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Avid fisherman, Ethan Smith, from Troy, Ohio was frustrated that he couldn’t find the perfect fly fishing products on the market, so he decided to create his own. With a background in industrial and product design, Ethan has created a line of products that have gone viral on social media. Because their working capital is limited, SmithFly struggles to keep up with the demand for their products.
SmithFly’s signature line is primarily made up of functional and customizable apparel, modular totes and bags, as well as lightweight boats and rafts that can be used in shallow shoal waters. Although Marcus is impressed with their apparel and storage line, he feels that there are some product design improvements that can be made to SmithFly’s Big Shoal boat as well as their Shoal Tent. Upon making suggestions about these products, Marcus takes note of how defensive Ethan became about any perceived criticism of his product.
Currently, SmithFly’s primary sales method is direct-to-consumer through their website. Although they are generating significant interest in their products through social media, they are faced with inventory restraints because they do not have enough working capital to invest in inventory. Unfortunately, this cycle has caused them to lose orders because they simply could not fulfill customer orders in a timely manner.
If you don’t have excess working capital, it can be just as detrimental to a business as a company that has too much inventory. Everything just gets locked.
While Ethan does have an office manager, Jules, she is underutilized and Ethan has a hard time delegating tasks. This causes an innovation gridlock as he spends so much time in the day-to-day operations of the company that he does not have time to improve existing products and design new. Marcus suggests that Ethan entrust Jules with more than the phones and accounting so that he can be freed up to work on these critical parts of the business. Jules has an aspiration to become a salesperson and loves the company and its products.
Anyone who raises their hand and says they want to be part of the sales organization says that they believe in the product and that they want to be part of the future of it.
Although Marcus is overall very impressed with their line of products, he does suggest some potential product improvement ideas that he felt could make their great products even better. He suggests that they need to reconsider manufacturing trailers for their boats. The craftsmanship is not up to par and they don’t match the quality of their boats. He also would like to see SmithFly redesign the chairs on their boats. He felt that they are flimsy and not up to the quality standards as the rest of the boat. Additionally, Marcus suggests that the Shoal Tent comes with a pump other than just a foot pump as the setup of the product can make or break the customer experience and affect how your customers feel about your product and your brand.
….. *two hours later* #TheProfit pic.twitter.com/HkNO4Wr2OB
— CNBC’s The Profit (@TheProfitCNBC) March 13, 2019
During the financial review of the company, Marcus learns that the company will break even this year after two straight years of losses. Ethan predicts that with his current strategic plan, appropriate scaling, and the right partner, the company can bring in $21 million in revenue. Although Ethan owns 100% of the company, he is not paying himself and is currently getting by on lines of credit. Marcus likes the business and that Ethan considers the functionality of his products in his design. He feels that he could help with the working capital gridlock the company is currently in, which would allow the company to begin to grow again. Marcus is also interested in SmithFly because he is heavily invested in the outdoor space and is impressed and intrigued by their product line. SmithFly incorporates a level of technical ingenuity that you don’t find in most outdoor products. If he can get access to distribute these products it could be a win-win for everyone. He makes offers Ethan $1 million in exchange for 50% of the business. Ethan accepts Marcus offer.
Marcus invites Ethan and Jules to his Gander Outdoors store in Wisconsin. He wants to find out if the people who work and shop at the stores like the products. He also would like to understand their thoughts on what could be improved with the product and what products they feel that they could sell right away. Although they loved the products they suggested that SmithFly design a boat with a collapsible frame so that it can be transported by RV and not just by a trailer. They also discuss potentially changing the company name and branding. They feel that it really niches the business into just the fly fishing market when their products are applicable to all types of fisherman, hunters and outdoor enthusiasts.
In reviewing the Shoal Tent, Gander Outdoors echoed Marcus’ concern that the product needs a real pump and not just a foot pump. They also suggest that it could be ordered with add-on accessories that a customer would need to successfully use the product such as anchors, paddles, and life vests. Because this product appeals as a recreational “party” tent, they also suggested that they build in cupholders, a cooler, and blue tooth speakers.
Ethan does not handle the feedback and product suggestions very well. He has a reply as to why each of the ideas won’t work and sometimes has a snarky or sarcastic response. Marcus is very embarrassed and decides to meet with Ethan to let him know that he has to get better at listening and accepting feedback if he wants to have a successful business and functional products. After debriefing about the meeting with Gander Outdoors, it is clear that Ethan only heard the good feedback about his products and none of the improvement ideas. Marcus shows him Jules’ notes to give him a point of reference for what it looks like to actively listen to improvement ideas. If he wants his company to be successful, he has to learn to accommodate the feedback that he is getting or they won’t buy the product or be excited to sell it. Ethan commits to being a better listener and improving his current product line as well as looking into accessories to fill out his product line.
Back in Ohio, Ethan shows Marcus a building that he is thinking of buying to house inventory. The building is in bad shape. It has a hazardous waste absorbed into the soil and will need a very costly remediation project. Ethan has a great vision for the building and growth but Marcus is hesitant because he would rather put that money directly into inventory that they could store in their existing space. He thinks this isn’t the appropriate time to secure another building. SmithFly needs to review its capital allocation to determine where they want to spend their money. Because they have a finite amount of capital, they have to prioritize where they are going to spend it. The best financial decision for the company is to apply that capital to something that will get the company the best return on their investment. For SmithFly, the best ROI would be product innovation, marketable inventory and not warehousing and stockpiling things.
With his dream of growing into a larger property tabled, Ethan is buckling down and working on ways to upgrade and expand their current product offering. Jules is focusing on sales of the existing core products so that Ethan can focus on these upgrades as well as introducing new products. They also updated the brand from SmithFly to Smith. Marcus likes how much thought they put into it this branding shift. He wants to make sure that when customers see their brand, they think of the technical skill and craftsmanship they will get with the product. Ethan has strong technical knowledge and he really took the feedback that Marcus and his team gave and worked hard to implement it. Marcus feels as though he is making real progress and is very impressed with him.
Marcus sets up a meeting with CalaMarine, a distributor that focuses on international distribution, and Realtree which specializes in camo prints for outdoor merchandise. In these meetings, Ethan and Jules prove to Marcus that they are capable of listening to feedback and using it to improve their product and brand. Marcus was very impressed with how Jules handled the meeting with Realtree. She clearly did her research on their company and related to them which increased their engagement. She set the tempo of the meeting perfectly. She had them try the product while truly listening to their feedback and ideas. They were very pleased to secure a licensing agreement with Realtree which will give them a definite appeal and competitive edge with their target market.
Marcus is not only impressed with how SmithFly has grown as a company, but also how Ethan and Jules have grown as business people. He believes that they can easily do $5M in the next year based on their new distribution partnerships and upgrades to their products.
He’s already a pro!! #TheProfit pic.twitter.com/iZrud2YmQv
— CNBC’s The Profit (@TheProfitCNBC) March 13, 2019
What did you think of this episode? Did you agree with their decision to rebrand themselves to reach a broader market? Do you think this was a wise investment for Marcus Lemonis? Sound off in the comments below!
“The Profit” airs Tuesday at 10 p.m. on CNBC.