Marcus Lemonis: The 5 Biggest Mistakes Entrepreneurs Make
On The
Profit, Lemonis points out the common moves that can kill a business.
"As
the business has grown, so have the problems."
That's
how Marcus Lemonis explained the plight of the floundering Greek food business
My Big Fat Greek Gyro, which he attempted to save in a recent episode of
CNBC's The Profit. Lemonis encounters the theme all too frequently
with the businesses featured in the reality series, and uses his money and his
experience to help.
Lemonis,
the chairman and CEO of the billion-dollar recreational vehicle supplier
Camping World, is not always able to turn around the companies he invests in,
however. The Profit highlights a host of entrepreneur
mistakes, from balking on promises to failing to communicate with employees to
delegating too many important tasks to a third party. Here are some of the
critical errors that have occurred on the show.
1.
Failing to Communicate Across the Company
Like
many entrepreneurs, husband and wife Mike Ference and Kathleen
Kamouyero-Ference of My Big Fat Greek Gyro may not have been fully prepared to
handle scaling their business. When Lemonis stepped in, the company, which
serves fast-casual Greek cuisine, was making $100,000 in annual profit. Lemonis
saw potential and offered to invest $350,000 in return for a 55 percent stake
and full creative control. (To Kathleen's chagrin, he ultimately renamed the
company "The Simple Greek.")
The
owners had made the decision to franchise, which Lemonis explained can be an
attractive move: You avoid the costs and potential liability you'd incur with
chain stores, and each franchisee must pay a royalty. It's important, though,
for any company to keep the channels of communication open, especially as it
grows. Mike and Kathleen were only meeting with their franchisees once or twice
a month. As a result, the franchisees had little sense of direction, and so
brought in only a fraction of the business's potential revenue.
By the
end of the episode, however, Lemonis said that Mike had built a "strong
rapport" with franchisees: They all came together together to help The
Simple Greek reopen its newly renovated Mt. Lebanon, Pennsylvania location.
Lemonis also helped them to set up a new Wi-Fi network and mobile payments
system, allowing the franchisees to clock inventory from any location, at any
time. Over the next six to eight months, he said, The Simple Greek will
renovate its other three locations in Pittsburgh; McMurray, Pennsylvania; and
Highland Park, Illinois.
2.
Breaking Your Investors' Trust
It may
sound obvious, but if you make a promise to an investor, you should keep it.
Not everyone on The Profit does.
In the
recent episode "A Progress Report," Lemonis revisited Jacob
Maarse Florist, a Pasadena, California-based business from the second episode
of the series, in which he invested $100,000 for 25 percent of the profit. He
also explained to viewers the reason he closes every deal with a handshake:
It's more genuine, thus making partners more likely to keep their word.
Still,
owner Hank Maarse refused to give Lemonis his share of the company, even after
Lemonis had spent more than the agreed funding to help turn the florist around.
In response, Lemonis called Maarse "a thief, a liar, and a cheater."
Two weeks after the episode aired, Maarse's mother sent Lemonis a full refund.
3.
Micromanaging Employees
The
health of a business can often depend on the happiness of its staff, as The
Profit has proven time and time again. One of the biggest mistakes that
entrepreneurs on the show make is micromanaging their employees. This was the
case at the Key West Key Lime Pie Company, in another 2014 episode. The Key
West, Florida pie-maker, headed by Jim Brush and his girlfriend, Alison Sloat,
generated more than $1.4 million in annual sales, but had yet to see a profit.
The company had stretched its resources too thin. It also sold non-branded
products that took up far too much store space, while accounting for just 20
percent of annual revenue with what Lemonis described as "terrible"
margins.
Brush
had a fiery temper, and was quick to blame employees for his mistakes. While
the company had plenty of other problems--its failure to create sufficient
revenue through non-branded products, for one--Brush's reluctance to listen to
and respect his workers was one of the biggest. In the end, the Key West Key
Lime Pie Company was able to reinvent itself by focusing on its signature pies
(using natural ingredients rather than a powder filling) and getting rid of
other items in its store. Ultimately, Lemonis said, Jim became "a totally
different person."
4.
Arrogance
Confidence
is necessary for success but knowing when to be humble is another of The
Profit's big takeaways. Many business owners have treated Lemonis with
contempt, but perhaps none so blatantly as Skullduggery owners Steve and Peter
Koehl.
Skullduggery,
an Anaheim, California-based company that makes racing toys, fossil replicas,
and craft kits, had $1.6 million in sales, and yet it couldn't turn a profit.
Lemonis stepped in with a $1.1 million deal for 30 percent of the 28-year-old
company and an ongoing sales royalty, and even managed to get Skullduggery a
meeting with the chief marketing officer of NASCAR for a potential licensing
deal. But the Koehls believed they were too good for NASCAR. In the meeting,
Steve asked, "Why do you think NASCAR's good for Skullduggery?"
This
move drew Lemonis's wrath: "Hearing the stuff coming out of Steve's mouth
is shocking," he said. "I'm mortified." Lemonis walked away from
the deal, losing the money that he'd already invested.
5.
Delegating All the Details
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Naturally,
many entrepreneurs need to delegate some of the day-to-day operations of their
businesses to others. And in the early days, it can also be tempting to source
products from third-party vendors. The Simple Greek owners, for example,
ordered frozen grape leaves and French fries instead of making their own
products fresh.
As The
Profit has continually demonstrated, though, a laissez-faire strategy
is not the way to grow a successful business. Lemonis explained that using
fresh potatoes wouldn't just make for more wholesome food--it would also save
the company nearly $25,000 per year. As every scrappy startup founder knows,
every little bit saved counts.
The
Simple Greek owners took Lemonis's advice: They improved communication between
their four locations, made food quality their priority, and honed their
marketing plan to reflect a more authentically Greek brand. "I believe in
the product and in the process. But mostly I believe in the people," a
satisfied Lemonis said after the company's transformation.
BY ZOE HENRY
http://www.inc.com/zoe-henry/the-five-biggest-mistakes-entrepreneurs-make.html
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