What do you get when you cross an ambitious woman, a love for lighting, large profit margins and an Etsy store? A small business called Hangout Lighting from Chicago. Jennifer Brown started Hangout Lighting in her home in 2014. The business is rapidly growing and is expected to break $1 million this year. The primary reason that Jen has contacted Marcus about investing in their company is that although she has a financially healthy company, she doesn’t know how to scale her business to accommodate larger orders and companies.
The company was a particularly attractive investment to host Marcus Lemonis as he recognizes the profit margin potential in lighting, he currently has a portfolio of businesses that could take advantage of the company’s assets, and it is located in Chicago which allows him to be properly involved in the business.
He makes an initial offer to Jen of $250K for 33% of the business. This would include him taking full financial control of the company to relieve Jen of this task. Jen thinks this offer is a larger portion of equity in the company than she was expecting and she counters. Marcus gives a final offer of $250K for 25% which she accepts.
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After shaking on the deal, Jen returns to Marcus to say that she is uncomfortable giving up that much equity in her company and wants to slash his percentage to 10% for $150K. Marcus asks for input from the employees on if they feel another set of hands and eyes are needed on the business as he decides if he should walk away. They strongly feel that for the company to be sustainable and grow, more structure is necessary. A growth path for employees must also be established to make employees aware that career paths are available at the company. Marcus ultimately decides to go down to $200K for 20% with 5% of the $200K going into a shared bonus program for the employees. Everyone is extremely happy with this plan and they have a deal.. again.
The management structure and business model of Hangout Lighting posed some common problems that small business and start-ups often face:
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- The owner is unable to delegate tasks, provide clear tasks and grant autonomy to employees
- Employees do not have official titles, job descriptions, sufficient wages, goals or development paths resulting in high turn-over
- Inventory is not properly managed which causes product availability issues
- Their website is not user-friendly, personalized or solutions based
- Appropriate analytics and dashboards are not being used to measure the usability and effectiveness of their website
- The leads management path is undefined
- Finished goods are not produced to a specific standard (in this case, UL) that is important to customers and the product
- There is no long-term strategy for growth
It is clear that there are several changes that must happen for this business to secure its future and to promote further growth:
- Make improvements to their inventory control process
- Create 2 direct streams of revenue
- Direct sales to individuals
- Direct sales to the consumer through distribution or retail companies
- Make a robust website so that the user experience is simple, easy and clear
- All employees must understand their role and their opportunity with the company
As with every episode of, “The Profit, this episode left us with many key business lessons that we can directly adopt and apply to our own roles and companies:
- It is important to recognize the value employees bring to your organization and put them in a job that increases their chances of success and growth
- All employees must have clearly defined job descriptions, roles, and understanding of their function and contributions to the team and the organization
- Work must be clearly delegated with autonomy and empowerment given to employees to complete tasks
- Managers have an obligation to their employees to find and highlight their strengths in an organization
- Leaders must trust people to do their jobs and learn to be more of a steward of a business rather than a micro-manager
- It is important to honor your commitments to your coworkers and your employees
- Collaboration among a team of variable talents yields the best results
- It is important to take ownership of your behavior and take responsibility for your mistakes
- Customers are not looking for a consultation, they are looking for product solutions
“The Profit” airs every Tuesday at 10 p.m. on CNBC.
What are your thoughts on the improvements Hangout Lightning made to their business model? How did you feel about Jen’s management and leadership style? Let us know in the comments section below!
