Marcus Lemonis loves investing in struggling small businesses, but when employees begin quitting in droves, he knows it's time to cut his losses.

On Tuesday's episode of CNBC's The Profit, Lemonis invests $300,000 in Denver-based Kota Longboards, a premium skateboard company with high employee turnover. Founded by former U.S. Navy fighter pilot Mike Maloney, the business makes handcrafted skateboards, but has been losing employees since launching in 2012. What's more, the company generated a loss on $150,000 in annual revenue in 2014. 

Why? One reason is that Kota sells a premium board for $329 and targets customers aged 30 and over. The high price and adult-focused customer base has kept total units sold per year to fewer than 600.

"The product is absurdly overpriced," Lemonis says during the episode.

Though Maloney and his wife Nikki have kept the business afloat with savings, they can no longer afford to foot the bill for their business. 

"It's the hardest thing I've ever been through," Nikki says to Lemonis. "The thing that scares me is we have our first kid going to college in a few years."

To fix the pricing issue and expand Kota's product line, Lemonis helps Maloney lower his production costs enough to bring down the price of the boards to $199 and adds a midsize and small board to help target younger customers. Shortly after making these changes, however, Maloney's head of production and two other key employees quit without explanation.

"It's been five weeks since I've known this company, and almost every single employee that was here when I started is gone," Lemonis says. 

For Lemonis, more alarming than the resignations is that, in his view, Maloney appears to be uninterested in understanding what's causing his employees to leave.

"Why wouldn't you dive into the business so that you could inspect where the breakdown is happening?" Lemonis says.

Maloney told Inc. the welfare of his employees has always been paramount to him as a small business owner, and that his employees know he has an open door policy.

When, on the show, all three former employees meet with Maloney, they air grievances ranging from health concerns over the company's shoddy air-filtration system to complaints that Maloney had been bad-mouthing them behind their back. Maloney told Inc. he is addressing the air filtration issue by moving to a new facility this spring. He didn't respond to a request for comment on the employee complaints about his criticisms.

For Lemonis, the issues raised are too much to keep him invested in the company. 

"This particular owner has no regard for his people," Lemonis says. "There's no way that I'm going to invest in a place where they owner treats his employees like garbage."

Though Lemonis's partnership with Maloney didn't work out, Maloney says he learned a great deal from Lemonis on the importance of retaining talent and maintaining employee morale.

"We're not losing sight of the need to bond as a team," Maloney said, adding that the company has since stepped up its recruitment, talent assessment and hiring processes. "We honor one another in how we go about our work, making sure that personal concerns are openly shared and addressed."

Kota recently signed an exclusive licensing deal with Dewey Weber Surfboards to expand its product line with 10 new longboard designs. The company says it is forecasting 70 percent annual revenue growth in 2016.

"There is a lot more to Kota Longboards than could be covered in a TV show," Maloney says.

Published on: Dec 16, 2015