Tom Bowen

THE BASICS

• Company: Tumbleweed Tiny House Company
• Product: Small Homes (between 65 and 887 sq. ft)
• Problem: Massive Debt, Slow Production, Mismanagement
• Marcus’s Offer: $3 million for 75% equity
• Season/Episode: Season 5, Episode 2

A Tumbling Tumbleweed

In 2012, Steve Weissman took over tumbleweed tiny house company and transformed it into America’s top manufacturer of tiny homes. He had little experience building homes but managed to grow the company from 5 people working out of a garage to 70 people working out of a 20,000 sq ft warehouse in just a few years. By 2017, sales exceeded $6 million per year. As the company has grown, however, so have operating costs. Desperate to keep the lights on and the business expanding, Steve turned to unconventional loans and credit cards.

By the time Marcus Lemonis and The Profit show up, the company has over a million dollars in debt and is on the verge of bankruptcy.

Marcus feels investing in Tumbleweed is a great opportunity, and decides to lend his expertise – as well his extensive connections with the RV and camping industries – to the company.

Will it be enough? Read on to find out.

Humble Beginnings – Episode Recap

Before Tumbleweed, Steve was a restaurateur. “I really don’t have much experience in manufacturing. I can manufacture a burger,” he says. Suffice it to say, his lack of experience is starting to show.

Weissmann shows Marcus the models – basically tiny, mobile log cabins. They retail at $80,000 price per unit, and can be built 8 at a time. There’s up to a 5-month backlog, however, as they can’t keep up with demand.

The work is unparalleled and the quality is absolutely top-shelf. But endless customization and details requested by each customer throws kinks into the pricing plans and delays production.

• Cost of labor and materials: 60%
• Profit Margins: 30%

The more Marcus digs, the less it seems Weissmann knows about his own company – to say nothing of his industry at large.

Production Process

Marcus meets the production manager and the builders in charge on the factory floor. The production manager gives Marcus a tour and shows him the two types of trailers they use as a foundational frame for each cabin. They make their own frames from scratch, which is a great selling point – but a double-edged sword that dramatically slows down their production time. Customization adds heavy delays.

Each house is built in four distinct stages:

• Floor and frame
• Walls and roof
• Interior
• Finishing touches and customizations

Marcus learns that Steve’s restaurant experience and lack of hands-on-manufacturing experience is interfering with his ability to listen and incorporate valuable feedback from his production team. Marcus learns that there are 7 layers of reporting structure between the builder and the boss.

Sales Process

“If the production team says we can do it, I’m not walking away from the sale,” says Tracy, director of sales. She says yes to everyone, especially if they’re paying cash. They get 20% of the money upfront with a cash sale, which keeps the production team well-stocked in supplies and materials. It’s clear to Marcus that there’s a disconnect between sales, design and production.

Marcus takes Stacy and Austin aside and asks them point-blank:
“Does Steve know what he’s doing?” (No.)
“Does he know how to manage people?” (No.)
“Does he know how to design things?” (No.)
“Who’s really running this company?” (Austin runs the outside, and Tracy runs the inside.)

After a tearful confession of how dire the situation really is at Tumbleweed, Marcus commits to throwing everything he can at the business and see if he can save it from tumbling into extinction.

Marcus sits down with Steve and wife Bernadette to have a heart-to-heart about the health of the business. When he asks them what the year’s been like, Bernadette is clearly exhausted and saddened at the state of things. “We worked really hard, and we’re a week away from bankruptcy,” she says. “It’s been incredibly difficult. I’ve taken a huge risk to get here, and I’ve pushed myself to the limit.”

“Do the people that work here know how bad it is?”

“The top managers do…the rest don’t,” Steve says.

“It’s a lot of pressure,” says Bernadette.

“When business doesn’t go well, it’s hard to be a good father and a good husband. To me, that’s the hardest thing. The most important thing in life is my kids..and I haven’t been there for them.”

Steve and Bernadette’s anguish at the decline of their business is palpable.

Running the Numbers

It’s clear that Tumbleweed is a fantastic product, even if the production process is painfully slow. Marcus sits down with Steve to go over the numbers, including profit & loss statements, annual revenue, and liabilities.

• • Total revenue for last 6 months: $6.9 million
  • Gross profit: $2.5 million
  • Total expenses: $2.6 million
  • Net profit: $-100,000

“Have you ever made money here?” Marcus wants to know. Steve replies that in 2012 they made about $100k, 2013 about the same, and in 2014 about $400,000. It wasn’t until 2015, Steve says, that they started losing money. The expansion was the breaking point. In a disturbing revelation, Steve admits that he took all the money out of the business in 2015, seemingly to pay himself – a confession which draws a look from Marcus that can only be described as “withering.” Perhaps to distract himself from the magnitude of what he’s just heard, Marcus moves ahead with the financials and examines the Tumbleweed balance sheet.

• Liabilities: $2,885,000
• Assets: $1,239,000
• Equity: $-1,646,000 (insolvent)

Customers originally financed the business by paying up front. Steve says he put in only $1,500 of his own money. Marcus has a real problem with the fact that Steve took over a half a million dollars out of his business – when it was still growing.

“Are you running a house of cards?”

Steve says he’s running on the edge (whatever that means).

Marcus says Steve isn’t scared enough of debt. He’s reckless with debt and takes on far too much risk. “That freaks me out,” says Marcus. Scared as he is of the debt and the risk, Marcus recognizes the product is exceptional and the people are spectacular. He is willing to make a deal – albeit an exceedingly aggressive one. 

Marcus’s Offer: $3 million to clean up payables, lenders, and all debts. In exchange, Marcus wants to be paid back, and wants a breathtaking 75% equity.

“Right now, you’re a nice man, and a terrible CEO. CEO is not a title. It’s a philosophy,” says Marcus.

Steve agrees to the terms.

Changes and Adjustments

Marcus lays out the fundamental changes that will be taking place going forward:

Production: Streamlining down from endlessly customizable options to 4 standard models; moving production offsite to accommodate standard production. This accelerates the purchase of raw materials, improving margins. An 8% discount for buying in bulk nets them $4,000 per unit, or $800,000 per year, in additional gross profit.

Organization: Reducing down from 7 layers of management to 2 or 3 at most

Design: Houses will incorporate “creature features,” including mobile phone charging stations, storage spaces, integrated pull-out furniture similar to the kind featured in RVs, and other upgrades. For the first time, Tumbleweed actively seeks employee feedback and input in the design process – not for creating their own individual and hyper-customized units, but for creating each of the four standard design models.

Leadership: Steve must address his problems with conflict management, confrontation and personal sacrifice involved in running the business like a real CEO.

He says the team should be proud of the excellent American product they make, and ensures that going forward, he’s going to be one-hundred-percent in charge.

The Sacrificial Lamb

Steve and Austin meet to have an open dialogue and discuss changes in management. Austin is terrified of losing his job, and says he will be “the sacrificial lamb” when management decides to cut fat and streamline the managerial layers. Steve assures Austin he has no need to worry.

A few days later, Austin quits Tumbleweed and storms out in a rage. In a heart-to-heart with Steve at his new job’s construction site, Austin reveals that the reason he quit was not as selfish or impulsive as it first seemed. He quit, he says, because he was in a closed-door meeting with Steve and Lee, during which they revealed that they were going to be firing at least one manager. Austin sacrificed himself to save the others. In effect, he fulfilled his own prophecy, and made himself the sacrificial lamb.

Because Austin was vital to Marcus’s business plans – in large part, he only invested because of Austin – Marcus goes to great lengths to get Austin back into Tumbleweed. He sets up a meeting and sees to it that Austin is given his job back, fully protected, and that the two bickering managers above him will work together peaceably going forward.

Days later, Lee quits.

“This is the most drama-filled manufacturer I’ve ever seen in my life,” says Marcus.

Equity Lifestyle Properties – A Premier Campground Operator

Once the production process has been standardized – replete with creature features – and managers are showing marked signs of improvement, Marcus sets up a meeting for the Tumbleweed team with Equity Lifestyle Properties, a national buyer who could be a potential game-changer. The standard unit now incorporates customer feedback, employee feedback, design creativity and smart production coordination. The team has made massive improvements in a remarkably short window of time. In a final show of growth, Steve rejects a customer’s customization request, saying they have to stick with the standard model to ensure quality and timeliness of delivery. Marcus is seen beaming with pride in a corner of the tiny cabin.

The episode ends with a heartwarming offer of equity extended to Austin and Tracy, the two strongest employees who kept Tumbleweed afloat when times were hard.

Where Are They Now?

If this episode was all you ever saw of Tumbleweed Tiny Homes, you’d be forgiven for thinking everyone lived happily ever after. The episode wraps up the business with a neat little bow and ends on a heartwarming note. However, as is sadly so often the case with the businesses seen on The Profit, the company struggled to stay afloat after the cameras stopped rolling, and ultimately failed to overcome the obstacles that plagued it from the beginning.

In March of 2020 – three years after this episode aired – Tumbleweed Tiny Homes filed for bankruptcy.

As of today, Tumbleweed Tiny Homes owes $2.75 million in loans and $273,500 in material costs to creditors. Their current assets are valued between $500,000 and $1 million, meaning the total value of their assets declined by at least half a million dollars since 2017.

According to the filing paperwork, Tumbleweed still owes Marcus Lemonis a cool $2.7 million.

All we can say is, Marcus should have listened to his instincts when he first sat down with Steve to go over the numbers. When you trust someone, you never have to ask them if they’re running a house of cards.

Disclaimer: The information provided in this article is strictly informational; Seo Insights is not affiliated with Tumbleweed Tiny Homes, The Profit, or any of its subsidiaries.