Do you want to come over here . No. But this is business. I do it to save jobs, and i do it to make money. This the profit. [upbeat music] this week, im going to keyport, new jersey, a town that was devastated by Hurricane Sandy in 2012. Im going to meet the owners of mr. Green tea, a gourmet ice cream company. For nearly 50 years, mr. Green tea has been handcrafting exotic ice cream flavors and supplying the asian restaurant trade in new york city. So delicious. Way ahead of their time, mr. Green tea was producing flavors like green tea, ginger, and red bean. This Family Business was founded by richards dad, santo emanuele, in 1968, who ran it with richards older brother, james. Richards dad passed away, and then his brother died unexpectedly, leaving richard to run the business. Richard wanted to keep his family legacy alive, so he took over the business and brought his son, michael, with him. Michael, theres multiple problems. We gotta do what we gotta do. Unlike many of the businesses i help, mr. Green tea isnt facing a crisis. They generated over 2. 5 million a year in revenue, and the emanueles make a very good living, but the business is static. I have such a hard time making this decision. The emanueles cant seem to agree on a plan for their future. Michael has big ideas, but richard always plays it safe, and that creates tension. Its not 75. Just get dont mince my words. I hate that. I believe that mr. Green tea can be a 50million company. They need to be bold, and they need to take chances. They havent launched new flavors in over a decade, and theyre still not wellsituated in the retail market. The ice cream business generates well over 10 billion a year. I want a taste of it. Hello. Hi. Hi. Im marcus. Hi, marcus, nice to meet you. Im lori. Nice to meet you. Are you loriare you mom . Im mom. I wore green because i wanted to youre gonna fit right in. I wore green. [laughs] id love to meet everybody. Would you like to meetsure, come on in. Yeah, thatd be great. This is marcus. Hey, guys. Hi. How are you . Im marcus. This is dick, dicks our operations manager. Im dick, nice to meet you. This is my son, michael. Nice to meet you, mike. Nice to meet you. And my husband, rich. Hi, marcus. Very nice to meet you. How are you . Its nice to meet you. Heard a lot about you. You too. So, rich, tell me a little bit about the history of mr. Green tea. Well, you know, my dad started this business, you know, 45, 50 years ago. Hes the real mr. Green tea. He saw the need of highquality ice cream for the restaurants. He had a friend who was also in the ice cream business, and my dad believed you gotta sell to food serviceto restaurants, and his friend believed you gotta sell to grocery stores. My dad went his way, founded mr. Green tea, and put it into restaurants, and reuben went his way and founded haagendazs. So, you know. You see who actually had the better idea. Haagendazs as in as in the haagendazs, multibilliondollar ice cream . Exactly. Do you have his number . Maybe i can go do some business with him. Well [laughter] i like this story because its a classic case of being willing to take risks. In the case of mr. Green tea, they like to get up to the plate and hit singles, and in the case of haagendazs, they were swinging for the fences, and they took the biggest risk of all. They were willing to strike out. In this case, they hit a home run. If we can get mr. Green tea to take the same sort of risk, then they can be as successful, maybe even more. Whats the top line today . Were on track to break 2 million this year. Okay. So its a small business. Its small. But a decent margin business. Comfortable, butexactly. Yeah. Do you make the ice cream here on the premises . No, we dont actually make anything here. We use copackers, a few around the tristate area, and we travel to the copackers when we need to manufacture, make sure theyre to our quality control. What does that cost to go there . A lot. Ill bet you they are anywhere between 20 and 30 , yeah. Copackers are thirdparty vendors who manufacture and produce product for small companies. Mr. Green tea gives up about 20 margin by using copackers because they dont produce the product themselves. 20 margin on 2 1 2 million of revenue means theyre giving up about 1 2 million a year in potential profit by not making the product themselves. We have grown 20 every single year for the last five or six years, and the only reason were not growing more, especially this year, is we physically cant get enough ice cream. Theres logistics in the manufacturing and getting the product here. And for that matter, since we cant fill certain orders, were not actively going into new ones. Right. One of the other disadvantages of using a copacker is that you dont control the manufacturing process. That copacker could have 50 to 100 other customers, so youre allocated one time slot. If your business grows and you dont have more Time Slots Available with this copacker, it wont matter how many orders you get. Theres no time slots. Theres no way to make your product. Thats a big problem. We want to build a facility and bring all the manufacturing under one roof. And whats held you back from doing it . Well, i knowobviously, you get worried. You know, im very, very conservative, and maybe even too much. Conservative to a fault. Why is that a bad thing . Weve been talking about putting up a new facility for a long time now, and its just going slower than yeah, but in my opinion, it should but the thing is, itit you need the business there. You know, im not gonna put a facility up unless i know we have that much growth its the chickits the chicken or the egg. Exactlycoming in. What keeps you up at night, thinking about this business . Um, making a wrong decision, which would impact the company and the employees. And how about you, michael, what keeps you up at night . I think we lose out on the potential here of the company by not moving fast enough. Those are two very different philosophies, cause one is a little like, you know, im not gonna get anywhere near the edge, and you are just wondering, how close can i get to the edge without being deadly . Yeah. Actually, michael is like, can i actually jump over the edge and make it to the other side . Tell you, listen, its a the Food Industry is one of the most brutal industries. Michael, youre trying to defend yourself, but theres no defense. You cant have alet me f let me finish. Six or seven years ago. Seven years ago, yeah. When your wildest dreams, you couldnt possibly outgrow this facility, were there. In my opinion, mr. Green tea is not nearly as lucrative or profitable as it should be. Im afraid that if we dont hurry up along our path, that a bigger company, one of the major guys, will come along and squash us. This is the test kitchen area. What we do in here is test our supply of milk, sugar, cream, and ingredients, and make sure that the suppliers are giving us the same one every week. We have three skus. We have the green tea, the red bean, and the ginger. Well start with this, the green tea. This is our top seller. Yeah, hence the name, mr. Green tea. Look at the color. Its been the top seller for what, 45 years . Yeah. That green teas good. Isnt it good . Mr. Green tea currently makes three pint flavors, and after being in business for this many years, well, thats not good enough. I want to see them expand their product offering, expand their flavors, and appeal to a much broader audience. What does it cost to launch, to develop a new flavor . A lot. Between the milk and everything, well go to a facility, have it run, and test it. That gets expensive. Im gonna say 10,000. Launching a new product line is a costly investment, and its risky, especially when youre dealing with copackers, cause theyre gonna charge you a fortune to make a small batch. If we wanted to get into, lets say, a hundred stores this year, in 2013, itd probably cost us about 40,000 to 50,000. See, i think more than that, because do the two of you communicate about these numbers very often . Michael does not do the numbers on an everyday basis like i do. If you dont know your numbers, you just dont know your business. I mean, its just that simple. I know my numbers. You know your numbers . I know my numbers. Okay. Absolutely. If an investments gonna be made, numbers are everything. Look, richard is all about the numbers, and he leaves very little margin for error, and michael has big ideas, but he doesnt pay enough attention to the numbers, and that could lead to big problems. I noticed on the website that you also have some mochi. Yeah. This is a mochi. Yeah, they come individually wrapped. Its a little bit of ice cream with a sweet rice dough on the outside. I tell people its like a ravioli. So this dough is you were saying is sweet rice flour. Sweet rice. Like a ravioli of ice cream. This one i believe is black sesame. It is black sesame. Yup. Whoa. Ive never seen it individually wrapped in this package. Wow. Isnt it good . Itd be interesting to figure out a way to retail this. I agree. Mr. Green teas products are great, but i need to know more about their process and their daytoday operations. Walk me through the logistics here. What is this space here, and you know, what happens here . Okay, here we have the freezers where we keep a lot of the stock. How does the product get from the copacker to here . We pick it up. Theres three trucks. You know, its a Constant Movement of product. Its gotta cost a lot to do that. Its very intricate, because if you miss one day, its a Chain Reaction that screws everything up. So this is where all the inventorys kept . Right here. So what is there, one or two weeks supply in here . Uh, probably about a week right now. Ill give you a lot of credit, it looks organized, it looks right. Yet another problem with copackers. Were burning a lot of money transporting product from the copacker to our storage facility. We need to build a factory right away. How much money does this business need to go to the next level . I think whatever it takes to build a facility. Have you looked at any . Yeah. Whats the output . How manywhats the Production Capacity . Quadruple what we could get what we could bring in now. For every one you make today, in a new facility, you could make four . Correct. Wheres the facility at . The building were looking at is in keyport. Can you take me to see it . I could. All right, so this is it. Its been vacant for 25 years, and theres so much crap in it, its unbelievable, you know dont be too enthusiastic. Yeah, well, you know, the roofs been leaking, the stuff fell, it was flooded, its who knows what youre gonna find in there, but and then more after the storm. I personally think its beautiful. I love the building, i love that were right here. I know michael doesnt want to hear this, and he gets crazy when i talk about it. I think what scares me a lot about it is the uncertainty of what its going to cost. Because i know thatall right, the building, thats money you gotta lay out immediately. If its a 300,000 price tag to buy it, thats way too much. You know, you get so far in, and then the problems that youre gonna have with whats uncovered, you know, um i would go right now, just get going. Whoa. Isnt it beautiful . You know, look, michael, the more i look at this place, the more scared i get. Stop looking at it. This building is a total disaster after Hurricane Sandy. Were gonna need to redo everythingthe plumbing, the electrical, the ceiling, the floors, the windows, the walls. Its a total mess. Were gonna make it right, though. Do you want to come over here . Uh, no. Ill piggyback you. Thats okay. What a mess. It seems like theres a theme that goes on where you want to get stuff done now, and you want to talk about it. Cautiously. Right, right, exactly. The building costs x, the build out costs y, those two add up to a number. What do you think it takes to get it all the way to open . How much money . 600,000 mark. Remember, im relying on your numbers for the return, so. Its accurate. Its low. Yeah, i mean, the, uh, manufacturing equipment is gonna cost about 225,000. The freezer, im expecting about 80,000. And how much margin do you think youre gonna pick up by making your own stuff . At least 25 . 20 just to be on the safe side. So it takes a little less than two years to get all your money back . To get everything back. Exactly right. At the end of the day, if it takes, from your mouth to my ears, 600,000 to get it right, and the return on the investment happens in less than two years, then i think what we need to do is get to work on getting it. Businesses are usually about three things for mepeople, process, and product. I think the products excellent. I think the people are fantastic, and i think the process is broken because were giving up margin to a third party when we can do it ourselves. The basic premise behind this investment for me is, can i double or triple my money . Can i trust the people that im doing business with . Youre now at a point where youre not gonna go anywhere unless you do something different, and i think the Business Needs capital without pressure. What this business really needs is an investor whos willing to take chances and is willing to put money at risk for the upside. So my offer is 600,000 for 35 of the business. Hmm. I, uhii had other ideas. I wanted to talk about royalties and stuff like that instead of, you know, just a clear percentage. I dont know if im willing to give up any ownership of the business. The reason that i dont want to be a lender is because i want to be on the elevator. If i didnt think there was something good, i would be a lender at a high rate. Right. But i think theres something here. I want to invest my money in mr. Green tea for two simple reasonsi know its safe, because they have the financial controls in place, and they manage their money probably better than ive seen any business so far, and i know my return on capital is gonna exceed my expectations. I think my offer is very fair. I think my offer is well thoughtout. I mean, without me, youre gonna stay a 2million company until hes 60. This is something i would really have to think about. Thats a real check, by the way. Ii see that. [laughs] i[sighs]ii have to think about it a little bit. Well, let me step out, so you guys can talk not in front of me, okay . Okay. Okay. Are we willing to take this right now . I didnt expect marcus to make an offer so soon. Theres no doubt taking this deal will excel the company. Its a very high percentage. Learning doesnt come free. Listen, with the life that you dont know whats around the corner, i say go for it. I dont think youeither of you can convince me. Youre not gonna lose. No, i cant, lori. I dont think so. I think my fathers at the point where hes comfortable. Hes not hungry anymore, and theres a lot of people here that are. I think we can bring it to the next level. I know we can bring it to the next level. The fact of the matter is, the company is not nearly at the potential it can be at. We need a facility. We need more flavors and more marketing money. Unfortunately for you, this is my company, so you know what, to think that its unfortunately for everybody here. Well, this is not home. This is the office. You are strangling the progression of the business. Back up. Youre crossing the line between father and boss. Do not come in here again and speak to me that way. They know the product. I dont agree with that. Quick close. Sell him. 1 4 million is out of the question. What . You know, i think its worth more than that, but its not about that. Well, as we said, we looked at the upside. Its not about it. The upthe downside of not taking the deal, and like i said, thats you know, marcus, i didnt i didnt expect, um actually, we didnt expect this to happen today. So quickly. cause we thought there was gonna be days, days, days. Why dont we go through a number of questions that you may have . Okay. So my dad takes this check. Mmhmm. And you receive 35 of the company. Mmhmm. You know, the daytoday operations of the business are gonna stay right here. I dont care. In this office. You dont want any part of that . I dont want any part of it. If you need my advice or you need some input, youll call me. And this isthis is not a sleep on it deal . I cant think about this at all . This is a you can, but the deal will get worse. You will never change this business model, ever, without me. [sighs] um. Obviously, its very lucrative. Its lucrative on both ends. Its a nobrainer as far as im concerned. So do we have a deal . We have a deal. I feeli feel better. Okay, so theres a catch. Okay. Sit down. The catch is, when you take my money, for the next week, im in charge. Do you understand that . Okay. And its gonna be a very long week. Were here tomorrow early. Rise and shine to work. I would like if you dressed like im gonna dress tomorrow, which is in a tie and a shirt. Yes, i will. Be a little more professional. Okay. You dress however you want since you own the joint. Okay. And were gonna go to work. Night. [sighs] we live and die by our decisions here, and theyre never easy. Theyre never, never easy. When i go in to look at business, i look at people, process, and product. I love the product. Its spectacular, but i am worried that theres not enough variations of product. I feel like were pigeonholed into one thing. I think the most exciting thing is gonna be developing some new flavors. Currently, mr. Green tea has a limited numbers of flavors, and theyre focusing solely on the asian restaurant market. I want to expand new flavors and new locations, including retail stores, so that we can become a household brand like haagendazs. When it comes to the process, today, our relationship is with copackers, and those copackers have us at their mercy. They control the supply. They control the pricing, so i want to explore alternatives to being reliant on copackers. Were gonna open our own manufacturing plant, which will put us in charge of production. We will also be able to cheaply create and test new products and new flavors. All these changes will give us the ability to go from 2 1 2 million to 5 million within 12 months. Im expecting to go to 30 million in the next four to five years. The last one is people. I think you guys have a wonderful family, but the dynamic between father and son is always a tough challenge in business. There are some issues. Rich has to learn how to take some chances. I like cash in the bank like you do, and i dont like debt, but i also like growth. You know what concerns me about michael is that he doesnt know his numbers the way he should. All right, lets go to work. Id like to go maybe make some ice cream, do that. Lets do it. So educate me on something. Once the ingredients are established. Yes. They can be modified into frozen yogurt . They can be modified into soft serve . Correct. Its all the base. Its important for mr. Green tea to expand their flavors and products, because once people fall in love with the brand, we want to make sure that we have a flavor for everybody. Theres two ways you can grow this business. You can grow it vertically, up and down, by developing new flavors, or you can grow it horizontally, by creating new brands and new ideas. I want to make sure that we hit all parts of the mar