Never miss these critical startup lessons from the real world

Every episode of Marcus Lemonis’ show “The Profit” (CNBC) will teach you a thing or two about entrepreneurship. These are real stories of how entrepreneurs make mistakes and struggle with their business and life. Often the lessons learned are far more effective than what you would learn through an MBA case study.

A recent episode about “Inkkas Global Footwear”, a failing fashion shoe maker from Brooklyn, New York shows how lack of discipline by the founder-CEO wrecks havoc in his company and how Marcus intervenes to save it from abyss.

Marcus focuses on the people, process and product while remaking the business. He is not doing it for charity but to save jobs and make money. He invests his own money in these businesses and takes full control over the most critical decisions.

Background

In 2012, Daniel along with his brother and best friend created “Inkkas Global Footwear” in Brooklyn, NY. The idea is to use global textiles and inspirations to create bold and colorful footwear unlike anything in the market. Daniel got the inspiration from his travels in Peru. He took the idea and made it a real product that people can wear.

As the creative director and CEO of the company, some of his designs had been real hits but too many bombed leaving the company in a deep financial crisis. Cash running low, and failing products it was just a matter of time before the Inkkas went out of business.

Inkkas has a retail store in Brooklyn, NY but it generates merely 3% of revenue. A whopping 70% of the revenue comes from wholesale business and the rest from its online store.

Inkkas has around 100 SKUs online and they create 15 new SKUs each season. It costs $2000 to create a completely new SKU and anywhere between $15000 to $20000 to put these new products on the shelves.

According to Daniel, there was $1 million investment in the company and it had lost close to $600,000.

Diagnosis

Marcus himself tried a few shoes from the retail store and quickly found that the store neither had enough inventory nor the vibe of a retail store.

Shoes were good looking but not comfortable to wear, often the soles of the shoes being too thin.

The shoe industry does over $48 billion annually. Everybody needs an affordable cool pair of shoes.
The unique designs of Inkkas were impressive but they had far too many models. The company was losing money with creating designs that were not sought after.

Unlike Converse, which made a hugely popular Chuck Taylor shoes, Inkkas was making too many shoes with no profit. This lack of focus was proving to be fatal.

All founders were in deep financial trouble but the team was strong and had great commitment to the business.

Marcus’ offer

Marcus liked the team but realized that the company needed a complete overhaul from product to process to personnel. He originally made an offer for $750,000 with 51% stake in company. Due to the resistance from the co-founders, he made a counter offer of $600,000 for 40% stake with a guaranteed return of 10% .

He also enforced 20% shares for each of the three co-founders. With the agreement in place, Marcus took charge and started remaking the company.

Everything has to change!

Marcus’s first priority was to fix the product. He also wanted to focus on wholesale and grow the online business. The retail store had to be shutdown since it was it was losing money. The company had to be relocated to the right place to attract wholesale buyers.

Marcus wanted to identify which models sell well. He visited DNA footwear, a popular retail chain in New York City, which carried Inkkas shoes. He advised Daniel and the team to listen to the feedback and ask right questions. They quickly found out that basic model sold well and none of the seasonal models were bringing any customers. The message was clear – stick to the basics! Sell the basic shoes, make money and don’t do anything else.

New product line

Armed with the feedback from the retailer, team decided to focus on 5 basic models – high-top lace-up, low-top lace-up, slip-on, jogger and camper. Each of these models would come with 4 designs that represent four geographic regions – North America, South America, Europe and Africa. This would bring the total styles to 20, compared to the 100 which Inkkas had before.

Marcus hired a company called ModernVice to redo the development of shoes to have better comfort and durability.

The next step was finalizing the design of the textiles used in making shoes. Marcus took Daniel to a big textile store in NY. He also wanted to see how Daniel would go from product idea to execution.

Problem with Daniel

Here Marcus identified the core problem of the business. As a CEO, Daniel had no discipline and his creativity went wild leaving the company in doldrums. Marcus asked Daniel to select 1 fabric from each region but he came up with 40 selections. It took a few iterations for Marcus to get Daniel to listen and follow directions.

New Inkkas

Since Inkkas was going to focus on wholesale, the company would be better located close to the buyers. The primary wholesale buyers would go to the garment district rather than to Brooklyn. 

Marcus moved the company to the Garment district of New York.

The team did a great a job of decorating the new office. With constant baby sitting from Marcus, Daniel could focus and create 4 model shoes. The big day arrived when the buyer visited the new office. Marcus gave two directions to Daniel – first, to give a compelling presentation on the products. Second, to give an “inventory assurance” to the buyers.

Daniel did a great job with the presentation. The buyer ended up taking all 5 models with a few styles of each. There couldn’t have been a better start for the new company.

The episode ended with re-inforcing the new identity of Inkkas – “Great design, great comfort, great prices and great profit!”.

Key Lessons

You definitely need a disciplined guy who is good with numbers at the top to make the right financial decisions

Focus on your core product offerings. It is a mistake for entrepreneurs to go after every product idea instead all they have to do it is focus on the basic products and create revenue.

You need to be located at the center of the action.

Define your core business and don’t try to do it all. In this case, the Inkkas made a mistake of focusing on both wholesale and retail business.

Sometimes, you need an external master to come and change your ways. Even better, realize the mistakes early on so that you don’t need to make a call to Marcos Lemons and give away 40% of the company.

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