Interviews

EXCLUSIVE : THE PROFIT: Marcus Lemonis Talks The Real Challenges of Saving A Small Business

marcus-lemonis-the-profit

marcus-lemonis-the-profit

One of the hottest shows to break out on CNBC has been THE PROFIT, which showcases billionaire Marcus Lemonis as he selects a handful of failing small businesses that he thinks could be saved.  In the show’s first season, Marcus featured companies such as a car reseller, a family-owned ice cream brand, a floral shop, and even a doggie-daycare business.  Three out of the six businesses featured in Season 1 turned out to be advantageous business deals and Marcus was able to show them how to save their companies; the other three turned out to be business deals that failed and cost Marcus millions of his own money.

Fortunately, in Season 2 of THE PROFIT, only a few of the deals were not viable because of one or more flaws in the companies’ business operations.  Marcus has always said that there are three essential parts to any business:  people, process, and product.  If one or more of these are missing or does not work, then the business will fail.  As demonstrated in both Season 1 and Season 2, the biggest obstacle to any business is usually the people — or rather those who are running the business.  If those who own the company are unwilling to change or have hidden motivations in making a deal with Marcus, then the deal usually falls apart.

In addition, what is particularly interesting about THE PROFIT is that Marcus does not only provide valuable insight into how a company can be streamlined and operate more cost-efficiently in order to raise their bottom-line, he puts up his own money to do it.  He recognizes that these businesses are on the verge of closing down and they do not have the capital necessary to save themselves, so he offers his own money to invest in their companies — so long as they take his advice and implement the changes he recommends. Unfortunately, not every business he puts his money into is willing to make all the changes he suggests or they simply take his money and do not honor the handshake deals that Marcus extended to them.

It means that every deal Marcus makes is a risk — and it is a risk that each of us can relate to. There are no guarantees in business.  Some times business deals work out to everyone’s benefit and other times those deals blow up.

As THE PROFIT enters its third season, the show will again explore what kinds of companies can be saved and what it will take to save each one in order for them profitable again.

In an exclusive interview, Marcus Lemonis candidly shared his thoughts one what makes or breaks a deal and/or a company.

One of the reasons your show fascinates me is because you seem to be getting screwed over just as much as the rest of us.  I mean, who would mess with a billionaire who knows exactly what he is doing and has enough money that he can find out anyone’s secrets?
MARCUS:  That’s what I say!  There are people that just do that.  They try to anyway.

It kind of levels the playing field so it feels like you are just like the rest of us. It is like, “Oh, that happens to you too.”  And it is crazy that these people on your show really think they can get away with that.
MARCUS:  It does.  And it happened in Season 2 – again — and they know there is a camera there.

Don’t you think that these people who are approaching you and want to work with you to save their businesses would be more educated — particularly after seeing a season or two of your show — that they would know that they cannot pull those kind of tricks?
MARCUS:  (Laughs) You would think that.  I think what happens is desperate people do desperate things. These people get in such a mode of survival that they will say and do anything, and then once they get the money, they get a little bit of amnesia.  They go back to their old bad habits.

But you have video footage showing them agreeing to the deal. What do they say when they see it?
MARCUS: I actually do not see the show until you see the show. So I film it with the crew and the first time I see it is the same time you see it.  It’s funny for me to replay it in my head and think to myself, “I don’t think these people knew the camera was there.” Even though they screwed me, I’m kind of kind of embarrassed for them.

Do any of them come back to you after the show airs and say, “hey, can you not show that?”
MARCUS:  They do, and I always tell them, “It’s not my call.”  I mean, I am in the show, but it’s not my show.  And they are usually like, “oh man, this is going to destroy my business,” and I’m like, “well, you shouldn’t have done that.”

Now that the show has been on for two seasons and you have filmed a third, what have you learned from it?
MARCUS:  To be honest, I have learned more about myself:  how to be a better listener, how to have a little bit more temperance, when it is okay to have patience and when it is okay to not have patience, and that sometimes I am a little too forgiving and too vulnerable.  I am not saying that I am less vulnerable, but I am a little smarter about it.  I set things up a little bit more so I do not get caught off guard.

Do you find that you are a bit more hardened or jaded about these businesses that come to you?
MARCUS:  I don’t, actually.  Right along side filming the last 14 episodes, I bought about ten businesses at the same time that were not on the show.  I really said to myself after the flower shop or the popcorn one, “Don’t let those experiences kind of jade you.”  I liken it to being in a relationship — like you dated somebody for a while and they did something bad to you, you kind of don’t want that bad to leak over into your next relationship.  It is hard sometimes.  It is human nature to kind of think a little bit more about it.  But so far, so good.

What has been the biggest surprises working with these businesses on the show?
MARCUS:  How unsophisticated they are and how unsophisticated they want to stay.  So to try to bring them into modern day system, it surprises me how resistant they are to that. It shocks me.  The other thing that surprised me is that a lot of these people have these “pinch me” moments.  Like we will do a deal and for a while they are still not sure it is real.  They are like, “This really happened?”

But they cash the checks.  That seems very real.
MARCUS:  They do.  But they are still kind of surprised that it happened.

Well, you only go in for a week.  That is not a lot of time.
MARCUS:  It’s not a week straight.  I will film 3 or 4 days, then we will go away for a couple of weeks and then come back for 3 or 4 more days, then go away again for 4-5 weeks, and then come back.  A lot of the reason is that things need to happen.  Things need to marinate and I need to think about it, and they need to think about it.  The process needs to happen.  Renovations need to happen.  So it is not like EXTREME HOME MAKEOVER where a crew shows up and in 48 hours we have renovated the whole place.

That sounds pretty labor intensive.  Are you still getting joy out of all this or is it more of just a job?
MARCUS:  No, it’s not just a job.  I’ll tell you what I get joy out of:  when I meet people and they say to me, “I had a failing business and I learned something from your show.”  The other thing that amazes me is that I meet a lot of kids that say, “We watched episode 3.  I can’t believe you let that lady do that.”  And they are like 11-years old!  I spend way more time doing high school events than I do corporate events.  I love going to grade schools and high schools.  They ask such good questions.

You have mentioned before that you love teaching.
MARCUS:  I love it.  I love that the kids argue with me and challenge me.  There are kids that will say, “I don’t think you should have done that deal.  You should have asked for this and you should have asked for this.”  That level of enthusiasm.  There is something to be said for that.

What is the most common problem that you are seeing as you go into these businesses?
MARCUS:  They still do not know their numbers.  Even in the season we are filming now, I will go there and they will say, “I have watched every episode. I know all the questions you are going to ask.  I’m ready.”   So I will ask, “What were your sales last year?” and they will say, “Well, I don’t have that.”  And I’m like, “What questions did you think I was going to ask?” and their response is, “Well, we weren’t really sure.”  That’s the biggest disappointment, when they are not prepared.  When they are not involved in the details of their business, that’s frustrating.

For those types of people, would you recommend that they get a business manger or an accountant?
MARCUS:  I may even recommend that they should not be in business. Not everybody deserves to be in business.  There is a controversial statement that I always make, which is, “Owning a business is a privilege, not a right.”  If you don’t bring the goods and you do not respect or treat people right, then you shouldn’t be doing it.  It is not for everyone. Some people are just meant to get up at 8 a.m. and go to work and get off at 5 p.m.

Yet somehow they started a business, whether they were ready for it or not.
MARCUS: Or they did it because they were excited about it or they liked cookies.  It is just not for the right reasons.  I don’t think they really understand what goes into it.

So in those situations, would you recommend that they need a partner?  Someone who might keep them more on track?
MARCUS: Or just get out.

When you get all these proposals and pitches, what gets your attention? What sparks your interest?
MARCUS:  I have to like the product.  I have to be able to relate to it.  It is unfair to a lot of the businesses because I can’t relate to everything.  And it has to be something family-friendly.

But not all the businesses on your show are family-friendly.
MARCUS:  But the products are.  The people did not turn out to be family-friendly, but the product is.  And it has to be relevant.  I’ll meet people in the grocery store and they will ask, “How do you look at businesses?” and I tell them, “I want to go into a business that the average person will say, ‘I went into that business or I went into a business like that and they were totally a mess.'”  So I don’t like going into things like heavy technology or heavy manufacturing, where you cannot see it or relate to it.  I also want to pick businesses where people can say, “I always wanted to learn about barbecuing or learn about coffee-roasting.”  So I try to choose things that will be fun, but that will also be relevant.

One of the trends I picked up on early, and it may not be so true anymore, was that you were looking for franchisability. But that doesn’t seem to apply for each business.
MARCUS:  Still am.  I am looking for scalability.  Like I just bought Crumbs and it worked for me because over the course of the first couple seasons I had acquired 3 or 4 different products that could immediately be integrated into Crumbs:  Key Lime Pie, Sweet Pete’s candies, and the ice cream company.  The ice cream company will actually become the manufacturer for Crumb’s ice cream and we will have a red velvet ice cream, a devil’s food cake ice cream.  It will make for a viable business.  Crumbs, as a standalone is not a long-term viable business.  The minute cupcakes fall out of favor, and Krispy Kreme donuts comes back or pies come back or whatever, it is done.

So you want to diversify the products for a franchise?
MARCUS:  I want to have all of it.  We will have pie, ice cream, cookies, cake, coffee, Greek yogurt and we will have a lot of gluten-free products.  That is something I have a lot of money invested in.  So I will really have a sweet-and-snack shop, opposed to a cupcake shop — and it is totally scalable.

When you look at a business that is not franchisable, what are you looking for?
MARCUS:  I have to like the business.  For example, in Season 2, I invested in Amazing Grapes, which is a wine company and I did it because I fell in love with the employees.  I totally fell in love with them.  I ended up doing the deal with the owners and taking 75% of the business and giving the employees 25% of the business. I will say that may not be the best business deal ever — I won’t make millions and millions of dollars — but I loved the people.  When the producers asked me if I was going to do the deal, I said, “Yes” and they said, “What’s your logic?”  And I said, “I love the people.”  I fell in love with their commitment, their passion. The employees were so emotional about its success, even with absentee owners.  So it gave me the inspiration to say, “You know what?  If it is like their business, why not make it their business?”  That was my favorite episode.

What makes a business unsavable?
MARCUS:  Bad people makes a business unsavable.  I can fix the process or a product can be modified.  But if the people are down to the core not good people, the business is unsavable — and honestly, not worth it.  There are millions of people that deserve my time and money.  I am not going to waste my time and money on people that aren’t worth it.

How quickly can you assess that?
MARCUS:  I try not to rush to judgment too quickly. I get a pretty good vibe initially, but then I am conflicted because I feel like I have to give them the benefit of the doubt.  I shouldn’t be judging people right on the surface.  They could be nervous because they have never done a deal before, or it is because there are cameras there. I also remember that there are people that work there.  But, at some point, you just have to walk.  I walked away from three deals in Season 2 because I couldn’t take the people.  I took my losses.  I lost a $100,000 on one, then $70,000 on another.  I just said, “I can’t.”

So usually it is not a product that is ruining a business.
MARCUS:  It’s never a product or process, it is always the people behind it.  Always.

Have you ever considered just buying those businesses out, like you did in the case of the absentee owners for Amazing Grapes?
MARCUS:  I have.  But then I have to figure out who is going to run it after.  If I really have not bought into who is left, I don’t want to buy the business.

What would be your advice to someone who wants to pitch you or be on your show?
MARCUS:  The advice I would give to anybody that wants to partner with me is:  better know your numbers, better have your facts straight, and you had better answer everything with absolute truth.  I never ask a question that I don’t know the answer to.  Never.  So I really want people to be prepared.  I will get people who will email me on a whim.  It will be 11 p.m. at night and they will say, “Hey, I am a small business.  I am sure you’ll never read this email.  I am sure you are never going to answer.” So I reply and I say to them, “Send me over your plan.”  And they don’t have it.  So do not email me unless you are ready to engage. Because I engage with people and they are like, “Uh, I didn’t think you were going to reply.” Then I’m like, “Then why did you email me?”

What percentage of people would you say that send you emails is that common with?
MARCUS:  That are not prepared?  More than 50%.  In fairness to them, I think they think it is a long-shot.  It is like, “He’s never going to answer.” And then I answer and all of a sudden they do not know what to do.  So that would be my advice:  be prepared.

Then as we wrap up, just because I was following it, what is going on with the renovations in Horton, Kansas?
MARCUS:  It’s so awesome.  But there has been some drama.  People that have lived there a long time have written me to say, “Stop trying to change our town.”  I am very matter of fact with them and I’ll say, “If you don’t do these things, I am not coming back.”  Right now, I am scheduled to buy three buildings.

This seems a bit unusual for you as you tend to invest in established businesses or buy businesses.  But, in the case of Horton, it is like you are investing in a town.
MARCUS:  To me it is a microcosm of what is really happening in the country.  So if we can get these people to rally around themselves — not rally around me — they have to believe in themselves and set an example for the kids.  We have tasks every weekend: it’s garbage weekend; it’s asphalt weekend; it’s training weekend.  It is whatever it may be.  In the end, they now believe in themselves.   They were shocked when I first went there.  It is not part of the show.  There are no cameras allowed and I won’t do any interviews with the newspapers in town.  I do not want the people to feel like they have to be on a dime for their behavior.  They can fix their town or not fix their town. I am willing to invest with them, but if they don’t follow through, I am not following through — and I told them that from the beginning.  I was very honest with them.  So what surprised me is that now they have Friday night clean-up nights and they do things on Saturday as a town.  There’s only 2,000 people in the town.  The young people are so committed to it.  I am inspired by it.  I love it.

To see who might be foolish enough to not heed Marcus’ advice to save their business and which business are ultimately saved, be sure to tune in for the Season 3 premiere of THE PROFIT on Tuesday, October 14th at 10:00 p.m. on CNBC.

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