People, Process & Product – The Profit
Marcus Lemonis is the star of a TV series show called ‘The Profit’. He helps failing business turn around and become successful operations by fixing the three core elements of every business. He refers to these elements as the 3 P’s: People, Process and Product. It is an interesting show as it falls into the same arena as this website. Just like him, I’m interested in helping people by providing business guidance and knowledge. He takes it one step further and provides financial capital too.
I’ve watched about eight episodes to date and I find his approach interesting. I’ve disagreed with him only once. He pulled in a CPA to assist him in evaluating the cash flow for this popcorn operation. Basically, the owner earned more than $300,000 as profit during the prior year and the bank account still had less than $20,000. Marcus asks the owner, ‘Where’s the money?’
The owner couldn’t account for the cash so Marcus brought in a Certified Public Accountant. The accountant couldn’t understand the lack of cash either; his take was that the cash should be there in the bank account. The accountant illustrates his point by pointing to the balance sheet. What the accountant should have done was to compare the balance sheet between the beginning date and the ending date. Every CPA knows that the cash can be used to pay down the bills, purchase new equipment and often finance the disbursements to the owner for their personal bills. My point is that the CPA didn’t do this. I believe Marcus may have missed an opportunity with this business.
My first question for Marcus is: Where did that CPA go to school? Because I want to know to make sure my kids don’t go to that college!
Overall, he has a great program and an excellent approach towards discovering and resolving the issues related to these small businesses. Most of the time, it is obvious, the only thing missing is the big giant arrow pointing at the problem. I want to elaborate on his People, Process and Product approach as this does point to the problem.
To me, this is the most essential element of a good business. Without good staff or committed owners, it will not matter what you produce or how it gets done, failure is a foregone conclusion. Furthermore, it takes creative and knowledgeable people to generate and maintain the process. It also takes some great minds to create a good product or modify the product to meet the demand from the market. But sometimes, you may have the best people, but they can’t get along.
This was illustrated in an episode entitled ‘West End Coffee Company’. Two former lovers run a coffee bean wholesaler operation in South Carolina. Their constant fighting and disagreement created chaos in the company. This is a simple 5 person operation. Marcus kept it simple: ‘One of the three of us has to go’ referring to the two owners and himself. And so, he decided not to invest as neither of the two was able to perform their assigned tasks. What a shame. I saw it as a great opportunity to make money. Good call Marcus!
The interesting aspect of this is that I see it all the time. The most common setting is a husband and wife team unable to separate their personal lives from their business lives. Other instances include brothers or a father son combination. Typically, the non-legal attributes of the small business partnership apply. To complicate matters more, there is usually a key man involved and in his show, Marcus looks to find this person.
In episode six of Season 2, ‘Sweet Pete’s, it only took him a few minutes to fully appreciate Pete. Here, a husband and wife team worked extremely well together and it was obvious they cared about each other and the business. Their silent partner had zero interest but was mostly interested in gaining financially from the operation. Pete spent years developing these candies and chocolates to come out a certain way. Marcus picked up on this characteristic that I often refer to as a high threshold of knowledge. It is one of the three essential characteristics of successful business operations. I go more in depth about these three characteristics in this article: Three Primary Characteristics of Successful Businesses.
While reviewing the people issue, he also looks at the other two core elements, processes and product. The product component is most likely filtered before the business is selected for the show thus making the product aspect a little easier to address. Let’s take a look.
One of my favorite shows deals with pie! ‘Key West Key Lime Pie Co’ from Season 2 was focused on the process more the pie (more on that later). But the product had some attention too. You see, the owner was using standard off the shelf pie crusts and an industry mix for the key lime. There was nothing really unique about the pie. Anybody could go down to their local grocery store to get one. But here, his store was in the middle of one of the Key West island towns that cater to the tourist. Marcus hit the nail on the head; a tourist would love to have a piece of real key lime pie. If you ever had key lime pie, it isn’t like a traditional sweet pie, its tart. You are not going for a second slice. But you want the first slice to be unique – an adventure while on vacation. He had the owner create a real pie with the owner’s own crust recipe. It worked out well. I was salivating for a slice.
Now he has a great product, something unique and something that can be advertised to entice tourists into the store. Seriously, when I’m on vacation I too want to eat the local cuisine. In addition, he could now get this product out into the larger markets by getting some specialty food stores to carry the product. Sales go up, everybody is happy!
What was interesting about this show was that he not only changed the product, he changed the process. Before, the pie was made in the back room of the store. Now, they make the pie right in front of the customer out in the customer service area. The consumer sees the actual ingredients and how it is made. Just like watching the pizza guy toss the dough around, a little show with your pie (pun intended).
The third element of his core set is the process. Sometimes it is as simple as how it is done. For those of us involved in business, especially in accounting, we frequently witness the value associated with the economy of scale. Marcus looks at this economy of scale first when he addresses process. Can it be made cheaper by increasing the volume or can labor costs be reduced by using better or modern equipment? In process analysis, the first aspect of reducing overall costs is scaling up the operation. You need to be careful here, because sometimes you are at the end of the range associated with your process and to scale up the process higher, requires significant investment. I write in more detail about operating within your range of production in this article: Operate Within Your Range of Production.
Other issues with processes include throughput which addresses maximizing production within the scope of operations. Others include:
In his first episode, ‘Car Cash’, Marcus changes the process in purchasing and wholesaling automobiles. These two brothers (go back to his People element) worked well together. The problem was the process in buying the cars and then wholesaling them out to the dealers. Marcus shifted the focus at both ends. First he modified the purchase process by exercising a more detail reporting structure to the seller of the car. By identifying the key price adjustment factors for cars, the seller received a more appropriate offer; in effect, a lower offer than historically presented. Secondly, he eliminated the local friendship wholesaling process customarily seen in the auto industry. Here, the local used car lots would pay a small premium over the actual purchase price the brothers paid. The brothers were focused on volume to generate margin and Marcus flipped this to eliminate the knowledge of the purchase price. In effect, he broadened the market and the used car dealerships had no idea of what the brothers paid. They used the standard industry wholesale price to sell the car to the dealers. Thus, by changing the process, the brothers were able to significantly expand the contribution margin.
Conclusion – People, Process and Product
Great show! For those of you interested in going into business, watching a few episodes will give you a real life introduction. For the ongoing entrepreneur, the show will teach you to constantly look at your people, process and product. If you ever read this Marcus, this is much better than the Hotel Improvement show or the Bar Rescue and even the Restaurant show as you get involved in a wider variety of operations. Furthermore, your show illustrates the financial reward involved with the change so business owners can understand the reasoning behind the decision. I will say I’m not a fan of the drama, but I realize it exists and people do need to address the relationship issues in business. Press on and I’ll keep watching. Act on Knowledge.
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