Marcus Lemonis Vs West End Coffee Company
The Company: West End Coffee Company
The Owner(s): Rebecca Schramm and John Brown
In this 13th episode of The Profit on CNBC, Camping World CEO Marcus Lemonis visits West End Coffee Company. A “freshly roasted” gourmet coffee company based in Greenville South Carolina, that services local restaurants and specialty/coffee shops.
Owned by ex-partners Becky Schramm and John Brown, The business was bought for $500,000 in 2012 at a period when the owners were in a relationship.
Like most similar situations, things quickly turned sour for the business when the love went away a year later. Now the couple is fighting more than they are selling and this is ruining the business. Marcus is becoming quite the pro in mending businesses as well as emotional relationships so he really has his work cut out in this episode.
With the business relationship of owners Becky and John straining and the business debts mounting, time is running out for West End Coffee Company. The market for freshly grounded gourmet coffee is huge and Marcus believes that if he can keep the couple from fighting constantly and start to act as a team, there is a lot of money to be made.
Episode Main Review.
Marcus arrives at the West End Coffee Company production facility and immediately catches the smell of fresh grounded coffee.
He likes it. However, just a few seconds later, we immediately hear John and Becky arguing about something. I can imagine how exciting it is for the employees having to hear personal relationship matters whenever their bosses are in a fight.
The couple suspend arguing to welcome Marcus to the business premises and take him for a tour. They show him their store front space and explain to him how the business works. As well as shipping to individual clients, West End Coffee Company has its products in big grocery stores like Wholefoods and Earthfair.
John and Becky tell Marcus the business did $840,000 in the last year (2013) with a profit of around $40,000. The company pays around $2750 per month in rent for their warehouse/production facility and we all can agree that’s a bargain. The price will however increase to $3000 from September. Marcus is not impressed with this, he believes that a business should have a long lease so it can know what its immediate future is.
Marcus tastes a bit of coffee seeds and asks Becky and John how they learnt how to roast coffee. They both reply that they have not yet had the time to learn the process and Marcus is shocked. A business owner should know the basic details about how the business is running and its processes. In West End Coffee Company, there is a master coffee roaster who stayed with them when Becky and John bought the business. Becky’s son Bryan is learning the process of roasting coffee from the master roaster so he is a backup if the roaster decides to move on.
So Marcus gets introduced to Bryan. Bryan likes his job but doesn’t really like the “dynamics” between his mom Becky and her ex-partner John. Marcus tells Bryan to turn on the coffee roasting machine, he wants to see how its done and get a chance to try it out.
He asks John if they get the coffee from the source or from a distributor, John tells him they get it from a distributor. Marcus isn’t impressed with this as the business could greatly increase margins if they decide in cutting out the middleman and getting the coffee directly from the suppliers. With just over a 100,000 pounds of coffee roasted per year, Marcus believes that getting just $0,30 cents per pound shaved off by buying directly from the suppliers can generate a potential saving of $30,000 a year. This is a huge amount and John and Becky should have gotten this sorted out a long time ago.
Marcus also asked how much coffee West End Coffee Company can roast a week if the production facility ran on a full day shift basis, he is told that they could roast about 360,000 pounds per year. Given that the business currently roasts 100,000 pounds, Marcus calculates a 33% efficiency. He believes that by pushing up production to full capacity and lining up sales, the same facility with the same equipment can generate 3 million dollars in revenue compared to their current revenue of around $840,000. With a 50% margin, Marcus is really interested in getting a piece of the coffee pie.
So Marcus is impressed with West End Coffee Company‘s product and the employees. He however needs to understand why there is tension between owners Becky and John. So he asks them how they met. John tells him that Becky was a friend of his ex-wife and they all had a “tight relationship”/”cohorts in crime”. We don’t really know how to explain all this but with Marcus blushing red, the image below may help.
Marcus asked if the relationship could be repaired if the couple is not working together, John tells Marcus he doesn’t want to have anything to do with Becky anymore and is in fact looking for a wife. Becky says John told her he wasn’t going to marry again and John replies that he said, he wasn’t going to marry HER. Oh noooo. This is a cruel thing to say John. Just like in the episode Unique Salon And Spa, business never remains the same when a couple fall out of love.
In the next scene, Marcus wants to find out how the business is structured and asks about the equity split between John and Becky. John says its 82-12 in his favour. West End Coffee Company was purchased for $499,000 with Becky putting in $77000 in cash. John put $12,500 in cash and $300,000 from his 401K. The remaining $100,000 was gotten from a bank loan. This splits the direct investment/ownership at 82% for John and 18% for Becky. The business however seems to be run like it was a 50-50 share between John and Becky.
In the 2 years of running the business, John and Becky have taken a $5,000 office salary just once and they are living on savings which are now depleted. Marcus asks why the couple didn’t list the business for sale and Becky replies that she doesn’t want to sell.
It’s soon clear that John made an emotional mistake as he made Becky a director of HIS 401k pension plan and she has the shareholder voting majority. He goes on to say that she can fire him as CEO if a shareholders meeting ever took place.
Marcus sits the couple down and after taking a look at the financials (which are all in order) he asks a direct question to Becky. He wants to know how she ended up accepting to be in a position where she could fire John from the business when he put in over 80% of the money needed to acquire it.
Becky tells Marcus that since John has threatened in the past to fire her, her only security is to hold on to that position as the majority shareholder voter. Marcus tells her that this makes her in control of John’s money and basically his destiny and this is what is creating the anger, frustration and mistrust. Becky tells Marcus that it was a twist of fate, basically a paper work accident.
In a dramatic twist of events, John soft-side comes out when Marcus asks him if he will get rid of Becky if the contract is rectified. He says that he absolutely guarantees that she will have the right to remain in the business and wont be thrown out. Looks like Marcus has pulled out an Oprah moment. He really is good at connecting with people to bring out the best in them.
So the inevitable question hits Becky. Is she willing to take the chance and sort out the contract????? SHE SAYS YES.
Problems/Issues In The Business Found By Marcus
- Broken relationship between the owners/partners.
- Low productivity from the production facility.
- Lack of trust between the owners.
So with that detail sorted, Marcus is ready to offer a deal to West End Coffee Company owners John and Becky. He offers to put up $200,000 for 51% of the business. He plans to use half of that to pay off the loan John and Becky took from the bank when they acquired the business. The second half will go to the business as working capital. Marcus wants to increase coffee production and the money will be used to fund this.
John tells Marcus that $200,000 is not enough. That amount will value their business at less than $400,000. Marcus tells him that he valued it that low because of the wildcard discount. The wildcard being John and Becky. If they end up ruining the business then Marcus can mitigate his loses better at that valuation.
John and Becky talk about this and they promise each other to have a fresh start in their relationship as BUSINESS PARTNERS and even in their personal relationship I believe, if they can continue to talk this maturely to each other. John has to call Hank Maarse and get some flower for Becky quick…
John and Becky accept Marcus’ deal and he signs them a check right there.
Solutions Suggested/Implemented by Marcus To Improve The Business
- Resolve the conflict between the owners John and Becky.
- Improve on sales, branding and packaging.
- Restructure the business for increase productivity.
- Sort out the ware house and inventory system.
After The Deal…
So now the deal is done, Marcus gets to work on trying to squeeze out as much production from the company in a bid to increase revenue and cut out waste. He tries his hand at making a packet of coffee but spills the beans on the floor and gets labelled a rookie. In typical Marcus fashion, he picks up a broom and cleans up the mess.
So Marcus organizes a sales meeting with Larkins restaurant. With 4 locations and a huge banquet facility, it’s the type of company West End Coffee Company needs to increase its sales. Not only is this a chance for the business to sign on a new account with Larkins, it is also a test to find out if this new partnership between the couple works.
So Marcus, John and Becky meet with the owners of Larking to talk business. They find out that Larkins has a huge costumer base and rough calculations show that they may generate $42,000 per year in sales if they can bag this client. The couple starts pitching and Becky almost ruins everything. Maybe it wasn’t a good idea to have her there at the meeting with Larkins.
Larkins agrees to purchase their coffee from West End Coffee Company. With this sorted, Marcus and the couple jump back to the business premises to streamline the inventory. They get rid of flavours that are not performing well in sales.
Marcus finds out that there was an excess purchase of smoothies and since it is a seasonal product, John and Becky were left with a lot of stock which has now expired. When Marcus asks why this happened, it starts an argument between John and Becky and HERE WE GO AGAIN…
In the next scene, John asks Becky if the letter from her attorney stating that she has resigned from the trustee of the pension plan is ready. She says she will get it soon and John goes on about how she made a mistake with the smoothies order. Looks like John has more problems than we found out earlier. It’s like he thrives on the arguments.
Marcus comes in to ask if Becky has signed the resignation papers, she says not yet because she found out that John is looking to sell the business even with the deal in place with Marcus. So this is the problem with John. He wants out of the business and Becky. John claims he will love to do the deal with Marcus but not with Becky.
So we see that John has not kept his word and the moment Becky resigns as trustee of his pension plan, there are no guarantees she will be there in the business for much longer.
She brings out her phone and reads a message from John which says and I quote:
“I am more than done, you have no saviour. We will sell this for our original investment and start over without each other.
Marcus is irrelevant at this time. The business will be listed for sale tomorrow. Miss 18% owner. You will be lucky to get your initial investment back and after that, GOODLUCK.”
Marcus tells John he has news for him. He is RELEVANT.
He made a deal and got 51% of the business and he can throw John out whenever he likes. This however is not how he does business. He is hurt John would even think of trying to under cut him as he is the only one that almost mediated a release from his contract with Becky as manager of his pension plan.
Marcus then says that the West End Coffee Company business is going well and the couple clearly can’t work together, He has to decide who stays and who goes. The roles the owners play in the business is clearly not defined.
Conclusion and Updates on the Business
Marcus believes that Becky signing the “trustee of John’s 401K” resignation letter is the first step to getting the business moving again.
He asks her to tell him why she hasn’t signed the papers yet and she confesses to him that she wants to have her own business. She wants to call the shots. The problem with that Becky is that you are holding John hostage and he is never going to run the business with you in peace as long as you do that.
Marcus tells her this exact same thing and lets her know that now that he is part of the business, there is no need to keep that leverage point. He promises to hold the form if she signs it. They go back to the office and Becky types the resignation letter and signs it in the presence of John. Marcus now tells John that by keeping this letter, HE now controls John and he wont be happy if John tries any funny business behind his back.
In the next scene, with the long war now effectually over, Marcus now moves on with business delegating clear roles to John and Becky. Becky gets to take care of inventory while John handles the sales.
So after leaving West End Coffee for a few weeks and then coming back, he is greeted once again by the great coffee smell and John and Becky fighting again. Marcus looks around the ware house and nothing he advised them to do was done. John and Becky are arguing and we really start to understand that John MAY WANT OUT OF ALL THIS. I can understand why. He has put in a ton of cash into this business and may be looking to cash out.
Marcus meets with the couple and tells them that Larkins has been waiting for West End Coffee Company to send them a quote for the coffee deal they made. This shows that John doesn’t want to be in this business even though he says he does. Or he just doesn’t want Becky in it with him.
Marcus tells John he has to show more respect to Becky and he is surprised how her son Bryan still hasn’t beaten him up for how he speaks to his mom. Bryan nods his head agreeing in the corner. Marcus concludes that as the couple cant work together, 1 of them has to go. John nods his head in agreement.
John believes that since he invested the majority of the money into the business, Becky has to go. He tells her she is not majority owner, she is 18% owner and had better started behaving like it. I believe 18% is a swear word in that household :)
Becky sits back and cries. She wants to have this business. Its her only lifeline for her and her son.
John says he left a $120,000 paying job to set up this business for which he has worked for free for 2 years. He believes that Becky brought in Marcus so she could get rid of him. John wants to take control of HIS business and run it the way he wants. Lets not forget “HE PAID FOR IT.”
Marcus says to Becky that she didn’t do anything he told her to and this is why he believes that if he brought in bigger accounts, West End Coffee Company under their guidance wont be able to handle the order.
It looks like John and Becky have become complacent and are not ready at this moment to expand their business to the level Marcus wants it to be.
For this reason, Marcus says he cant continue his deal with them. Marcus believes in People, Process and Product. 2 of which can be changed easily. The people however, is the hardest thing to change and he may have failed this time.
He hands back Becky her resignation letter, which puts John back into the “hostage cage“. He holds his hands to his head as he knows he has lost his chance.
Marcus wished them luck, shakes their hand and walks out. He reflects on the fact that West End Coffee Company could have become a huge success with him, but its owners were put in circumstances which prevents this from ever happening.
My real fear now is for Becky. How long she can hold a full grown man hostage is yet to be discovered.
So that’s all folks. I hope you enjoyed the drama in this episode. We sure did.
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