The Skullduggery Toy Company was founded in 1987 by Peter Koehl Sr. in Anaheim, California. The business gets its unusual name from the first products the company stocked: museum-quality fossil replicas. When Peter Sr.’s two sons, Peter Jr. and Steven, joined the company, they expanded the product line to include craft kits, games, and toy cars. However, they selected toys and games based on what they thought were fun; they didn’t do any customer research or testing. When the brothers appeared on The Profit, they were losing money and were heavily in debt. Could Marcus Lemonis help save this family business?
Marcus Tours Skullduggery and Makes an Offer
The Profit Season 2 Episode 5
Marcus entered Skullduggery’s large warehouse space and first met Pete Jr., who was Vice-President and in charge of Operations and Logistics. Then Steve, Skullduggery’s President, approached Marcus and introduced himself as “the boss.” That remark earned a bit of side-eye from his brother, Pete.
Marcus asked the brothers about the history of the company and specifically wanted to know why they decided to expand with craft kits, games, and toy cars. Pete Jr. and Steve admitted that they chose products based on what they thought was cool. They were especially proud of their line of racing cars called Max Traxxx Tracer Racers, which are cars that race on flexible tracks and emit an LED light on the glow-in-the-dark tracks as they’re racing. But they were most proud of a game called Aero Flix, which they described as “indoor frisbee golf.” Marcus played for a few minutes, but he didn’t think it was fun at all. Why would anyone want to throw a cardboard disk at a cardboard target?
Marcus then asked Steve and Pete to describe their current financial situation. Steve said they were $800,000 in debt and expected to lose $50,000 that year. Because Skullduggery was losing so much money, it would be nearly impossible to make a profit unless someone like Marcus came in and erased the debt. But before he made his offer, Marcus told the brothers what they would need to do with their products.
First, he recommended scheduling some focus groups with potential customers. The brothers were relying on their own opinions and experience in the toy industry to make decisions about which products to carry, and they didn’t consider any information that was related to customers’ needs. Steve confessed that the company was in debt primarily because they had bet incorrectly on the Aero Flix game. They thought it would sell out and had invested heavily in it, but it just didn’t catch on. Lemonis said Skullduggery should focus on core products that have the potential to earn a significant profit. That core product, suggested Lemonis, was the Max Traxxx racing car because a licensing deal would help it gain distribution in a big box store.
After touring the assembly line, Marcus asked how much it cost to make the LED cars. Each Tracer Racer car cost $1.19 to manufacture with only a 12-cent margin. That wasn’t good. Marcus asked how long it took to make the cars. According to Steve, it took quite a while. If the brothers could improve their efficiency, not only would they be able to increase their margins, but it would enhance their ability to beat other toys to market – a necessity in the extremely competitive toy industry.
Then, Marcus looked at the accounting records and discovered that Skullduggery was not $800,000 in debt, but $1.3 million in the hole, with only $770,000 in assets. Marcus offered the brothers $1.1 million to wipe out the debt and another $1 million in working capital in exchange for 50% of the business.
Steve and Pete Jr. did not take well to this offer. They were insulted and said that they had worked too hard to let someone else run the company. They walked away from the table and closed the door.
Soon after, the brothers reappeared with a counter: 20% of the company in exchange for the $2.2 million. Marcus rejected that but did offer to wipe out the debt in exchange for 30% of the company. The brothers agreed, and Marcus wrote them a check for $1.1 million.
After the Deal – Bumbles and Stumbles
The next steps, according to Marcus, included scheduling focus groups, meeting with a company that could offer a licensing deal, and building a toy lab for brainstorming ideas.
The focus group was problematic, with the brothers insulting both the child participants and their parents. The parents felt like the Skullduggery toys were not unique, and the brothers did not accept that criticism very well. After the focus group ended, Marcus wanted to clear out the inventory that wasn’t selling well, but the brothers tried to stop him from doing that. So far, it didn’t look like Lemonis was in charge.
Next, a meeting with the Chief Marketing Officer of NASCAR (to discuss a licensing deal) turned out to be a disaster, as Steve expressed disdain for the NASCAR organization and told the CMO he didn’t think their brand would be a good match for their cars. Marcus was not at all pleased with the brothers’ behavior and complained that it reflected poorly on him. Despite their feelings about NASCAR, Pete Jr. and Steve would still have to come up with an idea for a tie-in.
So was anything getting off to a good start? Well, Lemonis was pleased with the way the toy lab had come together. It cost $100,000 to build, but he knew it was a good investment that would help the company build revenue. He also purchased a 3D printer for $240,000.
But Marcus was disappointed again when he discovered that the brothers hadn’t even begun to think about the NASCAR tie-in. He left the room, angry and frustrated. Unclear about where they stood with Lemonis, Steve arranged for Marcus to meet his father, Pete Sr. The eldest Koehl disagreed with the way the deal was structured because he wasn’t happy that Marcus had all of the decision-making responsibility. Marcus tried to explain why his approach would help save the family business, but the Koehls just did not see eye-to-eye with Marcus. Lemonis decided to walk away, having lost $100,000 on the failed deal. He was able to return the 3D printer, however.
Skullduggery is still in business in 2019, and it’s still selling its Max Traxxx Tracer Racers along with some new cars under the Max Traxxx label. And they also still sell craft kits and fossil replicas. The company has stayed away from the big box distributors primarily selling online and to smaller, regional toy stores. Its newest toy is a car called Knuckle Headz, a pull-back racing car with spring-triggered character heads. When a car crashes into something, its head pops 12 inches into the air. Maybe the brothers are finally asking kids what they think is cool. Or perhaps knocking heads is a toy that’s relatable for Steve and Pete Jr.
But that frisbee golf toy – Aero Flixx – that Marcus didn’t like? It’s currently sold on Amazon, and the reviewers don’t think it’s very fun, either.
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