Lessons from “The Profit” | Hacker News Reader

Lessons from “The Profit”

marginalrevolution.com

204 pointsjseliger62 comments

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

I'm not a business person but Nathan For You, while being funny and enjoyable, really tought me some ways to think outside the box about marketing. His ghost realtor gimmick is still being used afaik.

I will add that I watched Lemonis' spin-off show "The Partner" and it was hot-garbage. One of the worst reality shows I've ever watched in terms of structure and concept.

Nathan For You is one of the best shows out there. It's a satire of other business advice shows -- the host pitches ridiculous business schemes that are usually borderline scams, and it's crazy how often they work out. He's had a couple episodes go viral, like Dumb Starbucks (he opened a Starbucks lookalike called Dumb Starbucks and justified it by saying it was protected under parody law). I highly recommend it!

I remember this guy having skits on 22 minutes, my father & I thought it was genius, glad to see how he's continued

What I learned from Shark Tank was also how to pitch better. Getting the right amount of info in small amount of time takes a lot of practice, and some pitches were great.

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?

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.

Dragons' Den is the show that Shark Tank is based on. It has run for many seasons in the UK and Canada (and short runs in Australia and Ireland and elsewhere). Episodes can be found on Youtube.

In turn, Dragon's Den was based on a Japanese show (The Tigers of Money).

How about Dragon's Den? The Canadian version is probably the closest counterpart to America's Shark Tank.

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.

  > 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.

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.

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.

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.

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.

I think this is kind of the point though. It just shows how many businesses (albeit with sampling bias for the show) can be turned around with simple "Management 101" techniques and processes. It doesn't quite seem like a fair criticism to say that he isn't taking enough risk for your liking.

You're right, if I had said that it would not be fair.

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.

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?

The business is losing money and by not taking a salary the owner is trying to prolong the inevitable. However in most cases he or she isn't making any changes in how the business is run so real improvement is nearly impossible. In effect all they're doing is delaying the business closing.

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.

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.

Isn't it just an indicator that the business isn't making any money?

I suppose and that makes sense, but that's more of a correlation/symptom of failure, whereas 1-3 seem more causal

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.

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

Yep, and that's exactly why suits and management are so important -- their competence determines whether the business survives.

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.

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

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?

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.

> 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.

"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 and https://news.ycombinator.com/item?id=4328660 and http://www.romenrg.com/blog/2015/09/28/why-asking-developers...

and The Mythical Man-Month, too.

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.

> Also, good programmers tend to be undisciplined.

I'm curious if that's coorelated to ADD. As I definitely fit into this category.

Most startups I've worked with utilize product managers to compensate for this, coordinating the work of engineers, which can be helpful. But in many situations I've found the engineers knew what was best for the product than these guys, who were typically older non-technical types with business experience (typically at larger firms). Largely because engineers have lived and breathed software since they were kids, tried to understand them, and know what makes good products intuitively. Plus they're usually smarter in general.

So I believe the best product managers are ones who seek input from developers as equally as they delegate/manage tasks. The worst ones are the ones who think they always know best and see the engineers as merely workhorses who are there to implement their (and the founders) vision. As middlemen they create a disconnect between programmers/designers and the founder. Or, worse, just saddle engineers with endless tickets with no clear vision or higher level thinking.

The very worst are the ones who think everything is about setting up processes and systematizing everything. Which they learned working at big companies and then try to pigeonhole it onto fast-moving startups... ultimately slowing everything down for little benefit, creating more risk out of failed attempt to manage/minimize future risk.

Having survived a few startup disasters, I also resisted the imposition of process.

Looking back, I think it was a mistake.

It sounds like our experiences were similar; I was very anti-process, but now see the value.

I read about a really interesting concept - "the null process" [0] - recently. The idea is that there is always a set way of doing things (a process) whether it's documented or not.

[0] - https://kateheddleston.com/blog/the-null-process

The danger of process is that while some amount of official process is super valuable, it's very very very hard to only have a little process.

Once you start hiring for people specifically responsible for managing the process, you've got people whose incentives line up more with "furthering the process" than "furthering the underlying enterprise."

But yeah, places that say they have no process are falling into the same trap as places with "flat orgs" - there are always some power brokers once you're over 10 people or so, it's just not always documented (and even a non-flat org can hide the true power holders).

Yeah, as in all things in life, balance is required.

That sounds like a pretty good heuristic, btw - when you are hiring people who only manage process, question your amount of process.

You can measure on metrics such as:

* code performance (speed, CPU, memory, frame drops, network speed, etc)

* hardware cost efficiency

* outage rates

* crash-free rates

* app freeze rates

* error rates

* general developer waiting times such as checkout times, build times, CI waiting times, IDE indexing times, build-run-test cycle times, etc

* Engineer % time in meetings based on calendars

* Amount of employee time spent interacting with bug tracker websites

You can also measure on business metric improvements such as profitability, increased revenues and so on.

These aren't good for measuring the productivity of any specific engineer, but they are great for measuring the productivity of the team / firm as a whole. You can also do projects to explicitly improve these metrics. And since they are numbers, they are far more attractive to managers to look at.

> 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.

Being creative but undisciplined makes someone mediocre at best.

I was trying to figure a few of these out myself as I was reading the article...

Dropping low-margin products/services could mean companies stop making small websites or apps for local companies. Keeping organized could mean making sure AWS assets are tagged and tracked or that all code is version-controlled with proper branches and deployments. Knowing the numbers could mean being able to say at any given point in time how your revenue stacks up against your costs (again maybe with AWS). Keeping things clean could mean consistent file organization, tidy personal machines or servers without stray SSH keys or software.

I definitely feel like whenever I watch shows like The Profit or Restaurant Impossible I learn the same lessons: personal issues manifest and destroy, keep an eye on margins, don't be afraid to manage, keep things tidy.

I think about this a lot. And I don't think it transfers at all.

Software is a design business. You win by building the thing people want and selling a lot of it. The hard problem is identifying a real need and getting whatever it is to market ahead of your competition. If you're doing it right, cost control isn't that important.

By way of contrast, any business that touches inventory, you're dealing with suppliers, margins, shipping, waste and spoilage, credit lines, labor management (unions!) and a whole bunch of other stuff with zero analog in software. Most people aren't that good at this stuff or can't be bothered with it so industries just sort of go on and on without much change.

The thing most people outside of software aren't used to, is that software is INTENSELY competitive. People in older industries talk about "going global" like it's something they have to do. Software people should rightfully laugh at that. When you make bits, you're competing with the entire world from day 1. Most other companies just don't have nearly this level of competition and would get crushed by it, except that "local" is usually somewhat of a barrier to competition.

I’d say most software isn’t global because it works with the real world - uber, Amazon, Facebook, all of them started local.

You may be interested in "The Phoenix Project" [0] which tries to apply some lessons from factory management to IT organizations.

My biggest take-away (and it's served me well as a team lead) is minimize work in progress (WIP). In practice, that meant encouraging contributors to focus on getting opened PRs reviewed/merged/deployed rather than opening new ones - which has cascading benefits.

A related takeaway is that when resources (engineers, key machines) are planned to be at capacity, they have no slack for dealing with unplanned work, so it's good to plan for resources to be under-utilized at certain times so that they can be more agile.

I've never seen "The Profit" but I'm looking forward to watching it now!

[0] - https://www.amazon.com/Phoenix-Project-DevOps-Helping-Busine...

EDIT: for link to book

My tongue-in-cheek simple rules:

1. Charge more for your product than the marginal cost to provide it to customers.

2. Get rid of complexity and overhead, streamline systems.

3. Manage your cashflow, I've seen amazing things done with e.g. trade credit, annual subscriptions, etc. to turn a break-even business into a cash-flow-positive business.

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.

> 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.

> So, by losing a small amount of money on some ridiculous businesses

Check out the recap in episode 1, season 5. Some of them make quite a good profit.. and some don't.

> he makes a whole lot more on the back end of being on TV, selling business books, giving speeches..

hm.. did you do the math on this? Seems like you would have to sell a lot of books to cover losses of a few million USD per year [1]. And AFAIK he's not selling any books (?).

[1] https://en.wikipedia.org/wiki/The_Profit_(TV_series)

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

That doesn't seem true to me. If a company is relatively well run and still struggling, it will likely be much harder to turn around than one that is struggling simply because it is run extremely poorly...

100% this. Actually seeing through to the incentives and motives behind it in order to see the context for what it is.

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.

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.

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...

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

This is exactly why it's such a bad idea to blindly set your prices according to what the competition charges. That competition may just be slowly going out of business, and now you're following them!

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."

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.

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.

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.

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

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