The problem with this business had little to do its wine stocking program, the minutiae of wine-tasting, or the out-of-synch band. These are of academic interest only and distract from Marcus’ incisive analysis and corrective actions. The core issue, as fully developed developed very early on by Marcus, was the prioritization of low-margin operations (retail wine sales) over higher-margin ones (running a food and wine bar). In fact, the operating margin was insufficient to meet the business’ break-even point. The employees were working hard at losing money. The fix was to increase the profitability of Amazing Grapes by vastly enlarging the visibility, attractiveness, and raw seating capacity of the bar at the expense of retail wine display and storage space. Simple problem, simple fix.
The management/ownership issues, as Sarah touches on, are much more interesting. From what I know of "silent partner" arrangements, I suspect the "investors" had no voting rights (managerial say) in the business, while they may well have had a passive income interest (ownership) in any profits. Generally, such arrangements also provide side benefits such as discounts on bulk wine purchases, free food & drinks, preferred reservations, etc. It is often these little perks that keep investors hooked to a loser business for extraordinary time periods with little or no "static" to the managing partners.
Which brings the managing partners into focus. As Marcus keeps repeating (and then directly violates), he doesn’t buy into businesses with absentee owners. The demoralization of the staff and the fecklessness of Greg and Bill are the obvious reasons for this policy. Marcus correctly intuits that running Greg and Bill off is best done in a two-stage process. First, decrease their ownership to a small minority share, remove their decision-making ability entirely, and carrot & stick them with Marcus turning around the business versus leaving them on the hook for huge personal (and collectible) debts to the vendors. Then, once the business is up and running profitably, Marcus will force Greg and Bill to sell their 25% ownership back to the business in order to provide more stock for distribution to the employees.
Which brings us to the final, most interesting component of the show. Again, Sarah touches on this essential but little-explained aspect of the new Amazing Grapes - the 25% ownership stake given to the "management team." I'm sure that anyone thinking with at least two neurons will see the problem inherent in giving equal shares of stock to both Dan (the wine buyer) and Brian (the, uh, uh, well Brian). And if not equal shares, then how is their ownership ratio determined? And when such a metric is applied to everyone, the problem of differential ownership between similar employees arises. Then, what happens when Dan or the beer guy leaves for greener pastures? If they get a ton of money for their stock, guess what the other owner/employees are likely to do instead of living paycheck-to-paycheck on their salaries? Yup, they quit to cash in. Or if they're clever, they sell their stock back to the company and go back to being regular wage employees. Another complication is what happens when the next great employee walks in the door - say an immensely attractive and able hostess to draw in a more well- heeled clientele? Who's willing to give up their stock so she can have some? Marcus, Dan, the beer guy?
Owner/employee arrangements whether ESOPs or directly-managed programs like the one here are fraught. They all begin well with massively motivated workers, but, just as predictably, these well-intentioned progrms inevitably end up producing division, envy, and perverse incentives that tend to work against the interests of all concerned. I, along with Sarah, wish the show had gone into some of these issues in much greater detail.
