tv The Profit CNBC December 16, 2019 3:00am-4:00am EST
ron: yes, you do. lemonis: tonight on "the profit," i visit two businesses with twists that i never saw coming. first, i visit austin, texas... lauri: good to see you. lemonis: ...and meet a woman who owns a hat store... does it fit my fat head? lauri: nope. lemonis: ...with an unbelievable passion... how many different hats are in here? lauri: all of them. lemonis: but how many different kinds? lauri: lots. lemonis: ...offset by her quirks. lauri: this is my cash wrap, and if i die i'll be buried in it or burned up in it. lemonis: then i go to utah to meet a snow and skiboard manufacturer funded by deep pockets. and how much have you invested in this business? lou: $6 million. lemonis: i'm sorry? lou: $6 million. lemonis: unfortunately, its leader has an arrogance to match.
mike: if i was going to go out and pitch this right now, it would be a very detailed plan. it wouldn't be anything like this. ♪ lemonis: i'm marcus lemonis, and i risk my own money to help businesses. i love investing in american businesses. woman: people are here because i care. lemonis: it's not always easy, but i do it to create jobs, and i do it to make money. do we have a deal? let's rock and roll. man: yeah! lemonis: this is "the profit." hatbox is a local hat store in downtown austin and it specializes in any kind of hat. literally any kind of hat that you can think of. now, we know that the accessory business is a fast growing business but to have a whole business just on hats -- i was intrigued by it. ♪ jaron: hi. how are you? lemonis: hey, good. how are you?
jaron: i'm jaron. lemonis: jaron? jaron: yes, sir. lemonis: nice to meet you. i love your hat. jaron: thank you. lemonis: this place is bigger than i thought it was going to be. got to love hats if you work here right? jaron: yes, you do. lemonis: i felt like i was on main street in disney world and i walked into one of the, like, attractions, and i was greeted by a guy who looked like he was from the 1950s. i'll give them credit for one thing for sure. they live the lifestyle. how many different types of hats do you have here? jaron: i'm not sure. this morning actually, we got in a shipment of like 42 boxes of stuff. lemonis: how are you? lauri: i'm well thank you. lemonis: i'm marcus. lauri: good to see you. lemonis: nice to meet you. what is your name? lauri: i'm lauri turner. lemonis: lauri, nice to meet you. how many different hats are in here? lauri: all of them. lemonis: no, but how many different kinds. lauri: lots. lemonis: when did lots become a financial or a quantitative term? lots of hats? okay. i mean, is there 1,000, 2,000, 3,000, 4,000? nope, just lots. lots, okay.
now, are these men's or ladies'? lauri: both. lemonis: are most hats are unisex? lauri: all hats are unisex except for ladies hats. it's not your color either. now, to me, that's not necessarily... lemonis: doesn't fit my fat head though. lauri: nope. you have a significant sized cranium. lemonis: i have a what? lauri: significant sized cranium. lemonis: you mean i have a big head? lauri: above average. lemonis: above average. okay. the one thing that i was looking for in this process is the product knowledge that differentiated them from any other company that could sell hats. if you're going to have a business specifically about hats, your product knowledge and your ability to assess the customer, put the right thing on them, well, it's paramount. and what's down here? lauri: these are flat caps. lemonis: i've seen sam jackson. doesn't he wear his hat this way? lauri: yeah, that's this one. with a kangaroo. lemonis: he wears it backwards? lauri: mm-hmm.
lemonis: did i put this on right? lauri: yes. i'll show you what i think will look good. lemonis: okay. do you like it? lauri: i do. lemonis: when people walk in, do you know exactly what kind of hat you're going to put on them when you see them? lauri: yes. so these are all handmade hats from milliners all over the world. this is kate middleton's milliner from the u.k. i actually have to work with fish and game to bring in these feathers. lemonis: really? lauri: mm-hmm. and this room is our white glove service so none of the oils transfer to the hats. lemonis: i did like the idea that she had this white glove room, and it was a place where you can go get these higher-end hats that were one of a kind that may have some history or something technically cool about them, and that she understood the need to separate the average stuff from the great stuff. much like you would put the finest jewelry in the safe and not in the case. so when you look at a hat like this -- lauri: this is a stetson. lemonis: $228.
lauri: not bad for a handmade hat. lemonis: what does something like this cost you? lauri: oh, about $90. lemonis: so what's your markup? lauri: i would say a good average, for handmade, 2.75. lemonis: 2.75 markup. so i want to explain what 2.75 means. essentially you take the cost of a product and you multiply it times 2.75. in the retail business, there's usually a term of 2.2 to 2.7 that people will mark things up. obviously the higher the markup, the higher the margin. but you have to really understand that as you mark those things up, people can shop them. in her particular business, what i liked about it, there's different sizes, different colors, different manufacturers, and the variability of all the different options gives this company the ability to maximize margin because it's not easily shopped. that's something that i really honed in on. how long has this store been here? lauri: in this location? lemonis: yeah. lauri: a year in september. lemonis: so you were somewhere else before? lauri: well, we've actually moved five times
in the last two years. lemonis: uh-huh. so take me back. so one store now, but -- at the peak, how many stores did you have? lauri: three. three. lemonis: and they were all in austin? lauri: mm-hmm. lemonis: when did the first store open? lauri: 1999. lemonis: okay. how many times have you moved since 1999? lauri: 16 plus five, i think. lemonis: you've moved 21 times? lauri: oh, yeah. lemonis: how do you establish a customer base and hold on to them if every time that customer comes back for a new hat you're gone? today, there's e-mail and digital marketing and there's ways to communicate with people that is far more robust, and so as you look at the fact that she existed since 1999, ton of credit. been in the business for a long time, tons of experience. you look at the problem with the business. it looks wildly unstable. lauri: back here, this is inventory. this is the way back. this is backstock, and then this is our way, way back which is full of glass and fixtures.
lemonis: what is all this stuff? lauri: the glass came from the domain store. lemonis: what's the domain? lauri: another closed-down store. i put like $250,000 into the domain store. the cash wrap, which was i think, like, 30 grand -- took four years to make that. lemonis: a cash wrap is essentially a piece of furniture that a customer would actually check out at. probably should cost a couple grand. she spent $30,000. where did you get all the money to do all this? you put $250,000 in one store. you got to sell a lot of damn hats. lauri: i put my house up. lemonis: she put a mortgage or a second lien on her house. essentially a line of credit that allowed her to pull the equity out of her house and put it into the business. the challenge is if the business doesn't work, well, the house still has the loan. it does prove to me though that she's really committed to the business. any time somebody puts their domicile, the place that they live in, at risk for their business. i don't know if there is anymore skin in the game than that.
lauri: but what happened at the domain is hard to talk about. [ clears throat ] no a/c in texas. facing the full sun, 80 degrees inside with 80% humidity for five years. i couldn't even work there the last two years. did i mention menopause and what that's like? lemonis: i'm not familiar with how that works. lauri: it's horrible. remember those old heaters when we were kids that were in the wall and there's a dial and you heat it? lemonis: sure. lauri: menopause is kind of like that, but somebody took the knob. oh, it's horrible. lemonis: okay. lauri: you can't put a women in menopause in humidity and expect her to sell hats. lemonis: in terms of having a filter, does she understand how that works? can we go see the cash wrap that you paid 30 grand for? lauri: yes. lemonis: let's go see that. lauri: i have asymmetrical compound curves design... lemonis: okay. lauri: ...based on some of my measurements. lemonis: perfect. lauri: it's sapele, african hardware. you can see where it's splitting from the humidity up there, but since it's been here it's healing.
this is components that are separate kind of like a puzzle. lemonis: so you spent... you spent $30,000 to build the checkout stand? lauri: well, you know why? i always wanted a nice cash wrap, so for the expansion i got what i wanted. and if i die, i'll be buried in it or burned up in it is how i look at that. lemonis: what i was trying to figure out is how do i bottle up her knowledge and her quirkiness with some sort of normal commerce? i did start to think to myself, like, "what's it going to be like to do business with somebody that spent 30 grand on a cash wrap and moved 21 times?" what's their decision-making process like? lauri: if i saw that hat walking by outside, i'd offer to fix it. i never approved it. at hatbox, we do things my way.
so for the expansion i got what i wanted. and if i die, i'll be buried in it or burned up in it. lemonis: i still want to know where was she going to go? into a drawer? lauri: most people that come in, 9 times out of 10, if they're not an established customer, we're going to hear this -- "i can't wear hats." but when you work with a professionally trained, classically trained haberdasher... lemonis: i can't take myself seriously in this hat. you know i look like columbo there, right?
or dick tracy. who trained all these folks? you did? lauri: of course. lemonis: and how long is the training? lauri: six weeks and you've got -- i don't mind turning you loose on... lemonis: meaning you can't hit the floor and sell until you've gone through some serious training? lauri: oh, no, no. lemonis: i like the fact that lauri takes her craft so seriously, and she understands the importance of bringing employees on board and making sure that they really understand how to build value in the hat. she values product knowledge and training. lauri: if you notice people walking around austin and their hat looks right -- it's not a chain store hat, it's classically fit. lemonis: no, i'm not a hat wearer, but i do like the business idea of hats and the fact that she had hatbox.com really gave me this belief that this could be much larger than a single store location. how you doing? i'm marcus. silas: good. i'm silas. wonderful to meet you. lemonis: silas, nice to meet you. i have to tell you something. your suit is rocking. silas: thank you. lemonis: you tailored it yourself? silas: yeah. lemonis: and so do you normally dress like this,
or is it part of the uniform, part of the feel of the store? silas: no, i normally dress like this. lemonis: you do? silas: yeah. lemonis: very cool. silas: like as far as hats go, inherited hats young from, like, my dad, grandpa, and great-grandpa. lemonis: in order for people to get an experience, you really have to live the lifestyle. i like the fact that silas had a lineage to hats and there was some history for him, and he really believes in the lifestyle, believes in the hat itself, and that shows me that she's hiring good people and the people that work there are really committed to what they're doing. silas: i think you're probably a 7 1/4, 7 3/8. lemonis: i don't know, man. i'm going to let you tell me. silas: so this is 7 1/8. lemonis: no. silas: too small? lemonis: yep. silas: 7 3/8. sitting but a little large. lemonis: okay. silas: so i think you would be like a 7 1/4 long oval. we are out of 7 1/4. lemonis: okay. silas: but i can size this to make it work perfectly fine. lemonis: so let's do that. i'm excited. silas: cool. all right. lemonis: what does the steaming do? silas: this warms it up so that you can shape it better.
becomes more malleable. lemonis: so that it can adjust so it fits my head. silas: yeah, yeah. lemonis: in today's day and age, particularly with retail being as tough as it is, you have to be able to communicate to the masses some experience that differentiates you from everybody else. the fact that he's got this old-school steamer and he's moving it around. that's something that if i saw it on instagram, i may want to check the place out. silas: i'm going to open up the front pan a little bit just to kind of match your jaw line here. lemonis: my fat face. yeah, i got it. so you're really looking at the person that's here. as you're doing that you're thinking, "what am i going to adjust? what am i going to steam? how am i going to make it fit their face?" silas: yeah. and a lot of it is personality. so, like, you kind of read people a little bit. lemonis: i mean, literally you're changing the entire shape of it. silas: yeah, yeah, yeah. we're going to work on the shape a little bit. lemonis: okay. silas: i put a little -- this is -- lemonis: little dimple in it? silas: yeah, when there's two it's called a snake bite. and so i put one in there. it's just asymmetrical.
it's kind of a conversation starter but not too much in the front. and then i brought this. i put a mule kick in back just to lower the back of the crown a little bit. lemonis: the amount of product knowledge that he has is almost overwhelming for me. it really is a very specialized craft that makes it difficult for other people to compete with, which may make it a good investment. that fits way better. silas: right? you feel it taking up a little bit of space in the back? lemonis: yep. totally different. silas: and give me a rocker. lemonis: it actually feels like it's my hat now. silas: yeah. i'll do one more thing for you. lemonis: i'll tell you something. i would pay a little extra to have something fitted because i would feel like it was customized for me. it has a perceived value. how much more would you pay for a particular product if you really believed that it was customized for you? 10%? 20%? and so that extra little time and labor that may cost a fraction would expand your margins dramatically. and so as you think about your own experience in your own business,
anything you can do to raise the perceived value, whether it's that experience, the packaging, the way you were greeted, the product knowledge, all it does is expand the margins on what could be perceived as a commoditized product. how do you compete with that? like, if you opened up a hat store down the street, you better get these folks to help you. i'm definitely a cowboy. lauri: here's the issue as i see it. over the years, i've developed certain techniques such as the mule kick and the pontiac and things that i consider to be my signature shapes. what i saw in marcus' hat that disturbed me was the dimple in the front. if i saw that hat walking by outside, i'd offer to fix it for someone. i've never approved it, i've never seen it, and for it to go out and represent my signature line of hats, it's emotional for me.
at hatbox, we do things my way. silas: the dimple isn't one of our approved hat shapes? lauri: i've never seen it before. silas: i've seen it before. lauri: yeah? silas: yeah. to me it looks unique, but it's work, it's your work and your store, so i'll just stick to your hat shapes. lauri: thank you. lemonis: sometimes an owner has to really walk the line between following the process that they train on and the sales associate building rapport with the customer, but as a bystander, as a customer watching this, and as a potential investor watching this, red flag number one. lauri: i don't want to limit your freedom... lemonis: "but i do." lauri: ...but i do. lemonis: let's just be honest. you got a ton of freedom as long as you don't do it the way you want to do it. lauri: too far. yeah. lemonis: i'm not agreeing with you, by the way. and look, i'm just a spectator. what i can tell you as the consumer going through that experience with him,
i was a pleased customer with my experience. i thought, in my opinion, i thought he represented the brand well. i thought he represented the store well. i thought he represented you very well, and he's very professional, and he looks amazingly professional. and he was able to take a bad situation of no size for me, and he was able to make chicken salad out of chicken [bleep] by the way, silas, you can come work with me anywhere because if you're going to put that level of dedication and genuineness into the customer experience, i don't care what you're selling. he's just trying to serve the customer and he's walking the line between taking care of lauri's customers and generating revenue and being scolded by her. why don't we do this? can you and i, lauri, let's go take a walk outside. lauri: okay. lemonis: okay? lauri: okay. all right. i can use some fresh oxygen.
lemonis: what you're deal? lauri: oh, why am i this way? how far back do you want to go? i have constellation, or complex, ptsd. lemonis: post-traumatic stress disorder. lauri: exactly. my life has been multiple consistent complex episodes of intense violence and trauma. lemonis: what are the examples? i need to know that. lauri: when the door was on sixth, i was held up at gunpoint five or six times. last time, after katrina, i had a knife at my throat for 45 minutes. so, things outside my ability to control the situation are internally disruptive for me.
but i get revved up. so i'm a complex post-traumatic stress disorder survivor. lemonis: i have unbelievable sympathy for everything that you've gone through, however it doesn't give you permission to -- look at me -- it doesn't give you permission to rattle people because you were rattled. lauri: am i doing that? lemonis: you did it in there a little bit. out of all the businesses i've ever been involved with, i had never experienced something this deep and this real, and i didn't know it going into it. these things that lauri is telling me definitely shed a lot of light on how she reacts to things, and i don't want to pass any judgement on what she went through. i couldn't even imagine going through what she went through. but it is important, once you become a business owner, that you don't wear all of that on your sleeve
and take it out on the people that work there. so what i thought we could is go over the financials together. lauri: i'm a broad strokes vision kind of creative person. lemonis: mm-hmm. lauri: and this is the underpinnings that make it happen. so my theology goes, "do the best you can every day all day long and the numbers should..." lemonis: work out? yeah. one of the things that happened to me after being outside with her is that i felt that my approach changed. now, we all know normally i wouldn't let somebody get away with saying, "yeah, i'm not really paying attention to the numbers. it's not that big of a deal." it was almost like i walked back into the store and there were egg shells everywhere, and i didn't want to step in the wrong place or do anything that would create any level of uncomfortableness for her. in 2012 you did $944,000 of business and you made $19,000. lot of business, not a lot of profit. 2013, you did $884,000 and lost $28,000.
in 2014, you did $765,000... lauri: lost the flagship. lemonis: ...and lost $14,000. so every year is going down about $100,000. in 2015, you did $489,000. a huge drop, so every year since 2012 it's gone down. so you haven't made money for years. lauri: it's been awhile. lemonis: and every year the revenue is dropping. so is one to believe that the concept is a dying concept? lauri: not at all. this is all circumstantial. annetta: the chain store opened. lemonis: close to here? lauri: it's one mile from here. lemonis: and what kind of store is it? lauri: it's a chain store hat store. lemonis: you think they purposely did that? lauri: oh, yeah, absolutely. annetta: yes. lemonis: do you think their intention was to squeeze out the little guy? lauri: absolutely. no doubt. lemonis: the national chain store that she's referring to
is goorin bros. that has opened stores across the country, and they specialize in men's and women's hats of all shapes and sizes, but they have a very consistent rollout model of the way their stores look and the training and the experience, and it's clear to me that they have literally taken a chunk out of her business. as opposed to wanting to improve her business and do better and learn things, she almost felt a little like a victim. if you own a business today, and people open up next to you, well, you better get your act together or your business is going to close. you're not a victim. you're a competitor. this is business. what about the debt on the books? payables, debt, is there a balance -- any sort of balance sheet of any kind? annetta: i could get you -- i've got a spreadsheet on payables, but it's right at i think $75,000. lauri: $75,000. annetta: $72,000. lemonis: payables are $75,000? what does it cost to operate the store? payroll? rent? utilities? lights? everything? annetta: i would say it's probably at $30,000. lemonis: okay, and what are your margins on your product? lauri: 60%.
lemonis: there aren't many businesses in america that can't make it on 60% margins, so it wasn't like she didn't have a good business model. as that revenue was declining, there was obviously less gross profit to go around. i wasn't concerned about the margins. i was concerned about the root reason why every year her revenue is dropping, and it isn't that the hat business has gone out of style. it's like saying sneakers went out of style. it's that she got beat at her own game. if your margins are 60%, right around $55,000 is what you have to generate just to break even, and so you got to do almost $2,000 a day. and how much are you doing a day now? lauri: [ clears throat ] probably an average of... lemonis: $1,000? annetta: not even that. lauri: under. maybe $850. lemonis: so you got to more than double the business just to break even. lauri: easy. lemonis: if she does $2,000 a day at 60% margins, she'll have roughly $1,200 in gross profit.
$1,200 in gross profit over 30 days is $36,000 in gross profit. her operating expenses are 30,000 bucks. so she's got to hustle and grind it out to make money. i had a really nice day, and thank you so much. lauri: thank you. annetta: thank you, sir. lemonis: i appreciate everything. i had a really nice time today. annetta: thank you. lemonis: i really did. annetta: thank you for your time. lemonis: see you soon, brother. be good. silas: have a nice night. lemonis: thank you. there are moments where i do the financial review and i'm ready to go right into negotiation because i understand exactly what i want to do, but as i walk out this door, i really start to think and take account for the idea that she was very fragile. and when you get into business with people and you're having to be aggressive to make changes, to have them look at things, you have to be stern, and i didn't feel comfortable that i could could exert myself the same way because of what i knew she had been through. and i was always going to be respectful. i worry that i just wouldn't be able to be effective.
this next business that i'm going to show you is a business that's in park city, utah, and it was founded in 2010, and it'd called ramp sports. they specialized in snowboards and skis. the active sports base is huge, and i knew the market was expanding rapidly, this active sports base. there's this huge yeti made out of, i think, wood or something standing in front of the store. this facility almost looks like a giant log cabin. i wasn't sure if i was walking up into a retail store or a manufacturing facility. ♪ lou: hi. lou sardella. lemonis: hey, lou. i'm marcus lemonis. lou: may i call you marcus? lemonis: you may call me anything you want. lou: glad to meet you. lemonis: nice to meet you. you use all this? lou: i am the worst skier in the whole place. lemonis: no, no. i don't ski. lou: okay. i mean of the employees here. lemonis: you got upgraded a little bit. i've learned that skiing is essentially one thing -- falling.
so this facility is both retail and manufacturing? lou: mostly manufacturing, but it turns out we get a lot of walk-in business. lemonis: they couldn't have opened a manufacturing facility in more expensive space in america. we're in park city, utah, which is not like low-rent district. what is your role here? lou: i'm chairman and a majority owner. i'm an engineer by trade. lemonis: okay. lou: and i started a company, sun automation, and we are very successful. lemonis: when he mentioned sun automation, it's clear to me that he is a successful entrepreneur. that was a very big engineering and automation business that he sold for a ton of money. and how much have you invested in this business? lou: $6 million. lemonis: i'm sorry? lou: $6 million. lemonis: what? that's a lot of money. if your expertise, historically, is in sales management and sales, why are you struggling with that? for exclusives, extras, and business advice, visit theprofit.cnbc.com.
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lou: $6 million. lemonis: i'm sorry? lou: $6 million. lemonis: that includes the building? lou: no, it does not include the building. probably got $1.9 million into the building. lemonis: so you have close to $8 million in this venture? lou: if you include the building, yes. lemonis: wow. lou: a little bit deeper than i thought i would get in. lemonis: he has close to $8 million invested in this, and so in terms of having credibility with me,
it was $8 million worth of credibility. this guy had put his hard-earned money on the line for this kind of business. how many total shareholders? lou: 22, 23, something like that. lemonis: what is your percentage? lou: 64%. lemonis: and then the next biggest shareholder? lou: is mike. lemonis: oh, okay. how you doing, mike? mike: welcome to ramp. lemonis: thank you. so is this your brain child? all this stuff that i see here? mike: yeah. lemonis: these are beautiful. i mean, they're almost pieces of art. mike: we think they are pieces of art. lemonis: it seems to me like the artwork is so fantastic that this imagery could be used on product extensions i would think. mike: yeah. i think if your a company who becomes cool in hard goods, then you can leverage that into lots of other things. lemonis: a good example of a company that becomes good at hard goods can create the line extensions in soft goods is a company like burton. and burton is the largest manufacturer of snowboards today, but they've really expanded their business and grown their top line by creating soft goods -- that's essentially apparel. but they had to build credibility
inside of that community by creating a good snowboard first. i think what mike is trying to do is mimic that model. how did you come up with the idea? mike: well, i had worked for another ski company, rossignol skis. lemonis: okay. mike: vice president of sales and marketing. but i had this other idea that, you know, the consumer would be a lot more excited to have more accessibility to the company so that they buy from it. lemonis: so when you say accessibility, do you mean... mike: buy direct. lemonis: online? mike: yep. lemonis: and how much total revenue do you do? mike: this year we were right about $900,000 in sales. lemonis: and then on that $900,000, how positive is your cash flow? mike: it's not yet. lemonis: my first impression of mike was that he was a little flippant about the amount of money that had been invested. it was almost like it was comfortable for him. it was like, "yeah, that guy has invested $6 million. yeah, yeah, we lose money." it's like, "yeah, it is what it is because i don't have any money invested, so why should i care?" and it scared me because i thought, "holy crap. how much money is this business losing?" because the $8 million isn't going towards inventory because the sales don't justify it,
so the only thing it could be going towards is the losses. you burn it, like, in a bonfire. so where did the $6.6 million go? mike: building a new factory and a new process. lemonis: and how many years have you been in business. mike: we've had five seasons. lemonis: five seasons. mike: we've been growing about 70%, 80% every year. lemonis: let me be honest with you. if a company did $100,000 a year in revenue and the next year did $200,000, i understand that's 100% growth. but i'd rather you tell me that it grew by $100,000 because when you say to me 60% or 70% or 80%, it sounds like a big number unless the first number is a dollar. can i get a tour? mike: of course. lemonis: that'd be great. as i walk through the factory, i'm really trying to understand where i believe the $6 million, $7 million was invested, and i'm almost keeping a mental note of every piece of equipment i see. i see cnc machines. i see rollers.
i see ovens. i see lots of equipment, but i still haven't seen even a million bucks. mike: so here we have raw materials like base material, top material, core material. serious advantages to the bamboo. better durability. better performance. lemonis: and it differentiates you from other people? mike: right. but the actual material is about four times as hard. lemonis: the fact that you're using good bamboo, that's a big deal. very tight process, and i have a lot of respect for that. other snowboard companies that don't make an elite product may use pieces and parts of different kinds of woods and materials. he was using the best of the best. i just don't know if that was necessarily yielding them anything. how you doing? are you evan? evan: yeah. lemonis: how you doing? i'm marcus. evan: hands are a little -- lemonis: who cares? evan: how are you? lemonis: nice to meet you. and, so, this is all the layers that i saw being made out there? evan: yeah. lemonis: and then it went in the oven, it came out, it cooled, and then they layered all those layers? evan: and they layered it in like this, vacuumed it off. [ machine whirring ]
lemonis: all right, we got two. evan: that's it. lemonis: how do you do the round edges? evan: jigsaw. you want to take the tops off? lemonis: yeah. let's do that. that is pretty cool, brother. evan: yeah. lemonis: i don't think people have an appreciation for how much time and labor goes into making these. evan: it's a big difference when you look at something like this like us small guys, and then the big guys where it's just they put their ski in the machine and push go. lemonis: and how much equity do you own in the business? mike: 16% working for $120,000. lemonis: you work for $120,000? still a lot of money. mike: yeah, although it just covers my bills. lemonis: red flag number one -- how much equity do you have? i have 16%, and i only get paid $120,000 a year. as if $120,000 a year isn't a [bleep] ton of money. it felt very disrespectful to both the business
and the guy who was actually paying him. see $120,000 a year. company does $900,000 in sales. news flash -- you're taking home, for yourself, more than 10% of what the company does in sales. mike: and these guys are molding, and so doug is putting together a pair of skis by hand. lemonis: how you doing, doug? doug: good. how are you? lemonis: i'm marcus. mike: marcus, doug. lemonis: so this is fiberglass? doug: yeah. lemonis: kevlar? doug: kevlar. then we have triaxial fiberglass which fills in between the edges of the skis. mike: so we use a resin that they call super sap, and it's a more expensive resin, but it's much cleaner to work with. so for every model, every size, we have to write a cnc program that cuts all of this stuff. lemonis: how are you? i'm marcus. polly: marcus, i'm polly. lemonis: polly, nice to meet you. polly: yeah, nice to meet you. lemonis: do you come up with these designs? polly: yeah. lemonis: beautiful. you did this design? polly: yeah. lemonis: this really is just like a heat transfer, way to think about it, right? polly: yeah, i mean, our process is so versatile,
you can really apply it to anything. lemonis: i give this young lady and the rest of the creative staff a lot of credit because i'm not a snowboarder or a skier, but the art that they've applied to these products have made them really different, and the fact that you can customize the art for your own particular snowboard or ski is pretty cool. that's a real differentiator. and so the way they've set this model up is you can come up with your own design, or you can customize something with them, and they'll literally apply it right to your product. i would pay a premium for that. the problem in the business is not the quality or the manufacturing, it's the fact that you make something that you're not selling enough of. the thing that i'm baffled by is, if your expertise, historically, is in sales management and sales, why are you struggling with that? mike: no, i'm spread incredibly thin. lemonis: okay, so that's the issue. mike: i am the sales department. lemonis: you can't be the sales department and the research and development and the engineering. mike: right. lemonis: you can't do it because
something is going to give, and guess what's giving? mike: sales. lemonis: sales. how is he spread incredibly thin? because if you look behind him, there are people everywhere. it isn't like he's making them and designing them. i still, to this day, don't know what he meant by he was spread thin. lou: what percentage of the business do you want for that? lemonis: 33%. lou: so, 50% to lose. lemonis: for you. lou: i don't like that. lemonis: i know. lou: i think i need a time out.
mike: so this is the cost budget for 15 for marketing?il what i wanted to do is to start to get down into the details in their financials and start to hold mike accountable in front of lou for the nonsense that he was speaking. mike: sports marketing -- $206,000. which is like athletes plus demo days and things like that. lemonis: what's this number here? total marketing -- $649,000? mike: well, it's $6,000 more than last year. we've been trying to get more aggressive with cutting on marketing, and lou and i don't see eye to eye on that. lemonis: you didn't cut at all. you actually went up, right? in theory. mike: well, i mean we're trying to go up 80% in sales and our budget stayed virtually flat. to me, that's cutting. lemonis: it seems to me that as we dug into the numbers around marketing, that a good portion of their marketing was either going for endorsements to professional snowboards or activation. and activation is the term that companies use to bring their product to life in a live environment, and that's through demos or experiential marketing.
like a beer company would do at a football game. they would go out into the parking lots where the tailgaters are, and they would activate their brand, and so that's one of the things that ramp spent a lot of money on. announcer: ready to go. ♪ the fire dancer. let's give her a big hand. lemonis: look, i'm all for any company that wants to create marketing that has activation behind it, but i want to understand the measured results. this is specifically inviting a core group of people, known customers or hope to be customers, to an event and then converting them to your product. do they have conversion? well, their sales don't show for it and neither does their bottom line. what financials do you have that i can look at. mike: this year's budget, and this is next year's budget plan. lemonis: this is your forecast, but where is the historical financials. mike: i'll print them for you. any investor or lender is always going to look at historicals
because they're going to take your forecast and they're going to sensitize it. mike: right. lemonis: if you were out trying to raise money right now, what would you show somebody? would you give them a book, or... mike: yeah, i mean, if i was going to go out in pitch this right now -- lemonis: kind of like what you're doing right now? mike: yeah, kind of like that. it would be a very detailed plan. it wouldn't be anything like this. lemonis: when you're out raising money, the historical nature of your business is a jumping-off point for an investor or a lender, and as you build the forecast of what you're going to do in the coming years, they're going to look at the forecast and they're going to measure it against the history saying, "does it seem reasonable? does it seem realistic?" what do you think this business is worth today? lou: it depends if you got a rear-view mirror or are you looking out the window? lemonis: no mirrors. you and i are just riding in the car, we're looking at each other. what's this business worth? lou: between $3 million and $9 million. lemonis: how did you come up with that? lou: i asked people to value it. lemonis: lou, you're a good guy. i don't know if you gave me $3 million to $9 million because you knew that that was so wide of a mouth of valuation
that i wouldn't know where to stand. i don't know if you're hoping that somebody puts that value on it because that's the money you've invested, but for anybody out there that owns a business today that is looking to bring in new money, a valuation is going to be determined by the assets that you have, the cash flow that you're generating, or the addressable market that you look like you're penetrating. i'm not getting good answers for any of those things. 2011, $287,000 in sales, lost $781,000. 2012, $299,000 in sales, lost $1,200,000. 2013, $456,000 in sales, lost $1,400,000. mike: we have a track record of growing 70%, 80% four times now. lemonis: i think you should stop telling me that. we have a track record of doing more business and losing more money. i think there is a black hole right now. lou: we've dug a big hole. lemonis: but i like the product. i don't think you could just make skis. i don't think you could just make snowboards. and just spending the day with you, you clearly know
the ski/snowboarding manufacturing process. mike: wow. thank you. lemonis: so my offer is a million dollars. let me be clear that i can't put a million dollars in at the bottom of the barrel. i just can't. it's too dangerous for me. i would want any money that comes in from this point forward to be more senior than anything else, including the money that you put in. lou: you put the money on the top, and you get paid first? lemonis: i get my money back first. the fact that lou put in $8 million, while i'm sympathetic to it, it's irrelevant because we just learned as we went through every single year that the money has been burned. i'm potentially investing in a business that's lost a ton of money, doesn't have a lot of inventory, the building isn't owned by the company, and it's a giant black hole run by a guy who looks like he doesn't care. lou: how about if we both put a million and a quarter in? that gives us $2.5 million. lemonis: so we'll put in $1,250,000 apiece? is that what you're asking? lou: yeah. lemonis: and what am i getting for that? what's my return? lou: what's your return? lemonis: how am i making money?
lou: what percentage of the business do you want for that? lemonis: 33%. lou: what? lemonis: 33%. lou: that's a 50% to lose. lemonis: for you. lou: i don't like that. lemonis: i know. lou: i'm going forward. i'd like something a little bit better than that. lemonis: this business was starting over. i mean, that's how i looked at it. ♪ lou: i think i need a time out. lemonis: i'm going to be in charge up here. i need to have full control of this. lou: the company is going down the tubes. i'd like to take control back over, no? lemonis: you've done a good job up to this point of taking it down the tubes with mike.
is that what you're asking? lou: yeah. lemonis: i would want 33%. lou: that's a 50% to lose. lemonis: for you. lou: i don't like that. lemonis: i know. here is the simplest way for me to think about it. we're saying $1,250,000 each. i'll put $1,251,000. this is the most senior. i get my money back first. and so i'm going to be in charge up here. i need to have full control of this. lou: you'd get full control, but i would like to put a, you know, performance. in other words, the company is going down the tubes, i'd like to take control back, no? lemonis: you've done a good job up to this point of taking it down the tubes with mike. i felt really bad having to bang on lou in this particular situation because he was really the steward of this business in terms of putting money in, and i felt awkward holding him accountable for things that were missing when i should have been holding the only guy that's actually getting a check out of the company accountable. i should have just pounced on mike.
lou: it's not down the tubes. it's still here, you know. lemonis: because you're writing checks. lou: it's lost a lot of money, we've dug a big hole, but we've built something, too. lemonis: you don't even have your financials in order. lou: if the company was making money, i wouldn't care of the financials were not in order. lemonis: if the company was making money, you probably wouldn't have called me here. mike: and what are the implications for me as far as trying to manage the company and manage sales? lou: the difference is you're going to end up with a different boss. lemonis: you're going to get fired. in the back of my mind, i really did believe that if i did that deal that mike probably wouldn't be there in a year. he was just complaining about getting $120,000 and seemed so disrespectful to lou that i was almost looking forward to throwing him out. 100% of my money is going to go towards generating sales, new distribution, new marketing ideas, some retail stores, some product expansion. i'm looking to do something different. mike: no, it makes sense. lemonis: we have a deal? lou: okay, just so i understand it, you got control?
lemonis: 100% of everything. 100% control. lou: are you okay with that, mike? mike: no. lemonis: he knew i was going to bust his ass. he knew that i wasn't going to accept his snarky comments and his know-it-all attitude and his excuses. i wasn't going to accept it, and the minute he said, "no," it was like, "okay, nice meeting you guys." thank you, guys. over the period of the next couple of years, i traded some e-mails with lou, and ramp is out of business today. when you invest in a business, you have to base your decision on investing in people, and i think what lou miscalculated in this scenario is mike, and what i avoided in this scenario was mike. i think mike actually saved me a million bucks. thank you, mike. ♪
♪ good morning and welcome to "street signs" i'm joumanna bercetche. >> i'm julianna tatelbaum. these your headlines >> well, europe stock 600 hits a record high as the u.s. and china announce phase 1 of a trade deal is complete i have the chance to catch up exclusively with steven mnuchin, america's treasury secretary. >> the deal will be signed in early january, and then we'll start phase 2. and phase 2 may be 2a, 2b, 2c. we'll see.