Block One is five questions, and every owner in America thinks he can answer them before I finish asking. Watch what happens.
What product lines do you run?
What's your typical ticket on each line?
What's your rough gross margin by line — best you know it?
What's your monthly fixed nut — rent, insurance, trucks, salaries, the lights?
How many crews, and how do you split them — A-team, B-team, specialty?
That's it. That's the whole block. No trick questions, no consultant vocabulary, nothing you'd need to look up. This is the stuff of your company the way your address is the stuff of your house. And I start here on purpose, because Block One is where the owner relaxes. He's been bracing for an interrogation and instead he gets asked to describe his own business, which he loves doing, and the answers come easy and confident and fast.
I want them to come easy. Because the speed is the tell.
Let me walk you through what actually happens in the room, question by question, because the surface of this block is inventory and the underside of it is the first X-ray of the whole exam.
Product lines. The list itself is usually clean — windows, siding, sunrooms, gutters, whatever the mix is. What's interesting is the order he gives them in. An owner lists his lines the way he thinks about them, and the line he says first is almost never his most profitable. It's his identity line. Usually it's the thing he started the company with — his baby, from back before he knew what he didn't know. It's the work he came up in, the one on the truck wrap, the one he'd defend in a bar. I write the order down. Six chapters from now, when we've scored every line against the books, that first-mentioned line and the actual best line will be two different lines more often than not, and the distance between them is the size of the identity tax he's been paying.
Let me give you the sunroom version, because I didn't learn this one watching anybody — I paid for it myself, and I've watched every sunroom man since pay for it the same way.
In sunrooms, the identity trap was everything that made the room pretty. The sheetrock. The flooring. The ceiling. The finish work that photographed well and made the customer gasp at the reveal. And here's the rule, and a sunroom man will argue with me exactly the way I would have argued at his age: anything on that room that isn't metal or glass — anything you don't buy direct from a manufacturer, on a product you don't have an exclusive on — loses you money. If you can put it in your truck at Home Depot or Lowe's, you lose money on it. They'd argue with you until you showed them the receipts for the time. Because it's not the margin — the invoice shows margin all day. It's the time and the lost opportunity, and no invoice ever printed shows you either one.
Run the numbers with me, because this is the whole book in one room. There's a sunroom model where you only build certain sizes, on slabs somebody else prepared. Say a ten-by-sixteen, shed roof, three walls, one door, the balance windows. Sell it at $150 a square foot — and that's pretty cheap — and you're at $24,000. That room should stand up complete — walls, roof, caulked, finished — in two days. At a forty percent margin, that's $9,600 of gross profit in two crew-days: $4,800 a crew-day. By most standards, a very good rate.
Now wrap the electric, the concrete, and the finish work into the same sale — be everything to the customer, the way your identity tells you to — and you've got a thirty-five-thousand-dollar dog. The extra eleven grand is pass-through work at Home Depot margins, and it doesn't add a day to the job — it adds three or four. Run it out and you're somewhere around twenty-five hundred a crew-day, and that's if the electrician shows and the pour doesn't sit a week waiting on weather. Half the daily rate, if you're lucky, and days you can never get back. Same room. Same crew. The identity line doesn't just cost you margin. It costs you the better week you would have had without it.
And in case you think the identity tax only shows up one job at a time, let me show you what it looks like at the company level, because I lived this one for years before I saw it.
We were a sunroom company. Everybody knew it. It was on the trucks, it was in the ads, it was the first word out of my mouth at every industry event. We ran four sunroom crews, and most months those four crews installed about five hundred thousand dollars in rooms and brought back around two hundred thousand in gross profit. A real operation, and I was proud of every dollar of it.
We also had a window crew. One. Most months, that one crew ran right around three hundred thousand in volume and a hundred and sixty in gross.
Read those two sentences again, slowly, the way I never did. Four crews of sunrooms: two hundred grand of gross. One crew of windows: a hundred and sixty. One good window crew was earning almost as much for the company as the entire sunroom operation — four trucks, four foremen, four sets of callbacks, four schedules to juggle, permits and glass and inspections and everything that can go sideways on a structure — four times the risk and the exposure, to beat one window crew by forty thousand dollars. Per crew, the windows weren't a little better. They were triple.
And yet if you'd asked me what we were, I'd have said a sunroom company without a flicker of hesitation, because the sunrooms were the identity and the windows were just something we also did. The books had been shouting the truth the whole time. I couldn't hear them over the truck wrap. That's the identity tax at full scale — not a bad job, not a bad month, but an entire org chart built around the second-best thing in the building. So when I write down the order an owner lists his lines in, that's what I'm listening for. I'm listening for a man describing my company back to me.
Typical ticket. Here the answers are usually decent, because ticket is the number owners actually see — it's on every contract they sign. But listen for the word "typical." I've sat with owners whose "typical" sunroom was the best one they sold last year, not the median of the last forty. A man's typical ticket, as stated, tends to run high of his actual average the same way a man's typical golf score runs low. Not lying. Remembering selectively. The books remember differently, and we'll let them.
Margin by line. Now we're at the first load-bearing answer in the exam, and I want to tell you exactly how I handle it, because the handling is the method.
The owner says his margin on windows is about forty-five percent. I write down: forty-five percent — stated, to verify. And I move on. No follow-up, no "are you sure," no raised eyebrow. Court reporter face.
That flag — stated, to verify — might be the single most valuable phrase in this book. Because when we get to the books and pull the real number, one of two things happens. Either the stated margin holds, in which case this owner genuinely knows his business and I now know I can trust his other stated numbers a little more. Or it doesn't hold — and the real number is thirty-one, not forty-five — and we've just found the first gap without arguing about a single thing. He said it. The books said otherwise. There's no fight to have, because I never took a position. I just lined up his own two witnesses and let them disagree with each other.
I'll tell you now: the stated margin misses low maybe one time in ten. The other nine, it misses high. Owners round their margins up the way they round their kids' report cards up, and for the same reason — love. And here's the part that should bother you: every price he's quoted for the last five years was built on the loved number, not the real one. If he thinks he's making forty-five and he's making thirty-one, then every job he discounted "because we've got room in it" was a job where the room was imaginary. The gap between stated margin and real margin isn't a bookkeeping curiosity. It's been inside every deal he ever cut.
The monthly nut. Rent, insurance, the trucks, the salaries, the lights — the number that has to clear before dollar one of profit exists. You would be amazed how many owners of eight-figure companies carry this number as a vibe. "Somewhere around eighty grand, I think." A man who doesn't know his nut to within a couple thousand dollars doesn't actually know what a slow month costs him, which means he doesn't know what an idle crew-day costs him, which means — and we'll get there in the chapters ahead — he cannot possibly know which of his jobs make money. The nut is the floor the whole scoring engine stands on. When the stated nut is fuzzy, I flag it stated, to verify like everything else, and the books firm it up later.
I'll tell you when I stopped carrying my own numbers as a vibe. It was when I started going to the Grosso and Yoho seminars, and then got invited into the masterminds — rooms full of the sharpest operators in this industry, comparing companies line by line. You get called out in front of those guys not knowing your numbers exactly one time. It will never happen again, I can assure you. Nothing in my career firmed up my nut, my margins, and my cost per lead faster than the prospect of saying "somewhere around" in that room twice. Most owners never get that room. This exam is the closest thing I know how to give them.
Crews. Last question in the block, and it sounds like logistics: how many crews, and how do you split them. But notice what the question smuggles in — A-team, B-team, specialty. Every owner answers it instantly, without hesitation, which means every owner already runs a tiered shop and knows it. He's got the crew he'd put on his own mother's house and the crew he hopes doesn't get the complicated one. Fine. Normal. But hold that thought, because in Block Four I'm going to ask his production manager which jobs require the A-team, and the honest answer to that question is going to quietly reprice half his product lines. A job that only pencils when your best crew builds it doesn't have the margin you think it has. It has that margin sometimes, when the right four men are available, and the rest of the time it has a different margin nobody's ever calculated.
Here's why this block comes first, and it's not just to warm the room up.
These five answers are the frame the whole rest of the exam hangs on. Lines times ticket times margin, minus the nut, spread across the crews — that arithmetic is the owner's mental model of his own company. Block One gets the model on the record. Not because the model is wrong. Because until it's written down, it can't be checked, and a model that can't be checked isn't knowledge, it's folklore. Most owners have never once seen their own operating beliefs written on one page. I've watched men stare at that page like it was a stranger's company.
And one more thing before we go to Block Two, because it's the question I get at this point in every engagement: why don't you just pull the books first and skip the asking?
Because the books alone can't tell me what the owner believes, and the belief is half the diagnosis. If I pull your books cold, I find your numbers — fine. But I don't find the forty-five-percent margin you've been quoting against, or the nut you've been guessing at, or the line you love that doesn't love you back. The exam isn't the numbers. The exam is the distance between you and your numbers. I can't measure a distance with only one end of it.
Block One gives me your end. The lay of the land as you see it, stated with confidence, flagged to verify, written down with a straight face.
Now comes the fun part. Now I ask you what you believe.
WORKSHEET — BLOCK ONE: The Lay of the Land
Stop here. Don't read the next chapter yet. This is the part of the book you do. Get the owner and the GM in the same room, print the full-size sheet at myeasysystem.com/worksheets, or just use the margin — I'm not proud. Rule one applies: numbers, not feelings. Write "I don't know" where it's true. That answer counts double.
In the room: Owner + GM.
1. Product lines you run: ______________________________________________ 2. Typical ticket, per line: ______________________________________________ 3. Gross margin by line, best you know it (mark each one "verified" or "gut"): ______________________________________________ 4. Monthly fixed nut — rent, insurance, trucks, salaries, the lights: $ ______________ 5. Crews, and how they split — A-team, B-team, specialty: ______________________________________________
How many answers did you mark "gut"? That number is your fog gauge. Keep going.
From The 48 Questions No Marketer Ever Had the Guts to Ask You. Read Chapter One free →