tv The Profit CNBC July 23, 2018 1:00am-2:00am EDT
but i knew inside there was something very special. and i think potential is limitless. jennifer: thank you. i think so, too. ♪ a maker of upscale cleaning products faces a crisis." so, last year, the company lost $477,000. but its owner refuses to face reality. max: marcus, some tea. lemonis: feels like you guys are, like, a little delusional about what's happening. her fancy branding is way off the mark. taylor: it looks like the queen of england would have it. and i don't think it should 'cause we make toilet cleaner. lemonis: her extravagant price point is way out of reach. max: so, the triggers, they're all $9 at retail. lemonis: who can afford that? max: yeah. lemonis: and yet she's more interested in her image than fixing the problem. kathy: my hope for you is throw away the facade.
lemonis: if i can't force her to accept the truth, warts and all, this company's gonna go right down the drain. max: i feel like we deserve more because we're worth more. lemonis: you need to cut the... 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... let's go to work. ...is "the profit." ♪ in 2008, california native max kater founded murchison-hume, a maker of nontoxic cleaning products. max: this is an all-purpose plant-based cleaner. lemonis: a former fashion editor, max was living in australia when her son became allergic to ordinary cleaning products.
max: i just needed something that i could clean the house with that looked good, that smelled great, that i could trust. lemonis: she saw the need for products without harsh chemicals. murchison-hume was born. max: can you send me the new images that i did? taylor: yeah, that you shot over the weekend? max: yeah. lemonis: the business grew fast. and as revenue approached the seven-figure number, max set her sights on the u.s. market. so she moved her family to los angeles. and that's when things went south. max: i'm sorry, tay. i think i'm gonna lose it. lemonis: five years in, the product has failed to connect with the u.s. consumer. max: we can't be that expensive. lemonis: and max is now struggling to stay afloat. max: if we don't pay our entire bill, they're gonna shut us down completely. lemonis: cleaning products are a $50 billion industry. and there's plenty of room for eco-friendly brands like murchison-hume to grow inside of that. if i can figure out how to jump-start sales,
it won't be long before this company's cleaning up. hello. hi. lilian: hi. i'm lilian. lemonis: lilian, nice to meet you. lilian: yeah. peter? peter: hi, marcus. i'm peter. lemonis: peter, nice to meet you. i'm marcus. peter: yes. lemonis: how are you? hannah: hi. hannah. lemonis: hannah, nice to meet you. taylor: i'm taylor. good to meet you. good to meet you. these are the dogs. this is domino and zeus. lemonis: are these greyhounds? taylor: no, they're actually whippets. max: who's for tea? i'm making some. oh, you're here! hi! taylor: this is max. lemonis: how are you? max: lovely to meet you. lemonis: i was meeting the company mascots. max: oh, yes, our fur babies. lemonis: they normally have this kind of disposition? max: yes, they're very calm. lemonis: do they take on their owner's disposition? max: probably not. [ laughs ] lemonis: okay. max: kathleen, she is working as our sort of interim cfo... lemonis: great. max: ...to help me with numbers. lemonis: this is nice. taylor: it doesn't look like much from the outside. lemonis: but it's pretty inside. taylor: yeah. lemonis: what is -- max: oh, this? this is my mood board and my inspiration board. and it's the kater family. it's kind of murchison-hume world. lemonis: when i walked into the office for the first time, i wasn't really sure i was in the right place.
i see fine china and fancy furniture. i thought this was a place that was selling toilet bowl cleaner. max: okay, so we started in 2008 in sydney. and it was basically me -- lemonis: sydney...? max: sydney, australia. my husband's australian. we met actually in hong kong. peter: max was working as the fashion editor for the south china morning post. max: and pete's not in the business, obviously, day-to-day. he's making money for us to live on. lemonis: and so why did you start this business? max: i had a young 18-month-old... lemonis: okay. max: ...who was born with eczema, asthma, and allergies and allergic sensitivities. so when i was cleaning the house, it would exacerbate them. and i thought, i'm just gonna make my own. so i would get, like, plant-based cleaners. it was absolutely nontoxic. lemonis: and that's the cleaning agent? max: yes. lemonis: wow. where'd the name come from? max: it's peter's father's two middle names, roderick murchison hume kater. he's on the wall over there. he's a very elegant man, and he's president of the australian club. lemonis: very refined. max: yes!
lemonis: have you had any headwind in the states with the name? max: i've had resistance, yes. lemonis: murchinson, i just -- max: yeah. it's murchison. lemonis: murchison. max: yeah. lemonis: not murch-- max: there's no chin. lemonis: murchison-hume. max: i just thought it sounded like it had gravitas. lemonis: when you name your brand, you want it to be something memorable and that has real clarity to it, not something with gravitas like a law firm. are these the products right here? max: yes. so, we do glass cleaner, floor cleaner, hand soap, dish soap. lemonis: what i like about it is it smells like an essential oil. max: yeah. lemonis: can you bring all skus onto this table? max: yep. so we're gonna do glass, floor. do we have a new floor cleaner? 'cause that's an old one. we need a pot brush, honey. can you grab a pot brush? dishwashing, hand soap. this, i loved. it was a sneaker spray. lemonis: you sell it at shoe stores? max: [ laughing ] i tried. lemonis: here are the cleaning products. max: yeah. lemonis: there's eight of 'em. max: yeah. lemonis: okay, a candle is not a cleaning product. max: correct. lemonis: leather lover, shoe spray, garment cleaner, i mean, i'm just being honest.
i don't know who you're trying to be. i would have expected this company to have a few categories with different skus inside of each of 'em whether it's hand soaps or bathroom cleaners or whatever it may be. but instead, there's close to a dozen categories with no direction. and some of them have nothing to do with the other. what are the price points? max: so, the triggers, they're all $9 at retail. lemonis: $9? max: i know. lemonis: who can afford that? max: [ sighing ] yeah. lemonis: a product like this should cost between $5 and $6, not $9. and unless the person that sold it to you is gonna come actually clean your house for you, no one's gonna pay this price. and where do you manufacture it? max: we manufacture it in skokie. and we ship it to dallas. lemonis: a third-party logistics business? max: correct, in a 3pl. yep. yeah. lemonis: that seems inefficient. so for a typical bottle like this, what does it cost? kathleen: 37 cents for the bottle. lemonis: okay. kathleen: closure is 14 cents. lemonis: okay. and then how much is the label? kathleen: the label is 18 cents. lemonis: okay. so now, we're at $0.69.
kathleen: the filling is 35 cents. the box is 6 cents. the partitions are 7 cents. lemonis: okay. kathleen: and... lemonis: ingredients. kathleen: ...is 12 cents. lemonis: so at $1.29, it's still sitting in chicago. max: yeah. lemonis: where's the next place it goes? max: dallas. lemonis: okay. what does it cost to get it to dallas? max: 50 cents a bottle. lemonis: max may not realize it, but this little pit stop in dallas for the product is costing the company a heck of a lot of business. murchison products are made in chicago, then transported to dallas and then shipped out from there. to get 'em to dallas adds another 50 cents of cost to each individual unit. but keep in mind, murchison-hume, like any wholesaler, sells to retailers at twice its cost, meaning that the 50 cents turns into $1 by the time it gets to the retailer. then the retailer adds its markup. and that dollar becomes $2. and now an extra $2 has been tacked on to the retail price
just because of dallas. and what do customers do when they see that inflated price? well, you take a guess. they walk away. walk me through this. max: so, we used to have a text-heavy label. i wanted to make it easy for the customer to identify. so for me, it's an icon. lemonis: i'm gonna challenge you on that. max: oh, no. lemonis: i feel like it's, like, buying products for my castle or something. taylor: the chair's kind of like a chair that would be in a castle. max: easy to identify, stylish, chic. lemonis: anybody have a chair like that in your house? kathleen: no. max: i do. lemonis: is this the first time you've ever heard this? taylor: we've talked about it with some of these icons. lemonis: she doesn't listen? kathleen: she -- [ laughs ] lemonis: do you think they're too fancy? taylor: the bun is pretty tight. max: it's a chignon. lemonis: what is that? max: it's french. lemonis: it's probably french for "tight-ass product." [ laughter ] this isn't for everybody. high style is clearly your game. if you were a fashion editor of a magazine, which you were, i would say okay.
your price and potentially your icons could be barriers to entry for people... max: okay. lemonis: ...who think it's too, uh... taylor: fancy. lemonis: fancy. look. forget about the fact that these icons alienate regular people. the bigger problem with them is they don't actually describe what the product is. like this lady with the bun. you would think that's hair care product, right? nope. it's bathroom cleaner. what do you do here? taylor: i do marketing, design. lemonis: like, art director. taylor: yeah. lemonis: so when you have a new idea for a new product, how does that process happen? taylor: we'll hang a bunch of variations on the wall, like in that office. lemonis: can you show me? taylor: yeah. we print everything out, and there's, like, multiple iterations for some of these. max will want to do one thing. i'll want to do one thing. you know, we argue. and we don't look like a cleaning product. it's royal. it looks like, you know, the queen of england would have it. and i don't think it should 'cause we make toilet cleaner. lemonis: what is the best in show trademark? taylor: we own that. that's registered. lemonis: oh, really? taylor: yeah. yeah, we bought that. lemonis: look.
i have a pretty big investment in the pet industry. it's a chain of pet stores called bentley's. now, i don't know much about max's pet cleaning products, but the brand best in show, well, that trademark's worth something. i'd like to actually go over the financials with everybody. kathleen: okay. lilian: okay. max: come on, domino. come on, zeus. lemonis: when i look at 2015... kathleen: yeah. lemonis: $900,000 of revenue, $489,000 of cost of goods. then all the expenses is $888,000. kathleen: mm-hmm. lemonis: so last year, the company lost $477,000? kathleen: under the ceo's margin. lemonis: there's a ceo here today? kathleen: the ceo left. she got pinched by playboy. she's doing their digital marketing. lemonis: oh. why did you hire a ceo? max: i don't feel qualified to be a ceo. lemonis: cost, sale, gross profit. max: not hard? lemonis: yeah. max: to minimize our 3pl cost, we're gonna try and bring in-house our direct-to-consumer shipping.
so we're gonna fulfill downstairs. lemonis: so you're gonna get in the distribution business in an office plaza? max: kind of, yes. kathleen: we're really not hoping to do so. lemonis: it's not a distribution center. it's a little office in a strip mall. secondly, i don't think it's ever a good idea to distribute products from one coast or the other when you know that your buyers are all over the country. you own approximately 80% of the business. max: yes. lemonis: and the assets that are left inside the company are $289,000 of inventory sitting in the warehouse. lemonis: so on the balance sheet, $80,000 in payables. there's $53,000 in cash. your past two payables exceed your cash. you're sort of out of gas. kathleen: definitely. max: marcus, some tea. lemonis: even when i mention the numbers and the fact that they were really bad, and i felt like i was at afternoon tea. can i spend a minute with max, just her and i? at what point are you gonna worry that your doors are about to close? i think she actually is in denial.
max, it feels like you guys are slightly delusional about what's happening. it's like it doesn't feel like a company in crisis to me. it feels more like appearances than reality. max: by all rights, we should have been out of business 3 months ago. lemonis: why are you continuing? max: [ voice breaking ] i just can't give up because i will have let everyone down. and i will have moved my family away from our beautiful house to come out here and live in a little house that's too small for us on a highway. i owe it to my family to not give up and stay and figure it out. lemonis: okay. let me pore over these numbers. max: yes. lemonis: and you and i will connect a little bit more, all right? max: i'll repair my lipstick. lemonis: good seeing you. good to see you. peter: good to see you again. lemonis: so, how's the process been for you guys so far?
max: very good. lemonis: is there anything that i didn't ask you that i should have? max: you asked me why i started the company. i don't feel like i gave you an articulate answer. lemonis: mm-hmm. max: so, for me, it's just making everyday domestic tasks more glamorous. lemonis: right. max: so it feels like a treat. lemonis: so you know people that would spend $9 on a cleaning product? max: yeah, they do. yeah. lemonis: general, like, normal people? max: i mean, our database is not just aristocrats and movie stars. lemonis: do you know aristocrats? no. max: well, yes. [ laughs ] i do. lemonis: are you an aristocrat? peter: no, definitely not. max: well, your grandfather was a sir. lemonis: from a price standpoint, from a packaging standpoint, it is built for the aristocrat lifestyle. max: yeah. lemonis: how much money do you think the business needs? max: i think it needs about $1 million in order to launch personal care. it feels more complete. and as a beauty editor -- lemonis: [ laughs ] max: why you laughing?
lemonis: i'm laughing because you want to start, from scratch, a personal care product that you don't have today. the company earlier that had all these things on the table, and you stood there, and you were like, "wow, i didn't realize it was --" just got even... max: more complicated? lemonis: yeah. it's gonna turn into another train wreck. max: then what do you see? how do -- you obviously have an idea. lemonis: i don't think you need $1 million because i'm not the person to give you $1 million. i'm not even the person to give you a half a million dollars. it's too big of a crapshoot for me. and so i'm not willing to invest more than $250,000 in the business. the amount of money that should go into this company should be limited because it's not complicated. it needs getting the imagery right and getting the cost down and negotiating with a new bottler and a new warehouse. and i feel like i'm gonna have to do
more leg work than i typically would. and so my offer has to be for at least 50%. at least. max: that's gonna be a problem. [ sniffles ] sorry. [ sighs ] okay. get it together, max. lemonis: coming up... that's a little weird that this got staged. max: it's like putting lipstick on. lemonis: you continue to work hard to make things look different than they are. it's wrong.
even if you don't buy one from us. because maybe you're already buying a car somewhere else. or maybe you want to shop around. or, maybe you don't want to drive a car at all anymore... like, maybe you want to ride a camel into the dessert and take a deep hard look within. just figure some stuff out for awhile. that's cool. whatever your plans for buying a car, carmax is the place to sell your car. okay, let's do this, tina, tchick-tchick. here we go, tchick-tchick. i believe in ya tina. c'mon now. ah, we can just hang out here. your insurance rates a scratch so smallr you could fix it with a pen. how about using that pen to sign up for new insurance instead? for drivers with accident forgiveness, liberty mutual won't raise their rates because of their first accident. ♪ liberty. liberty. liberty. liberty. ♪
lemonis: my offer has to be max: that's gonna be a problem. sorry. [ sighs ] okay. get it together, max. lemonis: look, i understand that it's never fun to find out that your business is worth less than you thought it was. but at the end of the day, it's just numbers. it's just math. max: i'm sorry. i needed to compose myself. the lowest we would go would be $500,000 for 30%. lemonis: i'm willing to go $250,000 for 30%. and i want to own 75% of the best in show trademark.
max: can i have 30% of best in show, since i came up with it? and i will work my butt off for you. and i have ideas. okay. lemonis: yes. lemonis: while i went down from $250,000 for 50% to $250,000 for 30%, i more than made it up by taking 70% of best in show. i picked up an additional 20% of equity that i wouldn't have had otherwise. i always tell people my best offer is usually my first offer. max: i'm down with that. lemonis: so we have a deal? max: we do. lemonis: okay. thank you. thank you. max: thank you, marcus. lemonis: congratulations. max: thank you. lemonis: congratulations. max: welcome to murchison-hume. lemonis: the deal that we made is for me to invest $250,000 into the business
to drive down the actual cost of goods. these products cannot cost $1.79 for a bottle. and it's my opinion that the brand feels disconnected from the average american. we need to update the branding to make it more relatable to the masses. but what i ultimately want to do is narrow down the number of categories that they currently have in their lineup and, once we've narrowed those down, develop really good products inside those categories. and i want to make sure that this product is in retailers across the country. max, i think you struggle with your ability to be a good ceo. i think your confidence is shaken. you have the capability. max: i have a hard time embracing that title. lemonis: my goal is to give max the tools and the resources and the contacts and let her run her company. max: that's all i need. lemonis: yeah. great. feel good.
max told me that she sold her products at the container store, so wanted to head over and see what it looked like. what i'm ultimately looking for is to see the company's positioning on the shelf. the better the positioning, the better the product is selling. they're giving you a pretty significant -- max: they always give us great real estate. lemonis: it normally looks this good, huh? max: always on an endcap. lemonis: wow. max: they're very good. lemonis: does it typically look this plentiful? alana: it's usually just one row that we've got down towards the bottom. lemonis: which shelf would it typically be on? alana: it actually would go right along this one here. lemonis: this one here? alana: yes. lemonis: and so when did we get a better space? alana: uh, we just moved it yesterday. we were asked to move it up to the top. lemonis: okay, by the regional manager, or...? alana: no, that was something that i think someone from murchison-hume had asked us to do that. max: taylor came in and did a tidy-up.
lemonis: do you get a plan-o-gram from corporate? alana: we sure do. lemonis: okay. i would love to see that, just to get a feel for it. alana: sure, let me grab that for you. lemonis: what i ultimately wanted to solve when visiting the container store was to understand how the company's products were selling through the retailer. what i didn't want to have happen is max create this facade that the products were doing better than they were. you can't fix the business on false pretense, because you don't know what you're actually fixing. lemonis: that's a little weird that -- that this got staged. it's a little weird. max: well, you know, it's like putting lipstick on when you know you're gonna be on television. lemonis: it's almost becoming funny for me. max: what? lemonis: that you work hard to make things look different than they are. the fact that taylor came here with your direction and had her manipulate products, i do not agree with it at all. and it's wrong. if your business is in trouble and you need my help, log on to theprofitcasting.com.
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and had her manipulate products, lemonis: the fact that taylor came here with your direction that's a real problem for me. max: we wanted it to look good. i said, "make sure it's not dusty," and -- lemonis: i hate the fact that the decision had an underbelly to it. alana: so here is what it would normally look like. lemonis: okay. they've dedicated to merch one shelf. and so what we need to make sure is that we narrow the products down to whatever's gonna give them the fastest turn and the greatest margin. what i learned is that max's product isn't doing that well. it's not up to the standards that container store would like it to be to be in an "a" position. it's a "c" position. so i'm guessing it's there because of the actual sales results that exist. and that's a function of price, the branding, the messaging -- all the things we need to fix. the main reason that murchison products are so expensive is that they're manufactured in one state, the distributed out of another state. what we need to do is bring it all under one roof.
so i'm bringing max to visual pak today... max: oh, wow. lemonis: ...an organization that could actually do everything in one spot, eliminating all those extra costs. we're also gonna drive down the cost of our ingredients. timothy: you might have a chemical equivalent that we buy in really, really large volume. lemonis: you will get a pretty heavy discount on fragrance and poundage. max: good to know. lemonis: so the more we save, we're gonna be able to drive down our wholesale price, which ultimately drives down the retail price. i also want to start eliminating some of our product categories. so we need units and dollars. max: uh, counter-safe. lemonis: and what were the units? i want to drill deep into the numbers so that we know what products sell and what products don't. so, kathleen, what i need you to do is to build one sheet of paper... kathleen: mm-hmm. lemonis: ...that takes all of the skus... puts the margin. kathleen: mm-hmm. lemonis: and then we'll take our top skus, and we'll push those products. max: all right. lemonis: look. we can have the best price in the world
and the best product in the world. but none of it's gonna matter if we don't have our branding right. so i'm coming in today to talk to max about our packaging. okay. so, i want to work on the label so that it maybe is a little more, um... relatable. and i just want to sell a bunch. let's have taylor just -- maybe the three of us sit with him... max: okay. lemonis: and work on some ideas. max: all right. lemonis: all right? when you think about this, like, what would you change visually? taylor: visually, when we went to the icon, i felt we were more approachable. max: the other idea was that people that might have help in the house that doesn't necessarily speak english, it's easily identifiable what it is and what its purpose is. taylor: did you see the other line in there, clean evolution? lemonis: who did this whole design? taylor: uh, i did. lemonis: it's kind of clever. can we work on your computer for a minute? taylor: yeah. lemonis: okay. let's do it together. it turns out that taylor had mocked up another name for the brand called clean evolution. so i figured, let's play with it. you want to let people have their ideas
and not shoot 'em down. you may actually just get a heck of an idea out of it. i wanted max to understand that. you changed that to clean evolution? taylor: uh, yeah. max: you know i hate clean evolution. what do you think of the name, clean evolution? taylor: um, i think it could be interesting. how 'bout that forward-looking tub? it was a pedestal tub, but it wasn't so stuffy. so we can print this and mock it. taylor: yep. lemonis: this is just a mockup, just an idea. so, pluses and minuses for the change. max: i mean, i see all minus. lemonis: all minus? max: yeah. because the name, obviously, and the bathtub straight on look like a muppet. it's insipid. taylor: that's a little confusing. i like the idea of going with a bathroom-related icon, makes a lot more sense to me. max: i just can't get past the icon. so, to me, this would be, like, a mies van der rohe chair in a castle in scotland. it doesn't -- it looks weird. lemonis: a mies van der rohe chair?
in a castle? in scotland? i don't know what that is. which one do you like? kathleen: mm... lemonis: be honest. kathleen: i like the clean evolution. lemonis: you like this one better. kathleen: yeah. lemonis: the clean evolution is an easier name to pronounce, to do google search. the more esoteric the icon is -- max: yeah. but we don't want them to -- lemonis: people are, like, "oh, my god. what is this? is it shampoo? do i use it in the ladies' bathroom?" you need to be able to deliver something clear and understandable for everybody. so i'd like to keep moving forward on this. max: but what about a different iteration of the name, like m. hume or m. home or -- lemonis: no, thanks. all right. while everybody else is in the office, and they're enthusiastic about it, max put up this wall. her openness to discuss new names or new labels or new ideas is zero. and you can tell she's getting annoyed. as the ceo of the business, this is one of those challenges, tough decisions. got to pick a name. got to pick the icons. max: there's no way in hell.
ohh. [ sighs ] bye-bye, pretty, little, fancy labels. we're gonna be separated from each other. that can't happen. it's wrong. lemonis: i'm working with taylor. and the next thing i know, she's disappeared. [ ringing ] max: hello? lemonis: max? but i don't think you think i'm hokey-dokey kaboom, either. i don't think your vision is wrong. i think your vision just needs refining. and so, with that being said, i wanted to find out how we ultimately solve the problem
that you told me you wanted my help with. i'm more reasonable than you think right now. what do you mean only if it was true? are you telling me that i'm lying to you? max: you asked me. i let you talk. so i think you -- i -- lemonis: no. but you just accused me of lying to you. then it sounds like you're -- you're making a decision to not want to move forward. coming up... my offer was $250,000 for 30%. max: we don't feel great about that. if you want 30% of this company, we deserve more. lemonis: you need to cut the [bleep] max: i don't see why it's a big deal. lemonis: you shook my hand under that deal. the smoother the skin, the more comfortable you are in it. and now there's a new way to smooth. introducing new venus platinum. a premium metal handle boosts control...
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lemonis: then it sounds like you're -- you're making a decision to not want to move forward. max: that is not what i said. lemonis: every company that i've ever been involved with will all tell you the same thing. my intensity level in the beginning is a lot higher because i need to get down to find out what the real issues are. if i didn't think you were built for this, and i didn't think you could run the distance -- i can see how anybody that goes through this process has that fear and anxiety. you have to really trust
that i came here to genuinely work and help your business. look. max tells me that this behavior of hers comes from a place of insecurity and her lack of confidence in herself. and while i didn't appreciate her hysteria, i thought it was important to get her refocused and build her up a little bit. i'm glad we talked. see ya. i'm meeting with max today so i can follow up with her on what progress she's had with the labels. but i also wanted to introduce her to a friend of mine, someone that could serve as real inspiration. most people know her as a supermodel. but i know her as a phenomenal businessperson. max: hello. kathy: hi. max: hi, kathy. kathy: hi, max. kathy. max: i know who you are. kathy: how are you? max: it's very nice to meet you. lemonis: over the years, kathy has built a multi-billion-dollar branding and products company.
very few people know branding better than her. and what i was hoping happened more than anything is that max would listen to her, because she hasn't listened to me yet. max: i'm a bit of a fan girl. so i'm a bit -- [ laughs ] kathy: you've got a great product. now we've got to get people connected to it. max: yeah. lemonis: let's see some new packaging. max: okay, so, this is our current bathroom cleaner. and this is what it looks like. we came up with a new name called may home. it's easy to say. the second one, we went with m&h. no? okay. lemonis: last week, we talked about moving away from the name murchison-hume. but the first thing she brings out is a murchison-hume product. if she thought she was gonna find a receptive audience in kathy, sorry, i don't think that's gonna happen. max: i brought you a wild card, clean evolution. lemonis: where's the clean evolution with the bathtub? max: we didn't put it with the bathtub. kathy: i like the idea of the bathtub. lemonis: i'm hoping, over time,
that all of this advice will start to sink in. please let it sink in. you've struggled with acknowledging that you're capable of being a ceo. right? max: okay. yes. yes. i guess to me, a ceo is a person that has been to business school. kathy: my formal education ended when i finished high school by the skin of my teeth. you're qualified. we both come from the fashion industry. and so much about it is an illusion. my hope for you is throw away the facade. lemonis: kathy, thank you for coming. kathy: thank you so much. lemonis: you're so awesome. kathy: and, max, i'm so happy to get to know you. max: of course. thank you for giving me your time. kathy: i'm so proud of you. and i'm excited for you. max: thank you. it was lovely to meet you. lemonis: i was back home in chicago. so i decided to fly in max so we could visit bentley's, my pet chain. i'm excited about the best in show trademark. and so i thought we could work together
doing some research and coming up with some ideas. max: [ chuckling ] hey. lemonis: but i guess max had something better to do. she took her sweet time to show up. what happened? max: i'm sorry. i don't know chicago. lemonis: it's been like 45 minutes. do you not like being on time normally? max: i'm always on time. lemonis: you weren't on time this morning. max: i-i agree. is this your grooming? man: yeah. this is it. lemonis: what products would you use on your own pet that are here? max: this looks cute. and it says natural. but i can tell it's not natural right now. lemonis: the principles behind this particular store are no by-products, no corn, wheat, no soy. everything's natural, nothing from china. max: okay. the pearlized texture tells me there's something more going on than aloe vera and lavender oil. stephanie: okay. max: that's just me. lemonis: you're inside of my business. and you're criticizing vendors that are on my shelf. if anybody would be creating some fake illusion, it wouldn't be those folks. it would be max. that's what she does best. lemonis: do you guys think there's a lot of opportunity for new products for pet care? stephanie: definitely, because, like you can see,
there's just one shampoo for a cat. lemonis: we can create a whole line of products that would be great-smelling and natural. max: um, i would like to have a quiet word. do you mind if we have a quick chat? lemonis: suddenly, max said she had something she wanted to talk about, which i thought was a little bizarre. we can just grab a seat over here. max: my concern is that your focus is solely on best in show and that you're not that interested in murchison-hume because of the low evaluation that you gave it. lemonis: excuse me. did i miss something? did she just tell me that i'm too focused on the best in show brand while i've been revamping and busting my butt trying to fix the murchison-hume brand? am i missing something? so, my offer was $250,000 for 30%, right? max: um, we don't feel great about that. we feel like it's low. lemonis: uh-huh. so when you agreed to the deal, you agreed to it, and then changed your mind after? max: if you want 30% of this company, we feel like we deserve more because we're worth more.
lemonis: let me understand this. we had a handshake deal for $250,000. now you want to change the terms? so what's the counter? max: you get 15% for your initial investment and then another 15% when you execute and actually drive that price down. lemonis: so it'd be like a report card. and, therefore i would be granted, like an employee, my extra options. excuse me, but i'm not on audition. this is not a tryout. maybe you'll think about giving me an extra 15%? i'm not your employee. this isn't a bonus program. max: you don't feel like you need to prove yourself. lemonis: no. i don't feel like i need to prove myself. max: you know what it is? i guess because we don't know you. lemonis: i hate being a generous, nice person and then feeling like people don't think that that was a fair offer. max: i don't see why it's a big deal. lemonis: you need to cut the [bleep] max: [ chuckling ] um... lemonis: you shook my hand. you can't honor that deal. max: that was a lot. lemonis: that was a lot? max: yeah.
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'cause i think it would help you. max: but you know what i'm gonna say right now, right? lemonis: you're gonna say you have to go talk to peter. max: that's right. i do. lemonis: max needs to go back and talk to peter. and quite frankly, i don't care what they talk about. we had a very clear understanding of what the deal is. and next time i go to l.a., we're gonna make sure we get it settled. i'll see ya. max: goodbye. oh, my god. what a dick. did you want to talk to pete and i still, or we were -- okay. lemonis: i do. i'm back in l.a., and i wanted to meet with max and peter and find out exactly where we stand. max: should we look at our factory? we really couldn't afford to keep shipping from dallas. we're shipping all direct-to-consumer. lemonis: out of right here? max: downstairs. lemonis: that's a bad idea. i walked in there thinking that max and peter and i were gonna sit down and iron things out. but what i walked into was a mini distribution center,
something that i originally said no to. was part of the reason that you did this space here as a contingency plan because you didn't know what was ultimately gonna happen with our deal? max: yes. peter: but there was also a practical side to it. lemonis: well, this is not practical. this is a really bad idea. it doesn't make sense to me why max would go ahead and open up this "mini distribution center" and why she thinks she's gonna be able to fill her orders out of this one room. i don't care if it's just online or all of the orders. it just doesn't make any sense to me. max: i mean, this is not a big deal. honestly -- lemonis: not a big deal to you. this is, like, the moment of truth. if we want to move forward... max: yes. lemonis: ...we're gonna shake on it again. and it's got to mean something. what would you like to do, peter? peter: the value that you can bring to the business, we'd be willing to accept the original deal. lemonis: what would you like to do? max: i would like to honor the original deal. let's do it. lemonis: nice warehouse. max: shut up. it could be.
lemonis: so, after our little hiccup, we're back to work. after a long negotiation with the 3pl provider in dallas, we were finally able to move all of the product to visual pak in chicago. the product is made in chicago and then shipped from chicago. that'll now save us 50 cents on every product we make. now we have to count it all, put it in inventory, and put a process in place. so how much is actually here? max: it's about 33 pallets, so not the 120 that we thought. lemonis: so you're telling me you don't have $280,000 of inventory? max: no. lemonis: how much is actually in inventory? max: like $70,000. lemonis: but i made a deal based on this information. max: sorry? lemonis: the inventory difference between $70,000 and $280,000 is gigantic. the fact that max is flippant about it
is mind-boggling to me. max: i want to eyeball it over there. lemonis: let's do that. max: let's do that first before we freak out. lemonis: my investment of $250,000 presupposed that there was a best in show trademark and there were assets of $280,000 of inventory. this doesn't work. max: so, it's 33 pallets times 130 boxes per. lemonis: so 130 times 33 is 4,290 boxes. and there's 6 items per box. max: yep. lemonis: that's 26,730 bottles. and what's the average cost of goods? max: cost is about $1.79. lemonis: so 26,730 times $1.79 is $47,846. that's even worse than $70,000. for exclusives, extras, and business advice,
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the deal really isn't gonna be for $250,000. look. this is obviously gonna be a problem. and something's gonna have to give. max: oh, this is from kathleen. lemonis: rather than making any rash decisions, i wanted to give max a chance to actually get her act together and figure out where the inventory really was. i gave her a good, solid week. so i headed back to l.a. to figure out if we're doing the deal or not. can we chat in here? max: yes. okay, so, what are we doing today? lemonis: so, where are we on the actual inventory balance? max: we haven't resolved it yet. we think that it was sold. lemonis: when? max: between the time that we first started talking and the time that we were in the warehouse, so... lemonis: hundreds of thousands of dollars more? max: we're not sure. lemonis: when i looked at the balance sheet and the numbers you provided, it was $280,000. i know that what we saw at the warehouse in chicago
wasn't even $50,000 worth of stuff. max: right. lemonis: so that's a $230,000 difference. max: mm-hmm. lemonis: if you sold $230,000 of inventory at cost, then there would be $250,000 in the bank. and there's probably like $250 in the bank. max: i'm -- you know i'm not the right person to discuss this with. lemonis: well, you're the owner of the business. i don't know who the right woman is. max: i understand. lemonis: what the hell's our inventory? the reason that i let stuff sit for a week and didn't ask you about the inventory is 'cause i wanted to give you a chance to, like, figure it out. i feel like a week later, the answer's kind of the same. max: yeah. i agree. lemonis: you agree that it's the same. max: i agree it's the same. lemonis: unbelievable. max still doesn't have any idea what the inventory is. and i think what bothers me more is it doesn't even look like she's made the effort to figure out what it is. so, i asked you in the warehouse. now that the inventory is different than both of us thought,
what do we do? max: i would wait and find out what the actuals are. lemonis: but i did wait. it's a week later. you could have hired somebody. it just didn't become important enough. max: i understand. lemonis: well, do you, though? max: yes, of course. lemonis: the inventory's not there. and she doesn't seem to be remorseful about it or apologetic about it. she's almost like, "yeah. that's what it is." well, max, it's not enough. you fought me along the way. you manipulated things at the container store. you ended up putting this, uh, warehouse downstairs. i was able to work through thinking, okay, we'll figure out the opportunity. it's so lost on me that the ceo of the business isn't, like, five-alarm fire. max: i understand. lemonis: did the people that work here steal from it? max: i don't have a satisfactory answer for you. lemonis: yeah. i was able to deal with us learning how to adjust to each other. but i can't deal with the fact that the difference in inventory isn't a bigger deal to you. if i really just take a step back, and i think about how complex
your and my working relationship has been and how it's frustrated you and definitely frustrated me, and then i come down to this asset value being just way off, i just -- i just don't see it as a fit. max: well, i appreciate your candor. lemonis: i'm very sorry. max: i am, too. lemonis: i wish you a lot of luck. max: thank you. lemonis: thank you. max: bye. come on, zeusy. lemonis: max wants to play the role of an upscale business owner. but she doesn't want to deal with all the things that it actually takes to be a business owner like knowing your numbers and managing your inventory and working on the brand and driving costs down and improving margins and selling more. i was exhausted from her illusions. i was exhausted from her facades. i was exhausted from her flippant attitude. and at this point, i just had deal fatigue. and i'm not paying that fee anymore.
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