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tv   The Profit  CNBC  August 27, 2015 7:00pm-8:01pm EDT

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why was she dropped in time's square? why was my name tattooed on her back? >> she can't remember who she is. >> nothing. >> we think she might have been a >> tonight on the profit... i go inside skullduggery, a toy company that should be filled with imagination and fun. >> it was kind of, like, confusing. >> can you read? >> instead, i find two brothers struggling to make a profit on merchandise that kids don't want while falling short on creating new hit games and toys. >> it's our first game ever. it didn't do very well at market. >> the toy industry, while enormous, is a brutal and competitive game. >> these toys seem like they're already out there. >> and if the brothers can't learn to innovate and sell... >> steve, why do you think nascar's good for skullduggery? [laughing] >> they'll get shoved to the back of the closet with the other forgotten toys. you basically just said, "[bleep] you, i'm just not gonna do it."
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my name is marcus lemonis and i fix failing businesses. you would never be able to pay off that debt. i make tough decisions. >> you know, you're 'causing strife right now. >> and i back them up with my own cash. will you take a credit card? it's not always pretty... >> we don't like the fact that you can say no. >> go stand in the corner and shut the [bleep] up. but this is business. i want you to think before you talk. are we clear? i do it to save jobs and i do it to make money. thanks for your business. this the profit. [upbeat music] ♪ skullduggery is a toy manufacturer located in anaheim, california. purchased as a fossil replica-maker in 1987 by pete koehl iii, skullduggery is now run by his two sons, steve... >> we got to make sure we make this fast enough, okay? >> and peter. >> they won't be ready to ship till tomorrow. >> who have expanded the company into more traditional toys, such as race cars, helicopters, and cast and paint kits.
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>> [laughs] >> although skullduggery racked up $1.6 million worth of sales, they still showed a net loss of $50,000. >> that's a big loss. >> and although the brothers are spending a lot of time and money launching new toys, they still do it without testing and research. >> it's more like we come up with something that we think is fun and then we go with that. >> if skullduggery doesn't find a way to generate sales... >> i mean, i don't know how we're gonna come out with a new line of products. >> and get into a big box retailer, the debt is gonna come crashing down on them. >> it's my [bleep] life. i love this company. >> so we're gettin' to the point where we're gonna have to scramble. >> [sighs] >> the toy business is very competitive, but it's not complicated. with the proper marketing and strategy in place, i know i can make millions. [forklift beeping] >> careful there, buddy.
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[laughter] >> how are you? i'm marcus. >> marcus, i'm peter. >> peter? how are you? nice to meet you. >> nice to meet you also. >> warehouse is big. >> yeah. 10,000 square feet, if you include the offices. >> and so what is your role here? >> i'm the vice president. i am in charge of operations, logistics. >> marcus, i'm steve. >> nice to meet you. >> nice to meet you too. >> steven, my brother, the president. >> i'm the boss. >> okay. >> i'm in charge of the company. i run the everyday business. i've designed pretty much everything--science kits, skulls, race cars, race sets. i wear many hats. >> and so when did the company start? >> 1987. my dad, he's the majority owner, was looking for a business to purchase. that was when it was all fossil replicas, so we hadn't gotten into the toy part of it yet. >> all of this stuff. >> both: yes. >> that's where skullduggery comes from. we make saber-toothed tiger skulls, humans, hominids, primates--museum-quality replicas. >> i was wondering where the name came from... >> both: yes. >> 'cause it's not so
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toy-friendly. >> no. >> and so the skull line that you were telling me the business started with, what percentage of the business is skull business? >> less than 10%. >> and so why are you guys still in it? >> we like to keep our guys busy in the slow season. >> i would love to see all the toys. is there a way i can see them? >> yeah, let me take you into the office. >> okay. >> i'll give you a quick breakdown and then we'll give you a tour of the factory. >> okay. >> the first toy that we ever came out with, casting kits. so casting came from the skull business. so the kids take the material, mix it up with water, pour it in the molds, sets in 30 minutes, air-dries, and then they paint the pieces. >> it takes that mold-making technology that we have and puts it into a toy. >> casting and painting molded shapes isn't my idea of a hit toy. >> we have the marble copter, the max traxxx, and then the new tracer racers right here, which is our hottest item. >> kind of taking racing with a track and cars to the next level. it's a car with two purple l.e.d. lights in it. >> and when they go over the glow-in-the-dark track, they leave traces on the track. i mean, it's really cool.
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>> very cool. can i see how the car works? >> yes. >> is there somewhere we can test it? >> on the track? sure. >> yeah. >> turn the lights off, pete. i came up with a patent pending where the tracks connect side-by-side so the kids could race. >> cool. >> isn't that neat? >> i love this product. >> it's pretty awesome. >> very cool. what's your favorite toy in the whole place? >> the aero flixx are awesome. this is a disc-throwing game, kind of like disc golf, and when you hit the targets, they shoot up in the air, so the kids could play frisbee golf. >> it's in market today? >> it's--we went to toys "r" us last year... >> uh-huh. >> it didn't do very well at market. i know, yeah. >> how come? >> um, we're not sure. it just didn't sell, and i know it's a winner. >> all i essentially do is-- >> there you go, you got it. [laughs] [laughs] >> we wanted it to be somewhat challenging, you know? >> almost got it. >> well, i don't get this game.
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it's not fun. there's no kid that wants to throw cardboard paper at a cardboard target. what research do you do to understand the market before you just make an aero flixx? do you do any? >> not really. >> is this focus grouped with kids? what--how do you-- >> both: no. >> does that mean that you're the focus group? >> i don't need a focus group. i have a lot of experience in this business, so my focus group is about 20 years of just toys. >> and so who do you normally sell your toys to, major retailers? >> independent retailers, mom-and-pop-type places. >> okay. >> which is a shrinking business, and that is one of the reasons that we really feel we need to get into some big box retailers. >> what marketing do you do? tv? >> we do not run anything on tv. you know? you're talkin' about a lot of capital. >> okay, so i think that the key to this business in a very crowded toy space, where you're trying to get attention, is a licensing play, because that's what's gonna get some interest from these big box stores.
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the reason that licensing deals work is because you build on the brand that somebody else spends money on. you take the tracer racer, which is virtually unknown, and you slap that nascar sticker on it and you got a built-in fan base. then you don't have to double spend and try to create your own brand. can i see where the assembly line is? >> yeah. absolutely. [upbeat music] ♪ >> who manufactures this? >> it's called jb plastics. they are a injection-mold company over here in tustin. >> what does it cost to make this? >> that costs us about $1.19 to make. >> including the packaging? >> including all our labor, including the packaging and everything. >> how good is your margin on that? >> 12 cents. >> these cars are a great toy, but they're only make 10% margin on 'em. that's way too low. how many do they make at once? >> on one cycle, it's four pieces. >> okay. >> so the machine spits in the material, pops open, four pieces
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pop out. >> plastic manufacturing costs are all about time and efficiency because you're essentially renting the manufacturer's equipment. the more you can make in a single run, the lower your cost. if you lower your costs, you have better margins. better margins, more profit. i think you can take 10% out of this cost, 'cause in this game, pennies count. so when you guys come up with ideas to launch a new toy, what's the process? and we'll use the track as just an example. >> it takes quite a while. i mean, you have to come up with a prototype, so we have to outsource the sculpting, and our sculptor's actually in new jersey. it takes a couple weeks for him to sculpt a piece. >> oh. >> yes, and then it keeps goin' back and forth until we get the right angles, make sure the connectors fit. >> that seems super inefficient. >> it is super inefficient. >> and i worry about it, in a business like this, or any business, is if i'm not quick, who beats me to the market? and they're there-- >> before we are. >> i think that's the achilles' heel of this business is you got to be first.
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well, how are the financials of the business? >> we had a little bit of a down year this year. >> sales are down. >> sales are down. >> from what to what? >> $1.6 to $1.45. >> whoa, that's almost 10% drop. >> both: right. >> we're gonna have a bit of a loss this year. >> how much do you think you're gonna lose this year? >> well, i think we're gonna be around 50,000-dollar loss. >> and then how much debt is in the business? >> it's about $800,000. >> okay. how did you accumulate the debt? >> i think it's--over 30 years, it's just kind of creeped up on us. you know, um--you know, we've tried things and they haven't worked, and-- >> mistakes. >> mistakes, yeah. definitely mistakes. >> how much total inventory is in this warehouse? >> about 365,000. >> and how much of it is aero flixx? >> that's probably 60. >> $60,000 in aero flixx? >> probably somewhere around there. we kind of went over the top when we got into toys "r" us with that, and we thought that it was gonna fly out the door. and that's part of the reason for the debt that we have. you know, being able to survive
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a 60,000-dollar hit is tough for a business our size. >> what keeps you guys up at night? >> i don't know. i sleep really well. >> yeah? >> i love my job. >> to be honest with you, you know, it's a 1.6 million-dollar business and it doesn't make any money. >> mm-hmm. >> right. >> so it should keep you up at night. the fact that it doesn't keep you up at night freaks me out a little. how about you? >> i've put half my life into this thing. i mean, i took a second mortgage out on my house for skullduggery. it's a--over $200,000 more in debt than it should be. >> why do you sleep at night? >> [laughing] >> i'd love to see the books and make sure everything checks out. >> all right. >> of course. >> we've put together somethin' for you. >> this is all the debt. so i have it broken down. if you take all the debt together, including the family debt, that's the debt right there. >> so, peter, this is you, 224? >> yes, that's me. >> you have about a 1.1 million of debt in total, not 800, and you have another 200,000 in payables. so between payables and debt, there's 1.3 million.
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and how much is there in inventory? >> 360? >> 360. >> of which i'll put 330 on it, 'cause i think some of it's not good, and then receivables are 474? so that's 770 in assets and 1.3 million in debt. why should somebody invest in this business as opposed to another toy business? what makes you guys unique? >> i think the infrastructures here--i think we are organized, we know what we're doing. we're very efficient with what we do. we're entrepreneurs, and we are ready to take that next step. >> so, the way i should think about it is that this is one step better than a startup because the tooling is there and there's some proprietary knowledge about the toy space? >> right. >> skullduggery seems like a good company. they're hurting themselves by putting their valuable resources into bad toys, like casting molds and disc games. if i can get them to focus on their core products, like cars, and license a big name, we can make millions. i came here because i like the
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toy business, and it's fun. it makes people smile. but this company is about 1.1 million in debt, and based on the earnings, you've lost anywhere between 30,000 and 50,000 for the last couple of years. you would never be able to pay off that debt. i think the other challenges is understanding where your revenue comes from and getting very focused on a set number of things, as opposed to being all over the place. from now on, i don't want to focus on anything but cars. i think you believe in the whole car model. it doesn't work without licensing, because as i go through that aisle, i'm not paying attention if i don't see a brand name that i know. >> okay. >> so i'm gonna want to license everything, because i think that's how it stands out on the shelf. and i want the company to be as debt-free as possible, but i think that the amount of equity i'm gonna want is gonna be-- it's gonna be painful for you guys. >> we both have gone over this. we all played you and asked questions we thought you would ask. [laughing] "i'm marcus lemonis." [laughter]
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>> that's gonna cost you. >> [laughs] >> so here's the deal. my offer is, uh... i'll pay off the 1.1 million of debt and i'll provide another million dollars in a working capital line, and i want 50% of the business. >> no. >> that's not gonna happen. >> why not? >> 'cause we're not gonna give you controlling interest of our company. >> why is that? >> because-- >> it's part of who we are. >> skullduggery is me. i am skullduggery. it's my company. it's our company, you know? it's not your company. you didn't spend 25 years building this company. >> so 1.6 million in revenue, you've got no cash in the bank, and you lose money. and you think giving up half of the business is a bad deal? >> you're asking for our whole life. you're asking for everything that i've ever worked for. >> yeah, i mean, it feels like a punch in the gut. >> i just offered to wipe out a
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million dollars' worth of debt and then give you another million dollars in working capital, and you're acting insulted about it? >> i am insulted. >> and you think that i just pulled it out of my ass? >> you can pull whatever you want out of your ass. you have the money. i'd rather be in more debt than have you running my company. >> should we get the [bleep] out of here? >> coming up... >> the, uh, aero flixx, it was kind of confusing. >> can you read? >> and later... we're gonna pitch on licensing the nascar brand on one of our toys. >> i could give a [bleep] about nascar, to tell you the truth. your credit is in pretty good shape.
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>> i'd rather be in more debt than have you running my company. >> should we get the [bleep] out of here? >> he wants half our business. i mean, we just can't do that. it's not worth it. it doesn't make sense. >> 25 is our line in the sand. i mean, it's a line in the cement. >> [knocks] >> come in. you ready? >> yeah. >> hey. >> how you guys doin'? >> we're hangin' in there. >> sure. >> okay, why don't we sit down at the table? these guys are not acting professional. you invite somebody into your business, you ask for help. we sit down for a negotiation. you don't get up, run into the office, and slam the door. and so i wanted to bring them back to the table, kind of coach
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them through that process. peter, what thoughts do you have? >> you know, i came into this whole thing hoping we could do something, but there are certain areas we won't go. >> we have drawn some lines in the sand. i can't take that offer. >> yeah, i mean, to have to take such a reduced percentage of the company would be extremely painful. >> but you have a business that doesn't make money today. to be debt-free and to have working capital and to have a 10, 15, 20-million-dollar business has to be worth something. >> 20%. >> no. to tell somebody that if they provide all this stuff, that they will then share in 1/5th of it, it's a tough sell to me. >> i feel like the company's worth more than you're putting your eyes on. i think it's worth a lot. >> based on today's numbers, you--61,000 in profit in 2010. 36,000 loss. 38,000 loss. 127,000 loss. 200,000 in payables. i mean, come on, guys. >> [sighs] >> you give me this line in the sand, so the way that i think would be a good compromise for
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me would be pay off the debt of 1.1 million, but i'm not also going to give you a million dollars in working capital. all the debt on the balance sheet is cleared. >> hmm. >> i want 30% of the business, and that's a test of whether you really are guys who compromise as opposed to everything's going to be a line in the sand. i'm down to a much smaller number, one that makes me wildly uncomfortable. i'm nervous about having 30% of any business, because that means i'm not in control, and that makes my investment a lot more vulnerable. so i want to be able to have control over the financial side. in order for me to protect myself, i need to put in some very basic deal points that put in specific controls. you control the creative side, but i possess financial control. financial control is very simple for me. i don't want you taking on any debt or taking on any other partners without me being okay with it. >> i think that's fair. what do you think, peter? >> you want to shake on it?
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>> so do we need to run this by your dad? >> no, i don't think so. he trusts me. he trusts my judgment. if i had to ask him everything i did, then this place would just slow to a halt. >> do we have a deal? >> i feel good about it. >> this is a $1.1 million check. >> i think marcus is lucky to do a deal with skullduggery. we have the most innovative and unique new products out there. let's do it. >> we got a deal. >> yep, we got a deal. >> here's your money. >> thank you. oh, boy. [laughs] it's time for a drink. >> hey, guys. we're gonna talk as a group. what i wanted to do is get everybody together today so we can talk about what is happening. peter and steven and myself have made a business deal, and i'm gonna become an investor and an owner in this business, and a lot of things are gonna change. i focus on people, process, and product. in the case of this business, i think we have good people. i think the process is a little broken. not only the way we design toys, but the way we bring them to market. in terms of the product, you
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have some things that make a lot of sense. you have a lot of things that don't make a lot of sense. we're gonna be narrowing our skus down for the ones that do sell. a sku is a common term that describes a singular product or piece of inventory. right now, skullduggery has way too many skus, and many of them, they don't make any money. we're gonna eliminate the skus the customers don't want, and we're gonna get very focused on the ones they do--the cars. number two, we need to get our foot in the door to the big box retailers. i believe the secret ingredient is licenses, because the consumer ultimately recognizes the brand and the big box retailers see our ability to sell through to the market. number three, in order to have a successful toy company, you have to have a toy lab. until now, creating prototypes for skullduggery has been a lengthy and expensive process. so we're gonna create a toy lab with the right technology and the right equipment so that the staff can bounce crazy ideas off each other and come up with great car-oriented products, whether it's racetracks, self-propelled cars, whatever it
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may be. and then once we have the prototypes, i actually want to put it in front of a focus group in this lab and get feedback from people. i don't want to just launch things without focus groups and without research. it's bad business. and then the last thing is, we're gonna lower the cost of things that we make. it's my expectation that we double or triple this business in the next couple years. thank you. we have a lot of work. let's get to work. >> guys, how are you? >> good. how's it goin'? >> so i brought you here for a focus group and research. going forward, before we launch a product, we're gonna bring it to kids. we're gonna find out what they like and what their parents like. >> all right. >> so let's go inside. hi, everybody! >> all: hi. >> how are you? >> hi. [laughs] >> all: good. >> this is steven and peter. now, they're asking for some help. so what we want you to do is pick something that you think you're gonna like, and then we're gonna have you play with it, and then we're gonna ask you
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a bunch of questions. all right? so ready, set, go. >> so up your alley. >> there's two decision makers. there's the child, then the parent. >> you got it. >> launch it, launch it! [laughs] >> i think it's fun, but-- >> mom, look-it. >> if you were in a store, would you buy this? >> yes. >> you guys almost ready? how about you ladies? >> well, i played with the aero flixx. it was kind of, like, confusing. >> can you read? >> for somebody who's in the toy business, he needs to learn how to be better with kids. instead of getting rude with this girl, he should be paying her for her valuable feedback. >> how about you, big guy? >> i liked how, like, the cars on the bottom light up. >> i can play police when it lights up. >> that's pretty cool, right? >> all: yeah! >> all right! now i'd like some feedback from the parents. >> in today's market, there's so many toys that are automatic, and my daughter even mentioned
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that she wished that it was already put together. >> these toys seem like they're already out there. >> not the tracer racers. we have a patent on that, and mattel--none of those guys can do that. >> steve's behavior is totally unacceptable. thank you very much, folks, for coming today. all these toys, you can take 'em home. the importance of a focus group is having people tell you if they like your product before you launch it in the marketplace. if they had done it with aero flixx, they would have saved themselves a lot of money. these are the consumers that are going down the aisles. for this company to get profitable, we got to listen. i want these guys to understand, the consumer is telling us one thing. they like our cars, but that's about it. so you have to focus on your core competency, which is cars. we can do a lot better. all right, come on. let's go. hey, guys! awesome news. i called the head guy at nascar, the chief marketing officer, and we have a meeting. and so we're gonna pitch him on
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licensing the nascar brand on one of our toys. >> really? >> anytime you can have a chance to take your toy car and partner with somebody like nascar, well, that's a huge opportunity. we want these big box retailers to take us seriously, and this gives us that shot. and those 75 million nascar fans, well, they now become our customer base. we want to talk about getting into retailers, this is a game-changer. >> okay. um, i think that that is a mistake. some people would stay away from the nascar name. >> why? >> every time i go to the shows, they say, "no, we don't want anything to do with nascar." i ju--i mean, it's like all-- almost instantaneous. i tell you, nascar's down a bit, and you go into those stores. go walk into a walmart. how many nascar items do you see in there? >> well, here's the two issues that i have. you say that nascar's down. there are 75 million nascar fans in this country. >> mm-hmm. >> and we know that when people think about cars in this country, they think about nascar. you can't afford a marketing
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plan that allows us to put the brand on the map. if we don't get a licensing deal, we're not gonna get into big box retail. >> i-- >> so if you have another idea other than nascar, i am all ears. >> i just talked to my toys "r" us rep about nascar and he says, "no. nothin'." they won't even buy it. >> so we're gonna base this whole decision on one company? >> i don't know, you tell me. >> 75 million people across this country know it, whether you're in topeka, kansas, or wherever it may be, every man and every woman has at least heard of nascar, and i want to bank on that. >> it doesn't matter. it doesn't do anything for me. >> we have a company here that does $1.6 million a year, and these guys think that they're too good for a company like nascar that's worth billions. i'm speechless. >> that's the person that goes to nascar, that drinks the beer, that does the nascar stuff. i mean-- >> i have this weird feeling that you have disdain for nascar and the people that go to the races. >> i could give a [bleep] about
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nascar, to tell you the truth. >> you absolutely embarrassed me. that will never happen again. bill's got a very tough 13lie here...... looks like we have some sort of sea monster in the water hazard here. i believe that's a "kraken", bruce. it looks like he's going to go with a nine iron. that may not be enough club... well he's definitely going to lose a stroke
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>> i have this weird feeling that you have disdain for nascar and the people that go to the races. >> i could give a [bleep] about nascar, to tell you the truth. >> at the end of the day, whether it's nascar or the man on the [bleep] moon, what matters is, is that you don't have the money to be on tv, you don't have the money to do print ads, so what i have to do is find the next best thing. and the next best thing is to actually draft off nascar's marketing. drafting is when one car rides behind another and they use the aerodynamics and the wind support of the car in front of them to pull them along. by attaching ourself to a brand like nascar, we gain instant credibility, which will allow us to draft off nascar's big brand. i mean, that's free advertising, and that free advertising turns into sales for our company. now, i need you to not shoot things down before you give them a chance.
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we're going to new york. you guys are gonna make the presentation. i'm gonna help you if you sink, 'cause i'm not gonna get embarrassed. [rock music] ♪ [beeping] now that we focus group-tested the cars, we're gonna laser in on that part of the business, and we're gonna get rid of the things that aren't selling. is there anything here that's obsolete? >> we got some aero flixx stuff up here. >> great, so we want to bring that stuff down. aero flixx is worthless to us. i'm gonna sell this stuff at cents on the dollar to turn it into cash. >> no, no, no, no. you know, you're causin' strife right now. >> why's that? >> i've sold all of this. >> you just got orders after this stuff's sitting here for years? >> we--i did. i just got orders for all of it. >> just magically, in the last couple of hours, it came together? >> it did. i got an offer. >> bull[bleep]. steve doesn't want to let go of his prized possession, aero flixx. there is no way he got rid of all that inventory. tell me why having this stuff sit here and not just throw it out and move on is a good thing?
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>> well, i think--'cause i think i can move that stuff. >> well, guess what, steve. i've already sold it to the dollar store. it's go-time. >> [groans] [forklift whirring] >> hey, marcus. >> you're from the dollar store? >> yes, sir. >> how you doin'? come on in. is this the money? >> yes, sir. >> by clearing the inventory, we have generated over $70,000 of cash for skullduggery. you're welcome, steve. >> thank you. >> appreciate it. >> you have a good day. >> thanks for your business. >> thank you. >> i'm taking steve and peter to jb plastics, the company that manufactures their car parts, so we can see if we can lower the cost of manufacturing each one of our cars. >> this is joe. >> joe! >> this is the owner. >> i'm marcus, how are you? >> welcome. >> i came to see how we could save some money. >> and we can do that. >> that's important to us. >> there's a lot of ways we can do it. >> so how many of these will we sell in a given year? >> 300,000. we pay 25 cents for the car and we pay a nickel to have them put all the stuff in 'em. >> for the labor.
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>> so it's 30 cents to our factory. >> uh-huh. >> here's where it comes out. >> how many are in the current mold today? what if i went to an 8- or a 12-part mold? will that help my cost? >> yeah, you can knock off a minimum of 20 cents, easily. >> so i'd be down around 10 cents at that point. >> probably. >> i'm gonna need a new mold. >> no, no, no. that's more money that we don't have. >> i understand that, but if you make us a 16-part mold, how much do you think that's gonna cost, approximately? >> $60,000. >> so if i give you that commitment that i'll spend the 60,000 or 70,000, you'll get my cost down 20 cents? >> i can get your cost down. >> you got a deal. okay? >> good. >> last year, skullduggery sold 300,000 cars. if you multiply that by the 20 cents savings per car, we would recoup the cost that it took us to make the initial investment in just over a year. over the next four years, we would stand to improve our profitability by almost $250,000. it takes money to make money. >> yes. >> that's a good example.
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>> hi, how are you? >> hi, how are you? marcus lemonis for steve phelps. >> yes, come with me. >> great. you know, i believe in utilizing resources, and i wanted to give skullduggery a real big resource, so i'm gonna take peter and steven to meet steve phelps, the chief marketing officer of nascar. why don't you guys have a seat? i have a great relationship with nascar. it's going on almost ten years. >> hey, marcus. >> how are you? >> i'm well. i'm steve phelps with nascar. >> hi, steve. peter. >> hey, steve. steve koehl, skullduggery. >> hey, steve, how are you? welcome to our new york office. you know, marcus had asked me to take the meeting. this is a little bit unusual for us, but wanted to take the meeting to understand what it is about your company that you believe will help the nascar brand. >> let me go first. steve, why do you think nascar's good for skullduggery? [laughing] >> so, you know, we are in a really good spot at this particular point. the sport's growing. we're really trying to attract a much younger audience, a more diverse audience. you know, we're finding partners
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to invest with us in s.t.e.m. >> i'm sorry, ste--stem? >> s.t.e.m. science, technology, engineering, math. >> okay, okay. >> nascar is a technology-driven enterprise, and i think it's awesome that they want to attract kids through education. >> and so the question is, do you have something that you could focus on that? 'cause that's an important area for us. >> um, i'm havin'--you know, i had some meetings with--i just met with toys "r "us, walgreens, and k-mart... >> yep. >> and they didn't think nascar was a good idea. no interest at all. >> hearing the stuff that's coming out of steven's mouth is shocking. >> i-i don't know why, but he just didn't want anything to do with nascar. >> i am mortified. >> i got some real big pushback. >> probably assumed that you would charge 'em more. >> i didn't--no, it was--it was a stopper in the meeting, so we moved on to something else. >> i can't believe what i'm hearing. how does a guy with a 1 1/2 million-dollar toy company tell a multi-billion-dollar company that no one wants their product?
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who does steve think he is? >> so, you know, where do you go from that? if you can come up with a good idea, i would love to do it. >> why do i have to come up with the idea? >> 'cause you're part of the company. >> i'm a minority shareholder that just paid off your debt. >> that's bull[bleep]. that is complete crap. hi. hi. hi. hello. hi. hi. hi. hi my name's josh. kelly. my name is raph. steve. my name is anne. tom. brian. krystal. and i am definitely not a robot. i'm one of the real live attorneys you can talk to through legalzoom. whether it's for your business or your personal life, don't let unanswered legal questions hold you up. because we're here. we're here, we're here, and we've got your back. legalzoom. legal help is here.
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>> i just met with toys "r" us, walgreens, and k-mart... >> yep. >> and they didn't think nascar was a good idea. >> listen, the reason why you guys are here is because of this man. >> definitely. >> and marcus, in his other businesses, uses nascar to move product, and it works for him. >> steve is about to lose a multi-million-dollar opportunity if he doesn't shut his mouth. i need to step in here, or we're gonna get kicked out of this meeting. you know, after spending some time in their business, there are plenty of really good, educational products. i know we can satisfy and hit the mark. >> it is an area that is very, very important for us. >> we will lead that process for you, and what we're asking for is a shot... >> sure. >> to put a product together, to deliver on your expectations. we're gonna get a lot of feedback, and we're gonna come back to you in a couple weeks and you'll tell us if we're off or not. >> great. thank you, guys. >> i tried to keep my composure while we were inside of nascar, but i'm about to lose it. [elevator dings]
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you absolutely embarrassed me. the chief marketing officer of nascar does me a favor. you go up there and tell him that the big box retailers don't want him? and then you ask him why they should do business with you? are you kidding? what were you thinking? >> i was just trying to get an idea of what they're--what they have, if they had anything new. if i could learn about what they had. >> but then ask the questions. do the interrogatory as opposed to saying, "why should we do business with you?" and then, when you talk, you're a reflection of me, and i don't operate that way. i don't want to go into meetings and be embarrassed. going forward, i want you to listen and think before you talk. that's all i want from you. are we clear that that will never happen again? good. holy purple! this is the way our place should look. those guys totally blew that nascar meeting, but my job is to make money and get refocused on putting process in place. so i'm heading to purple platypus to buy a 3-d printer. if you want to compete with the big boys, you have to have the
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latest technology. a 3-d printer allows us to build prototypes right on site. this is printed? >> that was printed. >> layer by layer. >> by investing $270,000 in this 3-d printer, it will give us the ability to create new toys, innovative toys. we'll see a big increase in sales. >> will you take a credit card? >> we'll take a credit card. >> we're excited. [claps] steve and peter have somehow convinced themselves that their company is wildly creative. at best, it's dull and uninspiring. so this whole room is gonna turn into a lab. the toy company's a place where people should be able to bounce crazy and fun ideas off the walls, and the best way to propel that is to build a very cool space. this entire wall will basically be the computer lab, so 3-d printer and then mac stations all the way around. the creative lab is gonna cost me over $100,000 to build, but that's no big deal when i think about the type of revenue i'm gonna be able to create.
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i'll be able to improve the efficiency, and i won't have to send my prototypes across the country. holy crap! look at this. >> isn't this great? >> yeah, it's a little more fun. >> we're in the toy business. >> yes, we are. [laughing] >> i like the fact that you put color--i see in steve's office, color on that wall, color here. >> yeah. >> this looks awesome. >> feels awesome. i'm very happy with it. >> so how do you guys use this space here? >> it's a play space, creative space. we have meetings here. >> i like the fact that you're using these boards and know what you're doing with product. you know what you're doing with packaging. there's a real process in place. when a buyer comes here, show them product, lay things out, display things. show 'em how you walk through ideas, builds their confidence. >> absolutely. >> dramatically. guys, i have to tell you, this looks fantastic. it just feels open, and it feels like a real business. hey! >> hey. >> how are you? >> good, how are you? >> so, um, you know, we left that nascar meeting and we were gonna kind of come up with
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something. what ideas do you have? i've given peter and steven all the resources they need to be successful and make a new nascar toy. by now, they should have something really great. >> you know, we haven't even had time to sit down and brainstorm it. >> did you try? >> we've been doing-- >> did you sketch anything out, or-- steve, all i asked for was some ideas. the guy told us what he wanted to focus on. >> i mean, how could--how-- >> where are the storyboards, or sketches, or something? >> i'm not a drawer. i can't draw. >> i know you're not an artist, and you're not getting out there bending the plastic or whatever, but, i mean, you literally have nothing. you didn't reach out to me one time about that. you didn't say to me, "man, i'm stuck. i don't know what to do here." i-i don't even know what to say. i haven't asked you for anything. i just don't think you want to do it. >> i-if you could come up with a good idea, i would love to do it. >> why do i have to come up with the idea? >> 'cause you're part of the company. >> i'm a minority shareholder that just paid off your debt. i mean, honestly, i just feel
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like you basically just said, "[bleep] you. i'm just not gonna do it." those deal points? if they're not gonna be ironed out, we're not gonna have a deal. >> we don't like the fact that you can say no. >> go stand in the corner and shut the [bleep] up. a new season brings a new look. a chance to try something different. this summer, challenge your preconceptions and experience a cadillac for yourself.
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pay off their debt, transform their business, and come up with the ideas, they are in for a rude awakening. i mean, honestly, i just feel like you basically just said, "[bleep] you. i'm just not gonna do it." >> marcus, there's so much goin' on right now. >> no, there's not. this isn't so much going on. i mean, all i asked you to do is one thing. i wrote a big check. i didn't ask you to do anything else other than come up with a toy. i've said, "i'll build up the lab, i'll do all these things." i asked for one thing! >> i'm trying to figure out how to do it and where it's gonna go. >> i knew there was an opportunity to leverage my relationship with nascar to help the business, but to have that sort of attitude and level of ungratefulness, that's totally unacceptable. when you don't want to do something, you just don't do it. >> no, no, no. i don't-- i don't not want to do it. i just--it--this is such bad timing. >> you have an excuse and an answer for everything. instead of just saying "you know what, i dropped the ball. i didn't think it was that big a deal," or "i don't agree with it." >> i said we can try. >> i gave you every opportunity to come up with an idea for a toy, but you guys are looking
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for me to come up with the idea for the toy-- >> no, we're not. no, no, no, no. >> you just said that to me. >> i--that's bull[bleep]. that is complete crap. >> [bleep], you guys are... >> it's bull[bleep]. >> hmm. we're doin' a lot of stuff. >> i know we are. >> we can only do so much. >> i'm not worried. i know i'm bustin' my ass. i can't do any more than i do. >> i'm ready for that army of people to start helping. >> yep, me too. well, let me give him a call. [phone dialing] [line trilling] >> hello? >> hello, marcus? it's peter and steven. we didn't like the way that ended. we'd really like to get together with you and talk it out. >> uh... >> we need to know where we stand and we really want to know exactly where you stand. >> i'd like you to sit down and talk to my father. >> okay. >> all right. bye.
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>> after our disagreement yesterday, steve and peter called me. they said they talked to their dad and we should all meet. i'm hoping that their father has convinced them that it's time to step it up. >> this is my father. >> how are you, sir? i'm marcus. so what is it that you guys wanted to talk about? >> i mean, when you and i shook on the deal, i told you that i didn't want to give up control of the company. >> when you guys did the handshake and we looked back, we would have done things differently. we want to be in charge of our own destiny, but if we agree to all your deal points, you're in charge of our destiny. >> my deal with skullduggery is for 30% of the ownership. i made sure that deal came with financial control. i did that to protect my investment, and now all of a sudden, i'm hearing that they have a problem with some of my deal points. the deal points are very simple. i don't want you guys to take on additional debt without my permission, and the reason that i don't want it is 'cause i don't want to get back into the same position. i don't want anybody to change
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their salaries without me knowing about it. because if the company starts making money, and all of a sudden, you take your salary from 60,000 to 600,000, you could essentially suck all the earnings out of the business. what was the number one deal point that didn't sit well with you? give me an example of something. what are you prevented from doing that you want to do? >> let's say i did want to pay myself $600,000. >> i would say, "no, you can't." >> i know you would. >> and i'm not gonna budge on that. i'm not gonna budge on the debt. not gonna budge on the executive salaries. my motive is that if the company makes money, i don't want to find out that it's turning from profits to salary and bonus and i have no control over it, and as a 30% owner i don't want to wake up one day and find out that all the money's gone. >> i guess ultimate veto power is a little bit hard to take. >> that's the hard part. i mean-- >> i think at the end of the day, if i'm just reading between the lines, honest to god, you just don't want to have a partner. what you guys don't like is that you have to talk to somebody about it. >> we don't like the fact that you can say no. >> i--you're asking me to throw a million dollars in and be
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subjected to whatever fate you decide and have nothing to say. "go stand in the corner and shut the [bleep] up." that's essentially what you're telling me to do. i'm not a bank. i'm not--this is not a loan. >> we're not--i can tell you right now, we are not gonna iron out those deal points. no way. >> those deal points, if they're not gonna be ironed out, we're not gonna have a deal. if your business is in trouble and you need my help, log on to pubut to get from theand yoold way to the new,d. you'll need the right it infrastructure.
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million dollars in and be subjected to whatever fate you decide and have nothing to say. "go stand in the corner and shut the [bleep] up." that's essentially what you're telling me to do. i'm not--i'm not a bank.
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i'm not--this is not a loan. >> we're not--i can tell you right now, we are not gonna iron out those deal points. no way. >> those deal points, if they're not gonna be ironed out, we're not gonna have a deal. you don't make all the rules. i'm giving the money too, so i get a little bit of a say. you're not the only decision maker. and i've spent money, and now you're telling me how things are gonna go down. i believe in corporate governance, and when i find a company that hasn't made money and has a lot of debt, for me to want to put some parameters for how they operate the business, i don't think it's unreasonable. if those kinds of constraints don't work for this company, then that's it. these guys think i'm just gonna hand over a $1 million check and they're not gonna agree to some very basic and reasonable terms? there's no way i'm going through with this deal. steve, honestly, you kind of fought me all along the way. you just did. i don't want to be a passive investor. >> mm-hmm. >> i am a active shareholder,
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and i don't see it working. i've already spent over $100,000 here, and i've put in a lot of energy fixing the process. but at this point, i'd rather cut my losses than risk losing $900,000 paying down their debt. >> then we can just--we can just--pfft--if you want. >> yeah. it's easier for me to take my lumps 'cause it's the cost of doing business and cut my losses. any time an entrepreneur goes into business, they know that they're gonna spend money. and sometimes, the deal works out and sometimes it doesn't. that's the cost of doing business. all right? >> okay. >> i wish you well, and i'm sorry it didn't work out for both of us, okay? >> both: all right. >> thank you. >> too bad. >> i know. i appreciate it though. thanks, guys. >> thank you. >> you have to know when to fold your cards, put 'em on the table, and walk away, and make it up on the next hand.
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(man) this is the shark tank, where hopeful entrepreneurs come seeking an investment from the sharks-- five powerful self-made investors worth billions. in the tank, the sharks are ready to invest using their own money... okay, i-i'm on the fence. but only for the right person with the right business. this is so crazy. i can't believe... (speaks indistinctly) okay, if you don't have cats, you don't understand. (laughs) and if the sharks hear a good idea, they'll fight each other for a piece of it. i like this product, the idea. so make an offer, harrington. no, wait just a minute. but first, the entrepreneurs must convince a shark to invest the full amount they're asking for or they'll walk away with nothing. sales are going down, the market's getting soft, price points are coming down. i wanna slit my wrist.


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