Marcus proposes a growth strategy for KOTA Longboards.

The company was launched three years ago by Mike a former navy fighter pilot. His wife Nikki is a partner in the company. It designs, builds, and retails long skateboards known as longboards. It’s located in Denver, Co. KOTA stands for Knights of the Air.

Product

Anytime I can find a product that gets people outdoors that’s a product I’m interested in. – Marcus

The company offers only one model which is very highly priced for the market. Each unit costs $116 to finish and is then retailed for $329. The price will be going up to $349 shortly.

People 

Marcus finds it odd that none of the employees have been with the three year old company more than nine months. Why doesn’t anyone stay longer? One employee named Josh has invested $50K of his own cash into KOTA and works for free everyday on the assembly line.

Process

The operations side is odd. For a company that only sold 600 units in its best year why are there so many employees? This looks like a business that could be run by two teen-aged guys working part-time out of a garage.

Financials

Mike has dug a very deep hole for the company in the three years it’s been in business. He has burned through about one million dollars from investors and a grant. In the current year Marcus estimates KOTA will lose about $200k on sales of $200k to $220k. It takes a special kind of talent to get things so bad.

Mike also attempts to claim that he’s sunk $500K into the company but as it turns out he’s talking about “sweat equity” and not cash. Now think about that. The company has the following sales over its three years:

1st year              $48K

2nd year             $150K

Current year       $200K to $220K

So the company will have had at best $418K in total sales and yet Mike feels that he deserves $500K in compensation for this performance.

Mike, I have news for you. Most founders pay their employees more than themselves during the startup phase. I know that you didn’t actually pay yourself the $500K but to even claim that your contribution is worth that much is rather preposterous considering your performance.

The Offer

Marcus still offers $300k for 40% of KOTA. Of this 15% will be split equally three among three key employees: Chris, Josh, and Sandy. $50K of the investment will be used to pay back Josh and the rest will go into working capital.

Initially Mike and Nikki look very displeased, to say the least, but end up agreeing to the deal.

Growth Strategy for KOTA

Marcus wants to switch the focus onto the youth market. Mike’s imaginary market of well-off 50 year olds longboarding is just that: imaginary. Specifically, Marcus wants to:

-Lower price points with smaller and cheaper boards

-Offer three sizes: 44″, 34″, and 28″ boards

-Do licensing deals with various Marcus’s contacts to build up sales

Mike gets some honest feedback during his intervention.

Drama

Mike shows himself to be a negative personality when they inspect new premises. A couple of weeks into the deal Marcus hears from Josh that Mike has reneged on the deal. Moreover, Chris has quit.

But it gets worse. Mike doesn’t want Josh, the guy who works for free, to be repaid his $50K investment. Unbelievable.

Then another employee, Nate, quits.

Mike also appears to be oddly casual and nonchalant in approach to his failing business.

When Marcus returns for the final time he doesn’t recognize anyone. Mike admits sheepishly that he’s driven everyone away.

The Intervention

At the very end Marcus organizes an intervention for Mike so that he can hear from all his former employees why they left. The biggest issue appears to be that he breaks all his promises to people just as he reneged on his deal with Marcus.

Marcus then rides off into the sunset.

I feel especially bad for Josh who can’t get his $50K out of KOTA and can’t get Mike to even commit to paying him $15/hr for his labor.

Nikki sides with Marcus and the employees against Mike.

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