Lemonis . Theyll be forced to close their doors forever. Mike i cant take this. [ sniffles ] lemonis southbridge, massachusetts, seems like a quiet town until you get inside of sjc custom drums. Mike sjc. This is mike. Lemonis mike and his brother, scott, started making drums in 2000. But after a serious falling out, a deafening silence has divided them for years. Mike not being able to have a brother i mean, you only get one life. Lemonis since then, mike and his righthand man, chris, have tried to keep the company going. Chris were about 30,000 behind right now on bills. Lemonis sjc drums are among the very best, and performers like imagine dragons, green day, and lady gaga swear by their sound, but sjcs lack of inventory and working capital. Mike where are we even gonna get the money from . Lemonis . Has them in a terrible financial snare. Man im calling about the order i placed about six months ago and still havent seen. Lemonis its time for sjc to march to a new beat. Mike its like i can only take so much, you know. Lemonis or this customdrum manufacturer will crash. Im in anaheim, california, at n. A. M. M. , the National Association of music merchants, to meet mike and chris for the first time. And the Energy Levels unbelievable. Man ha whoo [ cheers and applause ] lemonis you mike . Mike yeah. Lemonis hey. Marcus. Mike nice to meet you. Lemonis nice to meet you. Mike thank you for coming. Lemonis this place is rocking. Mike its crazy. I cant believe i still have my voice. Lemonis and so this is the product that you make . Mike yeah, we make custom drums from start to finish. Lemonis how much is a setup like this . Mike this set is about 6,000. Lemonis the average person cant afford 6,000. The average person cant afford 2,000. The problem i see is theyre selling to a very small customer base. So, what is the lead time . Mike our turnaround time is, like, six to seven months. Lemonis six to seven months . Mike yeah. Lemonis its ridiculous. You could build a yacht in six months. You could build a brandnew plane in six months. Mike we run out of inventory. Lemonis they dont have the parts and pieces. Thats no way to run a business. Mike this is chris. Lemonis how you doing, chris . Chris very nice to meet you. Lemonis im marcus. What do you do . Chris i order all the parts for manufacturing, finance. Lemonis so youre doing manufacturing and youre the accountant . Chris yeah. Mike chris left a corporate company, making six figures, and cut it in half to come work for sjc. He has mbas and an engineering background. Lemonis you a partner in the business . Chris we act like partners, but i have no equity stake in the business. Lemonis so thats a no . Chris yes, so. Lemonis so, something beautiful like this. Whats your cost to make it materials and labor . Chris 680. Lemonis it was 680 to make this . What will you sell this piece for . Mike 795. Lemonis so at, basically, 15 margins. Mike right. Lemonis thats a lot of work for 15 points. These things look badass. Mike exactly. Thank you. Lemonis your margins are not badass. Chris right. Mike right. Lemonis you really have to have a sustainable margin on any product to be able to pay your bills. I mean, their margins right now are 15 . Theres no way youre gonna make a living off of that. I mean, its just not gonna work. What does sjc stand for . Mike its my brothers initials scott james ciprari. We started the company together 15 years ago. Lemonis hes not in the business anymore . Mike about five years ago, things started to not be good. I mean, my brothers a genius. Hes the one that started making the drums. I dont know how to make drums. I know how to market. But it was very bad it was toxic for him and i to be working together. And three years ago, i said, im gonna buy you out. And we didnt see each other for a while. Lemonis tough. Mike yeah. Lemonis when you lose the founder of the business, it definitely hurts the business. Theres other people you could hire, but you cant hire a new brother. [ drums playing ] mike man, you got it lemonis what was interesting to me is the range of ages that were in that booth, excited to see and play sjc. It was impressive. If they could offer up more affordable kits, th is maybe one of the few businesses that i think has more potential than even the owner thinks. Lemonis that was pretty good. Mike [ laughs ] lemonis after seeing things at n. A. M. M. , im heading to southbridge to really see whats going on behind the scenes of this company. Good to see you. Mike good to see you. This is our warehouse. This is kind of the start of the process. All of our shelves are there. A lot of custom stuff. Lemonis how you doing, buddy . Chris hey, marcus. Lemonis so, the Raw Materials come in here. Who schedules the workflow that happens . Chris i schedule every order that comes through. Lemonis so whos in charge of sales . The actual sale order, the quote . Mike i do. Lemonis and who makes sure that its priced properly . Chris i created the pricing tool, and mike said, these prices are too high. Mike im trying to be competitive to to get sales in the door. Lemonis so youre inefficient, and youre priced below market, which means you have high costs and no margin. Death spiral. The guy whos manufacturing the product and knows all the numbers isnt allowed to price the product . Were gonna let the salesman price it . Not a good idea. Are these organized in a way or would you say its a little jackedup right now . Chris its not too bad. Lemonis it doesnt look superorganized to me. Disorganized materials equals loss of time, which equals loss of labor, which means money is leaking out the door. I see boxes everywhere. I see piles of crap beyond belief. Im not sure how they even make the quality of drum that ive seen and ive touched in this warehouse. Where is everybody . Chris theres people working back there. Lemonis i want to see what theyre doing. Making a custom drum is very laborintensive. Each tube has to be cut just to size, then sanded, then painted or stained. And the loops that hold the skin to the drum shell are also made by hand. And then theres a bunch of Hardware Options to put it all together. But because this warehouse is so disorganized, theyre wasting a ton of time trying to find the parts and pieces. And all of these inefficiencies increase production time, which kills their margins. Mike so, what theyre doing right now is theyre its in the final assembly stage. Lemonis hello. Im marcus. Josh josh. Nice to meet you. Lemonis hey, nice to meet you. How long have you been here . Josh this will be my eighth year. Lemonis wow. Whats been the craziest part of it . Josh just the hustle. Lemonis how stressful is it working here right now . Louie pretty stressful. Matt we get orders all the time that come straight from the front office, and its like, we need this kit yesterday. Lemonis so whose fault would it be . Matt mikes. So then we have to go around the whole shop and find different parts to make the kit. Josh every time we try to set a schedule, youre constantly stopping and going back, because this kit ends up being more of a priority. Louie mike will come out and say, we need this kit done. And we know we dont have the parts, so ill say, chris, we dont have the parts. He goes, yeah, dont worry about that one. Do this one. So its like its just. Compounded throughout the whole shop. Lemonis the most disturbing thing about their manufacturing process is there is no process. The reason it takes six months to make a drum is they dont know what theyre doing. Chris weve been a little bit behind on checks. Lemonis who are these checks to . Chris got rent. We have checks to fedex. And we dont have enough money to cover payroll for next week. Were pretty much at zero right now. Lemonis i didnt get the impression that it was that dire when i was out in n. A. M. M. With you. Mike it was dire back then. Its just kind of slowly been getting more dire. Lemonis youre kind of almost closed. Mike yep. Chris pretty close, yeah. Lemonis now that ive seen whats wrong with their process, i need to look at the numbers and really understand where the holes are in the system. Chris i have the last three years income statement and balance sheet. Lemonis you have 45,000 in credit cards. You have 35,000 in checks that you cant mail and another 20,000 to vendors. Chris yeah. Lemonis 200,000 of product owed to customers. The total happens to be right around 300,000. Mike yeah. Lemonis so, in the last 12 months, you did about 1 million in sales and you lost about 200 grand. What are your Gross Margins . Mike our Gross Margins last year were about 20 . Lemonis what should the margins be, chris . Chris in my mind, they need to be like 40 . Lemonis which is basically the difference between losing 200 grand or breaking even. In the pricing model that youve put together, if mike would have stayed away from it, would it have been 40 . Chris yes. Lemonis one of the things that i like about chris hes very focused on the numbers. He has a lot of the answers to the questions that im asking. Im a little disappointed that mike isnt taking advantage of this asset thats sitting right in front of him. In 2014, you sold less and things got worse. Chris yeah. Lemonis what else changed . Mike scott left in 13. Lemonis scotts your brother . And how much equity did he own . Mike we were 50 50 partners. Lemonis how much did you pay to buy him out . Mike to buy him out 533,000, which is 2,000 a month for the next 15 years and a balloon payment of 285,000 at year 15. Lemonis and how did that feel like a good deal to you . Mike it didnt. Lemonis so why did you do it . Mike i didnt want to shortchange him and be like, ill give you 100 grand. Get out. Lemonis and so the fact that you were willing to put your brother ahead of yourself says a lot about your character. Mike [ sniffles ] lemonis do you miss your brother . Mike yeah, i miss him. We when it was just me and him, the first few years, it was awesome. And now this is a mess, and hes not here, and he resents me either way, you know. [ sniffles ] chris i wish your brother knew how you felt. Mike our relationship has been so far gone for so long. Lemonis well, you have to fix it. Mike yeah. I. [ sniffles ] lemonis its very hard for a new investor to come into this deal. The value of a milliondollar business that loses 250,000 a year is worth how much . Chris its not worth anything, really. Lemonis the margins are terrible. This is a bad deal. Its obvious to me that this place has hit rock bottom, and this is really wearing on mike, and now its wearing on chris, and i really feel like i need to understand why its wearing on chris so much. Chris [ crying ] lemonis hey. You all right . What are you thinking . Chris its just. I know how hard it is. Mike and i believe in it, and i believe in mike. And its hard to be on the verge of feeling like. You might not believe in it. [ sniffles ] i geh. Common bird. E. Ooh look over here something much better. There it is. Peacock, included with xfinity x1. Remarkable. Fascinating. Very. It streams tons of your favorite shows and movies, plus the latest in sports news and. Huh run the newest streaming app has landed on xfinity x1. Now thats. Simple. Easy. Awesome. Xfinity x1 just got even better with peacock premium included at no additional cost. No strings attached. Just say peacock into your voice remote to start watching today. And its hard to be on the verge of not feeling like. You might not believe in it. [ sniffles ] and i think theres things that we can do to blow the ceiling off the place and make it something thats bigger than anybodys ever seen. Lemonis that means a lot to me. Yeah, that means a lot. Why dont we go figure out how to do that, okay . Chris [ sniffles ] lemonis man, your weather here sucks. Chris [ laughs ] its not that bad. Lemonis yeah, it is. Chris [ laughs ] lemonis holy crap. Well. Long day . Mike emotional day. Lemonis in my mind, in order for this business to be successful, it needs to have working capital so that i dont ever have to hear, i couldnt finish the order because i didnt have. Whatever part theyre missing. Chris right. Lemonis it needs to clear itself of all of the liability that is not affiliated with your brother. 300,000 is owed to credit cards, vendors and suppliers. I dont have as much concern about the Sales Numbers because i walk around this building, and every single place i look, i see an order. Thats not a concern. My offer is 400,000 for 33 of the business. 300,000 will pay off all of the current liabilities, and 100,000 will go into the account so that there is cash. Mike um. Lemonis mike, you seem kind of hesitant on this one. Mike yeah, i just feel that im just concerned that. That wed be in the same position almost as we were last year in a certain regard. My concern is it not being enough to cover everything. Lemonis how much do you have in the bank today . Mike zero. Lemonis what would you have after that . Mike 100,000 in the bank. Lemonis and how much liability would you have . Mike zero. Lemonis if i dont put money in, what happens . Mike just continue this downward spiral. Lemonis right. Mike i get it. Lemonis my offer is 400,000 for a third, but youre not keeping 2 3. Mike i was gonna bring that up. Lemonis what were you gonna bring up . Mike that i want to bring chris in now. Lemonis good, because that was my contingency, that were equal partners, the three of us. 400,000 check. We have a deal . Mike we have a deal. Lemonis im 100 in charge. What i say goes. Mike understood. Chris thank you. Lemonis you got it. Mike thank you very much. Lemonis now youre in session. All right, ill see you guys bright and early. Hey, guys. Id like to huddle. So, last night, mike and i made a deal for me to invest 400,000 into the business. As part of that deal, im gonna own a third of the company, mikes gonna own a third of the company, and chris is gonna own a third of the company. He will set the priorities with you guys, and mike will not be coming in, saying, imagine dragons called, and they want their drums tomorrow. Were just not gonna do that anymore. Now, mike is still responsible to make sure that were marketing the business properly and were selling. Both of them report to me. Im 100 in charge. Chris definitely. Lemonis we know the product that you make today is awesome, but i think you leave a segment of the market to fend for themselves. We can be what i call good, better, and best those three price points. The goal that i have in this whole process is to diversify their pricing offering. And so, we establish the good, better, best model. Once we can sell somebody an entrylevel sjc drum, good, we can then keep them in the family and move them up to better, and as they get better and we give them tips and tools, then we can move them to best, which is our amazing custom drum, and thats the model that actually allows us to take care of the whole universe. Any other questions . So, lets go to work. I want to make a nice kit that solves the entrylevel market with the highest retail being 895. The good kit will be our entrylevel price point. What kind of margin do you want . Chris you need at least 40 . Lemonis okay. Tell me what the cost would have to be. Chris you got 895 times. 40. It would be 537. Lemonis cost. Chris yep. Lemonis thats why hes in charge of the numbers. Mike i know. Lemonis you guys are gonna put together a kit for 537, so go to work. Chris all right, sweet. Louie well, did we want to go with 2. 1 hoops on the medium kit . Chris 1. 6 millimeter hoops are a little bit cheaper, but theyre. Matt definitely save that one for the the base kit. What if you shrink the rack tom size so you can get the most out of a full tube . Pat we should talk finishwise, though. Lemonis how are you guys doing . Chris um. Were having some trouble trying to get the price down on the good kit. Lemonis whats the issue . Chris most of our metal components are about the same price no matter what you use, so were trying to find other ways around it to reduce either cost of, you know, finishing. Lemonis i think the key would be really just simplifying the process. As i listen to these guys, they cant seem to get past how they manufacture the drums today, and im starting to get concerned. What i really think they need is a fresh perspective. So let me put some thoughts in. Ill see what i can come up with. All right, keep working at it, though. I think there may be a solution. Its a risky one. Scott . Scott yes. Lemonis how are you . Nice to meet you. Mikes brother, scott, is the innovator of sjc, and so i wanted to ask him to consider coming back and helping us with this process. If scott is unwilling to come back and help us make this entrylevel drum, then the companys gonna struggle. You got a set of drums here. Scott yeah. Lemonis you still play . Scott yes. Of course. Lemonis you also play guitar . Scott well, i went to school for music, so, yeah, i picked up a lot of instruments along the way. Lemonis you were the artist. Lets just call it like it is. Scott yeah, i mean, mike designed drums and stuff, but when i came to, you know, putting your hands on it and doing it, that was all me. I, in my career, have made thousands like, i think 5,000 drums. Lemonis so, whats the story . Why did you leave . What happened . Scott well, my brother formed a mutiny, is what i say, where people started to slowly become just turned off from me. It could have been the most intricate drum set in the world for the most famous drummer that i should be so proud of making, but it was like, he needs it in two days. It quickly turned into, we just want it now. And if i didnt get it done in two days, i was perceived as not caring about the business. Lemonis how . How could that be . Scott because my brother was the guy upstairs, and everyone who worked at sjc was his friend. They all made fun of me, and i would walk out. And then my brother would say, see, he doesnt care. Lemonis the issues between these brothers are very complicated, and they run deep. But if this business is gonna be a success, they have to work together. It may not happen quickly, but it has to happen. I have to tell you something. I am a pretty good judge of character. I can tell you that he feels awful. He feels like he lost his brother forever. Scott he should. He should feel that way for what he did. I asked scott to come here because i think he could be helpful. Mike im scared to death of him being here. Lemonis is there ever any moment where you guys can get past this . Mike [bleep] it. Im gone. He feels awful. Scott he should feel that way for what he did. Lemonis for whatever this is worth to you, he is devastated. Scott [ sighs ] yeah. Lemonis so, we made a deal last night, and im putting 400,000 into the business. The good news is im 100 in charge now. And so were going to manufacture a less expensive drum. Is there any universe that you would ever reinvolve yourself in the business if you knew things were really different . Scott hes never specifically addressed the things that he did. Lemonis would that help . Scott if he could do it. Lemonis it was nice meeting you. Lemonis hey, bud. Mike hey. Lemonis [ sighs ] i went and met with your brother. Mike you met with my brother . Lemonis yeah, i did. Do you think he could help this business in any way . Mike yes. I dont know how to make drums. Im not out there building drums. We would have never had a company if it werent for him building them. Lemonis