Marcus Explores Growing West End Coffee Company

Despite the fact that this was another walk out by Marcus it offers some valuable business lessons, including one big one.

Background

West End Coffee Company is roasting operation located in Greenville SC, serving local restaurants and specialty shops. The company was purchased by the two owners, John Brown and Becky Schramm in 2012 for $499K. We are not told how long it had been in existence prior to the purchase.

Financials

On paper the business is doing reasonably well. It wholesaled "just over 100K pounds" of coffee in the previous year for total revenues of $840K. The gross margin that Marcus is always concerned about is a healthy 50%. There's about $100K owed to the bank from the acquisition back in 2012. The attractive two story brick building with 3500 s.f. that West End is in leases for $2750 per month.

Becky and john explain to Marcus how they paid for West End Coffee Company.

Becky and John explain to Marcus how they paid for West End Coffee Company.

People

John and Becky were in a romantic relationship that came to an ugly end a year after they purchased the business. At this point their relationship can only be described as toxic. Luckily for them the five employees appear competent and motivated. It's clear immediately that John and Becky are the two biggest liabilities for the company.

It was never made clear what either partner was contributing to the business. Was one handling sales and the other operations? We don't know. Even they didn't know when Marcus asked. I got the sense that John was trying to run the business in the brief interludes when Becky wasn't pissing him off, and that she saw her role as looking busy in order to justify a managerial title.

Complicating things further they have an odd business arrangement with Becky holding the voting power to fire John despite the fact that he put up far more of the $499K needed to buy the business than she did. Specifically, he owns 82% of the shares and she only 18%. John deeply resents Becky for having this power over him. You have to wonder why she doesn't just fire him. The likely answer is that he's the only one with the managerial know-how and skills to run the show.

When Marcus takes them to do a sales presentation to a local restaurant chain it becomes clear that Becky shouldn't be handling accounts. And what's with both of them wearing beach wear to the meeting?!

Process

The company's operations side appears to be functioning well despite the problems at the top. This is attributable in large part to the five employees who are behaving like adults. The only big issue is that the roasting equipment is operating at only 33% of capacity. That's a lot of lost revenue. The most likely cause of this situation is that John and Becky are too consumed by mad squabbles to bring in new accounts.

Marcus sees the potential if they can start selling as much coffee as they can make.

Product

Those of us in television land will have to trust Marcus that the product is good.

Marcus's Growth Strategy

Marcus top priority is to get the utilization of the plant's capacity as close to 100% as possible. This means bringing in more accounts. He also wants to dump the middleman distributor and sell direct to accounts. He also spots an opportunity to implement a proper inventory management system and dump non-selling stock.

If he can gear up both production and sales, he sees revenue jumping from $854K to $3 million with a 50% gross profit.

The Offer

Marcus offers $200K for 51% of the company. Half will be used to pay off the bank debt and half will go into working capital. This then assigns a valuation of only $400K on the company which is rather low. Marcus justifies it by explaining that he fears John and Becky might sink the company with their incessant feuding.

He also demands that Becky to give up her right to fire John to which she agrees. She then dragged her heels on the paperwork.

Business Lessons

The episode ends with Marcus concluding that the company is too much of a train wreck due to the animosity between the owners and walking out. My only question is why did it take so long?

-The first lesson here is never invest in a company where the owners are at war. Not only is there the risk of one or both of them torpedoing the company but it's also just extremely unpleasant to be in such a situation.

-Never go into business with a close friend or, even worse, a romantic partner. What was John thinking? He could have found the $77K she invested elsewhere. (There should have been some seller financing that could have covered this amount.)

-John found himself in a situation where his minority partner could fire him either because he didn't use a lawyer or because he used a very cheap one. Always pay for a good lawyer to review the paperwork when doing anything significant like buying or selling a business or adding a partner.

-I disagree with Marcus about John talking to a business broker. He most likely felt that the deal was going to unravel and was therefore developing a "plan B" in case Marcus bailed. And Marcus did bail.

The Big Lesson

Now here's the big lesson that I promised at the start. This will be especially relevant to anyone looking at investing in, partnering with, or consulting to a small business.

There's a huge difference between an entrepreneur and a small business owner. The former wants to build his or her business as big as possible in as short a time span as possible. The latter typically only wants to stay at a comfortable level even though they may not be conscious of it. I got into an argument over this a few years ago with a business prof who was claiming that the two terms pointed to the same animal. No they don't. The vast majority of small business owners are actually Be Your own Bossers. What this means is that their primary goal in life is to be their own boss and therefore in control of their income. They then build their business up into the $500k to $1 million range and stay there. To get bigger would mean having to hire managers and delegating responsibility to them. This subconsciously scares the heck out of Be Your own Bossers because it means losing some of the precious control they hold onto like Gollum. They are control freaks. They will talk about wanting to grow but like John and Becky will sabotage any attempts to actually do so. Recall how Becky didn't do a thing with Marcus's new inventory system and then rationalized it away with "It's just the way we've always done it." John in the meantime didn't follow up with new accounts to get P.O.s. Those are dead giveaways that you are dealing with a lost cause. You can invest in these companies, sign up as a partner, or consult to them but don't expect them to ever do anything that might actually grow the business and loosen their death grip over it.

If you want to do anything with small businesses, go with the ones that have surpassed a million in sales and therefore have a manager or two to help the owner run things.

West End Coffee Company looks like a great little business with plenty of growth potential if only it could have people in charge who wanted to actually grow it. John and Becky are not these people. I will add that the company might have a chance if Becky removes herself from the picture. She could agree to become a silent partner in order to give John a stress-free environment from which to calm down, think straight, and implement a growth plan.

But I won't hold my breath.

 

 

46 Responses to The Profit: Marcus Lemonis and West End Coffee

  • It’s a shame about that one. Could have been a great investment. Becky should just stay at home and let John run it. At the Larkin’s sales meeting he showed that he was on the ball while Becky proved that she has no business sense.

  • John can feel lucky that Becky isn’t as crazy as the lady from World Wide trailers who was vandalizing her partner’s cars and house. They should just sell the business and be rid of one another.

  • Did anyone else get the weird feeling that both of them especially Becky are far more interested in being able to brag that they own a business than in the actual running of it? Becky certainly demonstrated zero interest in the details of management.

  • Judging by this she’s still carrying a torch for him. http://www.cnbcprime.com/the-profit/video/whats-that-ring/

  • You can stop holding your breath, now.

    I see that Becky’s name does not appear on the West End Coffee web site, although son Bryan Schramm is still there. Looks like she’s now out of the picture.

    https://www.westendcoffee.com/aboutus/staff.php

    • Too bad she didn’t leave before she had killed the deal.

    • Nope~ Still here.

      • It looks like you left the company. Did you or didn’t you? If you haven’t then you really should.

        • Tammy~ No, I haven’t. That’s what “still here” was meant to convey, I’m sorry if that wasn’t clear… Would YOU like to buy 18% shares in a “nationally known” coffee roasting company? Let’s Make A Deal!!!!

          • Sounds like you left the business but remain a silent shareholder. Good on you for getting out of their way.

      • Good for you Becky! I don’t care if john can sell, he’s an ass and obviously a miserable person. Stop trying to placate a bully and fire his ass. Good luck to you no matter you decide.

  • REPEAT* Nope ~ Still here.
    REPEAT* How about you, Steverooni?? Are YOU interested in buying 18% shares of a nationally known coffee roasting company? Yes??? That’s Excellent… then I will be on my way.

    • Becky, you don’t understand. What we are saying is that you are no longer involved in the management of the company. That’s why your name has been removed from the website. We understand that you still have your 18% because there’s no money to buy you out with and there may never be,

      As for calling it a nationally know company, well that made me LOL. It’s only known because it was a train wreck episode on The Profit, thanks mostly to you. Don’t get your hopes up about it ever growing beyond its current size.

      You need to get a job and move on, girl.

  • So Becky, if you are still at West End, in what capacity? And is it true that West End continues to call Marcus?

  • Currently I remain a co-owner and I continue to handle accounting, payroll, customer service, phones, processing orders, shipping orders, processing our Fresh Jo Coffee Club, assist in production when needed… I also do the laundry, clean the toilets, wash the dishes, sweep the floors, clean the windows and whatever else that needs to be done. And yes, I (personally – not on behalf of West End) have contacted Marcus.

    • Why did the team vote to have your name removed from the website then? Something fishy about your story, girl.

      • What team? What vote? John manages the website. Not really sure what is “fishy about my story” but we are open Monday – Friday 9a-5p please stop by for a cup of coffee and introduce yourself. I would be happy to give you the 5 cent tour if you’d like?

        • By being so elusive you only draw more attention to the fact that you are being elusive. People have been asking you why the company saw fir to remove your name from the website. Instead of a simple answer you dance around the issue. To me it looks as if they wanted to disassociate themselves from you.

          • Pretty sure I’ve been answering questions??? John manages the website… That’s pretty straight forward and as simple as it gets. You can believe what you want to, that’s okay. And your invitation still stands.

        • We all know why they took your name off the website.

          • Where can I sign up for the “WE Group” who apparently knows it all. Sounds like a Great group to be apart of!!! LOL

            Have a great weekend Chantal.

    • Yup, that’s the thing with being a small business owner – it often requires you to wear several hats at the same time. So if someone were to pony up a check for the 18%, what do you want to do next? Do you still have a passion for owning a business, or has this experience soured you?

      And here’s the big question: does your directorship of the 401K transfer to the person who buys your 18%?

      • Not sure what’s next… Still getting thru now. And yes I do have the passion for owning a business, it’s not always easy (hardly ever) but it is always rewarding. I am not soured, maybe a little upset stomach at the moment (LOL) but- I’ve learned A LOT of lessons… I have to assume Gail (comment above) doesn’t own her own business. Because of course I “brag” I own West End Coffee, it’s a Great company and I am Proud to be apart of it (not so proud of my tv debut…) Please don’t forget that you actually only saw 42 minutes in the span of 3 months time. We are a profitable company, offer an excellent product and provide great customer service. Even though I only have an 18% financial investment in the company I am 101% interested/invested in the details (hence-profitable). And to answer your Big question: My 18% shares has absolutely nothing to do with his 401k (ie: Retirement Plan Shares). John now has 100% control of the Retirement Plan shares as well as a small amount of personal shares.

        • Yeah, about those 42 minutes versus three months of filming and what was left on the cutting room floor… when Marcus initially said you should have pre-roasted inventory on the shelf did you push back and tell him why you didn’t want to do that? If so what was his answer/justification? Thanks for your willingness to address questions here, it must be a bit tough.

          • No more “cutting room floors” these days…and it’s ALL in HD now! LOL

            No reason to push back, because when he initially said it, it was basically the “Grand Plan” of how and what we were going to do. It was a great idea and everyone thought so. But our business/sales remained the same between visits. We simply didn’t have the orders “yet” to put that into action, so when he got there on what ended up being the final day there wasn’t any pre-roasted inventory ON the shelves… The “final scene” (real time) was at least a half hour conversation, but basically the only thing I’m heard saying is “that’s the way we’ve always done it” (oh wait ~ there’s that cutting room floor…) I mean let’s be honest, the reason he walked was because of John and I. No question… When I applied for the show, my hope, I guess you could say my wish, was that he would take CONTROL away from BOTH of us, (it was never about the money for me) John would have his piece of mind… and me mine, and then we could get back to the business of roasting coffee. We are both obviously very passionate about West End~ Just imagine what could be done with all that energy pointed in the right direction… But unfortunately for me when I rolled those dice it came up snake eyes… And John is now 82% in control and that’s enough…

            So how about you Mo? Know of anyone interested in 18% shares of a “nationally known” coffee roasting company???

  • Were I Becky I would use the power to fire John, although I don’t either of these two is ever going to run this business very successfully. That was apparent when they failed to complete the simple tasks given them by Marcus. It was also apparent when they both showed up in shorts to the Larkin business meeting. Shorts at a business meeting where you’re meeting people for the first time? I noticed no one else was dressed like that and not Marcus.

    It’s a shame but this business doesn’t have much future I’m afraid with either of these two.

    • I guess it’s a good thing for John that I am not you. LOL. But I never, not even once considered firing him.

      How “apparent” is it to you that this is a “reality tv” show??

      Everything Marcus asked us to do could have (and would have) been done in a matter of hours. Bins were full of FRESHLY roasted coffee and a simple push of a 3 buttons changing weight of bags from 16oz to 12oz. Wha-la~ task complete. Marcus had an excellent plan no doubt, but since we ROAST TO ORDER (and didn’t have those orders YET), I wasn’t willing to have our coffee sitting on the shelf getting stale. And I guess I was thinking he would have appreciated me not wanting to put out a bad (stale) product… “Inventory Systems” ~ (hello… smoothie lesson!!!)

      As for the shorts… I (*we) dressed to go to WORK that morning. I work in a coffee roasting manufacturing / production facility. Had I known we were going to a sales call that day I certainly would have brought more appropriate clothes to work with me. But when Marcus tells you, we have a meeting in a half hour with Larkins, you are there in 15 minutes… You don’t think I wasn’t embarrassed to show up to a meeting dressed like that? Really???

      Product is Great. Process can Always be better. People are Human (imperfect).

  • Becky, y’all are a coffee company with coffee tastings. Why are your store hours bankers hours? It would seem to me that it would be more prudent and more profitable to open at 7:30 a.m. and to also be open on Saturdays.

  • Not sure if anyone is still reading this board or not, but since this is really the only place I’ve commented I felt I needed to update “everyone”.

    I was Fired yesterday (Shocking ~ I know…).

    On Sunday John found out I was posting on this board, after his “DIRECT ORDERS, to NOT comment, answer emails, answer phone calls regarding the show”, (umm, excuse me?? ~ there’s this little thing called the 1st amendment… John might want to read up on that too?!) (Hi John ~)

    I have to say, I was “a little” shocked he was so upset… Does anyone think I spoke poorly of either John or West End? But then, I don’t believe it was about content; it’s that I had my “marching orders” (his words not mine) and failed.

    Anyway…On Sunday night I was Told that I would not be allowed to continue doing “daily operations” and that I was being re-assigned to OUTSIDE SALES and I could only work from home. I know, right!?!? Outside SALES!!! (I’m probably Still laughing and shaking my head as you are reading this! LOL)

    So of course when I arrived at work on Monday my personal items and desk were already packed up… As you can imagine, Monday was a pretty Bumpy day… But unlike John, I know when to stop talking ~ so I will leave it at that. (You’re welcome John~)

    At this point I just really want all the madness to stop. So my lawyer is talking with his lawyer, and I really hope to have a speedy resolution.

    As I sit here right now, my biggest regret is that I no longer get to work with my son (I really loved working with my son…).

    My Final Thought: Yesterday I was upset that John wouldn’t give me a sign that our CPA gave us when we bought West End that reads “Let’s assume we’re in business to make money.” But ya know… maybe he needs that reminder more than me.

    • Becky, we love ya but it has to be said. You are your own worst enemy. This move comes as no surprise to anyone. Best of luck to you.

    • Oh boy. Well, hopefully this will be a nudge toward greener pastures and brighter prospects for you. Best of luck!

    • The biggest mistake you made was hooking up with John in the first place. On a totally unrelated note, your son is super hot. By any chance are you in the market for a super-awesome, daughter-in-law? 😆 😉

      • Yep. Why does that stupid 20/20 have to be in hindsight anyway??? Live & LEARN. Live & LEARN Steph… LOL! I have to say he started out as a Perfect Beautiful baby and just kept growing… *Just add love and sunshine 😀 I am… And I would ONLY accept a Super Awesome daughter-in-law! We might need to run this by Bryan first though… 😉 LOL

    • Typically if there is bad press due to a show like this, and people are asking questions, the professional way to approach it is to keep silent or if truly necessary post a public explanation on your website. As interesting as it was to hear from you on here, it is quite inappropriate. My take, as most others who commented is that “owning your own business” doesn’t mean anything if you don’t know how to run it. I have the business knowledge and have watched enough of these episodes to see how difficult it is for owners to give up their controlling percentage of the business. However, if you want to see a business thrive you need to relinquish control and be willing to adapt to better processes.

  • Becky, that little thing called the 1st Amendment only says that the GOVT cannot abridge your right to free speech. It does not apply to the private sector. For example, you have every right to kick someone out of your house or business for bad language, just as the moderator of this site doesn’t have to post comments w/ bad language.

    You might want to read up on that. (As you said to John.)

  • Sorry to see how much misery John dealt to Becky. Not sure why she continued to stay and take the verbal and emotional beatings. John strikes me as a selfish, bitter, ugly-spirited man. She may not see it for a while, but getting fired and being removed from that environment can release Becky to lead a productive and happy life.

  • Sad “state of affairs” (pun intended} at what should be a great entrepreneurial opportunity. Like my grand dad used to say…”don’t poop where you work…unless you want to put up w/ all the stink”!

  • wowee!!!
    I just watched this episode (via youtube). I am in Australia.
    i thought i would follow up and see what the has happened since this show went to air. Fair to say that Becky and John parting ways was always going to happen. Personally i don’t understand how people who used to be in a relationship can work together as business partners – you would think that one had to go.
    Good on you becky for answering questions! very refreshing. screw the critics.. Life goes on…

    p.s im not in the market to buy an 18% share in a “nationally known coffee roasting company” 😛

  • Although the last comment is dated 12/04/2014, I wanted to add a thought after playing catch-up on past episodes of The Profit. Understandably, it’s an edited show with a story line, but as a self-described skeptic, I still believe, while entertaining, the truth comes out in each episode. If John and Becky watched the episode as “strangers” or viewers with no personal knowledge of their story prior to viewing, both could take away valuable insight how they can take equal credit for the failure of their partnership. Both are blinded by their need to be right and blame the other. Even if they got along, blissfully, Marcus held the key to improving their business and chance for success. Either individually do not have the business acumen, nor together. They lost before they even started. Either you get it or you don’t. Business ownership is not for everyone, despite how large your 401K is to use as a source of investment.

  • I just watched the show. I know I am way behind. Becky if you are still reading the comments, I hope you are much happier.

    • Hi Amy~ Thank you for your kind words. Yes, “personally” I am 1000% happier. It has been a bit of a roller coaster over the past year with other potential business opportunities… But I’m not giving up and it’s just a matter time. Thanks again and Have an Awesome Day!!

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