tv The Profit CNBC January 4, 2016 7:00pm-8:01pm EST
l-that was pretty good. -mike: [ laughs ].. lemonis: ...a custom drum company can't find the rhythm to meet supply and demand. mike: our turnaround time is six to seven months. -lemonis: six to seven months? -mike: yeah. that's created a backlog of unpaid bills and serious cash-flow problems. chris: we don't have enough money to cover payroll for next week. lemonis: i mean, you're kind of closed. chris: yeah. lemonis: the owner and his right-hand man are out of sync. louie: the lack of communication, i think, between chris and mike, it's like -- it's just...exactly. lemonis: and the two brothers who started this business have split up... scott: what did i ever do to you? mike: i really don't want to get into all that. lemonis: ...causing a whole nother layer of crippling issues. if they can't fix their process and their relationship... mike: fixing the business and this [bleep] is hard enough. lemonis: ...they'll be forced to close their doors forever.
mike: i can't take this. [ sniffles ] lemonis: southbridge, massachusetts, seems like a quiet town -- until you get inside of sjc custom drums. mike: sjc. this is mike. lemonis: mike and his brother, scott, started making drums in 2000. but after a serious falling out, a deafening silence has divided them for years. mike: not being able to have a brother -- i mean, you only get one life. lemonis: since then, mike and his right-hand man, chris, have tried to keep the company going. chris: we're about $30,000 behind right now on bills. lemonis: sjc drums are among the very best, and performers like imagine dragons, green day, and lady gaga swear by their sound, but sjc's lack of inventory and working capital... mike: where are we even gonna get the money from?
lemonis: ...has them in a terrible financial snare. man: i'm calling about the order i placed about six months ago and still haven't seen. lemonis: it's time for sjc to march to a new beat. mike: it's like i can only take so much, you know. lemonis: or this custom-drum manufacturer will crash. i'm in anaheim, california, at n.a.m.m., the national association of music merchants, to meet mike and chris for the first time. and the energy level's unbelievable. man: ha! whoo! [ cheers and applause ] -lemonis: you mike? -mike: yeah. -lemonis: hey. marcus. -mike: nice to meet you. -lemonis: nice to meet you. -mike: thank you for coming. -lemonis: this place is rocking. -mike: it's crazy. i can't believe i still have my voice. lemonis: and so this is the product that you make? mike: yeah, we make custom drums from start to finish. lemonis: how much is a setup like this? mike: this set is about $6,000. lemonis: the average person can't afford $6,000.
the average person can't afford $2,000. the problem i see is they're selling to a very small customer base. so, what is the lead time? mike: our turnaround time is, like, six to seven months. -lemonis: six to seven months? -mike: yeah. lemonis: it's ridiculous. you could build a yacht in six months. you could build a brand-new plane in six months. mike: we run out of inventory. lemonis: they don't have the parts and pieces. that's no way to run a business. -mike: this is chris. -lemonis: how you doing, chris? chris: very nice to meet you. lemonis: i'm marcus. what do you do? chris: i order all the parts for manufacturing, finance. lemonis: so you're doing manufacturing and you're the accountant? chris: yeah. mike: chris left a corporate company, making six figures, and cut it in half to come work for sjc. he has mbas and an engineering background. lemonis: you a partner in the business? chris: we act like partners, but i have no equity stake in the business. -lemonis: so that's a no? -chris: yes, so... lemonis: so, something beautiful like this... what's your cost to make it -- materials and labor? chris: $680. lemonis: it was $680 to make this? what will you sell this piece for? mike: $795. lemonis: so at, basically, 15% margins.
mike: right. lemonis: that's a lot of work for 15 points. -these things look badass. -mike: exactly. thank you. lemonis: your margins are not badass. -chris: right. -mike: right. lemonis: you really have to have a sustainable margin on any product to be able to pay your bills. i mean, their margins right now are 15%. there's no way you're gonna make a living off of that. i mean, it's just not gonna work. what does "sjc" stand for? mike: it's my brother's initials -- scott james ciprari. we started the company together 15 years ago. lemonis: he's not in the business anymore? mike: about five years ago, things started to not be good. i mean, my brother's a genius. he's the one that started making the drums. i don't know how to make drums. i know how to market. but it was very bad -- it was toxic for him and i to be working together. and three years ago, i said, "i'm gonna buy you out." and we didn't see each other for a while. -lemonis: tough. -mike: yeah. lemonis: when you lose the founder of the business, it definitely hurts the business. there's other people you could hire, but you can't hire a new brother. [ drums playing ] mike: man, you got it!
lemonis: what was interesting to me is the range of ages that were in that booth, excited to see and play sjc. it was impressive. if they could offer up more affordable kits, this is maybe one of the few businesses that i think has more potential than even the owner thinks. -lemonis: that was pretty good. -mike: [ laughs ] lemonis: after seeing things at n.a.m.m., i'm heading to southbridge to really see what's going on behind the scenes of this company. -good to see you. -mike: good to see you. this is our warehouse. this is kind of the start of the process. all of our shelves are there. a lot of custom stuff. lemonis: how you doing, buddy? chris: hey, marcus. lemonis: so, the raw materials come in here. who schedules the workflow that happens? chris: i schedule every order that comes through. lemonis: so who's in charge of sales? -mike: me. -lemonis: who generates the actual sale order, the quote? mike: i do. lemonis: and who makes sure that it's priced properly? chris: i created the pricing tool, and mike said, "these prices are too high."
mike: i'm trying to be competitive to -- to get sales in the door. lemonis: so you're inefficient, and you're priced below market, which means you have high costs and no margin. death spiral. the guy who's manufacturing the product and knows all the numbers isn't allowed to price the product? we're gonna let the salesman price it? not a good idea. are these organized in a way or would you say it's a little jacked-up right now? chris: it's not too bad. lemonis: it doesn't look super-organized to me. disorganized materials equals loss of time, which equals loss of labor, which means money is leaking out the door. i see boxes everywhere. i see piles of crap beyond belief. i'm not sure how they even make the quality of drum that i've seen and i've touched in this warehouse. where is everybody? chris: there's people working back there. lemonis: i want to see what they're doing. making a custom drum is very labor-intensive. each tube has to be cut just to size, then sanded, then painted or stained.
and the loops that hold the skin to the drum shell are also made by hand. and then there's a bunch of hardware options to put it all together. but because this warehouse is so disorganized, they're wasting a ton of time trying to find the parts and pieces. and all of these inefficiencies increase production time, which kills their margins. mike: so, what they're doing right now is they're -- it's in the final assembly stage. -lemonis: hello. i'm marcus. -josh: josh. nice to meet you. lemonis: hey, nice to meet you. how long have you been here? josh: this will be my eighth year. lemonis: wow. what's been the craziest part of it? josh: just the hustle. lemonis: how stressful is it working here right now? louie: pretty stressful. matt: we get orders all the time that come straight from the front office, and it's like, "we need this kit yesterday." lemonis: so whose fault would it be? matt: mike's. so then we have to go around the whole shop and find different parts to make the kit. josh: every time we try to set a schedule, you're constantly stopping and going back, because this kit ends up being more of a priority. louie: mike will come out and say, "we need this kit done." and we know we don't have the parts, so i'll say,
"chris, we don't have the parts." he goes, "yeah, don't worry about that one. do this one." so it's like -- it's just... compounded throughout the whole shop. lemonis: the most disturbing thing about their manufacturing process is there is no process. the reason it takes six months to make a drum is they don't know what they're doing. chris: we've been a little bit behind on checks. lemonis: who are these checks to? chris: got rent. we have checks to fedex. and we don't have enough money to cover payroll for next week. we're pretty much at zero right now. lemonis: i didn't get the impression that it was that dire when i was out in n.a.m.m. with you. mike: it was dire back then. it's just kind of slowly been getting more dire. lemonis: you're kind of almost closed. -mike: yep. -chris: pretty close, yeah. lemonis: now that i've seen what's wrong with their process, i need to look at the numbers and really understand where the holes are in the system. chris: i have the last three years' income statement and balance sheet. lemonis: you have $45,000 in credit cards. you have $35,000 in checks that you can't mail
and another $20,000 to vendors. chris: yeah. lemonis: $200,000 of product owed to customers. the total happens to be right around $300,000. mike: yeah. lemonis: so, in the last 12 months, you did about $1 million in sales and you lost about 200 grand. what are your gross margins? mike: our gross margins last year were about 20%. lemonis: what should the margins be, chris? chris: in my mind, they need to be like 40%. lemonis: which is basically the difference between losing 200 grand or breaking even. in the pricing model that you've put together, if mike would have stayed away from it, would it have been 40%? chris: yes. lemonis: one of the things that i like about chris -- he's very focused on the numbers. he has a lot of the answers to the questions that i'm asking. i'm a little disappointed that mike isn't taking advantage of this asset that's sitting right in front of him. in 2014, you sold less and things got worse. chris: yeah. lemonis: what else changed? -mike: scott left in '13. -lemonis: scott's your brother?
and how much equity did he own? mike: we were 50/50 partners. lemonis: how much did you pay to buy him out? mike: to buy him out -- $533,000, which is $2,000 a month for the next 15 years and a balloon payment of $285,000 at year 15. lemonis: and how did that feel like a good deal to you? -mike: it didn't. -lemonis: so why did you do it? mike: i didn't want to shortchange him and be like, "i'll give you 100 grand. get out." lemonis: and so the fact that you were willing to put your brother ahead of yourself says a lot about your character. mike: [ sniffles ] lemonis: do you miss your brother? mike: yeah, i miss him. we -- when it was just me and him, the first few years, it was awesome. and now this is a mess, and he's not here, and he resents me either way, you know. [ sniffles ] chris: i wish your brother knew how you felt. mike: our relationship has been so far gone for so long.
lemonis: well, you have to fix it. mike: yeah. i... [ sniffles ] lemonis: it's very hard for a new investor to come into this deal. the value of a million-dollar business that loses $250,000 a year is worth how much? chris: it's not worth anything, really. lemonis: the margins are terrible. this is a bad deal. it's obvious to me that this place has hit rock bottom, and this is really wearing on mike, and now it's wearing on chris, and i really feel like i need to understand why it's wearing on chris so much. chris: [ crying ] lemonis: hey. you all right? what are you thinking? chris: it's just... i know how hard it is. mike and -- i believe in it, and i believe in mike.
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and it's hard to be on the verge of not feeling like... you might not believe in it. [ sniffles ] and i think there's things that we can do to blow the ceiling off the place and make it something that's bigger than anybody's ever seen. lemonis: that means a lot to me. yeah, that means a lot. why don't we go figure out how to do that, okay? chris: [ sniffles ] lemonis: man, your weather here sucks. chris: [ laughs ] it's not that bad. -lemonis: yeah, it is. -chris: [ laughs ] lemonis: holy crap. -well...long day? -mike: emotional day. lemonis: in my mind, in order for this business to be successful, it needs to have working capital so that i don't ever have to hear, "i couldn't finish the order because i didn't have..." whatever part they're missing. chris: right. lemonis: it needs to clear itself of all of the liability that is not affiliated with your brother. $300,000 is owed to credit cards, vendors and suppliers.
i don't have as much concern about the sales numbers because i walk around this building, and every single place i look, i see an order. that's not a concern. my offer is $400,000 for 33% of the business. $300,000 will pay off all of the current liabilities, and $100,000 will go into the account so that there is cash. mike: um... lemonis: mike, you seem kind of hesitant on this one. mike: yeah, i just feel that -- i'm just concerned that... that we'd be in the same position almost as we were last year in a certain regard. my concern is it not being enough to cover everything. lemonis: how much do you have in the bank today? -mike: zero. -lemonis: what would you have after that? mike: $100,000 in the bank. -lemonis: and how much liability would you have? -mike: zero. lemonis: if i don't put money in, what happens? mike: just continue this downward spiral. -lemonis: right. -mike: i get it.
lemonis: my offer is $400,000 for a third, but you're not keeping 2/3. mike: i was gonna bring that up. lemonis: what were you gonna bring up? mike: that i want to bring chris in now. lemonis: good, because that was my contingency, that we're equal partners, the three of us. $400,000 check. -we have a deal? -mike: we have a deal. lemonis: i'm 100% in charge. what i say goes. mike: understood. -chris: thank you. -lemonis: you got it. -mike: thank you very much. -lemonis: now you're in session. all right, i'll see you guys bright and early. hey, guys. i'd like to huddle. so, last night, mike and i made a deal for me to invest $400,000 into the business. as part of that deal, i'm gonna own a third of the company, mike's gonna own a third of the company, and chris is gonna own a third of the company.
he will set the priorities with you guys, and mike will not be coming in, saying, "imagine dragons called, and they want their drums tomorrow." we're just not gonna do that anymore. now, mike is still responsible to make sure that we're marketing the business properly and we're selling. both of them report to me. i'm 100% in charge. chris: definitely. lemonis: we know the product that you make today is awesome, but i think you leave a segment of the market to fend for themselves. we can be what i call good, better, and best -- those three price points. the goal that i have in this whole process is to diversify their pricing offering. and so, we establish the good, better, best model. once we can sell somebody an entry-level sjc drum, "good," we can then keep them in the family and move them up to "better," and as they get better and we give them tips and tools, then we can move them to "best," which is our amazing custom drum, and that's the model that actually allows us to take care of the whole universe. any other questions? so, let's go to work.
i want to make a nice kit that solves the entry-level market with the highest retail being $895. the "good" kit will be our entry-level price point. what kind of margin do you want? -chris: you need at least 40%. -lemonis: okay. tell me what the cost would have to be. chris: you got $895 times .40. it would be $537. -lemonis: cost. -chris: yep. lemonis: that's why he's in charge of the numbers. mike: i know. lemonis: you guys are gonna put together a kit for $537, so go to work. chris: all right, sweet. louie: well, did we want to go with 2.1 hoops on the medium kit? chris: 1.6 millimeter hoops are a little bit cheaper, but they're... matt: definitely save that one for the -- the base kit. what if you shrink the rack tom size so you can get the most out of a full tube? pat: we should talk finish-wise, though. lemonis: how are you guys doing? chris: um... we're having some trouble trying to get the price down -on the "good" kit. -lemonis: what's the issue?
chris: most of our metal components are about the same price no matter what you use, so we're trying to find other ways around it to reduce either cost of, you know, finishing. lemonis: i think the key would be really just simplifying the process. as i listen to these guys, they can't seem to get past how they manufacture the drums today, and i'm starting to get concerned. what i really think they need is a fresh perspective. so let me put some thoughts in. i'll see what i can come up with. all right, keep working at it, though. i think there may be a solution. it's a risky one. -scott? -scott: yes. lemonis: how are you? nice to meet you. mike's brother, scott, is the innovator of sjc, and so i wanted to ask him to consider coming back and helping us with this process. if scott is unwilling to come back and help us make this entry-level drum, then the company's gonna struggle. -you got a set of drums here. -scott: yeah. -lemonis: you still play? -scott: yes. of course.
lemonis: you also play guitar? scott: well, i went to school for music, so, yeah, i picked up a lot of instruments along the way. lemonis: you were the artist. let's just call it like it is. scott: yeah, i mean, mike designed drums and stuff, but when i came to, you know, putting your hands on it and doing it, that was all me. i, in my career, have made thousands -- like, i think 5,000 drums. lemonis: so, what's the story? why did you leave? what happened? scott: well, my brother formed a mutiny, is what i say, where people started to slowly become just turned off from me. it could have been the most intricate drum set in the world for the most famous drummer that i should be so proud of making, but it was like, "he needs it in two days." it quickly turned into, "we just want it now." and if i didn't get it done in two days, i was perceived as not caring about the business. lemonis: how? how could that be? scott: because my brother was the guy upstairs, and everyone who worked at sjc was his friend. they all made fun of me, and i would walk out.
and then my brother would say, "see, he doesn't care." lemonis: the issues between these brothers are very complicated, and they run deep. but if this business is gonna be a success, they have to work together. it may not happen quickly, but it has to happen. i have to tell you something. i am a pretty good judge of character. i can tell you that he feels awful. he feels like he lost his brother forever. scott: he should. he should feel that way for what he did. i asked scott to come here because i think he could be helpful. mike: i'm scared to death of him being here. lemonis: is there ever any moment where you guys can get past this? mike: [bleep] it. i'm gone.
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♪ (cell phone rings) where are you? well the squirrels are back in the attic. mom? your dad won't call an exterminator... can i call you back, mom? he says it's personal this time... if you're a mom, you call at the worst time. it's what you do. if you want to save fifteen percent or more on car insurance, you switch to geico. it's what you do. where are you? it's very loud there. are you taking a zumba class? you can't breathed. through your nose. suddenly, you're a mouthbreather. well, just put on a breathe right strip which instantly opens your nose up to 38% more than cold medicine alone. shut your mouth and say goodnight mouthbreathers. breathe right he feels awful. scott: he should feel that way for what he did. lemonis: for whatever this is worth to you, he is devastated. scott: [ sighs ] yeah. lemonis: so, we made a deal last night,
and i'm putting $400,000 into the business. the good news is i'm 100% in charge now. and so we're going to manufacture a less expensive drum. is there any universe that you would ever re-involve yourself in the business if you knew things were really different? scott: he's never specifically addressed the things that he did. -lemonis: would that help? -scott: if he could do it. lemonis: it was nice meeting you. -lemonis: hey, bud. -mike: hey. lemonis: [ sighs ] i went and met with your brother. -mike: you met with my brother? -lemonis: yeah, i did. do you think he could help this business in any way? mike: yes. i don't know how to make drums. i'm not out there building drums. we would have never had a company if it weren't for him building them. lemonis: i asked scott to come here because i think he could be helpful. mike: i'm scared to death of him being here. lemonis: what i want to do is stay focused on the business. -you understand that, right? -mike: yeah.
lemonis: and deal with your scars a little later, if you can. mike: i can do that. lemonis: let me just walk you guys through this process real quick. so, we're gonna simplify the way we actually manage the business. -josh: yep. -lemonis: okay. and we're gonna think about it in steps. -10 steps to success. -josh: i like it. lemonis: sjc's manufacturing process is in desperate need of repair. orders have stalled because they don't have all the parts. materials are everywhere. in order to fix that, i'm gonna install the 10 steps to success. right here is basically where our 10 steps start. up there's gonna be a big, electronic board and it's gonna have every order that's out there. there's gonna be carts like this with buckets just like this. pat: yep. lemonis: and so you'll essentially pull an order, pull all the parts, take it through the process, 1 through 10. once it leaves, it's on its way to the money door. okay, so, we're gonna start cleaning it up and get ready for it, all right? you can pick up time, which is essentially the same
as picking up margin, by putting a process in place that clearly organizes the inventory. the system will also update the status of every order so mike doesn't have to bother people about it. we'll hang that. -[ laughs ] -mike: yeah, joshy! [ cheers and applause ] lemonis: we got nine more. [ laughter ] -scott: hey, marcus. -lemonis: hey, bud. how are you? -scott: good. how are you? -lemonis: you doing all right? i invited scott here to see if he'll consider working with sjc again. but in order for that to happen, he and mike are gonna have to patch up their differences. -it feel weird to be back here? -scott: it does. i spent a lot of days here. lemonis: scott hasn't spoken to his brother since their fallout nearly three years ago, and there is a lot of animosity. quite frankly, i'm not sure that their relationship can be repaired.
-we'll go inside. -scott: sure. lemonis: look at this picture. scott: yeah. i remember that. it kind of lost its meaning after a little while. lemonis: [bleep] -this is like... -scott: yeah. lemonis: i'm waiting for somebody to say something other than me. mike: thank you for coming here. we built the business together. there were obviously lots of disagreements and things that were said and done, and we both put up with disappointment and crap. scott: what disappointment did you get put up with? mike: scott, we could go back and forth all day, and i'm not interested in going back and forth. i'm more interested in trying to be brothers than rehash a lot of that stuff. scott: what did i ever do to you?
say -- what did i ever do to you? mike: i really don't want to get into all that. scott: all i did was work hard. mike: all i did was work hard, too. scott: no, all you didn't do was work hard. you worked hard, and you formed a mutiny, and you turned people against me. mike: for a long time, scott felt like there was a mutiny against him here. i think it was more he was just ganged up on than a mutiny. you know, nobody was here plotting to get him out. it was just, you know, people would disagree with him, and people would vent. so i feel like scott was a little bit paranoid about that. i was accused of forming a mutiny and all these things, and i apologized for that. scott: you weren't accused of it. you -- you did do it. mike: okay, that's fine. and again, i understand -- scott: so, why am i wrong for saying a fact? mike: i understand that you feel that way, and i apologize for that. i apologize for the way that you feel about those certain situations. scott: but you came up with that culture. -lemonis: he knows that. -scott: and you fostered it. and, you know, it was never my idea to leave. it was -- i never was like, "i want out. i'm leaving." you were the one who initiated me leaving.
so, that -- on top of everything else, that was like, "all right, i'm not wanted. [bleep] it. i'm gone." lemonis: is there ever any moment that is not this back-and-forth stuff where you guys can get past this, or do you feel like it's just not fixable? scott: in terms of a personal relationship, i just think now's not the time. lemonis: okay, so we'll stop talking about personal. do you feel like this company has potential? -scott: yes. -mike: yeah. lemonis: all right, do you feel like we make a good drum here? all right. so, we have some things in common. let's talk about drums. scott: my ideas, i think, will be better suited to put into play if i see what things are right now. lemonis: let's go do it. -mike: thanks for coming. -scott: you're welcome. mike: dude, i can't [bleep] handle this [bleep]
we've talked about bringing him back in the business, and marcus wants him back in the business, but if we can't even be in the same room together because you can [bleep] cut the tension with a knife, then i'm not gonna be here. so strap yourselves in for action flo! small business edition. oh, no! i'm up to my neck in operating costs! i'll save the day! for plumbers and bakers and scapers of lawn, she's got insurance savvy you can count on. you chipped my birdbath! now you're gonna pay! not so fast! i cover more than just cars and trucks. ♪ action flo did somebody say "insurance"? children: flo! ♪ action flo cut! can i get a smoothie, please? ooh! they got smoothies? for me. i use what's already inside me to reach my goals. so i liked when my doctor told me
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stop using trulicity and call your doctor right away if you have symptoms of an allergic reaction, such as itching, rash, or difficulty breathing; if you have signs of pancreatitis such as severe stomach pain that will not go away and may move to your back, with or without vomiting; or if you have symptoms of thyroid cancer, which may include a lump or swelling in your neck, hoarseness, trouble swallowing, or shortness of breath. medicines like trulicity may cause stomach problems, which could be severe. tell your doctor about all your medical conditions and any medicines you take. taking trulicity with a sulfonylurea or insulin may increase your risk for low blood sugar. common side effects include nausea, diarrhea, vomiting, decreased appetite, and indigestion. some side effects can lead to dehydration, which may cause kidney failure. with trulicity, i click to activate what's within me. if you want help improving your a1c and blood sugar numbers with a non-insulin option, ask your doctor about once-weekly trulicity. and click to activate your within.
i would rather just [bleep] check out, dude. i can't take this. -lemonis: what part? -mike: all of it. i understand what you're saying, and i understand where you're coming from. i'm only human. i'm not a robot. lemonis: i didn't ask you to be like a robot. he doesn't want to hear you say, "i'm sorry that you feel like i pushed you out." it's very different than saying, "i'm sorry that you got pushed out of here." it's very different. mike: i understand what you're saying. lemonis: okay, then go fix it. i am not oprah. to think that your brother doesn't add some value is [bleep] asinine. i think he can add something to the business. scott: this isn't a machine from willy wonka's factory. this is, like, you know -- this is -- this is the real deal.
this is, like, you know... mike: do you mind talking over here? scott: i-i mean, if you want to talk, i'll -- i'll... i'll -- yeah, we can talk. mike: that was not the way that i wanted it to go. i wanted to come in here and say i am sorry, truly, that i did not defend you when the [bleep] hit the fan and stuff happened here. the culture was, yeah, something that i created. and i was doing what i thought was right, and i didn't know what the [bleep] i was doing. scott: you thought what was right was to defend them and -- and treat me like an outcast? mike: i never thought that was right, scott. scott: people had the wrong idea about me because of you. -mike: okay. -scott: and that's -- like, that's -- that's terrible. mike: i apologize for that, scott. it -- things get blown up. things blew up. i never intentionally -- scott: you did intentionally turn -- mike: i apologize for that. scott: you just said you didn't, but you did. -say you did. -mike: i did it. and i'm sorry for that.
and i would like to have a relationship with you as brothers. scott: well, right now for me is not the time to want to sit and talk about brother things. mike: well, just so you know, i am interested in talking about brother things, and i want some sort of relationship that is healthy for us. scott: i understand. mike: i just want some sort of relationship and it not to be [bleep] awkward. scott: i never wanted it to be this way, either. lemonis: it seems like there are just scars there that just have not healed. hopefully, this will allow them to set their personal feelings aside and focus on the business at hand. scott: all right, i think that's enough for today. mike: all right. thanks for coming. -lemonis: hey, guys. -josh: how's it going, dude? scott: hey.
lemonis: so, i wanted to be clear that, when we started this project, we were gonna have a good, better, and best model, right? we already know we have the best. and i'm feeling like we're not getting where we need to on the good model. pricing's not exactly where i want it, and i'm not sure it's right, and so i want to have you spend some time with scott and really get some kind of input on what are the things we need to do to drive the price down. you ready for that? ready for that challenge? scott: yeah. -lemonis: okay. -scott: awesome. chris: so, what options are important for people that doesn't throw a wrench in the process? -matt: it's definitely paint. -scott: i have ideas about that. i think you go one flat finish, but it's a natural satin stain, 'cause then you're eliminating the cost of the laminate, you're eliminating an extra step when you're doing the baring edges. pat: what about, like, formica? scott: formica's cool. but then again, what is it? 100 bucks a sheet? one sheet covers one kit. your labor, the contact cement, the labor spinning it, drying it, doing the seam, doing the outside edge, filing the outside edge. i think natural's the way to go.
what's the size of the bass drum gonna be? chris: it's a 20-inch bass drum. scott: 20-inch? if you offer a 20 and a 22, you have almost the same shipping costs, 'cause you're still getting one box, but then we're able to get another shell in there. [ drum pounding ] lemonis: scott's knowledge of innovation and creativity is second to none. and, quite frankly, i think that's the missing recipe that's gonna get us to the magic number. it's kind of cool to listen to your brother 'cause he's got some crazy [bleep] in his head, -and he's very smart. -mike: right. [ drum playing ] lemonis: after a week, i got news from the guys that the prototype is done. for us to be able to make a prototype that is $895 retail, that -- that's a big deal. -that's a good-looking set. -mike: yeah, it's sick.
lemonis: and what does that cost? -mike: this costs $537. -lemonis: okay. at a retail price of $895 and a cost of $537, we will have a retail margin of 40%, and that meets our goal. mike: i just want to make sure it sounds good. lemonis: so then, tomorrow, we're gonna go find a sound studio somewhere. and i want you to get your $6,000 drum kit, and i want to compare the two using professional sound equipment. 'cause at the end of the day, i don't want to compromise quality. -chris: what up, scott? -scott: hey, guys. nice to see you. mike: this one sounds awesome. [ drums playing ] scott: sounds awesome tuned real low like that. it's got, like, a real wet, floppy sound to it. -lemonis: hey, guys. -chris: what's up? lemonis: so, the reason i wanted to bring you here is really to understand "do the drums actually sound the same?" sjc has always been known as a brand that makes great quality.
is the drum itself good enough? scott: let's find out. [ drums playing ] lemonis: oh, that is cool. scott: i think that was perfect. lemonis: what is this gonna do? jack: this is a frequency analyzer. it's gonna show us the whole frequency range of human hearing. -lemonis: very cool. -jack: yeah. [ drums play]ng and, actually, what's really kind of crazy is every time i hit this drum, i'm getting a really consistent tone and sound from it, and you can see that here. every time i hit it, this graph is not changing much at all. so that's a good thing. lemonis: so, let's stack it up against the other one. -jack: let's do it. -lemonis: that's the big test. mike: yeah. [ laughs ]
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seal out more food particles. super poligrip is part of my life now. but are you gonna bring fiup that stock again? well you need to think about selling some of it. my dad gave me those shares, you know. he ran that company. i get it. but you know i think you own too much. gotta manage your risk. and you've gotta switch to decaf. an honest opinion, even if you disagree. with 13,000 financial advisors, it's how edward jones makes sense of investing. (bear growls) (burke) smash and grub. seen it. covered it. we know a thing or two because we've seen a thing or two. ♪ we are farmers. bum-pa-dum, bum-bum-bum-bum ♪ ♪ beth, i hear you calling.♪.s
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[ drums playing ] -awesome. -jack: [ exhales sharply ] lemonis: all right, let's check it out. jack: okay, yeah, so these are the two side by side. and they're both very, very similar-looking. these are just showing me what tones the drum is producing. if we were looking for something out of the ordinary, we might see a big peak here somewhere, an unwanted frequency coming from the drum. lemonis: and you're not getting that? jack: nope. lemonis: i mean, you wouldn't call that -- matthew: that's not a beginner kit. lemonis: but it's beginner price. matthew: yeah, oh, yeah. that's the best part about it. lemonis: we've taken a huge step forward in this prototype process, and i feel like we're ready for production so we can make some money in 2015. why don't you guys have a little drum-off? this is what i've been waiting for.
today was a success for our drum kit. but more importantly, today was a real success for mike and scott. [ laughter ] josh: first new tool. lemonis: in order to complete the 10 steps model, we bought over $50,000 of new equipment to improve their process, including two new drill presses, a table saw, four downdraft tables for dust, and a new air-purification system. this place looks spectacular. i mean, it looks kind of like what we talked about, right? in the past, sjc couldn't make more than 40 kits in a given month. now sjc can make over 100 kits a month, giving the opportunity for a customer to order it and for them to actually get it quickly. and now that parts are in stock and there's a process in place,
there's zero lead time instead of the eight-month wait. it feels like a legit business. chris: yeah, it's definitely getting there. i feel like we can even get better and better as we go. lemonis: chris did a great job of getting the 10 steps installed, but he did an even better job of getting the prototype made at the cost that i wanted. i knew making him a partner would pay off. and it doesn't feel like i'm in a big dust bowl anymore. -mike: right. -chris: right. lemonis: now that the 10 steps are in place, we can build a new "better" line, the intermediate kit, in less time, making more money. our new "better" kit will be the first drum to go through the new 10-step process. from cutting the tube, to sanding, to painting,, it will move forward to edging. next, it goes through layout, drilling, and assembly. and finally, a quality check. the new kits go through success steps 1 through 10 in record time, allowing us to make drums in days, not months. i feel good about it. i really do.
chris: feels a lot cleaner. lemonis: hey, guys. -how are you? -mike: hey, what's going on? lemonis: sjc drums now has three types of products -- good, better, and best. the good product is one that's made for beginners. the better kit was made for intermediate players, and the best product is the custom kits that allow consumers to design it exactly the way they want it. this is for real professionals. so, i've brought mike and chris to new york city to sam ash, one of the nation's leading music retailers. they've been in business over 90 years with over 50 locations. we're looking for sam ash to market our new "better" line of drums. we know sjc needs a retailer to get to the next level. it's important to me that mike do a good job today. i've heard he's a great salesman, but i want to see it. this company needs this account.
-richard: hi. we've never met. -mike: i'm mike. richard: mike, how you doing? lemonis: how are you? i'm marcus. nice to meet you. mike: cool, yeah, so my brother and i started the company out of our grandmother's basement in dudley, massachusetts. sjc is actually my brother's initials. right now what we're doing is, instead of just being a full-fledged custom shop like we've done in the past, we are developing a product mix -- a good, better, best model -- where we'd love to have this, which is the "better" kit, available in your store. richard: oh, boy. price-wise, where are you? mike: this kit, to sam ash, would be about $1,100, where you guys could retail it at about $1,700. richard: that's -- no, i'm sorry. you've picked a very difficult category. you're competing with some of the biggest companies in the industry that have huge, huge artist rosters, that have been around for many, many years. it's just not what we see.
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huge artist rosters, that have been around for many, many years. it's just not what we see. mike: our product is still made in the u.s.a. for the quality and -- richard: and that's a very important part of the component of being a success in the drum business, is u.s. manufacturing. it's a great place to come from. when a kid gets down here and he's got all these brands to choose from, you want us to say, "but what you really want is the sjc." why? mike: i think the backstory of, you know, our artists that we have. why does tré cool choose sjc? slipknot used to play pearl. now slipknot's playing sjc. i've gone on tour with bands, whether it's imagine dragons or slipknot or green day. whoever it is, we could parlay that, have the band come in for kids to meet the band. richard: so you could get green day to play in our store? mike: him and i are great friends.
i've been to his wedding. he came to my wedding. richard: wow. that is very cool. well, you know what? it's very exciting because all these companies that are represented here are huge, multinational, corporate juggernauts, so it would be a pleasure for us to help somebody like yourself spread the word. -we'd love to do it. -mike: thank you so much. richard: not easy, but exciting. -you did good, kid. -mike: thanks. richard: you sold us some drums. mike: [ laughs ] lemonis: things at sjc seem to be better than they've been in a long time. the process is working, and the business has ramped up really nicely. on an annualized basis, we could do as much as $1.8 million, almost doubling the business. i'm now in the process of finalizing a licensing deal with the school of rock. i think the thing that's most exciting about it is that not only is it gonna be the brand of our entry-level drum, but a portion of the proceeds are gonna go towards scholarships,
allowing more kids to go there and learn and enjoy music. [ laughter ] [ music stops ] [ cheers and applause ] girl: it's very fun to play. sounds really nice, and it's so nice-looking. mike: awesome. lemonis: what's most important is that the relationship between scott and mike is healing. with all the new opportunities that exist for sjc and the fact that the brothers' relationship is headed in the right direction, my prediction is that they're gonna be doing a lot of work together. think the warehouse looks better? scott: i don't have tools that nice. lemonis: oh, you're jealous of the tools? scott: yeah, pretty much. mike: they are pretty sweet. lemonis: you see, life and business isn't always about calculators and dollars. if the business is healthy and the people are good and the process is right and you have a good product, you'll make money. but the relationships have to be solid. and in this case, i feel like we're on our way. mike: seriously, i think the greatest thing that i'm taking away from this
isn't the money that marcus is giving the company or the fact that we have inventory. you know, i think that's awesome, but the greatest thing, i feel like, is the fact that we are actually talking, and i think it's awesome that marcus opened up that door. pretty much forced the door, but... scott: speaking honestly, like, you know, i didn't -- i didn't expect to come in here and talk to mike, so you did kind of force it on us, but it worked, and it's definitely helped me move on. lemonis: how are things between the two of you guys now compared to before? -better? -scott: yeah. a lot better. -lemonis: i owe you, my man. -scott: i'm grateful. lemonis: i appreciate it. -mike: thanks. -scott: you're welcome.
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