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tv   The Profit  CNBC  May 31, 2016 7:00pm-8:01pm EDT

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lemonis: tonightrob: whoo!rofit," lemonis:'s a business unlike any i've ever visited, at a start-up specializing in sleek and stylish longboards... i'm honestly blown away by the quality. ...something is very wrong. as an outsider looking in, it's kind of unsettling. the product is absurdly overpriced. mike: it's $329 retail. rob: do you just want to not do well? lemonis: the owner is often absent. mike: i have obligations that -- lemonis: well, what are they other than your business? and what scares me the most is that the employees are fleeing... where is everybody? droves. josh: nate's no longer here. chris quit. mike: nearly 100% turnover in staff. lemonis: why are these people leaving? -mike: i don't know. -lemonis: bull[bleep] if i can't figure out what's fueling this mass exodus...
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when they quit, they're basically saying, "you're fired." ...kota longboards will come up short. my name is marcus lemonis, and i risk my own money to save struggling businesses. we're not gonna wake up every morning wondering if we have a job. we're gonna wake up every morning wondering how many jobs we have to do. it's not always pretty. everything's gonna change. everything. but i do it to save jobs, and i do it to make money. this is "the profit." let's go to work. ♪ mike: i want to go over the shape. we may have to do new tab work. lemonis: in 2012, navy veteran mike malone started hand-making quality longboards in his garage in denver, colorado. mike: do you have tape running underneath there to there? lemonis: naming his company kota, an acronym for knights of the air, mike incorporated his devotion for the armed forces in his products' signature look.
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mike: personalized it with the squadron. lemonis: riders love the longboards' beautiful finish, and before long, kota was gaining national attention. but the company's limited selection of longboards coupled with a very high price point put a ceiling on sales. mike: i think we've only sold maybe two units. lemonis: and now mike is losing money fast. nikki: i don't know what to do, mike. lemonis: i see a real opportunity here to market these to the masses. with bigger wheels and a longer deck than a normal skateboard, they're used for commuting or downhill racing as opposed to jumping ramps in a skate park. the skateboard industry generates over $6 billion annually. i'm confident that if i can help mike broaden his customer base, kota will be cruising to success in no time.
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i'm headed to kota's manufacturing plant in denver, colorado. and what i'm most excited about is any time i can find a product that gets people outdoors, well, that's a product that i have interest in. mike: marcus. mike maloney. nice to meet you. lemonis: hey, mike, how are you? nice to meet you. mike: real honor. lemonis: you guys all longboard? man: we all do. lemonis: lot of people working here. mike: yeah. [ chuckles ] lemonis: so, what is the primary product? can i see it? mike: primary product is the -- is right here. lemonis: and so, this is considered a longboard? -mike: yeah. -lemonis: do you have other shapes and sizes? -mike: no. -lemonis: no. -mike: no. we just -- we just have this length. lemonis: like, this would be hard to stick in my backpack. -mike: [ chuckles ] -lemonis: don't these kids -- they kind of stick them in their -- mike: well, yeah. lemonis: what's the typical age of your buyer of your product? mike: the meat of our market is age 30 to 70. -lemonis: really? -mike: oh, absolutely. lemonis: i'm gonna challenge early on that you don't know your demographic. the bulk of the skateboard market is 9 to 15. and kids need a shorter, smaller option. mike: so, what we thought is the shorter of a board we get, we're directly competing and clawing market share away
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from very established players in the market. lemonis: yeah. mike: we were not gonna succeed at doing that. this is like hand-to-hand combat. kind of the art of war. go where your enemy isn't. lemonis: they've kind of limited themselves to one length. basically what you're telling me is you're gonna do the opposite of where the market is. i don't think that sounds like a good idea. has sort of a rubbery feel to it. mike: yeah. exactly. you can feel the grip on that finish, so you don't need grip tape. lemonis: so, nobody else has this sort of finish. mike: nobody else in the industry has this. lemonis: what does it cost to make? mike: well, we're right at about $116, complete. -lemonis: all in. -mike: yeah. lemonis: including all the loaded labor. mike: exactly. lemonis: and the average retail price of a product like this? mike: they're all the same. $329. we're moving to $349 next year. uh, that's reasonable for this product. lemonis: for who? mike: certainly for that action-sports, active-lifestyle person between 35 to 55. lemonis: yeah. if their board costs $116 to make and they're pricing it for $329, on paper, that's great margin at 65%.
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but somebody has to be willing to pay $329 to actually realize those margins. now, maybe a 50-year-old is, but i don't think 15-year-olds can pay that much. and what do you pay in rent? -mike: $3,250 a month. -lemonis: oh. that's not bad. -mike: no. not bad. lemonis: this whole factory is yours? mike: no. we share this with the furniture company over here. lemonis: okay. mike: it's owned by our landlord. lemonis: how much space do you actually have? mike: we have 3,000 square feet. we've been out looking at properties. they said, "we're not gonna extend your lease." -lemonis: when is the lease up? -mike: march. lemonis: so, you don't have much time left. mike: not that long. this is my wife, nikki. -lemonis: how are you? -nikki: hi. -mike: and sandy. -lemonis: how are you? -sandy: nice to meet you. lemonis: nice to meet you. and how long have you guys been married? -nikki: 19 years. -lemonis: 19 years? very cool. -nikki: yeah. yeah. lemonis: what do you do here? nikki: everything from customer contact, getting the orders in process, coming down here, assisting with board assembly. lemonis: looks like you're putting stuff together. nikki: shipment. lemonis: what did you do before this? mike: i flew f-14s, and i'm a top gun graduate.
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lemonis: were you a fighter pilot? mike: i was. lemonis: thank you for your service. mike: thank you. lemonis: who comes up with all the artwork? -mike: that's me. -lemonis: you draw yourself? mike: oh, i do all the design work. i got to get out of that side of the business. mike: why? i'm blown away. i would buy one and stick it in my office just so i could act cool. i'd like to see the process, 'cause i'm honestly blown away by the quality. how are you doing? i'm marcus. -nate: nathan. nice to meet you. -lemonis: nice to meet you. -josh: i'm josh. -lemonis: hey, josh. nice to meet you. -josh: nice to meet you. lemonis: and so, who oversees production? man: chris. -lemonis: you're chris? -chris: i'm chris. lemonis: and so, walk me through the process, 'cause i want to have a better appreciation for how beautiful the product is. chris: so, this is basically where it starts. i mean, this comes directly from the mill in wisconsin. it's hardrock maple. it's perfect wood for a skateboard. -lemonis: okay. -chris: your first ply is a long ply. -lemonis: okay. chris: what you have is the fibers running the long way, which gives you that longitudinal stiffness. lemonis: so, it sits in here for how long? chris: 45 minutes. they come out looking like this. -lemonis: so, this comes out of there. -chris: correct. lemonis: where does it go from here? chris: we throw the truck holes in, and this is our drill press right here.
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mike: this piece of metal i'm holding onto is the truck. we assemble this. lemonis: amount of detail that goes into this is unbelievable. sandy: yeah. have to be very careful, 'cause you don't want to dig into the wood. and i can shape the boards, i can cut them, i can decal them. tracy is, like, the best stainer ever. she is like our master stain person. lemonis: and everybody here has been here a while? sandy: tracy -- she's been here the longest. everybody else is a little bit less than nine months. lemonis: i'm impressed by the people that are working at kota. they all seem to be hardworking, they seem really committed to the business, but it's odd to me that this company's been in business for three years but everybody that works here has been here less than nine months. chris: josh joined us recently. josh: i'm an investor. lemonis: you're an investor, too? chris: he sure is. lemonis: and you work here full time? -josh: for free. -lemonis: seriously? josh: seriously. lemonis: how much do you have invested here? josh: $50,000. lemonis: did you hit, like, a gold mine or something? josh: i had a restaurant, and i sold it. and i ran into mike. and he said, "hey, i have an opportunity, and i jumped on board." lemonis: i hope mike realizes how lucky he is. not only does josh put $50,000 of his own money
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into the business, but then he shows up to work every day and works for free. i've never seen anything like this. okay, so, where does it go from here? chris: and then we sand. this is how they come out. that nice, smooth finish. lemonis: well, that's kind of killer. now that i've gotten really comfortable with the product, i want to dig into the financials. because, obviously, that's gonna give me the real picture of what's happening here. what were the sales in year one? mike: the first full year of operation, which was 2013 -- $48,000. -lemonis: okay. year two? mike: $150,000. lemonis: year three? mike: that'd be now. so, we're at $190,000 right now. lemonis: you're selling less than 600 boards a year. mike: yeah. lemonis: how much have you raised over time? mike: $650,000. we have a lot of investors. lemonis: that includes your investment? mike: no, it does not. lemonis: okay, so how much has yours been? mike: a half million. lemonis: and the grant that you won for small business for $150,000. -mike: mm-hmm. lemonis: so, $1.3 million has come into this company. there's about $200,000 of cash as of right now? mike: mm-hmm.
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lemonis: in 2 1/2 years, $1.1 million burned. yikes. mike: well, when you think of all of the infrastructure that we've built, the equipment that we've purchased, we were funding payroll for a while. lemonis: okay, but you've burned more money than you've generated in revenue. mike: oh, absolutely. lemonis: it looks like you're heading for a $200,000 to $225,000 loss for the year. mike: it's frightening. lemonis: these financials are in bad shape. mike: yeah. lemonis: how much pressure is this putting on you? nikki: it's the hardest thing i've ever been through. -lemonis: y'all have kids? -nikki: yeah. we don't get to go do fun things as a family the way we did. lemonis: so, how do you pay the bills? nikki: luckily, we had saved. we were frugal. lemonis: and there's still a lot of savings around? nikki: no. lemonis: all the reserves are gone? -nikki: yeah. -mike: i got to the point where we were living off my 401(k). nikki: the thing that scares me is that we have the first kid going to college in a few years. lemonis: has it put pressure on your relationship? nikki: i mean, how could it not? lemonis: yeah. nikki: mike is able to shut things off easier than i am. [ chuckles ] i'm just really tired, you know?
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lemonis: you don't get days off, really, do you? nikki: mnh-mnh. lemonis: and has it affected the kids? nikki: yeah. they feel it. mike: we have to deploy every ounce of our energy and our resources into seeing this through and making this company a success. lemonis: a lot of sacrifice you've made. nikki: it is a lot. lemonis: mike is stoic in the face of all this pressure, but nikki -- you can see it's taking its toll on her. mike: what's the fastest way to get to profitability and how can we scale? -lemonis: sales. mike: sales. exactly. lemonis: you don't have a product problem. there's nothing wrong with that product. -nikki: right. -mike: right. lemonis: other than the fact that it's too one-dimensional. -lemonis: hello. -nikki: hi. -lemonis: how are you? -nikki: good. good to see you. -lemonis: good to see you. -mike: good morning. -lemonis: how are you? so, did anything change since we looked at the financials? according to this, you've put $20,000 of cash into the business. mike: i put $20,000 of my own capital.
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lemonis: so, why did you -- why did i have the impression that you put in a half a million yesterday? mike: because if you look from the time we started the company to the time that we are today, i was non-compensated, so -- lemonis: so, basically, the way you got to your equity is waived compensation and the idea. -mike: yes. -lemonis: okay. i didn't like the fact that mike gave me the impression that he put a half a million dollars of his own money into the business. i understand that they put everything aside and taken a lot of personal sacrifice, but let's get the facts right here. i worry about the fact that the product's very niche-y. but for what you do make, it's spectacular. between sandy and chris and josh, i was inspired by their level of dedication to a business that isn't making money. i was blown away by someone like josh, who not only is an employee working for free but put $50,000 of his own, hard-earned savings in. -nikki: right. -lemonis: i love the product. i think i could help market the crap out of it.
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so, my offer is $300,000 for 40% of the business. that $300,000 would be used to pay josh back his $50,000 and leave the rest in the account for working capital. -nikki: mm-hmm. lemonis: that 40% of the business would be divided up. i'll get 25%. chris will get 5%. sandy will get 5%. josh will get 5%. i'm trying to buy the opportunity for the other three key members of this organization to have equity. nikki: [ sighs ] mike: there is one worry that i have. lemonis: you're kind of smiling at me like you don't really give a [bleep] about what i'm saying. mike: no, i'm frustrated. lemonis: i'm not gonna allow you to be frustrated.
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lemonis: i'm trying to buy the opportunity for the other three key members of this organization to have equity. mike: there is one worry that i have. and that's that anyone that we allocate equity to as an employee, there's got to be something on the hook that says you have to work here for "x" number of years. lemonis: um... what you have to accept is did it make sense for us to give up 15% of the business to three people that we need? and if you don't agree with that,
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then you guys don't need me. nikki: would you not agree? mike: well, i-i think so. lemonis: do you agree with that? mike: i do. lemonis: it's important for me that the key employees here feel vested in this company so they not only collect a paycheck but they really participate in the upside over the series of years. and i want to give josh his money back so that it levels the playing field with the other employees. so, do we have a deal? mike: i want to do this deal. lemonis: okay. and you understand that, with that check, i'm 100% in charge. -nikki: yes. -lemonis: of everything. -mike: absolutely. -nikki: yes. -lemonis: okay. mike: nothing rights this ship like revenue. -lemonis: let's go get to work. -nikki: okay. lemonis: mike and nikki and i met. we made a deal for me to invest $300,000 into the business, and we talked about all of the issues that exist here. does everybody know why i was asked to come here?
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why, sandy? sandy: to hopefully give us the resources to go further. lemonis: where i got hung up is this notion of how some people don't get paid but they write checks and they invest. and so, out of that $300,000, $50,000 is gonna go towards giving josh his money back. out of everybody in this room, including them, you've written the biggest check in the room. did you know that? -josh: i didn't know. lemonis: and you work here and you don't get paid. and so, i think that level of dedication is the reason that i came back today. sandy, i feel like you should have some equity in the business. -sandy: thank you. -lemonis: you're full time. you're a department manager. and so is chris. you're also a department manager. and so, the idea was $300,000 for 40%. out of that 40%, you're getting 5%, you're getting 5%, and you're getting 5%. that's out of my pocket. -josh: sounds great. that's really cool of you to give me that sort of deal, and i appreciate it. lemonis: you guys do great work. the product's legit. i mean, it's good. every single one of you contributes to that.
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and we need to offer more options to our customers and offer lower price points and target a younger demographic. but we're gonna change as a group, so we're all making some money. all right, guys. thank you. chris: thank you, marcus. lemonis: it's been a week since i shook hands with mike and nikki, and i've arranged for them to meet me in los angeles. all i've told them is that we're gonna do some market research. -nikki: hi. -lemonis: hi, guys. nice to see you again. -mike: marcus, good to see you. -lemonis: how are you? -mike: doing well. -nikki: good. -lemonis: so, i'm friends with this guy by the name of rob dyrdek. does that ring a bell to you? mike: oh, yeah. [ chuckles ] lemonis: rob dyrdek is an entrepreneur who's also a professional skateboard rider. he's one of the best out there. man: all right, guys. welcome to the fantasy factory. -nikki: thank you. oh, cool. very cool. mike: holy [bleep] lemonis: i think rob's gonna shed a lot of light on what the right price points are in the marketplace. he knows the industry. i also think he's gonna give us great feedback on the demographic. mike: rob, mike maloney. nice to meet you. rob: good to meet you. rob dyrdek.
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-lemonis: what's happening, my man? rob: appreciate you, man. how you been, man? i would have never thought the day you show up at my office with a skateboard. i mean, i'm -- i'm just -- i'm so happy right now. lemonis: i'm carrying it. i'm not riding it. rob: okay. sit down. show me what you guys got going here. lemonis: well, rob, i'm gonna have them give you a little background on who kota is. -rob: sure. -mike: kota stands for "knights of the air," a moniker that was given to the earliest fighter pilots. so, that's the essence of the brand. i flew f-14s in the navy out of san diego, actually. -rob: i've been in one. -mike: have you really? rob: threw up a little bit. -mike: nice. -rob: the g's got me. -nikki: [ chuckles ] yes. -lemonis: [ laughs ] the g's got you. -rob: and so, what happened? you made the skateboards and -- and -- mike: people started buying them right out of my driveway. then we developed this clear, non-porous grip finish so that we could move the primary art surface to the top of the board. so, you can feel that. and you don't need any grip tape on it. rob: which in itself is a pretty unique technology that i don't -- i don't fully -- i haven't seen much in longboards. mike: oh, no. rob: you know, when i -- when i look at the longboard market, there's one key player -- sector 9. they probably sell just under a million boards
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globally, right? so, you're fighting for a space. and it seems like you probably have a pretty tough time finding distribution. mike: yeah, and actually, our market is well outside, age-wise, of the traditional skateboard market. rob: which is what age? mike: we're looking at the young professional to the retiree. that span of 30 to 70. rob: but do you just want to not do well? 'cause, unfortunately, that level of income and that age -- the market doesn't exist. it's literally you're making up the market. lemonis: what do you think of this board, rob? rob: i think the board is pure quality, right, in the sense of what you'd expect out of a longboard. mike: it's $329 retail for the complete. rob: that's pretty brutal, man. if you look at sector 9's premium stuff, it's like $279. you're shooting at nowhere. this is a simple business. -mike: yeah. -rob: there are a million people that are gonna buy these boards this year. you are trying to carve out a percentage of that. but i think, no matter what, the smaller and cheaper is just more volume naturally.
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lemonis: i'm glad that rob liked the board and he set mike straight. we need to target the young skateboarders that actually buy these products, not the rich 50-year-old skateboarders mike made up in his head. and that means we need to offer more options at more affordable price points. rob: but the question is, is how does it fly, man? let's represent america and some fighter pilots and get to flying. whoo! mike: [ laughs ] lemonis: that was awesome, brother. rob: that's legit fighter spirit. lemonis: do you like the board? rob: i love the board. okay. okay. okay. stay with it. -mike: there you go. -rob: stay with it. yes! yeah! [ laughs ] see, there you go. look at that, man. born to ride. come down to the fantasy factory. we're rolling down some ramps. you are part of the skateboarding culture forever! -nikki: [ chuckles ] -rob: you rode down a ramp. you rode down a ramp. lemonis: hey, mike. we wanted to grab a traditional longboard product
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and break it down from the raw material all the way to the end to understand cost. -mike: sure. -lemonis: to sell these boards for less and still maintain a healthy margin, we need to make them for less. and in order to do that, i need to understand what every component that goes into this board actually costs mike. so, it essentially starts out as this. what is the right price point that this product should really sell at to get true velocity? josh: i hate to say, but probably 200 bucks. lemonis: $199? sandy: that's what i was thinking. $199. -lemonis: okay. -mike: wow. lemonis: new companies make this mistake. instead of pricing the product into the market or right underneath the market to take market share from the competitors, they look at their costs and then they price it out here. mike: that's what we did. lemonis: and then they wonder why they don't get any volume. -mike: that's what we did. -lemonis: what mike does is he takes all of the costs of manufacturing, and then he determines what he wants his margin to be, and it marks it up from there. that's called cost-plus marketing.
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you want to price your product at a market-minus strategy. and market-minus means that you understand who your competition is and what the product is, and you price the product below the market. if you believe that the right retail price is $199 and you need to have a margin of -- call it 50% -- your cost has to be $100. what about the wheels? at $27.92. if you give them a $50,000 order, what would this number drop to? mike: you know, 40%. lemonis: what could you possibly get your raw wood down to? mike: let's say 25% discount. lemonis: say you can get $2.50 out of it. this sealer grip. mike: 25%, 30% discount if we went -- lemonis: so, that's $1 on the sealer grip. -mike: yeah. -lemonis: the trucks -- this could go from $26.90 to what? mike: 16, 17 bucks. lemonis: so, that's 10 bucks. if you could accomplish that, you're now making this board, including labor, for 100 bucks. now, if you went into the marketplace and you sold this for $199,
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what would happen in the marketplace? mike: well, i think that it would explode. lemonis: what would happen to your volume? nikki: it would go. it would go. lemonis: guys, let me spend a minute with mike for a second. so, mike, how did you not know that you were missing the market on price, you had to lower the price? how did you not see that sort of break in the bridge? mike: i don't know. i've been learning on the job. lemonis: but as you were going out and raising money, didn't people ask you that question? you shook my hand. mike: as the deal's structured today, i would like some clarification on a few things. lemonis: have you changed your mind? mike: i...
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or even listened to anybody else that did question it. and what i think bothers me even more is that he seems complacent about it, the sort of complacency that, quite frankly, scares me. and don't even get me started on the shorter board. where is the product that actually sits as the junior to this? if you started to figure out how to make a smaller piece of wood with the same trucks and the same wheels, and you make 30 of those, as well, a day, then, all of a sudden, you've driving everything down even more. mike: well... kerry: hi. nice to meet you. i'm kerry. nikki: nice to meet you. mike: mike maloney. nice to meet you. -kerry: nice to meet you. -lemonis: one of the things that concerns me about this deal is the fact that their lease is running out in a couple months. to solve that problem, i want to take them around denver to look at a couple spaces. and i found one that i really like. kerry: it's, like, definitely a new and up-and-coming. it's called the rino district. lots of new retail, lots of breweries. lemonis: is this an old building renovated? kerry: it is. nikki: oh, very cool. -mike: [ chuckles ] -kerry: it's a bigger space.
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it's about 4,100 square feet. lemonis: your current space is... -nikki: 3,000. -mike: 3,000. lemonis: so, this is bigger. and so, this gives you the ability to have a nice retail space, to be close to the street. mike: well, obviously we need compressed air. i don't see any lines existing that would accommodate that. lemonis: i think the pluses to being in this neighborhood are that there's a lot of people. mike: are we gonna be interrupted by residents that move into these buildings for noise or for odor or for traffic? lemonis: but it gives you the ability to put in a couple of offices, set up your manufacturing line, and you can have your retail space right here. mike: with the equipment that we're planning on getting, i mean, we couldn't even get our press in here right now. -lemonis: i got to be honest. i'm getting frustrated with mike. i'm here trying to help him, and he's fighting me every step of the way. and he won't commit to anything. mike: i think the only thing that would work for the commercial door is cut a hole through there. looks like a pretty narrow alley, though. lemonis: mike, seriously? mike: yeah.
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lemonis: i came back to denver after a week to get started on the new longboard. and i wanted to share with mike some work that i've been doing on my end to help the business. hey, bud. -josh: hey. lemonis: but i ran into josh outside before going in. did you share the news with your wife? -josh: i did. -lemonis: how'd she feel? josh: excited. we were on cloud nine. lemonis: what do you mean "were"? josh: well, what i've heard is that we're not taking that deal. he wants to renegotiate with you. lemonis: what was the point of the handshake, then? josh: i don't know. i-i'm a big handshaker, too, and i know from the deals you do that, uh, you do it all in the handshake. lemonis: [ sighs ] ay, ay, ay. i've been operating under this impression that mike and i have a deal. we shook hands. and now i'm hearing that he wants to renegotiate with me. what's this bull[bleep] about? has anything changed here since i left? josh: well, besides chris quitting, um -- -lemonis: chris quit? -josh: yeah. a lot of stuff was said. i guess the gist of it was chris no longer felt comfortable working here anymore, and this is as much as i know is that him and mike sat down and had a conversation,
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and chris put in his two weeks'. and then, uh -- -lemonis: so, is he still here? -josh: no. lemonis: so, who's making the product right now? josh: nate and i. tracy and kris are still here. it's been a lot of emotions, you know? we -- we want this to happen. a lot of the staff wants it to happen, and i even told mike, "if i didn't get that deal, i still want marcus to be part of the team." -lemonis: yeah. -josh: i believe in you, and i believe in our product. and i believe in mike, too. -lemonis: yeah, me, too. i mean, i-i came back to work today to work on some ideas. -josh: yeah. lemonis: was mike here this morning? josh: he's here this morning. lemonis: is he here every day from the opening to closing? josh: um, in the short time i've been here, no. lemonis: does that frustrate everybody a little? josh: it might have frustrated chris. lemonis: one of the key components of investing in kota was people like chris, sandy, and josh. now chris is gone. i was coming back to move the business along, not deal with this [bleep] all right. i'll catch up with you inside. -josh: thanks, marcus. i appreciate you coming back. i really do. lemonis: i'll see you in a little bit. okay. thanks.
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mike: welcome back. good to see you. lemonis: good to see you. so, i've learned that chris is gone. mike: you know, chris decided that he wanted to move on. you know, it was unfortunate. but this is not a complex operation. lemonis: i can tell that mike's trying to shut down any conversation that we have about chris before it even starts. and i'm concerned. but for now, i want to find out if we even have a deal in place. so, what's happened since i left? mike: uh... there's some things i regret saying about the deal. lemonis: you shook my hand. mike: as the deal's structured today, i would like some clarification on a few things. lemonis: have you changed your mind? mike: i... lemonis: if your business is in trouble and you need my help, log on to...
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ed today, i would like some clarification on a few things. lemonis: have you changed your mind? mike: i... lemonis: as long as everybody agrees that we're gonna lock up 15% for the employees -- mike: we think 10% would be a little more reasonable. lemonis: so, you want to renegotiate, then. mike: there's one other issue. lemonis: what's the other issue? mike: and that's using the proceeds to buy out josh. lemonis: so, now you don't want to give josh his money? mike: well, for $50,000 of the company's money to leave, buying out one investor -- lemonis: 'cause his ass is working here on the floor for no pay. he thinks he's getting a raw deal because i'm trying to do right by the people that do all the work and make this place go? if it wasn't for them, i may walk out that door and never look back. i'm disappointed. i'd be lying to you if i told you i wasn't. either that deal that we made is a good deal
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or it's not a good deal. mike: if chris is gone, we would like to see 10%. and we're willing to make that carve out -- lemonis: so, your counteroffer is $300,000 and the employees only have 10%? -mike: mm-hmm. lemonis: and so, my counteroffer is $300,000 and i want 35% for myself. mike: you're adding -- instead of 5%, you're adding another 10%. -lemonis: yeah. 'cause i want more of it, then. i have licensing deals lined up already and i have distribution lined up. and i'm not working for free. mike: we definitely would like to have a more in-depth look at who really is deserving of this incentive. lemonis: are we in agreement at 15% of the equity of this business would stay with the employee base? mike: uh, to have you in the deal, i think i can -- i can sign up for that. -lemonis: so, that's a yes? -mike: it is. lemonis: so, you're back to the original deal, which is i'll have 25%, and the employees will have 15%. we landed in the exact same place.
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you understand that? mike: i understand that, but you know what? lemonis: like, the exact same place. i'd like to just erase today from my mind. i wanted to get everybody together to talk about making a shorter, smaller, less expensive board. we've already figured out how to sell the traditional longboard for $199 as opposed to $329 by getting the cost down. but what we now have to figure out is how to make smaller boards that we can even sell for lower price points. who has replaced chris? -josh: dave. lemonis: okay. who else is missing? and where's nate at? -josh: nate's no longer here. -mike: nate left, too. he just walked out, never called, never came back. lemonis: seriously, or are you guys just messing with me? josh: no. it's serious. lemonis: have you tried to get him back? -mike: yeah. -nikki: yeah. mike: he won't communicate with us. nikki: he won't return our phone calls. lemonis: i hope you guys can appreciate to have two people leave -- chris and nate -- in a short period of time -- it's kind of unsettling. i guess i'm concerned that i'm alarmed and mike isn't.
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every time i turn my back, someone's leaving. we should have three sizes. i'm looking to take our current longboard and drive the retail price down closer to $200 and then come up with a smaller board that also gets us in that $150 price range. same trucks, same wheels, same concept, just shorter and smaller. and we're gonna make a youth board. since we're gonna be buying our materials with much greater volume today, we're gonna be able to make the boards and still get close to 50% margins. the 44-inch traditional longboard will cost us $100 to make and retail for $199. the medium version, 34 inches, will cost us $75 to make and will retail for $149. the smallest version, the 28-inch, will cost us $60 to make and will retail for $100. we'll cut down some boards, and then you guys come up with some designs that are basic. ♪
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look at the difference in size. that's a big difference. mike: let's give her a whirl. lemonis: how is it? mike: this turns way tighter than the longboard. lemonis: the shorter wheelbase does, right? -mike: oh, absolutely. -lemonis: let me get up. mike: there you go. lemonis: to make the prototype was fun in itself, but to ride something that you're a part of making is even more fun. you did a nice job with this, dave. and so, you've picked up a new audience. you've given a retailer a lower price point. you've created volume in your shop. and now kota's starting to look like -- mike: a real company. lemonis: you could mass-market the crap out of that. tracy: lift the lid off of that one. -lemonis: here? -tracy: yeah. come this way.
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lemonis: the team left the prototypes to dry overnight. now we're all reconvening this morning to put on the finishing touches. what do you love about it here? -tracy: this. -lemonis: doing this work? -tracy: instant result. i like painting and vacuuming. lemonis: oh, yeah! hey, dave, do you know where mike is? dave: mike was at a breakfast meeting, i think. -lemonis: okay. -dave: he's on the way. lemonis: when we agree on a plan to launch a prototype, i expect mike to be there and fully engaged and immersed in the problem, not off doing some other sort of project that they have that doesn't help us sell boards. is mike here? -nikki: he's not here yet. lemonis: so, one board was supposed to be sprayed. why don't you and i pick the one we want to spray, 'cause i definitely want to have one. nikki: okay. lemonis: hey, tracy, do you feel like this is ready to be sprayed? tracy: my only concern is the flex of the board is gonna pop out that medallion. lemonis: this is why having mike here matters. nikki: let me find out what, uh, the status of him is. lemonis: okay.
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lemonis: josh, how come mike is never here? josh: i-i'm hoping that he's out there making contacts and approaching the right people. lemonis: what blows my mind is that he pushes back with me on incentivizing the employees who actually do the work and then he doesn't even come in in the morning because he goes to some breakfast meeting. what's with this guy? mike, how are you? mike: good morning. how are you? -lemonis: where were you, buddy? -mike: huh? lemonis: where were you this morning? mike: i had this breakfast that i had to go to, so... lemonis: i get here this morning, and they don't know what to do. -mike: it bothers me, because that's why i have a production manager. if i'm in here, then people are confused as to who's in charge. lemonis: i'm not asking you to come in here and undermine his authority. you admitted yourself that turnover's been a big problem. mike: it has been. lemonis: why wouldn't you dive into the business so that you can inspect where is the breakdown happening, why are these people leaving? see, it's an overall philosophy that i'm asking you to rethink. and i can see that you're resistant to it, because you're kind of smiling at me like you don't really give a [bleep] about what i'm saying. mike: no, i'm frustrated.
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lemonis: i'm not gonna allow you to be frustrated. that's the job that you signed up for. when they quit, they're basically saying, "you're fired." why aren't you totally floored by the fact that you got fired by your employees? inspired by a true stella brewery closed, auction sale. i am sebastian artois. brewmaster. risktaker. wake up sebastian ♪
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with new sensodyne true white, there's an option for these patients. it will not only treat sensitivity but it will also provide the whitening that my patients are looking for. i will absolutely be recommending sensodyne true white to patients with tooth sensitivity that are also interested in whitening their teeth.
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♪music continues [daughter] papa! [father] i missed you! [daughter]did you bring new ones? [announcer]you work hard for more than just you... [daughter]you went to montana?! [father] i did. [announcer] working together,we'll help you save for her future geology degree. wells fargo. together we'll go far. lemonis: i'm not gonna allow you to be frustrated. that's the job that you signed up for. mike: i have to figure out how to stabilize this team and get the team functioning. lemonis: what i'm telling you is, mike, you'll have a greater success rate if you do it from inside.
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mike: well... lemonis: what's going on, brother? how you doing? -nate: good. thanks. lemonis: i got a call from nate because he told me that he wanted to explain why he left kota. is there something that happened that upset you? nate: yeah, just bringing -- bringing that dave guy in, you know? and they didn't even tell me until a couple hours before that they for sure are hiring this guy and they're bringing him in. lemonis: i mean, you're here. you're working. chris leaves. you're now bummed your buddy's gone. nate: right. lemonis: and then mike probably told you, when chris left, "oh, i'm gonna..." nate: he said, "you might have to take the responsibility," in a meeting. and then, after that, there was no word said about that. lemonis: you create a culture of instability and insecurity, people aren't gonna want to stay. nate: i don't know why chris would ever leave is the thing. lemonis: do you think that, ultimately, mike just ran chris off? -nate: maybe. lemonis: damn. all right, my man. thank you, brother. be good. i'll be in touch. nate: thank you.
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lemonis: so, nate stopped by. mike: how's he doing? lemonis: i think he was under the impression that he was gonna get extra responsibility from you. mike: well, i told everybody, "we all have to backfill in." lemonis: you know, i've never seen a business ever where it's this new in its infancy there's this few of employees and you've turned over as many as you have. mike: i think it was the leadership atmosphere on the shop floor. -lemonis: but that's you. -nikki: yeah. -mike: no, we hired chris -- -lemonis: you're saying yes. -nikki: yeah. you need to be... lemonis: present. nikki: ...fully present and engaged in the day-to-day actions of this business. mike: i have obligations that -- lemonis: well, what are they, other than your business? you need to pick the priorities that sell longboards, 'cause if the longboards don't get sold, everybody loses their money. i lose my money. nikki loses -- mike: i look at it that if i'm in here, i don't have exposure to our clients or the people that are potentially gonna buy our boards. lemonis: right, but going and speaking at a luncheon or collecting an award is not selling longboards. mike: but it's visibility in the marketplace. lemonis: nobody gives a [bleep]
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mike: [ chuckling ] i think there's an under appreciation of what i have to do, though. -nikki: no. we -- we totally appreciate everything that you do, but we want you to be doing it here with us. mike: yeah, and i-i can't. when you say, "hey, mike, you know, it's 3:00 in the afternoon and we have 15 pieces of vinyl that we need to cut to spray tomorrow," guess what -- i can't do that here. nikki: right, but the future is going to be -- mike: and i'm the only one that knows how to do it. lemonis: mike, you should teach somebody else how to do it. mike: yeah, well, they'd have to do it in our house. lemonis: well, bring the printer in here. whatever it takes to make it work. your wife, who's a partner, the other employees who have left here, and the people here are saying to you, "you have to be here more." you have to make the decision. are you gonna be committed to this business on a daily basis or do we need to restructure the way this place functions? so, you need to really think about that. mike: yeah. lemonis: it's been a couple of weeks, and i'm back in denver to finally nail down a location for kota to move to.
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but i also want to make sure that mike's been present and that josh and the other employees are doing okay. i got to be honest -- i walk in, and i don't see anybody i recognize. and there's hardly anybody here. how are you? -mike: i'm doing well. lemonis: what's going on? where is everybody? mike: well, we've had nearly 100% turnover in staff in the last month. kris wells -- he just came in one day, picked up his stuff, put his key on the table, and walked out without telling anybody. and tracy sent us a resignation letter citing health issues. lemonis: those are the two main stainers, weren't they? -mike: yeah, they were. -lemonis: and what about josh? mike: he wanted us to pay him. he came to me with an offer for full-time employment, but i can't do that. lemonis: i'm not gonna lie to you. i'm shocked. i came one time, one person was gone. then i came a second time, and nate was gone. and now everybody's gone. it's been five weeks since i've known this company, and almost every single employee that was here when i started is gone. that's not a good sign.
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lemonis: when they quit, they're basically saying, "you're fired." why aren't you totally floored by the fact that you got fired by your employees? i think it would be helpful for the company and for you to get everybody that left together and really hear from them why they left so that you can learn and grow from it. i'm gonna get to the bottom of this right now.
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it's obvious to me that mike is at the center of all of this, and it goes way beyond him just not being in the office enough. it's alarming to me that people quit this place at the rate, but i want mike to hear why you guys left. tracy: my health concerns fell on deaf ears. seeing the air-filtration systems hanging by a thread -- you guys should have been, like, wanting to protect me. mike: i guess that i was not explicit enough in my direction to certain people to support tracy in that effort. lemonis: what i took out of it is "i have certain feelings and emotions about things, and i don't feel like you're considerate of them." tracy: being told by multiple people that you guys say bad things behind my back, um, i'm not cutting it, i'm never here. that is crap. it's just -- it's horrible. lemonis: seriously? you got to be kidding me. mike: tracy, do you really think that i didn't care for your well-being? tracy: no. mike: wow.
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kris, i'd really like to know why you left. kris: 'cause of all this, man. i had seen so much stuff. i had heard stuff. i've heard you make snide comments about like, "well, if people would show up for work..." i've heard snide comments made about josh. josh volunteers his time. josh: you told me, "you know, he's offering you this deal," and it's this great deal, "but it's not gonna happen under my watch." your exact words -- you said you'd throw the whole deal away if i got what marcus was offering me. i approached you, though, with a resolution, and i thought $15 an hour was more than a fair offer. but i called you two times, left you two voicemails saying, "please call me. please call me." didn't get a text from you or anything. you've given me the runaround. lemonis: i mean, the man did put in 50 grand into the business. mike: yeah. chris: i've heard you say a few times, and i know this was the goal when i was here, that you needed a long-term, stable team. and if you look out right here, you're not accomplishing that goal. how many people are you going to go through before you change your tactics? lemonis: what do you think, mike? mike: hurts.
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lemonis: how do you move this company forward? 'cause the recipe that you have now is just not working. you have difficulty honoring your word with people. i saw examples of it. you had difficulty honoring your arrangement with josh and feeling good about him getting his money back. you had difficulty honoring your agreement with tracy. you had difficulty honoring your deal with me 'cause you wanted to change it all the time. and i honestly -- i mean, i hate to say this to you, but i don't feel like $1 of my money is safe here because i don't know what i'm gonna find the next time i come. i told you when we negotiated, "this is gambling for me, but i'm comfortable with the people that work here." and then i followed that up by saying, "15% of the business has to go to people that work here." and so, little by little, that sort of crumbled and it just -- it shattered my confidence a lot. i'm -- i'm terribly, terribly, terribly disappointed that it came to this -- really terribly disappointed -- um, but i can't invest with you.
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okay? i wish you luck. mike: thank you. lemonis: thanks. good luck to you. good luck to you. thank you, my man. -josh: good luck, marcus. -chris: good luck to you, sir. -lemonis: see you, my man. -chris: yes, sir. lemonis: be good. thanks. it's never a good thing when deals fall apart, but when i invest in businesses, what i'm ultimately investing in is the people that work there, not just the owner. and this particular owner has no regard for his people, and there is no way that i'm gonna invest in a place or leave my money in a place where the owner basically treats his employees like garbage. i'm sorry, but my money's not staying here. mike: want to help me out here? what are you thinking? nikki: i think we need to take everything that was said to you and really learn from this. people are important.
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>> welcome to the shark tank, where entrepreneurs seeking an investment will face these sharks. if they hear a great idea, they'll invest their own money or fight each other for a deal. this is "shark tank." ♪ i live in davenport, florida, with my beautiful wife corrina, my daughter claudia, and our dog chloe, and i am the owner of fresh patch. corrina and i got married three months after meeting each other, and then corrina got offered a job in florida, so we decided that might be a good opportunity to start something new. we moved from a house with a backyard into a condo with a small balcony. it was really hard on my dog chloe. i didn't have a job.


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