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The Profit TV Show Review – Season 3 Episode 12

In last night’s episode of The Profit, Marcus Lemonis went to California to explore the opportunity of investing in Kensington Garden Rooms, a company that builds top of the line gazebos.

Like almost every business Marcus visits Kensington was operating like a dysfunctional family. There was bickering, built up stress and frustration and a total lack of process. All things within the wheelhouse of Marcus to come in and fix so the company can run more efficiently and increase revenues and profitability.

kensington1The reason this episode for me was different was the involvement of the third owner Kab. The business got started when Damian and Simon, long time best friends, came from the UK to California to pursue their dream of building amazing gazebos. The pooled together $60,000 of their life savings to get the business started but knew that wasn’t going to be enough.

So they went to Kab, pitched him the idea and convinced him to invest $120,000 into the company, run the financials and manage the website for 33% of the company.

The reality is that Damian and Simon both knew they couldn’t get this business off the ground without the extra money from Kab, plus they needed his business mentoring to help them along the way.

After visiting the company Marcus wasn’t impressed and so he gave Damian and Simon 3 weeks to make positive changes in the company and then he would make a decision whether to invest or not.

During those 3 weeks Simon and Damian made the changes Marcus wanted and he was feeling much better about the deal. However, Kab decided to go on vacation during that time and was not involved in helping the company make improvements.

So when Marcus sat down to do a deal with Kensington he already had his mind made up that Kab owned too much of the company for his current contributions. Based on the many episodes I have seen of the show it seems clear that Marcus wants outside investors to be involved in the day to day running of the business for them to be of worth. Maybe he gets frustrated that the investor is not helping the company run successfully which is why he has to come in and save the day.

Whatever his reasons are his plan was to get some equity from Kab or buy him out completely.

So Marcus offered $150,000 and gave them two options.

Option 1. They put the $150,000 into the company and then Marcus gets 12% taken from Kab’s equity. He also mandated that 10% of Kab’s equity be given to Jack, an employee that had been with them from the beginning. So in essence Kab went from having 33% of this company to owning about 12%. With this option he would get nothing in return other than the business would have $150,000 more in working capital, which they didn’t actually need.

Option 2. They give the $150,000 to Kab and Marcus takes all of his equity (giving 10% to Jack) and Kab is no longer a part of the company. In this scenario Kab takes and pockets the $150,000 which is probably a fair evaluation on his 33%.

Ultimately they decided to keep Kab on board and just divvy up his 33% as explained in option 1. Marcus repeatedly asked Kab if he was happy with how the deal went down and he repeatedly said “Yes”.

Inside though he was screaming “NO!”

A day or two after the negotiation Kab sent an email to Damian and Simon venting his frustration that he felt like he had been thrown under the bus. That the deal was totally unfair and he wasn’t happy with it.

This Is Why I Feel Bad For Kab

If I try and be sympathetic and view things from Kab’s point of view, I can see why he was upset. When the company was started he made a deal with Damian and Simon, where they would all be equal partners for their contributions. It was a deal that everyone was happy with.

kensington3Kab put in the most money, because his day to day involvement was going to be limited. So to get an equal share he put in 4 times the money that either Damian or Simon put in, plus he agreed to do the financials and run the website. That was the deal. That is how the company was formed.

So from his perspective he has done everything he agreed to do. He doesn’t help with the day to day operations of the business because that is what Simon and Damian do. He mentors them and has helped them grow into a healthy profitable business.

And now his equity is just being taken away with no explanation and with no reward.

I think Marcus realized Kab was getting a little bit of a raw deal when he came back to voice his concerns over the deal. And I was again so impressed by the generosity of Marcus Lemonis who quickly offered to buy Kab out for $250,000. Now that was a more than fair deal and Kab realized it and immediately said yes to the deal.

This Is Why I Don’t Feel Bad For Kab

But like most people who see green dollar signs, Kab got greedy. He immediately started asking that his son who did all of the website promotion and design work get paid as well.

Marcus quickly called him on it referencing the fact that the website work was part of Kab’s contribution to own 33% of the business. The same 33% Marcus just offered $250,000 for. In essence Kab was trying to double dip. Marcus tried to explain this to him and instead of being level headed after getting a more than generous offer for the buyout, Kab decided to question Marcus’ integrity.

This is what money does to some people. They lose all ability to make good judgements or think rationally. Kab was about to get a more than 100% return on his investment in less than 3 years and he couldn’t get out of his own way. All he had to do was take $5,000-$10,000 and give it to his son. But he wanted all of the $250,000 for himself and wanted Marcus to pay his son. And then he made the insinuation that Marcus was dishonest for not agreeing to that.

That is how you lose $250,000 in 5 minutes.

All he had to do was shake Marcus’ hand and walk away and everyone would have been happy.

The one thing I have learned over and over in business is that when someone offers you a fair deal, you take it.