The Profit “Progress Report” Reaction: Coopersburg Sports, Key Lime Pie Co., Artistic Stitch, Unique Spa and Salon

I thought the all new episode 2 of season 3 would be another feature but this episode turned out to be a check-in on four businesses Marcus previously helped.

Normally I’m ok with updates but the extended summaries of past episodes were so long I felt 1/4 the show was spliced re-runs.

The other problem I had is a longstanding one: I can’t tell what’s real and what’s not. My main qualm is I don’t believe Marcus Lemonis is so stupid as to keep giving these people money when it’s obvious they’re either blowing it or stealing it.

Marcus Lemonis knows business and he knows people. For him to keep getting the wool pulled over his eyes as CNBC portrays isn’t realistic.

I still really like the show but it is hard for me to seriously blog about it because I feel like I have no grasp on what’s actually happening in real life.

With that’s said, let’s talk updates.

Coopersburg Sports

– Marcus original investment was $635,000 but to date, it’s $1.4 million

– As you might have just gathered, Scott, the owner, keeps coming back for more money

– Marcus hired Dan, a Wharton MBA grad, as a consultant and to keep a tabs on the business and keep him in the loop

– The warehouse is a lot more organized

– For some reason the show blurs out the Major League Baseball logo

– Previous year $2m in sales, this year $3m in sales and will turn a profit

– Scott got a surprise new printing machine for $85,000 and they don’t have any orders for the products it makes

– Marcus is pissed about the printing machine and how Scott didn’t do the analysis prior to purchasing it

– Scott needs another $150,000 to get out of the hole

– They’ve expanded way behind baseball into college, Nascar, and more

– Walmart placed a huge order for the souvenir station, 1st order was $500,000

– Margins are 50%, up from 38% a year ago

Thoughts

We didn’t get a definitive update with Coopersburg sports.  They recently got a huge order with Walmart but Marcus took us through a small roller coaster of the good and bad.

Marcus must have a hell of a lot of money to hand out $100,000 loans/investments like they’re candy.  I’ll assume he’s taking more equity each time he writes a check.

To invest $635,000 in someone and then less than a year later be $1.4 million in is incredible to me.  Clearly, something’s going VERY wrong for them to keep coming back for more money.

As a disciplined investor, you need to do some serious due diligence if you want to put any more money in after that kind of initial investment.  How profitable can a business that needs $635,000 and then another $765,000 – and now what looks to be an additional $150,000 really be?

Is something wrong with the operations?  Are checks getting rerouted?

Get real.  How can you keep giving this guy money?

Also, Dan was a strange throw-in. I finished this segment not knowing what he contributed.

Unique Spa and Salon

– Named one of the top 20 salons in US

– Averaging $5-$6k on Saturdays

– Increase in sales from $1m to $1.4m

– 14% increase in margin

– Marcus gets a haircut from Carolyn

– Carolyn doesn’t always take a pay check

– Marcus praises Carolyn for her selflessness

Thoughts

Looks like the salon is doing well.  The numbers improvement is rock solid.  I thought their margins would increase a little more given the disarray portrayed in Unique’s original episode but 14% is still awesome.

Marcus praises Carolyn thoroughly and it looks like it’s well deserved praise.  She did need Marcus to help her get tough with the employees and managers but he set her on the right course and now the business is doing well.

I would be concerned about her not paying herself though.  Did they account for that in the increase in profit?

Artistic Stitch

– In a complete non-surprise, Sal completely screwed Marcus over (In the previous episode Marcus caught Sal lying approximately 400 times.)

– Sal and Nick started drawing a salary as soon as Marcus left which was not a part of the deal

– None of the money invested was used to pay the landlord for past due rent

– Marcus feels like he got hustled

– Already invested $300,000 so he’s giving them a 1099 for tax purposes

– They changed the name back to Artistic Stitch (Marcus had previously renamed them Queens Vibe)

– They put the basketball court and Italian restaurant back into action (Marcus had taken them out of the equation)

– Marcus sits around and waits for Sal to come in

– Sal sold the $27k printer Marcus brought

– The printer was never reported to accounting

– Michael (landlord) for some reason has never evicted Sal after him not paying for 3 years (Why does he need Marcus showing up to take action?)

– The show hits a low point with a Jerry Springer like yelling session

– Marcus still thinks deep down Sal isn’t a terrible guy but his “thought process is just off”

– For some reason Marcus walks off into traffic

Thoughts

This is exactly why I can’t tell what’s real with The Profit.

If you haven’t already, watch the Artistic Stitch episode.  Sal is caught lying or hiding facts from Marcus on a regular basis yet Marcus for some reason keeps believing in him.

In real life, no savvy business person gives 2nd, 3rd, 4th, and 5th chances.  It just doesn’t happen.  Yet, I’m to believe the guy that owns Camping World gets played like a fiddle by a t-shirt company in Queens?  Come on.

Also, landlords don’t wait 3 years to get paid.  No one does.

Key Lime Pie Co.

– Went from losing $100,000/year to making money

– His investment had to double to over $700,000 for various bills

– Tami is the store manager now

– previously $1m in sales and losing $100,000, now $1.2m in sales and making $100,000

– Went from 15% margins to 35%

– Marcus asks if Tami has heard from Jim and Allison and Tami indicates no without saying anything which leads me to believe they are no-showing but they’re really not; when the show comes back from commercial, we find out they got bought out

– Marcus bought them out for paying off their debt (~$200,00k?) + $65,000 + $1 pie in royalty and $0.15 a slice

– Apparently Jim was undermining Tami

– Marcus makes Tami 25% owner and mentions he’s also 25%

Thoughts

Who owns the other 50?

Why did Marcus lead us to believe Jim and Tami weren’t helping out (he asked if they’d been there without mentioning they were bought out first)?

The turnaround was there but the numbers weren’t as stark a change as I’d expect them to be given the massive changes.

Marcus said he doubled his investment but it looked like most of that went to buying out Jim and Allison.

I’ll check Twitter for any insight Marcus provides and post it here (non-Marcus tweets were retweeted by him).

Disclaimer: The commentary herein is opinion only and is based solely on the edited episode of The Profit shown on CNBC without all the facts.

Season Finale Reveals How Real The Profit Is; Marcus Lemonis Really Does Handshake Deals

In the best episode yet, The Profit: A Progress Report, we’re taken on a roller coaster ride of quick updates through most of the series’ episodes.  We get an element of closure but what was most interesting to me was that Marcus revealed he really is losing money on some of these deals.

I thought there were two moments of clarity where Marcus stepped back from the show and provided insight on questions people (including me) were wondering.

One was handshake deals.  Here’s what Marcus said:

…and that brings to me to a question that I get all the time, ‘Why do I do deals on a handshake?’  I believe that deals are built on trust.  That’s more valuable to me than a piece of paper.  It’s worked well for me so far but at the end of the day, you ultimately meet people who don’t honor their word and that’s where i get burned.

Another was about losing money on the deals.  Marcus said this:

People ask me all the time how it feels when people take my money or the deal falls apart.  Look it stinks, I work hard for my money and I didn’t always have money and so the money that I do have I take very seriously.

Thoughts on Handshake Deals

Marcus is a billionaire (or somewhere near it). I am a blogger. I know this and am in no way asserting that I know more than him about any aspect of business. But for the sake of commentary and discussion, I will say that I completely disagree with him on handshake deals.

Having a contract to backup an initial handshake agreement is a low risk measure that not only provides a degree of protection to both sides but also enables both parties to visualize the key aspects of the deal with clarity.

In contrast, words spoken between two parties may be interpreted differently on both sides, no matter how clear the words may initially seem. Moreover, what was originally said will likely finesse its way into something different over time.

It is absolutely critical to get contracts in writing.

Yes, there is an element of distrust in getting a contract but there is also an element of clarity; we can both plainly see in no uncertain terms what the deal is so we know what our expectations are going forward.

While I do believe a level of trust is necessary to foster a business relationship, I don’t believe in blind trust. There are less than 10 people in this world that I would blindly trust so I wouldn’t be able to hand over a check to someone for $100,000 and hope they follow through on what we shook hands on.

To me, just entering a business relationship shows a tremendous level of trust because even with a contract doing business with the wrong person/company can ruin your own.

Thoughts on Marcus Losing Money

I didn’t think Marcus was really losing money on these deals. I had this idea that he either wasn’t actually spending it or CNBC reimbursed him or he had collateral from the company or something, but no, apparently he really is losing money.

For example, in the Skullduggery episode Marcus lost $105,000 but was able to get the 3d printer he bought for the business returned.

If this is true (that he actually loses money), I’m amazed and surprised at how easily Marcus throws money into these operations. Maybe he chalks it up as an investment in the show – which is golden marketing in and of itself – to move the show along and make it more entertaining.

Knowing how savvy Marcus is, I find it extremely difficult to believe he would so quickly pour hundreds of thousands into some of these companies with the owners having the character flaws that are portrayed on TV.

AutoMatch USA Thoughts

On the topic of why invest in them?, Marcus made a 50/50 deal with car lot owner Pete Athans and turned Athans Motors into AutoMatch USA.

When he originally invested in Athans Motors, the sales were $6m but the losses were $2m. Since then, Marcus invested $12m to open up new locations.  By the end 2015, Marcus expects there to be nine AutoMatch USA locations with close to $200m in sales.

What I don’t understand is why Marcus needed Pete at all.

It looks like Marcus could have very easily done this all by himself without surrendering any equity.

Maybe Pete just owns 50% of his original car dealership and gets a royalty from the other locations.  Marcus didn’t say that but I’m just trying to make sense of the situation because otherwise it makes no sense to me why Marcus would lay all the ground work, invest all the money, and expand to so many new locations while someone else gets half.

I’m sure there’s more to this but The Profit didn’t shed any light on any potential further details.

Very Interesting Tidbits

Here are some updates I thought were really interesting:

1. Two weeks after the Maarse Flowers episode, Hank’s mother called and sent Marcus $150,000 to pay him back for the money he had given.

2. AutoMatch USA gets 60% of its inventory from 1-800 CarCash (so clever).

3. Although Marcus originally was called to help Michael Sena’s Pro-Fit gym, the deal that really took off was investing in his wife Tina’s protein bar. It took Marcus 3 months but he got the bar into GNC (his “holy grail”) and over the next year they plan on selling a million bars, generating $900,000 in revenue with $200,000 in profit and additional product extensions are on the way.

4. Marcus currently has a lawsuit pending against A. Stein Meat Products. He wired A. Stein $200,000 on a handshake to make payroll in exchange for Brooklyn Burgers (so employees could get paid even though A. Stein was going under) . But 7 months later, he still didn’t have the burgers. A. Stein no longer exists as it has been foreclosed on by the bank.

5. Dane from Sweet Pete’s was bought out of his 15% share for $50,000.  He had only put in $2,000 for his 15%.

6. Sweet Pete’s decided to relocate away from their residential spot and open up shop in a 110 year old historic mansion in downtown Jacksonville.  The property cost $500,000 and Marcus spent $2.3m renovating the mansion into an event center, industrial kitchen, shop, restaurant, and inventory storage center – it’s now a ‘destination’ in Marcus’s words.

Wrap Up

Great episode.  I really enjoy watching The Profit.  Whereas both The Profit and Shark Tank are educational, The Profit adds the element of seeing business in action which really is entertaining/interesting to me.

I’ve never liked the unnecessary drama artificially pumped in so hopefully they leave that out and continue focusing more on the business aspects of each deal.