
Lessons from “The Profit” - jseliger
http://marginalrevolution.com/marginalrevolution/2018/04/lessons-from-the-profit.html
======
swanson
I think there is something there with the "reality-TV MBA" the article links
to.

Lessons from "The Apprentice": the dynamics of leading a project. If you win,
it can cover up bad process/bad leadership; if you lose, people blame the
person they like least and rationalize reasons.

Lessons from "Nathan for You": outside the box thinking and pushing on rules
until they are just about to break spurs innovative and creative thinking,
it's mostly garbage ideas but there are gems. Even the garbage can be
interesting because people are so used to companies following existing
playbooks and being safe.

Lessons from "Shark Tank": desirable companies are in a position to reverse
interview investors, basic heuristics for company valuation, financial metrics
(COGS, CAC, etc), the difference between products and companies

~~~
bald
Thank you for this fantastic list of shows. I love Shark Tank and am looking
for similar shows where I can learn more about business. Does anyone know any
other shows that fit this purpose?

~~~
swanson
My ranking of Dragons Den series:

Canada (Kevin/Robert from Shark Tank are in some seasons) UK Ireland

You can also watch the UK version of The Apprentice and Young Apprentice
(teens). The US versions of the traditional The Apprentice are a bit old and
the Celebrity Apprentice is not worth watching.

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thisisit
This one really close to home for me. Upon joining one of my previous
employers I found that while they had an IT system, there was zero reporting.
So, people had no clue on exact uptime for various systems. Once we had it in
place, we found tons of issues in the infrastructure setup, installs etc.

Cleanup was a long and arduous task but it failed in the end. The reason was
people - many of the guys working on these systems were with the company for
3-5 years. These guys had grown into a culture of zero accountability and
reporting systems were hazardous to their careers. So, they ensured the
reporting system had only one leg.

~~~
jsight

      > These guys had grown into a culture of zero accountability 
      > and reporting systems were hazardous to their careers. So, 
      > they ensured the reporting system had only one leg.
    

Hmm, isn't that more of a symptom of a hazardous management culture? I've
generally only seen this happen when people were afraid of unreasonable
repurcussions.

~~~
mseebach
I have definitely come across employees who acted borderline _criminally_
irresponsibly, and had nothing to fear from management either way. Of course,
not punishing that kind of behaviour is its own kind of hazardous management
culture.

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startupdiscuss
There is a particular episode where he turns around a chain of family
restaurants.

I can't remember the numbers but various locations earnings were something
like: +1 million, -1 million, +300k, +100k.

Now he bought it for some multiple of earnings (can't remember but assume it
was between 4x and 10x) on the condition that they _shut down failing
locations_.

Note that you don't have to do anything else but shut down the -1 million
location and the whole business is much more profitable and valuable.

So I agree with the insights, but I would also pay attention at the outset to
how good a deal is, and how small the risk actually is at the outset.

~~~
bonestamp2
I saw that episode and if I remember correctly, there was basically a
sentimental reason they didn't close that -1 million location. I think a lot
of businesses suffer from similar decisions -- you value something that isn't
reflected in the balance sheet.

Seeing that in someone else's business makes it so much easier to appreciate
how foolish it is and to be more self-aware about those types of flaws in your
own management decisions. The hardest one is probably people... managers often
keep certain people around because they like the person, even though the
person is terrible at their job.

~~~
startupdiscuss
I believe you are correct but they eventually relented after they had sold
part of the business.

Lemonis, for his part, voluntarily gave up part of his equity to the manager
of the location who volunteered to shut down his own location.

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rmason
I really like The Profit and have recommended the show to others. A similar
show (with way more drama) is Bar Rescue. It's becoming a trend now because
Richard Rawlings of Fast 'n Loud has a new show called Garage Rehab where they
turn around failing auto repair shops.

Things all these businesses in different industries have in common:

1\. They don't know their numbers so they're flying blind

2\. Problems with family members or employees

3\. Lots of unsold inventory and sometimes plain junk tying up capital

4\. Owner isn't taking a salary

I've personally worked for small businesses as well as startups that had some
of these problems so they're pretty common.

~~~
peacetreefrog
All of these seem reasonable, self-explanatory except (4), can you
expand/expound on why not taking a salary seems harmful? Is it because then
the owners tend to just dip into their cash on hand and aren't that
disciplined?

~~~
taneq
It depends why they're not taking a salary. If the owner is already loaded and
doesn't need the money, that's fine. If they're having some cashflow issues
but the pipeline is full and there's revenue coming, then that's probably OK.
If the business is tanking and can't support a wage, obviously that's bad.

~~~
Zanni
Exactly. This is an issue with non-profits as well. They delude themselves
into thinking they're in decent financial shape, even though they have a
managing director, often the founder, who's taking no salary, or a very
reduced salary. Then that person moves on and--BAM--they're hit with market
rates trying to replace them, and they're in trouble.

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sutterbomb
The top comment right now on the thread on Apple’s new AI exec hire is
entirely about how “suits” and “management” are worthless. Recent economic
research, as pointed out by Tabarrok here, strongly disagrees.

~~~
gscott
Many times suits and management drive the company right into the ground.

~~~
replicatorblog
To be fair, A fair few technologist-led startups have failed because they
focused exclusively on product, sure that the market would beat a path to
their door.

~~~
leesalminen
Like most things in life, it’s like walking a tight rope. Too far one way or
the other results in failure.

------
DrImplausible
Thanks for sharing; it was a good quick read, and I found it instructive.

What I'm not sure is how the lessons of a material production culture might
translate to the digital one that most of HN (presumably) interacts with.
Version control, getting rid of legacy systems, concentrating on the high-
margin products that keep the business going. These could all be applied,
correct?

~~~
tlb
Software companies have similar inefficiencies, but they're harder to see and
measure. Instead of piles of rotting inventory they live in bug trackers and
post-it notes and long meetings. Managing to metrics is harder, because the
metrics (bugs retired, KLOCs written) are so meaningless and easily fudged.

Also, good programmers tend to be undisciplined. Good programmers are good
because they're creative and they can keep a lot in their head, but that makes
it hard to get them to follow processes and track everything rigorously.
Replacing them with mediocre but disciplined programmers doesn't usually
improve things.

It's such a hard problem to run an efficient software shop that most companies
don't even try -- instead, they only go after businesses with 80% gross
margins.

~~~
GVIrish
> Managing to metrics is harder, because the metrics (bugs retired, KLOCs
> written) are so meaningless and easily fudged.

Agreed, managing to team metrics is usually the road to hell. But tracking
some metrics can uncover problems. Maybe your team is bad at estimating. Or
there's a lot of rework to new functionality due to shifting requirements. Or
maybe there are a lot of bugs after a release because the engineering process
is broken somewhere.

> Also, good programmers tend to be undisciplined.

I find this to be untrue. You're not really a good programmer if you ignore
the ancillary activities that contribute to a high-functioning project/team,
unless you're someone who is writing code only for yourself. Communication,
coordination, documentation, and following good processes wastes less time,
reduces mistakes, and reduces the damage done when someone leaves the team.

The cowboy programmer can do a good job writing code but if they're not
attending to all of the other stuff a software engineer needs to do, they are
dragging down the productivity and resilience of the organization.

> Replacing them with mediocre but disciplined programmers doesn't usually
> improve things.

Yes you'd certainly rather have a good programmer who needs to improve on
process than someone who can barely program. But even better to have someone
who is both disciplined _and_ good.

~~~
dsr_
"Maybe your team is bad at estimating."

To a first approximation, everyone is bad at estimating software development
times.

See:
[https://news.ycombinator.com/item?id=12149515](https://news.ycombinator.com/item?id=12149515)
and
[https://news.ycombinator.com/item?id=4328660](https://news.ycombinator.com/item?id=4328660)
and [http://www.romenrg.com/blog/2015/09/28/why-asking-
developers...](http://www.romenrg.com/blog/2015/09/28/why-asking-developers-
for-time-estimates-in-software-projects-is-a-terrible-idea-and-how-to-bypass-
it-with-scrum/)

and The Mythical Man-Month, too.

~~~
GVIrish
Certainly there's a lot to estimating in software dev, but I'm talking about
when estimates are regularly wildly out of whack. Where someone or a team
regular estimates something will take a few days but then it takes several
weeks or months it indicates there's a problem or problems somewhere.

Maybe requirements are shifting too much. Maybe there's a lot of hideous
technical debt. Maybe the wrong technology is being used to build the product.
Maybe there are people on the team that don't have the skill level they need.

There could be a lot of things at play there, but the point is that there may
be issues that need to be addressed. When you see wildly inaccurate estimates
it means the root cause(s) should be investigated.

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programminggeek
It's worth noting that The Profit picks companies that are inherently dramatic
because it's a TV show.

The goal of a TV show is to get you to watch. Thus, the more of a train wreck,
the more likely you watch.

If Marcus was trying to maximize his ROI on the business investments, he would
start with different businesses and more reasonable owners.

Instead, he is maximizing the ROI on his TV show and his Brand (ugh, I hate
that word).

So, by losing a small amount of money on some ridiculous businesses, he makes
a whole lot more on the back end of being on TV, selling business books,
giving speeches, and in general looking like a business hero.

The long play here is very, very smart and has obviously paid off already.

~~~
glenra
> _If Marcus was trying to maximize his ROI on the business investments, he
> would start with different businesses and more reasonable owners._

To get a great deal, Marcus is looking for underpriced businesses that are
broken _in the particular ways he can help with_. Since dealing with
interpersonal issues is one of his strengths this probably would select for
unreasonable owners even if "being on TV" weren't part of the deal.

------
bufferoverflow
I watched the first season a while ago, and was shocked how badly some small
businesses are run, and somehow they stay in business for years. And then the
owners often fight to keep them in the crappy state for no good reason.

~~~
PaulHoule
Big biz too.

Where competition is absent, you don't need to cut the fat.

So long as the cable company can raise your rates every year, reducing truck
rolls will always be "too expensive". If those truck rolls come out of the
bonus of the CEO on the other hand, they will get down to the root causes of
why so many truck rolls.

~~~
taheca
Man.. you should have seen the fat at Motorola in its heyday. I had a long
interview with one of their senior R&D people once and it was an eye opening
conversation...

~~~
cholmon
I'm interested, eye opening in what way(s)?

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taheca
This especially stuck out to me as it is fairly consistent across most
episodes that I have seen:

"If Lemonis has a genius skill it’s in keeping his temper and working through
bullshit problems to get to the real festering issues that are at the root of
inefficiencies."

------
gizzlon
Big fan of the show, I've watched four seasons in six months.

I like it for two reasons: 1) I do learn about business, retail, making deals
and dealing with conflict. And 2) It's uplifting and inspiring to see how much
people fuck up and still _almost_ making it. Many of the business did quite
good at some point.

Obviously it's TV and I don't expect it to be 100% real, fact based and
neutral. But I do think it's better than most "reality" TV-shows.

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SadWebDeveloper
The only lesson i learn from "The Profit" besides whats already stated on the
article is that: It takes money to make money.

If we apply the same methodology without injecting money to business it will
probably fail because the profit gained from the savings in production won't
be enough to cover the debt in a short term.

~~~
louprado
There was remarkable moment in one episode where the company had made a really
bad deal on a long term lease. Somehow Marcus _solved_ the problem and I
immediately grabbed my notebook and leaned in...

After a commercial break you learned he solved the problem by, drumroll,
buying the entire building! IIRC it was a $20Million+ purchase since it
included the neighboring suites as well.

There is much to learn by watching the Profit, but that moment was just
another example of a recurring theme. That money can solve a lot of problems.

~~~
eitohaoeth
Sure but that in itself is a valuable lesson. Grow your asset base. It's
starts hard and gets exponentially easier.

