The Profit TV show season is here and it airs on Tuesday nights, 10 pm on CNBC. I love this show! Every business owner should watch it.
If you’d rather listen to the blog post, watch the video. The written blog post appears below the video.
- DeLascia - California T-shirts specializes in custom designed, screen-printed t-shirts
- Business run by three siblings - Patrick (designer), Kelly and Daniel
- Started business in 2008 in Los Angeles
- Mostly a wholesale business, its customers being department stores
- Recently lost its biggest customer
- Sales over past three years
- Y2014 $1M
- Y2015 $900K
- Y2016 to date $600K
- Lost $100K in Y2015
- Product line
- Men's apparel 35%
- Kid's apparel 45%
- Women's apparel 20%
- Marcus Lemonis says women's apparel market is twice the size of the men's apparel market and that DiLascia's women's apparel products should represent 50% of their product line
- Invested in 200 t-shirt designs, but only 50 of them sell
- Marcus Lemonis estimates $50K was sunk into the 150 designs that don't sell
- Balance Sheet
- Assets: $51K in inventory, $16K in cash = $67K total assets
- Liabilities: $198K to trade vendors, $15K credit cards, $61K merchant loans = 274K total liabilities
- Equals negative equity of $207K (Assets less Liabilities = Owner's Equity)
- Marcus Lemonis says, "DiLascia is out of business, but they don't know it yet."
- Storefront in LA costs $43K/year in rent and in-store sales are only $60K
- DiLascia also has a warehouse where they do the screen printing and store inventory
- Patrick DiLascia says, "You can't pay me a million dollars to work out of that warehouse. I hate it there."
- For the 50 designs that do sell, DiLascia has no data on the mix of inventory (t-shirts, hoodies, v-necks, women's, men's, etc.) that sell
- Marcus Lemonis says, "I need these guys to know that if they don't know their numbers, they don't know their business."
- Patrick says, "This business is my life, and my whole life is at stake."
- The episode left out two important pieces of information: the cost of goods sold and the rent on the warehouse. The company went through $1M in Y2015, and these are probably the two reasons why.
- Sales decreased by $300K (or 30%) from Y2015 to YTD 2016 due to the loss of one customer.
- The brick and mortar storefront that costs $43K/year generates only $60K in sales. Rent should generate 10 times its sales or, on the other hand, rent should be 10% of your gross revenue. DiLascia's storefront rent is 70% of the revenues it generates from that location. It would be interesting to know the warehouse rent amount so we could see its percentage of the sales from wholesale customers, as that sales stream is what the warehouse services.
- Patrick claims the business is his life, but he doesn't back that up with his actions because he doesn't know his numbers.
- Turning every idea you have into a product is "wreckless," according to Marcus Lemonis. Too many product types burns up your time and money. This applies to restaurant menu items, something you design or merchandise you purchase for resale. Remember, developing and maintaining new ideas and products uses cash! Most of the time, being all things to all people will fail. You'll end up with products that don't sell, and the loss from these products will eat up the cash flow from the ones that do sell.
- If your business is in trouble, get off the idea merry-go-round and stop buying inventory. Common reasons why business owners make these mistakes is
- They get depressed about dismal sales and use new ideas to get an emotional boost
- They think investing in more inventory will increase sales
- They don't know their product line numbers - what sells and at what profit margin - so they blindly order or create new products in an uneducated and desperate attempt to increase sales.
- When business owners take actions that don't make sense, it's usually because they are avoiding taking the actions they should take but can't for emotional reasons. They feel better by taking an action, but when it's the wrong action, it will make things worse.
- If you are a service company, you can learn from this, too. I've seen service companies continue to change their service packages or provide too many services trying to be all things to all people. Eventually, you are going to have to make an educated decision about what products and services you are going to sell and begin executing. Executing is tough because it's full of unknowns, rejection and long, hard hours. But ideas are worthless without execution. And ideas don't generate cash. Sales generate cash.
- As in the previous week's episode (Farrell's Ice Cream Parlor), DiLascia is being killed on storefront rent. DiLascia's wholesale customers, which make up 90% of its sales, don't care about the storefront. The storefront is really Patrick's space to create. Patrick justifies the cost because he says he cannot create in the warehouse. If he put a quarter of his rent ($10K) into building out a creative space in the warehouse, he'd be better off by $30K.
- The decrease in sales from Y2015 to Y2016 was due to the loss of one customer. That customer represented 30% of the cash coming into the business. There is no magic percentage of how much one customer should represent of your sales. I suggest you do the following analysis instead.
- Find your YTD sales per customer every month. For the all the customers that represent 50% of your sales, analyze your numbers assuming one of them leaves. Remember to also reduce variable costs that go into serving this customer. Do this analysis for each of these customers. If your business will be crippled if you lose any one of these customers, then work towards more customer diversification.
- The fantasy of a successful business may be Patrick's life, but he has abandoned the real-life version of his business. Don't abandon your business. It's hard to face your failures, but it's just as hard to live with them and remain in denial. As Niccolo Machiavelli said, "Develop the strength to do bold things, not the strength to suffer.”
Please note: The assumptions and opinions here are for teaching purposes only. I in no way mean to insult or throw shadow on anyone's character or business acumen. I understand that very limited facts are presented in the TV show, and I'm aware that there's always more to the story.