Marcus Lemonis loves fixing small businesses on CNBC's The Profit, even if helping an entrepreneur pursue the the American Dream can sometimes feel like a nightmare.

On Tuesday's episode, Lemonis partnered with Miami-based custom furniture company Grafton Furniture, a third-generation family business run by the founder's son Steve Grafton and grandson Stevie Grafton. Though the company's customers are all high-end clients, the business took a hit during the financial crisis that left it saddled with $1 million in debt. One of the issues holding the company back was Steve Grafton and his manager Louis's disorganized workflow process that was something of a mystery to the rest of the employees.

"Steve and Louis have been running this business with sort of a secret code where they know what's going on," Lemonis said during the episode. "The problem is nobody else does, including Stevie, who is one day supposed to be taking over this business."  

Lemonis invested $1.5 million for 45 percent of the company, but insisted that the business immediately fix its dysfunctional father-son relationship. Why? Second generation businesses have a 60 percent failure rate, while third generation businesses fail at a rate of 90 percent. 

"Steve has got to let Stevie learn to take charge for the next generation," Lemonis said. 

After overhauling a number of Grafton Furniture's processes, Lemonis was able to increase the company's margins by 20 percent. Here's how he did it.

1. Fixing family dysfunction. By putting Steve's son Stevie in charge of quality control, all product had to go through him before being shipped out the door. This way, the father's manufacturing process would be held accountable by his son, and a proper balance of power would help the business run more smoothly.

2. Diversifying the product line. Instead of making only custom furniture with long lead times, Lemonis helped Grafton introduce a "quick ship" line of chairs called "The American Dream Collection" that could be ordered and shipped within 24 hours. The line attracted the attention of national furniture retailer DirectBuy, which sells over $200 million of product per year and now offers Grafton's chairs. 

3. Perfecting the process. By renovating Grafton's warehouse and introducing a transparent workflow process that made sense to every employee, Lemonis was able to introduce efficiencies that saved the company 10 percent on its margins.

After helping Grafton Furniture fix its business model, Lemonis said getting Steve to trust his son was the most important change he made to the company.

"If this business was going to succeed for generations to come, he was going to have to let him fly," Lemonis said.

Published on: Jun 24, 2015