Fixing broken small businesses as the host of CNBC's The Profit is a tough job, but for Marcus Lemonis, helping struggling entrepreneurs is a labor of love. Not only does Lemonis invest his own money in troubled companies, he does so without collecting a check for his own reality show.
The season three premiere of The Profit featured Lemonis doing what he does best: whipping a failing company into shape by focusing on "people, process, and product." The first business of the season three, Massachusetts-based custom drums maker SJC Custom Drums, took a loss of $200,000 on annual revenue of $1 million in 2014. Some of the company's high-profile customers include bands like Green Day, Imagine Dragons, Skipknot, New Found Glory and Rancid.
Founded in 2000 by brothers Scott and Mike Ciprari, SJC lost its rhythm after a falling out between the brothers left Mike to run the business by himself. After three years of mutual resentment and cut off communication between the Ciprari's, neither brother can even discuss the family tension without getting choked up.
To start a new chapter for the business, Lemonis invests $400,000 for 33 percent of the company. He quickly takes charge of operations and gets the business on track.
"We've been really fixing up a bunch of our financials on our backend," Mike Ciprari told Inc. in an interview.
Here are the five ways Lemonis rescued SJC from shutting down.
1. Spreading the ownership. At the time of Lemonis's investment, Mike Ciprari owned 100 percent of SJC, leaving operations director Chris Nikopoulo--a key part of the management team--with zero equity. To incentivize Nikopoulo and create a more equitable ownership structure, Lemonis made his investment contingent upon the three men being equal partners with 33 percent equity each.
2. Growing the margins. The high cost of manufacturing SJC's drums left only a 15 percent margin on each drum set. By forcing Ciprari and Nikopoulo to rethink materials, including the type of paint used on the drums, Lemonis got SJC's margins up to 40 percent per unit.
3. Diversify the product line. Instead of making custom drums that only a certain group of consumers could afford, Lemonis implemented a good-better-best product line with three price points: $895, $1,700 and $6,000. "We know the product you make today is awesome, but we're leaving a segment of the market to fend for themselves," Lemonis said during the episode.
4. Perfecting the process. To rectify SJC's highly disorganized manufacturing habits, Lemonis implemented a "10 steps to success" process where all inventory travels through 10 production stations like an assembly line before being shipped.
5. Repairing relationships. One of the most dysfunctional aspects of SJC was the relationship between the Cipraris, who were not on speaking terms when Lemonis bought into the company. "Marcus definitely came in and forced my brother and I to reconcile our differences," Mike says. Today, Scott Ciprari acts as a consultant for the seven-person company.
After restructuring and reorganizing SJC during a roughly four-month period, Lemonis grew the business's total output from 40 units per month to 100 per month, and nearly doubled projected revenue to $1.8 million per year. While implementing operational improvements were key to fixing the company, turning the business around would not have been possible without getting the Cipraris back on speaking terms, according to Lemonis. "The relationships have to be solid," he said.
Mike Ciprari agrees. "The family issue was the biggest takeaway for sure," he says, adding that unlike most reality shows, The Profit didn't use editing to overdramatize the situation with SJC. "The show is real."
Watch more episodes of The Profit Tuesdays at 10PM ET on CNBC.