Marcus Lemonis has a motto: Every struggling company can be saved. But when he smells trouble, he knows it's time to cut and run.
On Tuesday's episode of CNBC's The Profit, Lemonis met entrepreneur Erik Leander, founder of a Florida health-food delivery service. The small business, called FuelFood, sends balanced meals to customers across the U.S., but beneath its healthy image is a toxic corporate culture led by the hot-tempered Leander. After addressing a number of problems with the company, Lemonis discovered that its largest investor--a 46 percent shareholder--had recently been charged with running a Ponzi scheme that targeted investors through YouTube videos. Even worse, Leander knew about the charges, but didn't tell Lemonis.
"I feel like I dodged a bullet," Lemonis said during the episode. "If Erik didn't think that his primary investor being involved in a Ponzi scheme was a big deal, I don't know what other surprises he had in store for me."
It didn't take long for Lemonis to walk away, and fortunately for him his $300,000 investment in FuelFood never closed, because not all investors signed off the partnership. The alleged fraudster's assets had been frozen. Still, even before learning of the Ponzi scheme, Lemonis uncovered several red flags that had already made him question whether he should be working with Leander.
"If it wasn't for these employees, I would have walked out of here a while ago," he said. FuelFood did not return a call for comment.
Here are three serious issues that together signal a business has some fundamental problems. Lemonis saw them all.
1. High turnover.
When Lemonis first met Leander, he learned that the company had been through seven chefs in just a few years, and that almost no women customers used the service for an extended period of time, which Lemonis chalked up to FuelFood's off-key marketing campaign featuring videos of fitness models in tight clothes.
2. Leading by intimidation.
One of Leander's most glaring management problems was his aggressive tone with his employees, and the way he talked over people instead of letting them be heard. "Erik continues to lead by intimidation," Lemonis said, adding that FuelFood's workers didn't feel they were in a safe, secure environment.
3. Reckless spending.
While Leander had drawn more than $1 million from investors prior to meeting Lemonis, FuelFood's kitchen still lacked a lot of standard cooking equipment. Why? Leander spent more than $100,000 on a truck that wasn't helping generate sales, and he had cut a number of employees' pay just to meet payroll.
Though Lemonis wasn't able to fix FuelFood, he had no choice but to walk when he learned about the company's fraudulent ties.
"While I leave here disappointed that I'm not going to be able to work with some of the folks, this would have turned out to be an absolute disaster," Lemonis said.
Stay tuned for more recaps every week.