egotistical and not a particularly likeable character. The highlight of the show was when snow plows showed up to save the day and allowed the Grand Re- Opening to go forward. BTW, Marcus also helped shovel snow!
I think Marcus may have over-paid for this used car lot ($3.5 million for 50% equity). I’m sure this will be the last time “The Profit” shoots in the Midwest in the dead of Winter.
Excerpts from my original review……….
“We all learn from our mistakes.
Pete Athans, a pre-owned car dealer from Chicago, learned many lessons on the premiere episode of Season 2 of CNBC’s “The Profit”.
“The Profit” features Marcus Lemonis, who not only invests his own money in an existing (troubled) business, but also goes on site, rolls up his sleeves, and shows the owners how to turn it around.
Despite Marcus’s no-nonsense on-screen persona, he deftly teaches the entrenched entrepreneurs how to make the tough decisions needed to run a successful business. I like to talk about the 4 M’s of entrepreneurship…..Mindset, Marketing, Money, and Management. Marcus touched on all four in the premier episode of Season 2 when he invested his time (and money) in Athans Motors.
Pete made more than a few mistakes in building his 4 year old business. I will analyze his strategy and tactics for each of the 4 M’s of entrepreneurship with an eye toward helping other entrepreneurs avoid similar pitfalls.
Mindset……..When starting a new business, you need to park your ego at the front door. Your strategies and tactics need to be driven by your marketplace….current and future. Unfortunately, Pete let his ego get in the way. He spent way too much building his facility (something over $2 million). It looked like an upscale Vegas casino when he got done.
It was as if he had built a monument celebrating his previous success and was hoping it would impress his friends and family. It clearly did not meet the needs of his marketplace. Tip: Most self-funded entrepreneurs are better off starting small and building on their success.
Marketing……. Part of Marketing (with a capital M) is Product Management. Pete had a poor product line-up. He only had 20 cars on the lot and most of them were too expensive for his marketplace. As a result, potential customers weren’t even going into the showroom.
Marcus Lemonis changed the product mix so there was something for everyone. He bought a bunch of lower priced cars at auction and slashed the prices on the existing inventory. Tip: Before you start a business, make sure you have first-hand knowledge of the market you are serving. Know your marketplace inside and out.
Money…….In order to survive and thrive, a self-funded entrepreneur needs to hit the break-even point as quickly as possible. This is achieved by controlling expenditures and increasing revenue. Pete did neither. It can take 3 to 5 years to reach the break-even and become cash flow positive. Pete was entering his 5th year and was losing about $150K per month. Tip: Cash is King. It’s the lifeblood of every company and should be conserved whenever possible.
Management…….Pete was a micro-manager and afraid to lose control. For example, he didn’t allow his operations manager to keep the Profit & Loss statement in her office. The books and financial statements had to remain only in his office. He also used a closed circuit TV system to listen-in on his people, and he would walk out of his office and over-rule them in front of the customer.
Pete’s people weren’t allowed to do their jobs. Morale was very low and the organization was not reaching its full potential. Tip: Don’t lose sight of the big picture. Tell people what you expect from them but give them latitude to do their jobs. If the desired end results are not achieved, take the necessary corrective action.
Summary…..Marcus wrote a check for $3.5 million for a 50% stake in the business. Pete had been in denial (about the need to change things), but eventually realized that this was his only way to survive. Marcus called the shots and made the necessary changes (including changing the name of the business to AutoMatch USA). The business is on its way to profitability.
……………For additional tips for current and future entrepreneurs visit: http://TimMcEneny.wordpress.com (Shark Tank blog) and http://tiny.cc/23q19 (“Unlocking Your Entrepreneurial Potential”).
Author of "Unlocking Your Entrpreneurial Potential: Marketing, Money, and Management Strategies for the Self-Funded Entrepreneur"
The Best (and Worst) of CNBC's "The Profit" 
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