The Profit

The Crazy Lawsuit Against Marcus Lemonis Was Dismissed

November 11, 2021
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The supposed bombshell lawsuit filed by Nicolas Goureau, Stephanie Menkin, and ML Fashion against Marcus Lemonis has been dismissed. Despite the sensational allegations that enabled Forbes to pen a major story, the Court found the entire lawsuit defective and dismissed it altogether on October 15.

The plaintiffs have advised the Court that they intend to try again by filing a second amended complaint. That would in fact make it their third attempt to try even getting past the opening stage of litigation.

The dismissed lawsuit had been packaged up to make headlines, opening with a monologue about it being the culmination of an “eight-month investigation” carried out with the help of a “former district attorney and a top law school professor, and a world renown psychiatrist that was spurred by the coming forward of no less than seventy (70) family businesses that have been destroyed…”

Despite all this, the judge ordered the suit “dismissed in its entirety.”

The decision can be read here.

Shark Tank, The Profit and Kitchen Nightmares

January 29, 2015
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ramsay dead dealWhat do Shark Tank, The Profit and Kitchen Nightmares have in common? They’ve all featured merchants who’ve used merchant cash advances. Statistically it’d have to happen but there’s nothing more wild than watching Marcus Lemonis try to save a failing business I actually declined for funding.

One deal I personally worked on has appeared on The Profit and there were a couple others that I’ve seen shopped around in the MCA space. Not sure if that restaurant on Kitchen Nightmares has used merchant cash advances? Just conduct a UCC search and find out!

No amount of underwriting could ever give you the perspective you get on TV. In between the lines of a business wanting help is usually a disaster or series of disasters that has the business on edge; All the employees are about to quit, the landlord wants them out, their vendors are mad at them, the owner’s an intolerable jerk, they don’t know how to market themselves, or the customer experience is horrible. It’s always something.

At least on Shark Tank the only thing scrutinized is the presentation of the product and the viability of it. On The Profit and Kitchen Nightmares, all the secrets are laid bare.

On the one hand it’s a glimpse into the struggles of running a small business, an experience I know firsthand from growing up working at two family owned restaurants. On the other hand, it’s a sobering reminder that there is so much risk in lending them money.

On The Profit, Lemonis hedges his risk by typically taking 50% (OR MORE!) equity in return. His famous pitch to these merchants who always come across as shocked is that, “I’m not a bank. I’m not a consultant. And I’m not the fairy godmother.”

Deals go bad

And even that approach carries risk. Early last year on the show, Lemonis wired $190,000 to Brooklyn-based business A. Stein Meat in return for 100% of their Brooklyn Burger Brand. The business used the cash to make payroll and reneged on the transfer of the burger brand, claiming they thought the money was a loan. They never made any payments back on it.

Lemonis filed suit against them in the United States District Court for the Eastern District of New York which opens by stating:

This is an action to enforce the straightforward, bargained-for agreement entered into by and between defendant Stein Meats and Lemonis, by which Stein Meats agreed to sell its “Brooklyn Burgers” brand of hamburgers to Lemonis. The agreement is unequivocal, and was witnessed by the millions of viewers who have watched Episode 2 of the second season of the CNBC reality television series “The Profit” that first aired on March 4, 2014.

Download the full complaint here

However unequivocal it may have appeared, the case is still going. A peek at the court records show bitter and unrelenting litigation. At the time of filming, Stein Meats was only 2 weeks away from bankruptcy and was reportedly sold to its competitor, King Solomon. King Solomon is also named as a defendant.

The Brooklyn Burger brand is still in use as I enjoyed one of their tasty burgers at a Nets game last month.

Wait, don’t I know this deal?

In another episode of The Profit, the owner of a business I declined for a merchant cash advance is fingered as a bad guy. He was unrepentant, suggesting that the bridges burned, lives ruined, and debts defaulted on along the way were worth it to get the business to where it was now. I distinctly recall being shocked by their mountain of debt, which became the reason I declined it. Their debt problems were even highlighted on the show!

I had the luxury of examining their Balance Sheet since their request was sizable. Had the request been smaller, it wouldn’t have been required. Thankfully they were transparent about their debt. Of the thousands of applications I’ve underwritten in my day, I learned that it is incredibly hard for a small business to supply a financial statement, and of the ones I got, it was difficult to ascertain their accuracy. I’ve seen Balance Sheets that didn’t balance, numbers that were completely illogical, or statements that were missing major line items.

I see only two ways to approach something like this. It’s either a decline or it’s going to be expensive. I don’t care what my algorithms say their social media score indicates. If the business doesn’t keep good books then I have no idea what I’m exposing myself to.

The real world’s not so bad after all

I can’t help but notice that one of the best guys in the small business space takes a similar no-nonsense approach. You give Lemonis half of your business or he walks. Being on the show might boost sales but taking his money is not charity.

The only difference I’ve discovered between business financing deals made in real life and ones made on TV is that the ones on TV are more expensive. It’s the opposite of what you might expect.

If Lemonis thought his agreement witnessed by millions of people was unequivocal, then shouldn’t an online lender who has never met their client, nor visited their business, feel slightly less comfortable about their agreements?

I would think so.

Inc reports that Lemonis spends eight full days with each business but on twitter he claims it’s much more than that.

During filming, Lemonis can be seen going through the financial statements, interviewing employees, negotiating deals with vendors, trying out the products, and scrubbing toilets. With that experience and knowledge under his belt, he presents his cold hard deal, money for a massive equity stake. The terms are aggressive but he’s steadfast in his role as a businessman and not a fairy godmother.

Contrast that experience with a merchant cash advance company that has almost nothing to go off of by comparison; a few bank statements, a credit report, and maybe some online data points. With only this, they’re supposed to wire out $5,000, $50,000 or $150,000 to a business across the country and get no equity in return.

o'leary madness

The two things that I’ve learned from these celebrity businessmen is that their underwriting is more personal and they manage to be even more expensive. They promise their expertise is what makes up the difference.

I’d love to say that every situation is different but it’s gotten to the point that we’re working on the exact same deals. If a merchant can get a better deal off TV than on it, I’d say things are pretty good right now.

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The Deal

May 25, 2014
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When times are tough, small businesses take chances. Last year, a family run business in Cohasset, MA made a snap decision and agreed to a $75,000 loan with infinity percent interest, literally. The principal was completely repaid in just 74 days but as per the contract, they still had to make fixed interest payments for as long as the business was open.

It wasn’t necessarily a good deal. Heck, some might think it was a really bad deal, but they got the cash when they needed it. The perpetual fixed payments kicked in after the principal was repaid because the lender structured them as royalty fees. A normal merchant cash advance will take a percentage of a merchant’s sales up until a predetermined amount has been satisfied, but this deal required a percentage forever. Is Wall Street running amok yet again? Shouldn’t people be monitoring stuff like this?

As it would turn out, about 6.5 million people were witness to this transaction. More than half of those people, most of whom are hard-working American families, cheered the business owner on. That’s because this deal had nothing to do with Wall Street and did not involve a commercial loan broker.

The business is named Wicked Good Cupcakes and it’s a deal they made on Shark Tank, a hit TV show on ABC. Kevin O’Leary loaned them $75,000 and took a percentage of every sale until he was repaid just 2.5 months later. Since then he is taking a permanent royalty of 45 cents per cupcake sold.

As quoted in the Boston Business Journal

“The royalty deal has worked great for us,” said Tracey Noonan, the CEO of the company.

Many people told her immediately following the deal that she was stupid. But today, Wicked Good Cupcakes is doing better than ever.

O’Leary, whom the business owners called an “angel in disguise” has referred to the deal as one of the most phenomenal ever made on the show. Wicked Good Cupcakes is actually on pace to do $3 million in revenue in 2014.

While it’s true that part of their success is due to the appearance on the show, nowhere does it say that entrepreneurs have to agree to take a deal if offered one. That means the owners could have walked away from O’Leary’s offer and still experienced the same post-show hysteria of celebrity. But they needed the money… and there was an offer on the table. It wasn’t the best deal, but it was A deal.

And that’s the nature of business. Everything is about circumstances. You could be flush with cash or in a pinch, growing fast or playing defense. All the while opportunities and obstacles approach from every turn.

sharkUnlike consumers who are afforded protections from making decisions that might not be in their best interest, small businesses are free to pursue whatever strategy they want. The best part about capitalism is that you’re the master of your own destiny.

The terms O’Leary offered to Wicked Good Cupcakes were not unique. Just recently in the 12th episode of Season 5, he offered a $100,000 loan to Tipsy Elves that once repaid, would still require payments in perpetuity in the form of a royalty fee for every sale. That’s an equivalent APR of infinity. In the end, they turned it down and went with Robert Herjavec’s equity offer instead.

Many viewers have taken to twitter to share their doubts about the viability of the Tipsy Elves business model, which is selling ugly Christmas sweaters. That healthy dose of skepticism is something alternative lenders are no strangers to, and as such they tend to price their deals accordingly.

Even deal making that is done on TV in front of millions of witnesses can go sour. Just ask Marcus Lemonis, the star of the TV show The Profit, who recently made a deal with a business in my own backyard, A. Stein Meat Products in Brooklyn, NY. After learning the business was on the brink of insolvency, Lemonis offered them a cash lifeline in exchange for buying their Brooklyn Burger brand at a bargain price of $190,000. In any other circumstances, that deal might not have happened.

Lemonis expeditiously wired them the cash, but never got what he paid for in return. Mora and Buxbaum, the owners, claim the funds were a loan but they have never made a payment. Defaults like these happen every day, especially in alternative business lending.

The entrepreneur applies for a business loan, the loan gets made, and the borrower quickly defaults. The result is that the price goes up for the next guy. That’s the risk part that lenders always talk about, the odds that they’re not going to get paid back. If every business repaid their loans, the average cost of financing in alternative business lending would probably be about 6% a year, around what an A rated personal loan costs on LendingClub, instead of the high double digit or triple digit rates that exist now.

Even Kevin O’Leary isn’t taking any chances, hence he protects himself by charging infinity percent interest, and America thanks him every Friday night for blessing entrepreneurs with an opportunity. It’s not the best deal, but it’s A deal.

Small business owners are sophisticated enough to make tough decisions all on their own. That’s the reason we can put them in the public eye, in front of more than 6 million people who either cheer for their success or literally cry out for their demise. These entrepreneurs don’t go on Rainbow & Unicorn Tank, they go on Shark Tank. Sometimes the entrepreneurs walk away with a partner, sometimes they get a loan with infinity percent interest. In the end, it’s their choice, a choice that 36,000 small businesses hoped they would have in 2012. That’s how many applied to be on the show that year.

Business is business and a deal’s a deal. The ball’s always in your court…

Quotes from Kevin O’Leary

Business is war. I go out there, I want to kill the competitors. I want to make their lives miserable. I want to steal their market share. I want them to fear me and I want everyone on my team thinking we’re going to win.

Here’s how I think of my money – as soldiers – I send them out to war everyday. I want them to take prisoners and come home, so there’s more of them.

You may lose your wife, you may lose your dog, your mother may hate you. None of those things matter. What matters is that you achieve success and become free. Then you can do whatever you like.

I’m not a tough guy. I’m just delivering the truth and only the truth and if you can’t deal with it, too bad.

Nobody forces you to work at Wal-Mart. Start your own business! Sell something to Wal-Mart!

Don’t cry about money, it never cries for you.

The only reason to do business is to make money; that’s the only reason for doing business.

Money has no grey areas. You either make it or you lose it.

Working 24 hours a day isn’t enough anymore. You have to be willing to sacrifice everything to be successful, including your personal life, your family life, maybe more. If people think it’s any less, they’re wrong, and they will fail.

I have met many entrepreneurs who have the passion and even the work ethic to succeed – but who are so obsessed with an idea that they don’t see its obvious flaws. Think about that. If you can’t even acknowledge your failures, how can you cut the rope and move on?

I don’t mind rude people. I want people that I can make money with, so if their executional abilities are good, and they’re arrogant and rude, I don’t care.

Can you handle it?