I've been saying "volume for vanity, profit for sanity" for so long that people assume it's a slogan. It isn't. It's an autopsy report. There's a body buried under that sentence, and the body is a several-hundred-million-dollar company that trained me, made me, and then died of exactly the disease this book diagnoses — with its scoreboard pointed at the wrong number, all the way to the bottom.
I've told the personal side of this story in my memoir — the training rooms, the mentors, the 5 o'clock and 8 o'clock sits, the whole life of it. This chapter is the business school version. What the company did right, which was plenty. What it did wrong, which was fatal. And why the wrongness was not a few crooked men — though there were a few crooked men — but a measurement problem. The same measurement problem, I promise you, that is alive in some corner of your company right now, at a smaller scale, with a smaller body count.
The company was AMRE, and in the late 1980s it was the biggest thing in home improvement. It sold siding and remodeling under the Sears name — and I want you to understand what that license meant at the kitchen table in 1986, because everything else in this story hangs on it. We were the first SFI program that mattered — "sold, furnished, and installed" through a store — at a moment when the stores had no install programs of their own, Home Depot and Lowe's barely existed, and America still bought its hardware at hardware stores. So when we went out to a Sears customer's home, we weren't received as a contractor. We were received as Sears — the company Grandma had trusted for fifty years — making a house call.
We worked that, and I'll show you exactly how, because the mechanics still make me smile. The lead came off a teletype machine, and you folded that teletype sheet just so — so the Sears logo stuck up out of your shirt pocket where she could see it the whole sit. You explained the relationship between the companies, straight and true, and then you said: "So when we're out here, we're Sears. That makes sense, doesn't it?" And she said yep. And from that word forward, you were Sears. The coldest call in America, arriving pre-warmed by half a century of somebody else's trust. Among ourselves we called it what it was: a license to steal. Not because anybody was stealing — the jobs were real and the siding's still up — but because no salesman on earth was supposed to have it that good.
The money matched. We could earn up to 40 percent commission — four thousand dollars on a ten-thousand-dollar sale, in 1987 dollars. You rarely hit the full forty, but you didn't need to: in 1987 I sold $1.2 million worth of vinyl siding under that badge and made about $138,000. I was twenty-five years old.
The license cost AMRE a royalty on everything — call it 15 percent. Hold that 15 percent. It's the murder weapon, and we'll come back to it.
Inside, the machine was magnificent. I can say that without romance because I was in it: the field was real. Real training — the best sales education I ever got, a system so good that for decades afterward, half the independent contractors in the South were run by men who'd learned the trade in it and gone out on their own. Real appointments, real installs, real customers whose siding is still on their houses. By 1988 the machine was doing hundreds of millions a year. The Christmas party in Dallas looked like a car show.
And I'll tell you the single most valuable thing I carried out of that building, because I ran my own companies on it for the next four decades: the day-of-demonstration price — we called it the IVD back then, the Initial Visit Discount. The whole architecture of the one-call close hangs on it: the best price exists today, while we're both sitting here and the company hasn't paid to chase you. People outside the trade hear that and call it pressure. People inside the trade know what it actually kills: the "let me think it over" that never gets thought over, the second appointment that never happens, the lead you paid real money for evaporating into politeness. AMRE taught me to sell the visit, not the callback — and everything I ever learned later about close rates to issued leads traces straight back to it. I'll show you exactly how the IVD works at the table when we get to the sales block, because it turns out to be the exception to a rule I'm going to make you test against your own books.
And in 1987, the machine went public. That's the hinge of the whole story. Because the day a company goes public, it takes on a second customer — Wall Street — and Wall Street doesn't buy siding. Wall Street buys the number. Growth, this quarter, versus projection. From that day forward, AMRE was serving two masters: the homeowner, who paid for value, and the Street, which paid for volume. You already know which one the scoreboard tracked.
The same year it went public, the projections started missing. Ordinary business weather — the field can't manufacture a quarter on command. But the men upstairs had promised the Street a number, and here's where the story earns its place in this book. They didn't fix the machine. They faked the gauge. Per the SEC, executives inflated the books — overstated inventory, deferred costs improperly, and reported 1988 pretax income at more than double the real figure.
And they did one more thing, the one I still can't get over after all these years. Among the fictions they entered into the books were fictitious sales leads.
I need you to feel that the way the field would have felt it. The lead was the sacred object. The lead was why grown men drove to the office every morning, why the teletype was the most important machine in the building, why I paid a thousand dollars a month in roaming charges to debrief appointments from my car. The lead was the one thing in the company that was unambiguously real — a family, at an address, with a leaking roof, who had asked for help. And the men upstairs counterfeited it. The suits faked the very thing the field drove through the dark to earn. When people ask me why I flinch at vanity metrics, that's why. I watched the vanity number get so hungry it ate the truth.
It unraveled the way these things do: a new chief accounting officer with a working conscience forced the internal numbers straight in 1989; the executives refused to restate publicly; and in 1992 the SEC settled with the company and its former officers. The executive vice president alone handed back $1.78 million in disgorgement, interest, and penalties — money tied to selling his own stock while the books were cooked, which tells you everything about who knew what — and took a ten-year ban from serving as an officer of a public company besides. Even the outside auditors took a penalty, for taking former colleagues' word instead of verifying. Nobody went to prison. The field kept selling the whole time — the jobs were real, remember. Only the numbers were fiction.
The field didn't learn the party was over from an SEC filing, though. We learned it from the commission grid. Around 1991 they walked in and capped us at 25 percent. We all almost quit on the spot — and then we all did the arithmetic and rationalized it, because 25 percent was still real money, and that's the thing about a slippery slope: every individual step looks survivable. A few years later they cut it to 10. That time we walked, all of us. I'd note, for the record, that 10 percent is now pretty much the industry norm in home improvement — the whole trade eventually slid down the slope we were the first ones standing on. But the lesson that matters for this chapter is when the squeeze came: the company started clawing back the field's cut at exactly the moment the upstairs numbers were fiction. When the gauges are fake, the people who own the gauges always come for the people doing the real work. The field is the last honest line item, so the field gets cut first.
Now, the ending. Because the fraud, incredibly, is not what killed AMRE. Companies survive scandals. What killed it was a spreadsheet decision — the purest case of vanity math I have ever seen, and the reason this chapter exists.
By the mid-90s, the fraud settled, AMRE looked at its books and saw one line item it hated: the Sears royalty. Fifteen percent of everything, forever, to a company that "just" lent its name. And virtually all their revenue ran under it. The math boys ran the comparison and found a better deal: license the Century 21 name instead — the real estate brand — for around 3 percent. Twelve points of margin, back in the pocket, overnight. On the spreadsheet it was the smartest move in company history. So at the end of 1995, AMRE let the Sears license go.
"We're the real company," was the logic. We have the salesmen, the crews, the training, the machine. Sears is just a name on our paperwork.
Thirteen months later, AMRE was in bankruptcy. Trading suspended with the stock quoted at 43.75 cents. Shareholders wiped out.
Because the 15 percent was never a royalty. It was rent on the only asset that actually mattered — the name that made a stranger open the door at 5 p.m. The machine, the training, the crews, all of it operated downstream of the doorbell, and Century 21 sold houses, not trust in home repair. Nobody had a "who is this" association with Century 21 at their front door — the door stopped opening, and every magnificent thing behind the door died with it. The men who had counterfeited sales leads turned out not to understand what a real one cost. To the spreadsheet, 15 versus 3 was waste. To the kitchen table, 15 versus 3 was the entire business. They optimized the number and deleted the company.
So what does a dead siding giant have to do with your books? Everything, because the AMRE mistake is not a public-company mistake. It's a measurement mistake, and it scales down perfectly.
AMRE ran on the vanity column — revenue, growth, the reported number — and starved the sanity column: what actually drives profit, and what it truly costs. Every failure in the story is one of those two errors. Faking leads: pumping the vanity metric with fiction. Reporting double the real income: vanity over reality, at gunpoint of a projection. Dropping Sears for twelve spreadsheet points: pricing an asset by what it cost instead of what it produced — they knew the royalty's expense to the penny and its value not at all.
Now the uncomfortable part. You have a Sears license somewhere in your company — something quietly producing your results that your books record only as a cost. Maybe it's the crew chief who never generates a callback, and on the books he's just the highest labor rate. Maybe it's the lead source with the "expensive" CPL whose customers close at full price and refer their neighbors. And your spreadsheet, or your gut, is tempted — the way AMRE's was — to swap it for the 3 percent version. The cheaper crew. The bargain leads. Twelve points back, on paper.
The whole discipline of Part II of this book — every question, every flag, the crew-days, the king metric — exists so you know what your 15 percent is actually buying before the spreadsheet talks you out of it. That's what "profit for sanity" means in practice. Not "make more profit." Measure what actually produces it. Sanity is a working gauge.
And before you decide I'm preaching from a clean record, let me show you my tuition bill. 2003. My own company, Savannah. We nearly doubled — a million-seven to about three-four. We built a new showroom from the ground up. We won awards that year; I was on a magazine cover. Best year of my life, if you were reading the vanity column. And we took our eye off the ball, and at the bottom of all that growth and applause we lost almost a million dollars. I'll be honest about the accounting the way I'm asking you to be honest about yours: we were still on cash-basis books while the company was accelerating hard — by the end of that year we were probably running a five-million pace, on our way to six — so a good piece of that loss was paper. Here's the mechanism, because you may be living it right now: we had collected deposits on a stack of sold-but-unbuilt jobs, and until the work gets credited against them, every one of those deposits sits on the books as a liability. Cash in the bank, owed back out in labor and glass. Growth on cash-basis books doesn't look like winning. It looks like drowning.
And if you think that's rough, understand it's the good version — at least I had the deposits. Flip it around to the SFI contractor, the store-program shop, and the picture gets darker: no money up front at all, carrying the entire job on your own cash until the last screw is in the plate — and as I told you in the last chapter, sometimes a screw on a mirror holds up the check for two more weeks. The store volume sounds wonderful in the sales meeting. Just don't kid yourself about what you're financing while you wait for it.
Now, I'm not against store programs — I was built by one, and you can make a lot of money in them if you do it correctly. But go in with your eyes open: the scorpion will sting you. That's not a maybe. The only questions are when, where, and whether it's lethal — and the answer to "lethal" gets decided years earlier, on the day you set your pricing. Because here's the mistake almost everybody makes with SFI work: they don't charge enough. They price the job like they're getting a deposit, like the check comes when the crew leaves, like the mirror screw doesn't exist. The carry is a real cost — the biggest one in the program — and if it isn't in your price, then every store job you sell is a loan you're making at zero percent to a company with a thousand times your balance sheet. Charge for the sting. The contractors who get rich in these programs aren't the ones who avoided the scorpion. They're the ones who billed for the venom in advance.
And one more rule — a real rule, not a suggestion, and I want it in writing where you can point your partner to it: should you choose to get in bed with that scorpion, don't ever forget what it is, and don't ever — ever — let it become more than 50 percent of your business. The day the store program crosses half your revenue, you no longer have a customer. You have an owner — one who sets your price, holds your cash, and can end you with a memo. You already know what that looks like fully grown, because you just read it: AMRE ran virtually all of its revenue under the Sears license, and when that relationship ended, hundreds of millions of dollars of magnificent machine were dead in thirteen months. The 50 percent line is the difference between a program that feeds you and a program that owns you. Guard it like payroll.
Now — back to my own 2003 books, because I left you standing in that showroom with a paper loss and a fistful of good explanations, and I owe you the honest ending. Cash-basis accounting, deposits sitting as liabilities, growth that looks like drowning — all true, all real. Doesn't matter. Strip out every excuse and the number still reads the same way: it cost us four million dollars to install three million dollars' worth of work. Now you get it. Seventeen years after AMRE, with everything I knew, the disease got me — because the year the scoreboard looks best is the exact year nobody checks the gauge.
So I wrote it on a Post-it note and stuck it on my bathroom mirror, and I read it every morning while I shaved: volume does not mean profit, and you won't see it until it's in the rearview mirror. That note stayed up a full year. Every trip I ever made onto the Inc. 500 — twice, with a company a fraction of AMRE's size — came after that Post-it, by keeping my gauge pointed at the profit column while my competitors chased trophies for volume. Volume gets you a party in Dallas. Profit gets you another year. I've been to the party and I've paid for it. Take the year.
But before you can fix your gauges, we have to talk about the reason they drift in every small company — and it isn't fraud, and it isn't stupidity. It's something much more human, and it has to do with why nobody in your building will tell you the truth. There's a tax on truth-telling in a small company. The next chapter is about who pays it.
From The 48 Questions No Marketer Ever Had the Guts to Ask You. Read Chapter One free →