Top Business Lessons from The Profit's Marcus Lemonis
Marcus Lemonis may just be the best thing that's happened to American entrepreneurship in a decade or more. I say this not only because he's an inspirational rags-to-riches success story, but because he is showing us all how to put the fun back into business after almost two decades of Internet mania.
Indeed one could make the case that the Internet is guilty of two transgressions against business. First, it's made building a business seem boring, relatively speaking, with its emphasis on coding and SEO maneuvering around Google. If your business career started before the World Wide Web arrived, you'll know what I mean. Second, the Internet has sucked a substantial portion of America's best and brightest talent away from producing things that people actually need or want into building bullshit "online platforms" whose sole purpose is to strip-mine your personal information and sell it to advertisers.
If it's free, you're the product, Poindexter.
Call me old school, but I will take an Elon Musk or Marcus Lemonis who build real businesses any day over a Mark Zuckerberg and clones who merely build glorified phpBB boards for the purpose of serving you up to advertisers.
Marcus's Business Lessons:
So let's distill the key lessons from Marcus's highly successful business growth strategy. Marcus is all about building bona fide businesses that meet genuine and ongoing market demand instead of websites that merely lure people into using services that most would be better off without (e.g., Facebook) and which more often than not have the lifespan of a fruit fly.
1. It's About the Cashflows
Marcus reminds us that the most important thing about a business is its cashflow. The lifestyle aspects are secondary. Think of it this way. Suppose that you have the choice between owning two businesses. Business A is a convenience store which drops $20,000 into your personal bank account each and every month. The only downside is that you find it a dull business and would prefer to be pursuing your passion. Personally speaking, I wouldn't blame you. It is a dull business. (No offense intended to convenience store owners.)
Business B markets your black velvet paintings of cats playing poker. You first saw the famous dogs playing poker paintings as a teen, fell madly in love with them, and vowed to push the genre into new territory. Nothing gives you greater satisfaction than completing another canvas of cats chomping on stogies in a smoke-filled room as they play stud poker into the wee hours. The only downside with option B is that you are lucky to pull in $200 per month because there's not much demand for this type of "art."
Which business should you go with? The one with the cashflow or the one you love? Well, only a fool would pick B. Business A offers so many more opportunities because of its cashflow. For example, you could afford to hire a manager to run it so that you could free up more time to pursue your artistic passions.
Cashflow increases your options and freedom. However, you'd be surprised at how many people think business is about pursuing their particular version of cats playing poker art. This explains in large measure the high failure rate for small ventures. Too many rookies assume that business is about doing something that you love. The problem with the "do what you love, the money will follow" philosophy is that most people love doing things that no one is willing to pay for--such as watching television all day long or starting yet another t-shirt business.
In contrast, entrepreneurs who go on to become tycoons understand that it's all about creating juicy thick cashflows that can be kept forever or eventually flipped to a much bigger party. This is why they are committed to accumulating as many of them as they can. This is how Marcus came to run a $3 billion empire and why he continues to aggregate more cashflows.
Keep in mind that you can quickly grow fond of any business that supplies you with steady cash, so long as you don't have any moral objections to it. So start thinking of businesses as cashflows the way Marcus does and shift your focus to accumulating them.
All the other lessons are about how to accumulate them.
2. Develop a Core Skill Set That You Can Use to Fix Businesses
Some people who make a living fixing up and collecting small ailing companies rely on a narrow field of expertise such as finance, or marketing, or operations. In contrast, Marcus is a generalist whose strong suite lies in applying the People, Products, and Process framework for identifying problems and solutions. He brings in specialists whenever he needs to such as the forensic accountant in the Planet Popcorn episode. This is the best way to go as far as I am concerned because every business then presents opportunities for improvement.
How does one develop a core skill set like that of a Marcus? The answer is simple. Wear a business owner's hat for two or three years. When you wear an owner's hat you develop the mindset of constantly scanning the horizon for ways to reduce operating costs and boost revenues. Successful business-people are committed to finding and implementing incremental improvements no matter how trivial they may seem to the unsuccessful.
It's this mindset that serves as the first stepping stone to building wealth. Marcus is living proof of this.
3. Avoid Mobs and Fads
When I look at the Internet, I try to figure out how an industry or a company can be hurt or changed by it, and then I avoid it. Take Wrigley's. I don't think the Internet is going to change the way people chew gum. - Warren Buffett
Cleaning products. Ice-cream. Used cars. Pop-corn. Dog boarding. Florists. What is going on here? Isn't this supposed to be the information economy where we all get rich tweeting, making YouTube videos, and blogging? Is Marcus just some old out-of-step fuddy duddy?
Not at all. He just recognizes bad "opportunities."
As soon as the mob starts chasing an alleged business opportunity, it's usually the kiss of death for it. This applies not only to business opportunities but to real estate and stock investing as well. When it's chasing a patently bogus one, the smart money does the opposite. This is my way of leading up to the fact that the Internet is no longer the great opportunity for the Average Joe that it once was, although the mob still hasn't caught on.
Years ago Warren Buffett admitted that he shied away from investing in online pure-plays because he didn't understand the Internet. On another occasion he advised people to only buy businesses that they could be happy owning forever. (Recall that the key to business happiness is a positive cashflow and that it's easy to love anything that provides you with one. Conversely, Internet business models and strategies tend to have very short life spans and highly unreliable cashflows, if they have them at all.)
So far in season one of The Profit, Marcus has only dealt with offline businesses for good reason. In a word, they cater to real needs. People will regularly decide to treat themselves or their kids to ice-cream and popcorn. They will occasionally need to sell a car or board a pet. Likewise, having to clean things is a daily chore for most of humanity. In contrast, many online businesses to this day still offer a very dubious value proposition to their users. Ask yourself if Facebook really makes your life better by feeding you a constant stream of brain cell killing updates from "cyber-friends" about what they happen to be eating or doing at the moment.
(I would wager that if Facebook disappeared overnight few would even remember it let alone miss it a month later. That's how it is online. There are also sound psychological reasons behind why adults normally cut ties with most of their high school peers and move on with their lives. Few of us want to remain frozen in high school forever.)
Today the Net just has too many quickly changing parts and rules for the average person to stay on top of and succeed. Online business models and strategies have a six month life expectancy on average after which you need to start over from scratch and try to figure out what might work next. About the only way that you can assure yourself that you have at least a snowball in hell's chance of online success these days is if you have a team of committed techies which have been accepted into a program such as Y Combinator.
If you're a team of one and non-technical, you're better off copying Marcus's offline strategy.
Here's another related lesson.
4. Avoid Any Business That is Overly Dependent Upon Google
Let's take a moment to talk about the growing Google problem. Just ten years ago Google was perceived by entrepreneurs as the great equalizer that would enable them to compete with the big boys by going direct to the customer. This is no longer the case now that Google makes drastic changes to its search algorithm every quarter.
Ignore Google Plus and Google search will ignore you. - Google CEO Larry Page
Anyone recall the original Google mantra of Do No Harm? Now its CEO sounds like Tony Soprano with his implied threat: "Buy our G+ insurance or something bad might happen to your little business. Capisce?"
(For those who don't know much about the online world, the smart people started doing everything possible four or five years ago to minimize their dependence on Google for traffic after it started over-reacting in its never-ending arms race with the SEO profession.)
The takeaway here is don't be one of the tens of millions starting a little blog every year and naively hoping that it will earn money. It won't unless you have something truly unique and in demand. This reality rules out 99.9% of blogs.
This is why Marcus invests in businesses that are not entirely reliant upon Google for their customers.
5. Buy Fixer-uppers
Fixer-upper businesses usually come at a discount which then makes them the natural place to start when cash is limited. Not only that but they can offer a huge upside with a minimal downside. From having worked in business brokerage for more than a decade, during which I sold scores of businesses and analyzed hundreds more, I observed that most small businesses leave plenty of room for improvement in terms of both revenues and operating efficiencies.
Those that don't die in the first five years tend to plateau at a level where the owner feels comfortable and that's the end of their real growth. After that point is reached everyone just goes through the motions and puts in only enough effort to maintain the status quo. This is especially true of businesses under the control of long-term owners. Everyone runs out of steam eventually if there's no variety to spice things up occasionally.
Marcus invests in stable businesses that promise a huge upside if fixed. Moreover, the variety of challenges is never-ending in his line of work. This is why so many tycoons keep working into their 80s and 90s in contrast to single business owners who typically want to retire around 60--if not sooner. Running one business for more than ten years frequently makes the owner feel as if they are the Bill Murray character trapped in Groundhog Day. In contrast, a businessperson like Marcus gets an exciting new challenge to work on monthly.
6. Marcus's Super Secret for Success
The whole place had the unmistakable dusty, flyblown air of a business that is going down. But it would have been quite useless to explain to them why nobody came to the shop, even if one had had the face to do it; neither was capable of understanding that last year's dead bluebottles supine in the shop window are not good for trade.
- George Orwell, The Road to Wigan Pier
What makes Marcus so brilliant? There are two reasons for his success. First, you have no doubt noticed how most people can readily identify their friend's and coworkers' faults but are rather stumped when asked to list their own. While they may be able to identify some of their own weaknesses, they will often have the blinkers on about their biggest ones. The same phenomenon holds true for small business owners. While they can usually point out a few of the things that are wrong with their businesses, they will rarely have an objective view of how they personally stunt its growth or how it could be turned around. (In cases where they do know what a turnaround would entail they often lack the resources to implement it.)
On the other hand, someone stepping into a business with a fresh set of eyes is quickly able to spot all sorts of room for improvement. This is one of Marcus's advantages: objectivity. Being the outsider he sees things as they really are. His other reason for being so successful is the generalist core skill which we looked at earlier. It provides him with a framework for quickly assessing a business, spotting its problems, identifying the solutions, and capitalizing on the low-hanging fruit opportunities.
If you are a lifelong student of business, have a few years of ownership or senior management experience, and a genuine passion for excelling there is no reason why you can't follow in Marcus's footsteps by doing what he does. You may not attain his level of success but you will fare much better than someone who remains a shopkeeper.
7. Be the Deal-maker Not the Shopkeeper
Eureka! Here's the goose that lays the golden eggs. - Andrew Carnegie
These were the words uttered by Andrew Carnegie upon receiving his very first dividend check and realizing first-hand that you truly can make money in your sleep. After this he pivoted and set out to acquire control over or interest in as many cashflows as possible. He did so by focusing on honing his deal-making and investing skills.
The three most valuable skills in business, traditionally-speaking, consist of being able to do the following: 1) identify opportunities early on, 2) bring all the relevant parties to a consensus, and 3) marshal the resources needed to make the deal work. Note that these are mostly people-based skills and, therefore, diametrically opposed to the purely technical ones required to be of any value to a company like Facebook. Specifically they are about being good at selling, schmoozing, horse-trading, and negotiating. In other words, they are about having basic inter-personal communications and a dash of good old horse-trading sense. (Think How to Win Friends and Influence People.)
Unless you were born with the raw mental genius of a Bill Gates, Jeff Bezos, or Elon Musk, your best shot at building real wealth and leaving something behind to be remembered by lies in cultivating these skills and entering the serial cashflow acquisitions game. The great thing about this is that the required skills can be mastered. They are transferable. On the other hand, no one can teach you how to be the next Bill Gates, Nicola Tesla, or Elon Musk. Super high intelligence is not transferable.
So focus on honing high value skills and acquiring cashflows and hire people who want to be shopkeepers to manage them for you. That’s how Marcus does it.
8. Small Scale Capitalism is Alive and Well
Now we will end with some bad news and some good news. Let's start with the bad.
Sadly, most small business owners have little more than a job that they are locked into 24/7. This comes as a shock as soon as they attempt to sell their business. That's when they discover that they are in fact attempting to sell a job for 2x to 3x the owner's annual salary, perks, and dividends. The problem is that there are few small buyers willing to pay that much for a mere job and fewer still that have the capital and credit. Moreover, the big buyers with deep-pockets are simply not interested in nickle and dime deals. This is why something like 80% of all small businesses never find a buyer and are merely shuttered at the end.
However, as promised there is also good news for those who wish to avoid this tragic fate.
Real business value on the other hand, the type that triggers a bidding war when you are ready to sell, comes from having achieved a critical mass of cashflows that large corporate buyers will be willing to pay top dollar for. You reach this nirvana by going out into the world daily, interacting with people face-to-face over lunch or a coffee, helping them to solve their problems, engaging in a bit of horse-trading, and taking some calculated risks. This is the truest definition of MBWA (i.e., Management By Walking Around). It should also be noted that these personal face-to-face interactions can make business as rewarding emotionally as it can be financially. Marcus is a shining example of this fact.
Now contrast this with the Internet version of building a business. Here we picture mostly young males sitting in cubicles for 15 hours per day, pounding back the Red Bull in an effort to stay awake, and using instant messaging to communicate with coworkers seated in the same room. It's this latter vision that the media has imprinted upon most people's minds over the past fifteen years.
Meanwhile there are literally thousands of Marcus Lemonis types out there of varying sizes and compositions quietly working away at building something of real value day after day instead of coding those mostly worthless online platforms and wasting precious time on social media games aimed at accruing "likes" and Klout points to compensate for the lack of sales.
If you are running a real business with real sales the last thing you can afford to concern yourself with are social media likes and upvotes. Those games are for people who couldn't sell their way out of a wet paper bag.
I will add that the wonderful thing about real businesses in the offline world is that they sink or swim quickly. In contrast, failed websites are regularly kept alive for years by deep-pocketed investors and venture capital firms who want to avoid the humiliation that comes with admitting a portfolio company is a dud.
So thank you to Marcus Lemonis for reminding us all that regular people can still get rich by building businesses that serve genuine and ongoing demand and have fun doing it.
We can all be capitalists to varying degrees if we just follow Marcus's lead.
This is what America is all about.
And that's why I think Marcus Lemonis is the best thing that's happened to American entrepreneurship since about 1995.
PS No one should take any of the above comments about coders as being disparaging. I actually have a great deal of respect for people who can concentrate so intensely over long periods. My point is simply that few mortals are wired for this kind of life and that the traditional ways of making money are still out there.
Could you be the next Marcus?
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