Critical Analytics Concepts from The Profit
Efficiency, Leverage, and Feedback
Now in it’s fourth season, with more than $35 million dollars invested, CNBC’s The Profit is a show dedicated to small business investment. The show follows Marcus Lemonis as he invests in typically troubled businesses across the United States with varying results. His failures most often come at the hands of poor partners, personalities, and attitudes. His successes are built on efficiency, leverage, and feedback — three concepts critical to any analyst or business.
Marcus often heralds his motto of people, process, and product. It is not exactly original or directly accurate to his success. The “Three P’s” are certainly important but only to the extent that they drive efficiency, create leverage, and shorten and strengthen feedback. The show is an excellent model for examining these three key concepts and modeling their impact on any business.
Efficiency
While not every business that Marcus deals with is on death’s door, many are, but more still are simply suffering from massive inefficiency. This often comes in the form of poor supply-chain management, failed usage of outsourced services, and often immature and inefficient processes. These problems are often visible to his partners even before they make their deal and represent low hanging fruit for a man with decades of experience and likely a solid support staff (they occasionally cameo on the show) dedicated to improving these areas.
The Profit does an excellent job of laying out many of these fixes in clean and easy to understand infographics. It makes the show very approachable for both children and viewers who may find the personal stories and struggles of the show more appealing. Improving efficiency is made so simple, you may be inclined to think that Marcus is giving away some of his secrets. In reality, efficiency improvement is a basic aspect of the story — both on TV and the profit & loss statement.
Leverage
Marcus has an eye for leverage. It is the magic of the show for anyone keeping count. It starts with the leverage created by a reality TV show with roughly a half million weekly viewers. This is not something that can easily be copied by competitors. At a minimum, it provides Marcus free advertising for his new investments. More than likely, he also uses it to get preferential pricing on his vendor relationships and other negotiations that receive positive air time.
But Marcus is also building a small business empire… or at least ecosystem. He readily leverages his existing investments to add new channels, new partnerships, and new business to his recently acquired companies. He may feature a bakery’s products at his restaurant chains or provide new service contracts for a sign maker. This is something that creates a huge competitive edge for him at the negotiating table. While some of his more savvy partners might realize the value of this leverage at the negotiating table, even the most sophisticated partners don’t have the knowledge to quantify just how much additional revenue that will bring. Further, the benefit adds to the new business AND to the existing business. It is really hard for this strategy to lose.
Feedback
The Profit also has an eye for the longer term. The show spends a good deal of time thinking about the customer, the market, and the product — but insights in these areas rarely amount to anything more than hope and optimism in the initial weeks of any new partnership. We can imagine that down the line Marcus will find inefficiency to exploit and new leverage to be used… but for the space of a typical episode, we are left only our imagination.
What we do get insight into is how Marcus builds, repairs, and strengthens the feedback systems of the businesses he buys. On the surface it may seem counter-intuitive. How does improving feedback make for good television? The answer is two-fold. For things like point of sales systems, inventory tracking, websites, and the like — it is an opportunity for product placement and advertising revenue. For efforts in the area of interviewing customers, employees, and efforts to simplify the model — this creates a lot of human drama and TV moments. People get very anxious when you force behavior changes, especially when that creates more direct feedback. It is hard. It is awkward. It is good television!
For Marcus, this investment is win-win-win. It drives incremental revenue for the network, higher ratings as well, but also represents an investment in the future of his burgeoning empire. With streamlined and improved feedback systems, he will gather more insight into his customers, his employees, and his business. This will generate new opportunities down the road, but allows hims to invest in his next growth curve today!
The Profit is an excellent show. It is educational and compelling. It is good for the whole family and easy enough to DVR, if you have a little time to kill. Watch it for the personal stories. Watch it for insight into the challenges of small business. But also watch it to learn the value of efficiency, leverage, and feedback. For any analyst, for any business owner — these three concepts can supercharge your P&L and the value you create. What have you done recently to identify opportunities in these three crucial areas?
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