Marcus Develops a Growth Strategy for Kensington Garden Rooms
Kensington Garden Rooms (“KGR”) is a Hilmar, CA based business owned and operated by two Brits who moved to the USA in 2012, Damion Merry and Simon Johnston. It sells high priced luxury gazebos which serve as entertainment centers.
As Damion explains, they design, manufacture, and install the gazebos which range in price from $25K to $32K. The units are made from the best quality wood and the craftsmanship is superb. The company also furnishes them. All of the customers to date have been residential property owners. Marcus loves the products.
It was honestly a piece of art. – Marcus
The gazebos typically cost $12K in materials and $3K in labor. The gross margin averages 45%. Marcus sees growth potential if the boys can get their costs down enough to have a cheaper model for a larger market. The company estimates sales of roughly one million in the current year.
We discover very quickly that each partner thinks he’s the one carrying the bulk of the work load. Simon is the foreman and Damion handles sales and marketing but also pitches in with manufacturing. There’s a third partner, Kab Benefield, who invested $120K to help launch KGR. Each partner owns a third of the equity.
As often happens in these episodes the business has no discernible system for producing its goods efficiently. Even the bathroom is a mile and a half away. A huge problem is that their cheap wood cutting tools’ motors burnout after two weeks. This is because Damion wants to keep the company’s $100K in cash in the bank rather than invest it in heavier duty saws. Marcus estimates that $50K would buy all the professional equipment needed.
So why did they call Marcus in the first place?
It turns out that the company is a cash cow which will have about $250K in cash by Dec 31st, 2015. It also has no debt. Marcus realizes at this point that what it really needs a strategy and systems for controlled growth. However, he backs away and tells them that he’s not interested in the opportunity because the owners want to grow too fast. Damion takes this badly.
At this point I’m not sure why they can’t find a SCORE consultant to give them some free guidance on how to get their house in order. With all that cash in the bank they could even hire a consultant or CPA to come in and help them.
Marcus then does the thing where he tells them to put together a business plan and find a new location for the factory. He will return in three weeks to take a second look and decide if he’s willing to become a partner.
Three Weeks Later
The boys have redesigned the layout and invested in some industrial grade equipment. They have also had a bathroom installed. However, Kab after doing the financials for the business plan took off to Mexico and hasn’t been heard from in over two weeks.
The Offer Sitdown #2
Marcus meets with the trio and offers two options. One is to invest $150K for 12% of the company but it all has to come out of Kab’s portion including another 10% for Jack a key employee. The other option is to buy out Kab for $150K. He tells the trio to make the call. They go with the first option and Kab remains a partner. Good move, Kab.
Kab Reneges on the Deal
After a few weeks Kab reneges on the deal he agreed to and shook on. He feels as if they threw him under the bus by reducing his position from a third to just 12%. Bad move, Kab. An angry Marcus then offers him $250K just to get him out of the picture. He includes his first ever on air F-bomb in the offer. Kab agrees a second time but then asks for a few more thousand more for his son who built the website. Who is willing to kill a $250K payday over $2K? Well, Kab is. Considering that his son works for him this is a crazy request. It looks as if Kab will get a free ride with his 12% stake. Well, that’s called being a silent partner.
Marcus’s new growth strategy includes:
- move manufacturing into a new space
- go after commercial customers such as car and boat dealerships and vineyards
- develop new channels through hardware chains (starting with TrueValue)
- design a new lower cost model for a much larger market
This is a another nice little company that looks like a strong investment for Marcus. They will all make good money from this.
To buy a luxury gazebo, go here.