If i cant figure out whats fueling this mass exodus. When they quit, theyre basically saying, youre fired. Kota longboards will come up short. My name is marcus lemonis, and i risk my own money to save struggling businesses. Were not gonna wake up every morning wondering if we have a job. Were gonna wake up every morning wondering how many jobs we have to do. Its not always pretty. Everythings gonna change. Everything. But i do it to save jobs, and i do it to make money. This is the profit. Lets go to work. Mike i want to go over the shape. We may have to do new tab work. Lemonis in 2012, navy veteran mike malone started handmaking quality longboards in his garage in denver, colorado. Mike do you have tape running underneath there to there . Lemonis naming his company kota, an acronym for knights of the air, Mike Incorporated his devotion for the armed forces in his products signature look. Mike personalized it with the squadron. Lemonis riders love the longboards beautiful finish, and before long, kota was gaining national attention. But the companys limited selection of longboards coupled with a very high price point put a ceiling on sales. Mike i think weve only sold maybe two units. Lemonis and now mike is losing money fast. Nikki i dont know what to do, mike. Lemonis i see a real opportunity here to market these to the masses. With bigger wheels and a longer deck than a normal skateboard, theyre used for commuting or downhill racing as opposed to jumping ramps in a skate park. The skateboard industry generates over 6 billion annually. Im confident that if i can help mike broaden his customer base, kota will be cruising to success in no time. Im headed to kotas manufacturing plant in denver, colorado. And what im most excited about is any time i can find a product that gets people outdoors, well, thats a product that i have interest in. Mike marcus. Mike maloney. Nice to meet you. Lemonis hey, mike, how are you . Nice to meet you. Mike real honor. Lemonis you guys all longboard . Man we all do. Lemonis lot of people working here. Mike yeah. [ chuckles ] lemonis so, what is the primary product . Can i see it . Mike primary product is the is right here. Lemonis and so, this is considered a longboard . Mike yeah. Lemonis do you have other shapes and sizes . Mike no. Lemonis no. Mike no. We just we just have this length. Lemonis like, this would be hard to stick in my backpack. Mike [ chuckles ] lemonis dont these kids they kind of stick them in their mike well, yeah. Lemonis whats the typical age of your buyer of your product . Mike the meat of our market is age 30 to 70. Lemonis really . Mike oh, absolutely. Lemonis im gonna challenge early on that you dont know your demographic. The bulk of the skateboard market is 9 to 15. And kids need a shorter, smaller option. Mike so, what we thought is the shorter of a board we get, were directly competing and clawing market share away from very established players in the market. Lemonis yeah. Mike we were not gonna succeed at doing that. This is like handtohand combat. Kind of the art of war. Go where your enemy isnt. Lemonis theyve kind of limited themselves to one length. Basically what youre telling me is youre gonna do the opposite of where the market is. I dont think that sounds like a good idea. Has sort of a rubbery feel to it. Mike yeah. Exactly. You can feel the grip on that finish, so you dont need grip tape. Lemonis so, nobody else has this sort of finish. Mike nobody else in the industry has this. Lemonis what does it cost to make . Mike well, were right at about 116, complete. Lemonis all in. Mike yeah. Lemonis including all the loaded labor. Mike exactly. Lemonis and the average retail price of a product like this . Mike theyre all the same. 329. Were moving to 349 next year. Uh, thats reasonable for this product. Lemonis for who . Mike certainly for that actionsports, activelifestyle person between 35 to 55. Lemonis yeah. If their board costs 116 to make and theyre pricing it for 329, on paper, thats great margin at 65 . But somebody has to be willing to pay 329 to actually realize those margins. Now, maybe a 50yearold is, but i dont think 15yearolds can pay that much. And what do you pay in rent . Mike 3,250 a month. Lemonis oh. Thats not bad. Mike no. Not bad. Lemonis this whole factory is yours . Mike no. We share this with the Furniture Company over here. Lemonis okay. Mike its owned by our landlord. Lemonis how much space do you actually have . Mike we have 3,000 square feet. Weve been out looking at properties. They said, were not gonna extend your lease. Lemonis when is the lease up . Mike march. Lemonis so, you dont have much time left. Mike not that long. This is my wife, nikki. Lemonis how are you . Nikki hi. Mike and sandy. Lemonis how are you . Sandy nice to meet you. Lemonis nice to meet you. And how long have you guys been married . Nikki 19 years. Lemonis 19 years . Very cool. Nikki yeah. Yeah. Lemonis what do you do here . Nikki everything from customer contact, getting the orders in process, coming down here, assisting with board assembly. Lemonis looks like youre putting stuff together. Nikki shipment. Lemonis what did you do before this . Mike i flew f14s, and im a top gun graduate. Lemonis were you a Fighter Pilot . Mike i was. Lemonis thank you for your service. Mike thank you. Lemonis who comes up with all the artwork . Mike thats me. Lemonis you draw yourself . Mike oh, i do all the design work. I got to get out of that side of the business. Mike why . Im blown away. I would buy one and stick it in my office just so i could act cool. Id like to see the process, cause im honestly blown away by the quality. How are you doing . Im marcus. Nate nathan. Nice to meet you. Lemonis nice to meet you. Josh im josh. Lemonis hey, josh. Nice to meet you. Josh nice to meet you. Lemonis and so, who oversees production . Man chris. Lemonis youre chris . Chris im chris. Lemonis and so, walk me through the process, cause i want to have a better appreciation for how beautiful the product is. Chris so, this is basically where it starts. I mean, this comes directly from the mill in wisconsin. Its hardrock maple. Its perfect wood for a skateboard. Lemonis okay. Chris your first ply is a long ply. Lemonis okay. Chris what you have is the fibers running the long way, which gives you that longitudinal stiffness. Lemonis so, it sits in here for how long . Chris 45 minutes. They come out looking like this. Lemonis so, this comes out of there. Chris correct. Lemonis where does it go from here . Chris we throw the truck holes in, and this is our drill press right here. Mike this piece of metal im holding onto is the truck. We assemble this. Lemonis amount of detail that goes into this is unbelievable. Sandy yeah. Have to be very careful, cause you dont want to dig into the wood. And i can shape the boards, i can cut them, i can decal them. Tracy is, like, the best stainer ever. She is like our master stain person. Lemonis and everybody here has been here a while . Sandy tracy shes been here the longest. Everybody else is a little bit less than nine months. Lemonis im impressed by the people that are working at kota. They all seem to be hardworking, they seem really committed to the business, but its odd to me that this companys been in business for three years but everybody that works here has been here less than nine months. Chris josh joined us recently. Josh im an investor. Lemonis youre an investor, too . Chris he sure is. Lemonis and you work here full time . Josh for free. Lemonis seriously . Josh seriously. Lemonis how much do you have invested here . Josh 50,000. Lemonis did you hit, like, a gold mine or something . Josh i had a restaurant, and i sold it. And i ran into mike. And he said, hey, i have an opportunity, and i jumped on board. Lemonis i hope mike realizes how lucky he is. Not only does josh put 50,000 of his own money into the business, but then he shows up to work every day and works for free. Ive never seen anything like this. Okay, so, where does it go from here . Chris and then we sand. This is how they come out. That nice, smooth finish. Lemonis well, thats kind of killer. Now that ive gotten really comfortable with the product, i want to dig into the financials. Because, obviously, thats gonna give me the real picture of whats happening here. What were the sales in year one . Mike the first full year of operation, which was 2013 48,000. Lemonis okay. Year two . Mike 150,000. Lemonis year three . Mike thatd be now. So, were at 190,000 right now. Lemonis youre selling less than 600 boards a year. Mike yeah. Lemonis how much have you raised over time . Mike 650,000. We have a lot of investors. Lemonis that includes your investment . Mike no, it does not. Lemonis okay, so how much has yours been . Mike a half million. Lemonis and the grant that you won for Small Business for 150,000. Mike mmhmm. Lemonis so, 1. 3 million has come into this company. Theres about 200,000 of cash as of right now . Mike mmhmm. Lemonis in 2 1 2 years, 1. 1 million burned. Yikes. Mike well, when you think of all of the infrastructure that weve built, the equipment that weve purchased, we were funding payroll for a while. Lemonis okay, but youve burned more money than youve generated in revenue. Mike oh, absolutely. Lemonis it looks like youre heading for a 200,000 to 225,000 loss for the year. Mike its frightening. Lemonis these financials are in bad shape. Mike yeah. Lemonis how much pressure is this putting on you . Nikki its the hardest thing ive ever been through. Lemonis yall have kids . Nikki yeah. We dont get to go do fun things as a family the way we did. Lemonis so, how do you pay the bills . Nikki luckily, we had saved. We were frugal. Lemonis and theres still a lot of savings around . Nikki no. Lemonis all the reserves are gone . Nikki yeah. Mike i got to the point where we were living off my 401 k . Nikki the thing that scares me is that we have the first kid going to college in a few years. Lemonis has it put pressure on your relationship . Nikki i mean, how could it not . Lemonis yeah. Nikki mike is able to shut things off easier than i am. [ chuckles ] im just really tired, you know . Lemonis you dont get days off, really, do you . Nikki mnhmnh. Lemonis and has it affected the kids . Nikki yeah. They feel it. Mike we have to deploy every ounce of our energy and our resources into seeing this through and making this company a success. Lemonis a lot of sacrifice youve made. Nikki it is a lot. Lemonis mike is stoic in the face of all this pressure, but nikki you can see its taking its toll on her. Mike whats the fastest way to get to profitability and how can we scale . Lemonis sales. Mike sales. Exactly. Lemonis you dont have a product problem. Theres nothing wrong with that product. Nikki right. Mike right. Lemonis other than the fact that its too onedimensional. Lemonis hello. Nikki hi. Lemonis how are you . Nikki good. Good to see you. Lemonis good to see you. Mike good morning. Lemonis how are you . So, did anything change since we looked at the financials . According to this, youve put 20,000 of cash into the business. Mike i put 20,000 of my own capital. Lemonis so, why did you why did i have the impression that you put in a half a million yesterday . Mike because if you look from the time we started the company to the time that we are today, i was noncompensated, so lemonis so, basically, the way you got to your equity is waived compensation and the idea. Mike yes. Lemonis okay. I didnt like the fact that mike gave me the impression that he put a half a Million Dollars of his own money into the business. I understand that they put everything aside and taken a lot of personal sacrifice, but lets get the facts right here. I worry about the fact that the products very nichey. But for what you do make, its spectacular. Between sandy and chris and josh, i was inspired by their level of dedication to a business that isnt making money. I was blown away by someone like josh, who not only is an employee working for free but put 50,000 of his own, hardearned savings in. Nikki right. Lemonis i love the product. I think i could help market the crap out of it. So, my offer is 300,000 for 40 of the business. That 300,000 would be used to pay josh back his 50,000 and leave the rest in the account for working capital. Nikki mmhmm. Lemonis that 40 of the business would be divided up. Ill get 25 . Chris will get 5 . Sandy will get 5 . Josh will get 5 . Im trying to buy the opportunity for the other three key members of this organization to have equity. Nikki [ sighs ] mike there is one worry that i have. Lemonis youre kind of smiling at me like you dont really give a [bleep] about what im saying. Mike no, im frustrated. Lemonis im not gonna allow you to be frustrated. Lemonis im trying to buy the opportunity for the other three key members of this organization to have equity. Mike there is one worry that i have. And thats that anyone that we allocate equity to as an employee, theres got to be something on the hook that says you have to work here for x number of years. Lemonis um. What you have to accept is did it make sense for us to give up 15 of the business to three people that we need . And if you dont agree with that, then you guys dont need me. Nikki would you not agree . Mike well, ii think so. Lemonis do you agree with that . Mike i do. Lemonis its important for me that the Key Employees here feel vested in this company so they not only collect a paycheck but they really participate in the upside over the series of years. And i want to give josh his money back so that it levels the Playing Field with the other employees. So, do we have a deal . Mike i want to do this deal. Lemonis okay. And you understand that, with that check, im 100 in charge. Nikki yes. Lemonis of everything. Mike absolutely. Nikki yes. Lemonis okay. Mike nothing rights this ship like revenue. Lemonis lets go get to work. Nikki okay. Lemonis mike and nikki and i met. We made a deal for me to invest 300,000 into the business, and we talked about all of the issues that exist here. Does everybody know why i was asked to come here . Why, sandy . Sandy to hopefully give us the resources to go further. Lemonis where i got hung up is this notion of how some people dont get paid but they write checks and they invest. And so, out of that 300,000, 50,000 is gonna go towards giving josh his money back. Out of everybody in this room, including them, youve written the biggest check in the room. Did you know that . Josh i didnt know. Lemonis and you work here and you dont get paid. And so, i think that level of dedication is the reason that i came back today. Sandy, i feel like you should have some equity in the business. Sandy thank you. Lemonis youre full time. Youre a department manager. And so is chris. Youre also a department manager. And so, the idea was 300,000 for 40 . Out of that 40 , youre getting 5 , youre getting 5 , and youre getting 5 . Thats out of my pocket. Josh sounds great. Thats really cool of you to give me that sort of deal, and i appreciate it. Lemonis you guys do great work. The products legit. I mean, its good. Every single one of you contributes to that. And we need to offer more options to our customers and offer lower price points and target a younger demographic. But were gonna change as a group, so were all making some money. All right, guys. Thank you. Chris thank you, marcus. Lemonis its been a week since i shook hands with mike and nikki, and ive arranged for them to meet me in los angeles. All ive told them is that were gonna do some market research. Nikki hi. Lemonis hi, guys. Nice to see you again. Mike marcus, good to see you. Lemonis how are you . Mike doing well. Nikki good. Lemonis so, im friends with this guy by the name of rob dyrdek. Does that ring a bell to you . Mike oh, yeah. [ chuckles ] lemonis rob dyrdek is an entrepreneur whos also a professional skateboard rider. Hes one of the best out there. Man all right, guys. Welcome to the fantasy factory. Nikki thank you. Oh, cool. Very cool. Mike holy [bleep] lemonis i think robs gonna shed a lot of light on what the right price points are in the marketplace. He knows the industry. I also think hes gonna give us great feedback on the demographic. Mike rob, mike maloney. Nice to meet you. Rob good to meet you. Rob dyrdek. Lemonis whats happening, my man . Rob appreciate you, man. How you been, man . I would have never thought the day you show up at my office with a skateboard. I mean, im im just im so happy right now. Lemonis im carrying it. Im not riding it. Rob okay. Sit down. Show me what you guys got going here. Lemonis well, rob, im gonna have them give you a little background on who kota is. Rob sure. Mike kota stands for knights of the air, a moniker that was given to the earliest Fighter Pilots. So, thats the essence of the brand. I flew f14s in the navy out of san diego, actually. Rob ive been in one. Mike have you really . Rob threw up a little bit. Mike nice. Rob the gs got me. Nikki [ chuckles ] yes. Lemonis [ laughs ] the gs got you. Rob and so, what happened . You made the skateboards and and mike people started buying them right out of my driveway. Then we developed this clear, nonporous grip finish so that we could move the primary art surface to the top of the board. So, you can feel that. And you dont need any grip tape on it. Rob which in itself is a pretty unique technology that i dont i dont fully i havent seen much in longboards. Mike oh, no. Rob you know, when i when i look at the longboard market, theres one key player sector 9. They probably sell just under a million boards globally, right . So, youre fighting for a space. And it seems like you probably have a pretty tough time finding distribution. Mike yeah, and actually, our market is well outside, agewise, of the traditional skateboard market. Rob which is what age . Mike were looking at the young professional to the retiree. That span of 30 to 70. Rob but do you just want to not do well . cause, unfortunately, that level of income and that age the market doesnt exist. Its literally youre making up the market. Lemonis what do you think of this board, rob . Rob i think the board is pure quality, right, in the sense of what youd expect out of a longboard. Mike its 329 retail for the complete. Rob thats pretty brutal, man. If you look at sector 9s premium stuff, its like 279. Youre shooting at nowhere. This is a simple business. Mike yeah. Rob there are a Million People that are gonna buy these boards this year. You are trying to carve out a percentage of that. But i think, no matter what, the smaller and cheaper is just more volume naturally. Lemonis im glad that rob liked the board and he set mike straight. We need to target the young skateboarders that actually buy these products, not the rich 50yearold skateboarders mike made up in his head. And that means we need to offer more options at more affordable price points. Rob but the question is, is how does it fly, man . Lets represent america and some Fighter Pilots and get to flying. Whoo mike [ laughs ] lemonis that was awesome, brother. Rob thats legit fighter spirit. Lemonis do you like the board . Rob i love the board. Okay. Okay. Okay. Stay with it. Mike there you go. Rob stay with it. Yes yeah [ laughs