Ben Hansen – More Revenue and Less Profit

Mactus Group went from about $4 million in revenue with a million dollars

of bottom line net profitability to $13 million in revenue with about $900,000

in bottom line net profitability.

you know, I gotta tell you, it's it it's still hard to say,

but I mean I knew we had like a big fight coming,

like a huge effort to

And man, I was just so beaten up at that point that that I just kinda

sat there and watched, you know,

watched the house burn.

Welcome to From the Ground Up Show.

Honest conversations with people who have built their lives,

careers, and businesses with heart,

hands, and hustle. Your host, Erick Loden,

acquired and scaled his family's roofing company,

growing annual revenue more than eightfold and operating profit about

15 fold before choosing an internal sale and retiring from the business at 37.

Join Erick and his guests for the hard-earned lessons behind real success.

today should be a a fun show. It'll be really interesting,

I think. I think we're gonna learn a lot.

My guest is Ben Hansen, who is founder of Profit Doctor,

where he helps owner-led business-to-business service companies find

the profit that is already hiding inside their own businesses.

Before becoming Profit Doctor,

Ben worked at Dell and Microsoft,

then bootstrapped Mactus Group from zero to an eight-figure consulting

and staffing firm with more than 100 employees.

Under his leadership, the company earned five consecutive spots on the Inc.

5000.

But that growth also taught him a hard lesson.

Rising revenue does not automatically create rising profit,

freedom, or fulfillment for the owner.

Ben now helps founders diagnose what he calls profititis,

the condition where revenue grows while margins stay flat or decline,

and fix it by identifying unprofitable customers,

services, pricing, and work. his perspective combines

a Cornell education and MBA from the University of Texas,

Fortune 100 experience, and the scar tissue of building and eventually exiting

a fast growing company. Ben Hansen,

welcome to From the Ground Up Show.

Erick, thanks for having me. I'm really looking forward to it.

man, this is gonna be fun. you've worked at some big companies.

You've started and run a company of your own.

you you know all the tips of the big corporations and know the struggle

of doing it from the ground up and bootstrapping something.

I'm excited to learn all you have to share with us.

But we like to start every show learning a little bit about you and where

you came from and maybe the background that produces someone with your skill

and experience. So

I understand you were born in Ithaca,

New York, to two Cornell trained anthropologists and spent part

of your early childhood in Africa.

What was that like?

Well, it was before I really remember,

so so I just hear, you know, stories of my very early days.

That was about six months to two and a half years.

You know, you were Okay. saying, what is it that that I don't know,

forms or inspires entrepreneurs in their youth?

allegedly, the way it goes is that I was named after Yeah. a famous chief, like I had a village name,

from the Chiluvali in northwest Zambia.

And when the visiting dignitaries would come to that village,

there'd be the regular chief in his like throne,

and then right next to it, little Chinyama,

white boy, you know, a year, year and a half old,

with his little chair greeting these people.

And so I kind of joke that as a as a chief,

quasi-chief at like a year and a half old,

it's been all downhill since then.

But Ha ha ha.

I did have a chance to go back to that same village when I was seven months old,

sorry, seven years old for about three months.

And then I got a chance to go to a neighboring country,

Malawi, for when I was eleven and twelve.

So that was like seventh and eighth grade.

and I certainly remember those other trips,

but that first trip I don't remember.

Yeah. Yeah. Okay. Well with

two with two parents that are anthropologists and traveling the world growing

up in different cultures, do you feel like the exposure to those cultures

has given you a unique perspective that has played a role in your leadership

and your business journey?

Absolutely. You know, one of the,

I don't know, skills or characteristics I think I don't know,

inherited from my parents. Cultural anthropologists,

or probably most social scientists,

get a lot of their information by interviewing,

I don't know, their subjects or the people that they're studying or whatnot.

And I always felt that one of my gifts or my core tools was to really,

you know, gather insight and information.

information

from the people that I'm working with.

So just as an example, when I used to work at Microsoft,

I I went out one time because we had this one product.

That we're like, man, we don't love the economics of that back in Redmond.

We're like, we don't love this,

but why are our best sales reps for selling that product selling it?

And why are our sales reps that are struggling not selling it?

And so I kind of went to some different districts around the US and really just like

deeply interviewed, you know, the the sales reps and the district managers

and so forth, and came up with some really productive insights.

And then when I bought brought that back to Redmond.

We were able to turn that into a big marketing program and roll that out.

referenced in the Wall Street Journal as the single largest promotion that they've

ever done with Microsoft, Windows,

and Office back in gosh, like the Stone Ages now.

But anyway, so my point of all that is I think an ability

to deeply listen to customers or other people who have like core

insights into the the

situation or the problem

And you know, these days, that's typically both the direct client for me,

which would be the CEO of a mid-sized company,

and then folks on their management team,

sometimes even that company's clients,

as well as other experts that might have information to feed into the problem.

But I mean it's shocking how much of an understanding a person could gain

on a problem by, you know, just talking to the people who are already deep into it.

That's fantastic. Yeah, I think there's a lot of business coaches

and different programs out there where,

you know, all they do is produce content.

Here's the answers, just read this,

it'll take care of it. They tell you what to do,

but that different tact of really diving into the problem,

getting information and learning about what that specific company,

their customer, their issue, I'm sure that's a huge advantage and and makes

you much more successful than maybe some of the other people in your field.

So

so when you were a kid, were you kinda naturally analytical,

asking a lot of questions? Did you have an early entrepreneurial bent,

really curious, really competitive?

What what was your personality like growing up?

Yeah, I will say I was always sort of money centric and money oriented,

entrepreneurial, like how can we make money,

odd jobs, allowance. You know,

I I tell this story.

One afternoon I I called my dad and asked him if he would give us a ride

to the University Museum, which is about five miles from our house.

And so he came back, and then me and my buddy Paul had a little paper shopping

bag and we put it in the back seat,

you can believe, Pinto Station Wagon of exploding fame,

and drove that to he drove us to the museum,

and then we kind of navigated down into the basement and knocked.

This door, and this kind of you know,

older gentleman opened the door wearing like a white lab coat,

and I put this bag on his desk,

and he was like, Is that it? And I said,

Yep. And so he took, you know,

put on these big gloves and a like a big like face shield

and these like three-foot-long tongs,

and like picked this paper bag up and then set it over in like

a large glass enclosure and kind of tipped it out,

and then out slithered like a three and a half-foot coral snake,

which Which is like a monster coral snake.

They they normally top out at I don't know two,

two and a half feet or something like that.

And his eyes kind of bugged out like,

man, this little kid wasn't crazy.

I think I was I don't know, like thirteen or something at that time.

And and then ultimately they they realize that this coral snake,

coral snakes eat other snakes,

and so they're hard to manage in captivity.

I guess they don't eat, so typically they don't last that long.

but this one had just eaten, which is probably why a couple

of thirteen-year-old kids were successful in capturing it and it just stayed

in the bag instead of like slithering out into the car.

Anyway, my dad's face like was like,

my gosh, what? We did not give him the the full.

411 in advance on that. And anyway,

so me and my buddy Paul were like,

we're gonna go into the snake catching business.

Cotton mouse, rattlesnakes,

copperheads, you know, stuff like that.

And we're gonna sell them to like pet stores and hospitals to create like anti

venom. My mom has like a total meltdown,

and we finally she's terrified of snakes,

and we we finally end up with what I call snake aloud.

allowance. And so I'm getting paid,

I can't remember now, ten or fifteen dollars a week to not catch snakes.

And And I tell that story sometimes to audiences because I use that as a

bit of a euphemism with a little bit of my coaching philosophy on

how to improve profitability. In many cases,

businesses can make more money by not doing things,

as in like not catching snakes or releasing the toxic,

poisonous, debilitating parts that they already have in their business.

Anyway, you know, mowing lawns and junior achievement and you know managing,

you know, school fundraisers. I guess I was always wired to that sort of

how do we make money approach to things.

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Okay. And Yeah. I I understand as you graduated high school,

you chose to attend Cornell. can you tell us a little bit about that decision?

W why pick college over going directly into the ver workforce

and why select Cornell?

Well, why Cornell was fairly easy. It was the best school I got into.

I think it was because both my parents went to school there,

so they threw me a bone.

You know, I was not that eager to go to college,

and in fact, some of the folks on this call might appreciate.

for a guy who was generally like pretty much like a straight A type student,

and actually could have graduated out of high school a year early and go to college,

I actually got a D and an F. I think my first semester,

or maybe it was a second semester in in at Cornell.

And if you can believe it, I got a D.

I think I can't remember which one was which.

One was acting, and the other was formal logic.

and formal logic is something I was really good at.

It just I got this U-shaped thing backwards on four questions on my final exam,

and I think I got a D. And also,

I think, man, I just it it took me a while in college to sort of find my footing.

Why did I go? It just, you know,

partly everybody in my family,

you know, had like master's and doctor's degrees.

And they're like, you gotta go.

And it just seemed like I should probably go through now while I was in

the in the school mode and then like take the break to find myself rather than

go, you know, tour around Europe or go get a job or whatever for a couple years

and then you know reevaluate. and I guess I would say,

you know, now it's a bit of a different time,

but you know, like

I I think when you're in school mode,

it's often a good program to stay in school mode.

That being said, when you go back with a mission and of your own volition

and pay in your own way, you probably take it a lot more seriously.

Yeah. So it sounds like education was a pretty strong value in your home growing up.

what advice would you give your own kids today?

Do you think college education is as valuable now as it was then?

You know, I think that that there's a lot of options now,

right? I mean, YouTube university,

so to speak, and all the online approaches and AI and everything.

It also seems like kids, I mean kids,

I don't know, even in their teens and early twenties,

seem like people are taking a little bit longer to sort of mature and like grow

up and act like adults.

And so, you know, I don't know if college is the new high school.

there's, you know, one approach that's that,

and then the other one is you can learn everything you want,

you know, online. I kind of think they're both true,

but man, to learn everything online,

you've gotta be really freaking self motivated and disciplined.

And I think if you're not that

I don't know that that's gonna work out.

I would also say that there's a tremendous amount of like socialization

and interpersonal development that that comes in college.

And you know, I mean there's a lot to be said for being an entrepreneur right

out of the gate. I think there's also a lot to be said for like,

how do they do it at those companies that are best in class at that thing?

You know, I don't know, whether it's a five million dollar roofing company

or a two trillion dollar SpaceX.

You know, it it'd be unlikely that the average kid rolling out of high school

at eighteen, in spite of what you know,

the stereotype says that they think,

has figured it all out. And I think your your education and your life growth

and trajectory can often go a lot faster by getting some we'll just say

on the job training, whether that's university or you know,

work at at some company that's like best in class.

but definitely don't waste those years.

when i in a in a in a space where you're not like learning and feeling compelled,

you know. If y if you can help it Yeah. right. Sometimes you gotta you gotta earn a paycheck to survive and that makes sense

to do to do. That's its own set of lessons.

But boy, it's nice to be able to,

I don't know, learn from the people who are like great at something.

Yeah, I appreciate that answer.

That's a little bit different track than I think I've heard before,

but you got a lot of good points in there.

I appreciate that. So Yeah. absolutely. H hopefully there'll be at least one or two more good points before the session's over. yeah

I know you you mentioned a lot of things there,

the the social development, just a space and a time to mature.

How much of your, you know, initial bachelor's degree from Cornell,

how much of that information do you still utilize today or have

you utilized throughout your career?

Was it mostly a a developing space or did you gain some specific knowledge that

has helped you?

Yeah, my my undergraduate stuff was

Double major I was kind of a you know,

come from a nerdy household, so there you go.

You know, double major like political science and economics and

a focus on international relations.

And and that is not exactly what people do in business.

It's sort of like one of those degrees that prepares you for a lot

of things but doesn't really train you for any particular job.

So I mean I think things that you learn there is I also joined

the public speaking team.

Cornell, I would say that that is definitely a set of skills that

can absolutely help people in their future careers that involve people

and leadership and things like that.

So I I guess I would just say you learn how to think,

you learn how to not argue like but you know how to construct you know

a compelling point of view, I guess,

how to write.

Some useful things. I will say that a good chunk of those economic theories

do sort of crop back and come around in real life.

You know, what what guides people in terms of like buying decisions

and things like that? There are some basic economic reasons that that

are involved in that. but you know,

a lot of those liberal arts type degrees are more.

preparing you for life or other things,

but not exactly training you to do a job.

You know, if I had gotten a degree in electrical engineering,

my guess is the next five years I would have actually been doing

the things that they taught me to do in college.

Whereas, you know, Russian political science is not something that

is helping me when I'm selling computer systems in Texas.

Yeah. And you you later went back to school to get an MBA.

what were the things you were or what were the gaps you were hoping that

MBA would fill in and did it do so?

Well back in the day an MBA was like a pretty prized thing.

A lot of people used it to switch careers or advance up the management ladder.

And you know, l very common that somebody would do,

you know, if you're on that like fast business track,

you do, you know, two to five years working at like in industry,

so to speak, or at companies, and then you go back with some sense of what

the real world is doing, get your theoretical business degree,

like MBA.

and then you're like set for Wall Street or consulting or you know Fortune

500 or whatever. And so my goal was learn sales in the real world.

So I I worked at a couple small companies in the sales teams.

for three years and then I thought I would learn,

you know, finance and operations and stuff like that in business school.

And and that's generally what happened.

And then I went into more like marketing and entrepreneurship from that.

w one of the pri the one of the biggest differences from undergrad

to graduate school is undergrad I felt a little bit like you're pressured to go.

And a little bit like I was phoning it in,

but of course I didn't want to do poorly.

but it but I but I was, you know,

you're you're taking a lot of required classes that you feel like you have

to do versus you're excited to do.

And then when I went back to business school,

it was like, wow, you know, I chose this because I love this,

I'm really interested and inspired,

and it made it made a huge difference in terms of my,

you know, how how much I applied myself.

And then the things that I was learning were things that I was really interested

in and you know arguably better at that than French literature or other things

and nothing wrong with French literature.

It just was stuff that I sucked at.

Okay. All Yeah. right. So we've covered early childhood education.

run us through kind of your early career track.

Maybe, you know, how did you get your your job there at Dell?

when and why did you transition to Microsoft?

And were there any key points that you learned in those work experiences that have

benefited you long term?

Gosh, so many mistakes in my career trajectory.

Maybe just don't do what I did. Okay. You know,

so business school is here in Austin.

I'm actually back in Austin now after quite a while in

the Pacific Northwest Seattle working for Microsoft.

But but I left business school.

To work at a company where I had done like an internship in.

It was sort of a smaller sort of a startup or a an a company that'd been around

for a while and like new breadth of you know VC backed,

let's go big on software. And then and then I joined another startup

and then I joined Dell. lot

Dell is headquartered here in Austin.

So a lot of back and a lot of cross- pollination between the University

of Texas and Dell. I really like Dell,

the big team. You know, so much to learn.

you know, at that time Dell was just crushing it in the personal computer industry

or or

I mean, it wasn't just personal computers,

but in the computer industry and so much to learn about direct marketing

and how they track things and how to operate in a larger team and

the the politics of it. And you know,

if you've never been in a large organization,

there's

In some ways it's incredibly frustrating because it can take a long time

and there's a lot of layers maybe of bureaucracy and overhead and people that need

to be convinced in order for something to happen.

But but once like the battleship turns,

like it is a awesome feeling or I mean it's it's pretty impressive.

You know, when I when I went to from Dell to Microsoft

I had this analogy that Microsoft wasn't a battleship or an aircraft carrier

in the analogy of slow to move.

Microsoft was a whole armada. It was hard to get things to you know turn right

or turn left, but boy, once you got literally the whole fleet like going that way.

It was impressive. Like what happens when tens of thousands of

IT people and business people around the United States and around

the world are locked in on something.

You've got your own thousand-person sales team going after that.

You've got just scads of market research and investment and sales

and products and pricing and engineering.

And I mean it's it's pretty cool.

so I was fortunate at both Dell and Microsoft to kind of

lead some different sorts of initiatives.

We could jump into them if you want.

And while sometimes it takes a while to you know turn the fleet,

it was pretty cool when you did.

Well, I I'd like to learn a little bit more about that.

Maybe specifically, you know,

I think a big part of leadership is vision casting and being able

to convince your team of where you're headed,

why you're headed there, get all going the same direction,

kinda like you're talking about.

in those massive organizations where it takes so much time to turn,

it's impressive to me you're talking about the you know,

feeling like you have that force behind you and you have the whole team going

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What did you learn about leadership and vision casting in that environment?

How how are you able to get ten thousand employees all focused in one direction,

going the same direction, working together?

I would say that that both at Dell and at Microsoft,

you know, they were very, very strong in so many areas,

and then often there were some areas that maybe there there was some weakness.

And then if you could come, here'd be a good example.

I had a buddy, and when so this is all in marketing,

before he would take on any marketing initiative.

He would commission a piece a study from a professional market research company

to go run some market research on that.

And you'd be like, duh, who wouldn't do that?

So that you would know, I don't know,

that choosy moms choose GIF, or you know,

Fruity Pebbles sells more in the big box and the little box,

or I don't know, whatever it is,

right? But he was like, no, no,

no. I kind of already know the answer of what we want to do,

but when I'm in a meeting.

With 30 people who all think they know the right answer,

I'm gonna trot out that marketing study,

which nobody else would have bothered to read.

And then I'll say, hey,

we commissioned a marketing study on this,

and it unequivocally said, choosy moms do choose GIF.

And then everybody else in the meeting,

who A hadn't read it, B was a little weak in that area,

would kind of shut the something up,

and then he could kind of push through and and and drive forward on that.

And I thought that was genius.

For me, what I kind of already alluded to it.

I would go do a field tour because you might have heard there's this idea like

the the ivory towered corporate where they,

you know, think they know everything but they're never out in the field.

Well, there's some truth to that.

And so if I got on a plane and went to three different local places like Dallas,

Atlanta, and I can't remember the other place that we went to for this project,

and you know, rode around with salespeople and met with the district manager

and stuff, and then when I come back to Microsoft and you're in the same room.

of thirty people and twenty nine of have whatever that is,

fifty eight different opinions,

you're like, Well, when I went to the field,

you know, this is what they said.

And then

Just like my buddy Alexi used the marketing study to get people to like stop talking

and say, okay, that was usually enough to get people like,

you're saying you actually talked to real sales reps,

rode around in real cars, and talked to real Yeah.

customers, and they said, We want help implementing your products.

And so if we give like some free services to help implement those products,

when you buy, you know, a three million dollar site license.

That's gonna make people buy. And I'm like,

yep, that's exactly what they said.

Then they're like, okay, here's a check for $30 million.

Why don't you go try it out? and so that was the the largest promotion

on Microsoft Office at that time,

according to the Wall Street Journal.

There you go, boom. man. Wow, that's a cool experience.

Were there any other key lessons that you learned at Dell or

at Microsoft and maybe specifically this time more kind of your specialty

now in managing revenue,

focusing on profits? Were there any lessons that you learned from those

big companies that you think the average owner operator might miss out on?

Yeah. One of the things that was really so I'll give you the the punchline.

One of the things I learned at Dell is a maniacal focus on margins

and margin dollars as a yardstick to help them decide what to do.

So at this time, this is like nineteen ninety,

eight, nine, two thousand, something like that,

Dell was killing.

Other people in the computer space like Compaq,

which is gone now, and others,

because they sold direct, and those other people would like sell to Comp

USA or other people, and then those people would then sell to customers.

And there's a whole lot of reasons why that was problematic.

But a really big one is Compaq didn't really know who was paying what

for what item, how much it cost to ultimately sell it to them,

and they were like disintermediated from that data.

But because Dell at that time,

similar to Amazon now, knew like customer by customer,

transaction by transaction, what the costs were to deliver something.

And what the price was or the margin,

they were like when they ran an ad,

they knew if that ad generated sales.

Now in the days of online that we have now,

you're like, well, come on, everybody knows that.

Well, back in the day that was not the case.

a lot of that advertising was like TV ads and magazines and direct mail

and stuff like that, a lot harder to track than like a pop-up ad,

let's say, where you like buy now ten dollars off kind of thing.

And my point of that is that Dell was maniacal on optimizing everything they

did for what they called margin dollars.

So if I spend $100,000 running an ad.

And then that ad sells X amount of stuff,

and the difference between the cost of delivering that stuff and what

we made wasn't a million dollars,

10 times that $100,000 ad, we're not going to run that ad anymore,

right? Or on the sales floor, like the guys on the sales floor knew that

if I transitioned you from a 17-inch monitor to a 19-inch monitor,

Dell, instead of making $32 margin dollars,

made $42.

Margin dollars, they chose to do that because they were also compensated

on margin dollars. Now that's kind of a long story,

and you might be thinking, what does that have to do with roofing?

Or what does that have to do with plumbing?

So glad you asked, Erick. Ha ha.

A very large percentage of the clients that I work with,

imagine you know, seven and eight-figure companies,

the CEOs of those companies, a lot of like trades and blue-collar companies,

they don't know the profitability like service by service or product

by product or customer by customer or customer group by customer group.

And so if at Dell they could tell you,

when you sell the 17-inch monitor,

you make 32 bucks. And when you sell the 19-inch monitor,

whatever I said before, 42 bucks,

like they knew what that meant.

And if they theoretically needed to reduce the price of that $300 19-inch monitor

by five bucks, maybe they were still making money.

But just but they couldn't reduce it by ten dollars and still make any money.

And so many like construction and trades people are selling jobs

at a loss or at break-even to stay busy,

maybe because they're not quite clear,

unexpected cost overruns a whole bunch.

And I'd love to get into that stuff later after you're after I get off the couch,

Mr. Freud, talking about my childhood and my issues with my mom and dad

and and all that.

But but not having the understanding of profitability or margin or margin dollars,

like by these more narrow things.

Products and services, customer project types,

you know, a lot of construction and trades is like this project versus that project.

so that is huge. And I learned so much about that at Dell,

and I love applying it now with my clients.

That's fantastic. That that was actually one of my pet peeves running

my business all the time is a lot of service industries,

they have just kind of a standard markup.

We mark up materials Yep. this much, we mark up labor this much,

and I think there's a lot more to that.

in that you you have to normalize your overhead costs across that markup.

So, you know, a a small dollar line item,

the standard markup, if it takes

more time, you might actually be losing money by the time you factor

in the overhead. Whereas the the large dollar item,

maybe you're making an incredible amount of money on that one.

And like you said, with the monitors,

you have room to discount that one a little bit.

so we always use some metrics.

you also have to account for, you know,

what are the bottlenecks in your specific business.

When I was running my business,

it was labor was kind of our biggest bottleneck.

So we ran everything through a lens of profit dollars per hour or or you know, Yep.

Labour hour. bil not billable, yeah, labor hour.

And so, you know, we i we would s apply our standard markups to a job,

but then it got filtered through profit dollars per labor hour.

Yeah. And if we weren't kind of where we wanted to be,

then we would adjust up or down from there to ensure that whether we were doing

the the quick, easy job or the hard detailed job or the low material job,

high material job, we were still kind of right where we wanted to be profit wise.

and we weren't working really hard to break even because overhead was eating

up all the difference. It sounds like is that kind of the concept you're talking

about, but just a little bit different metric?

boy. great thought. You know, like four thing three things came out of that

and I'm I'm not sure I can remember them all,

but maybe you can help me. One is I re there's like a powerful translation layer

there, right? So it's unlikely that a guy swinging a hammer on a roof

is gonna be thinking cost accounting.

So having a way to like translate important things to them,

right? Like, hey guys, our goal in February is you know,

how can we for every hour you're on the job site,

you know. We need to bill a thousand dollars.

said another way, if you can be on the job site less,

we can be profitable on this job,

right? So there's that kind of translation layer,

very powerful. We could talk about that and do some real world examples.

Then you're talking about how a lot of times smaller jobs versus bigger jobs,

there's an un uneven understanding of profitability,

uneven allocation of overhead,

sometimes favoring one and sometimes

Favoring another. And then there's another part of that,

which is, you know, here'd be a good example.

Let's say, well, just make it up.

Let's say when you guys do steel roofs,

you guys are lights out, everything is done perfect every time.

And when you guys do asphalt roofs,

let's say, we're not that good at it.

I don't know, pick your favorite reason.

A lot of times we're getting called back out,

or you know, there's leaks or whatever goes wrong,

so we got to rework or

We don't get paid or insurance gets higher,

or I don't know, costs. You know,

there's a lot to be said for we'll call it an uneven distribution

of those soft costs or overhead costs or whatever.

Like a good example is any kind of work where you're coming out and doing rework

or there's like a big punch list,

or you're not very good at it,

or customers are pissed off and slow pay or don't pay,

some kind something in there.

of course it'd be great if you just fix it,

but since you've probably been trying to fix it for years,

maybe the answer isn't fixing it.

Maybe the answer is not doing it,

charging a lot more, doing something radically different.

And so what you were saying, you know,

really there's a couple of cool parts to that.

and I'll leave that as maybe choose your own adventure or or another path that Yeah. Yeah. you want to get into.

Yeah. That was another thing we looked at when when I kind of took over

the business was I looked at you know,

when we do this type of job, we struggle and I don't make any money.

And when we do this type of job,

everybody knows what's going on and we make a lot of money.

And so we started getting really narrow with Yeah. our product offerings and with our services and our focus and ended up telling

a lot of customers no, y you know,

we don't We don't do that. Here's a great number for somebody that can take care

of you because it was just like you said, Yeah. the the soft costs of fixing problems and things came up.

yeah, it's good stuff. You you gotta know those numbers,

gotta and I think one mistake a lot of the business owners make is they they focus

on the revenue. E everybody wants to run a big business,

but w we're we're all in business to make money for ourselves,

our families.

provide money for a business to grow,

provide money for our employees and give them a good standard of living.

And so big revenue with no profits doesn't really help any of those goals.

Have you been reading my website,

Erick Mann? Ha ha ha.

So you're you're right on the money there.

I mean, I I actually call it one of the biggest profit myths is this over focus

on revenue and under focus on profitability.

For those mid-sized companies,

you're generally getting paid,

and what is l what is truthfully driving your success is the bottom line.

But what most people are focusing on,

you know, 150% of their energy is growing that top line.

And when you overfocus on something that's actually maybe less important than

something else, you end up with a problem.

Yeah. And so that's the problem that many of these mid sized companies are facing.

They're just hammering, hammering,

hammering on sales, growth, revenue,

and they're not really focusing on profitability,

net income, how I get paid, because they're thinking if I just sell more,

everything's gonna work out.

Yeah. Awesome. Well, I I wanna dive into that a lot deeper and I know that's kinda

your expertise, but let's kinda wrap up your your story up to the current era first.

So it sounds like you were wildly successful at at Dell and Microsoft,

running some large teams in charge of some big initiatives,

seeing some big success. why step out of that corporate r world to

do your own thing? What what

initiated that effort to start your own business rather than just staying where

you were.

So

So one of my suppliers

when I was at Microsoft, took me out to lunch in his brand new Mercedes.

And I'm just thinking, WTF, man.

So at that time, I purchased the services of these contract,

project management, and marketing folks.

So I ran a lot of you know projects where we where we hired kind of like staff,

but instead of being employees,

they were contractors.

And in many cases, several of these very successful companies,

their first work with Microsoft had been for me.

I would find really high-caliber people and try to get them on

my team as subcontractors. And because they were so dang high caliber,

they're like, well, shoot, I'm gonna start my own company.

And then three years later, they've got a four million dollar company taking

me out for lunch in this Mercedes,

and I'm like, man.

Three years ago I wrote down on a napkin how you should run this business,

and now you're making 10 times more money than me.

What am I doing wrong here? So that kind of sparked me a little bit to do that.

And I used to sort of say, in a joking manner,

that I left Microsoft to start a company selling what I used to buy

to the people that I used to work with.

And that was not far off the truth.

So that was exactly what Mactus Group did.

We basically sold.

Consulting and contract marketing and marketing analytics services,

a lot of it to Microsoft, as well as some other companies in the Pacific Northwest.

And w what did your wife think or what did your friends think when you quit

a a high paying job at a Fortune One Hundred company to start a an upstart?

Yeah, well at that time I wasn't married.

but it was Okay. definitely a bit of a gulp moment.

So around the same time I was buying a house.

And it looks a lot better on a mortgage application to say,

you know, six years with Microsoft than six days with a company I just started.

So I think I closed on that house and got the mortgage,

I think it was in in February of twenty of two thousand and seven,

and then

Let's see, March. Sorry, somewhere in March or February,

I can't remember now, 2007. And then April,

like March 31st was my last day at Microsoft,

something like that, or the Friday.

And then the Monday was, I think it was April 1st,

which is a little bit of a mind bending date to start with the company.

And so I'm like, and now I've got this mortgage.

so it was definitely a gulp moment.

But I was pretty confident in in how I had done it and and it worked out well.

Grew that company to about thirteen million in revenue over about eight

and a half years. a lot of awards for fastest growing and best places

to work and stuff like that. And it was a lot of fun.

take us through kind of the the summary of building that company?

I mean how did you get started?

maybe what were some of the early fears or if you had any,

it sounds like maybe you had a unique insight into these services

and business that is that had done that because of your your experience with them

previously, but was there any one thing that you were most afraid of?

Well the thing that I was most afraid of and that ultimately became a problem

is I was beautifully specialized to or adapted to work

in that Microsoft ecosystem. And everybody said,

you know, you're so dependent or beholden on one client,

you know, client concentration is a big risk.

And ultimately that served to be a bit of our undoing.

Maybe a story for another podcast.

But ironically, I was, while there was there was a lot of,

you know, nail biting, if you will,

during that time in the grand scheme of things,

I was actually really confident that that was gonna work out.

And it was just because, man, for the six years before that,

I knew this thing inside and out,

because I'd probably already spent

I don't know, five million dollars of Microsoft's money hiring or

or purchasing the exact same things that I was then gonna go sell later,

maybe even more than that. And so I really kind of had an insider view of that.

If I were to translate that into a piece of advice,

I guess, theoretically we're trying to educate and inspire young entrepreneurs,

you know, it's not clear that you'll be able to know everything in advance.

But I would absolutely invite you guys to kind of do your homework.

Now there's a lot of ways to do it.

but if you already have, quote,

a good job, I think there's no reason you couldn't,

you know, be working part-time in this new thing until you know enough about what

the heck's going on to maybe transition and make the plunge.

Partly it'll be easier to pay the rent.

but then you know, it's easier to go backwards if it turns out to be a disaster.

you don't have to. Or what you

usually happens is it's going to take you,

you know, twice as long and cost twice to four times as much to get this thing

off the ground. If you're earning a paycheck a little bit while you're doing it,

or maybe if it takes twice as long,

you've got a bit of a backstop while you're figuring it out.

versus like, okay, it's only gonna take two months to get everything going,

and then come to find out, well,

everybody else took twenty-two months,

and so you're twice as good only takes you eleven,

but that still's not two months,

you know. and I'm Yeah. not suggesting that everybody has to do it that way,

but I think the big suggestion,

the extent with which you can narrow the region of darkness,

understand what you're getting into,

learn more about it, you know,

before you jump in

and, you know, bet the farm on something.

probably probably good advice.

Yeah, I'm I'm stealing this from somebody smarter than me,

but I've heard the three rules of entrepreneurship is it's twice as hard

as you thought, it takes twice as long as you thought,

and it costs twice as much as you thought.

D did you experience that or did you already have that pretty well dialed

in because of your experience?

Did you still have to claw through it being a little bit harder than you expected?

Well, I'll say for Mactus Group,

man, maybe just my my head and my ego is so big.

but but it worked out pretty good for me.

well, I'll tell you, Okay. you know, I I timed my exit to match up with my first project.

So I was our first consultant,

and I already had a purchase order lined up for me to start before I quit.

You follow me? Okay. Yeah. So, I mean maybe it did take a little bit longer,

but again, I I timed it up so that it lined up pretty good.

I will say that with Profit Doctor,

what I didn't anticipate as much is like,

you know, in the 2020s, so to speak,

the internet and coaching and consulting,

it's such a noisy space that I found it a lot more challenging to kind

of to be heard. And I mean if you come to Yeah. our website and you look at some of our our

our client results, you're like,

wow, that's amazing. But then people are like,

well it can't be true, or everybody else is saying that their stuff is so great too.

And I guess I I still feel like our stuff really works.

And not a lot of those other system I mean I don't want to cast doubt about others.

I'm sure plenty of other systems do work.

But I see a lot of stuff on the internet that I'm kind of scratching my head like,

wow, I I know that is not going to deliver.

And so as Yeah. a result, the the Profit Doctor work has in fact been more like that phrase that

you shared, whereas Mactus Group was more like,

I got it nailed, and we we did real well.

Yeah. That's incredible.

So you you ran Mactus Group for eight years,

and then exited and sold. what was the impetus for selling and and going into Profit

Doctor? Why not stay with Mactus Group?

Yeah. So let me just fill in the blanks a little bit more.

We, you know, I developed that phrase profititis from my own personal experience.

Mactus Group went from about $4 million in revenue with a million dollars

of bottom line net profitability to $13 million in revenue with about $900,000

in bottom line net profitability.

And that is the definition of profititis,

where top line revenue and sales are

Healthy, growing, expanding, but bottom line profit,

net revenue, net income, sorry,

not net revenue.

Is sort of flat, weak, sick. And so we had very healthy top line growth,

but basically flat and weak net profitability.

We essentially grew to a point where instead of having about a 21-22% net profit,

it was more like seven percent.

And along with that, I learned so many lessons about what not to do.

And during that time, I really got.

kind of burnt out with things.

And during that phase, while we were doing so well on top line,

bottom line was really struggling,

a lot of problems came with that,

and I got super burnt out. And then that company really,

I'll just say got a lot weaker.

And so when we started having some friction with our largest client,

you know, I gotta tell you, it's it it's still hard to say,

but I mean I knew we had like a big fight coming,

like a huge effort to

And man, I was just so beaten up at that point that that I just kinda

sat there and watched, you know,

watched the house burn.

So Yeah. i it was more of a an exit out of necessity or just needing to do something else. w would you still consider it a successful exit?

Were you able to walk away with a a good start for your next venture?

Yeah. You know, I look at it a little bit differently than a lot of people

do and I kind of co actually I want to go back to something you know,

I and sort of look at if I wanna look at the bright side of Mactus Group,

while it sort of went downhill

Out of that came a deep desire in me to help other people avoid a similar fate,

to learn from the smart things that I did and to avoid the so many,

so many dumb things that I did.

And then out of that came Profit Doctor,

which is you know, initially some ideas that I started working with some companies

to put together, and then I really codified that into a system,

and now we repeat that system,

you know. On an annual basis with new clients and get really great results.

So very excited about how one thing going down really created something else.

You know, one of the things you asked was,

did I consider it a successful exit?

And since that time, I really rethought and recast what

a successful exit is. And the first thing I would say is for almost everybody who's

listening to this podcast, who is in like construction and trades

and things like that, those are generally businesses that are designed

to be cash flow and profit positive every year.

Those kind of businesses should,

I hate to say Say should on somebody be doing what we call a cash flow exit.

A cash flow exit is where every year you're making money.

And then, in fact, if your company implodes and there is never a big pop at the end,

you've already got a successful exit.

And so for me, we had a great cash flow exit because I was making

a million dollars a year for almost 10 years in a row.

What we didn't do is have a big pop at the end.

And what I learned from that is for those of you who are growing,

growing, growing at all costs with terrible profitability,

hoping you'll have a big pop at the end,

you are cruising for a rude awakening.

Because selling a construction and trades business is generally valued

as a multiple of profit, not revenue.

And as you optimize revenue at the cost of profitability,

it's not clear that your business is becoming worth more.

And in fact, in many cases, your business is getting weaker and you may

be forced to sell at the wrong time,

at lousy terms, and end up walking away with not very much.

So we have a different formula,

cash flow exit, which is optimizing for profitability now,

and then you'll find that all the things you do to optimize

for profitability will likely make growth easier.

And then when you Yeah. when and if you do choose to sell,

your company will be larger and more profitable.

We call that the double double.

Double profit, double size. And then that is a business that's worth a lot more.

And you get to sell on your own terms and your own timeline.

man. Well that I was not smart enough to figure that out or know that in an advance,

but that's almost exactly my story.

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Or more realistically, an avid listener.

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when when I let's hear your story, Erick.

when I bought and took over my business,

it was a successful business,

it was doing well, it was making good money,

and I didn't really have a great desire to scale or grow it.

I was just like, man, if we can just keep doing this,

this is awesome. And so I focused all of my energy and attention into quality,

maintaining our reputation.

And then efficiency, you know,

focusing on the the net Yeah. profit and not having to be the biggest guy in the space,

but making the most off of the revenue that we had.

And I did that for eight or ten years.

felt like we really kinda got that dialed in.

I had intentionally actually kept our scale relatively small because I

saw all the statistics about in our space and roofing the companies that started

to scale lost profitability.

And I thought, man, why would you do twice as much work for the same amount

of money? I'm just gonna stay small and have less overhead,

less hassle, less liability and make the same amount of money.

And it it finally occurred to me that if we dialed in all of those systems properly

and r and kept our focus on quality and efficiency,

maybe we could start to scale without having that problem everybody else had.

Maybe we could slowly start to scale and maintain that profitability.

And it was when we started to scale,

maintaining that profitability that we really caught the eye

of some interested buyers and had a a number of interested buyers that were

all kind of vying for a a good position there to make an offer and it it

we got that that double win you were talking about without really meaning to.

My my whole career I had done just what you were talking about,

the cash flow exit. I was like,

Man, I gotta just maximize what I'm making along the way.

And when we're all done, if I make something off of the exit,

that'll just be gravy on top. but I,

you know, I want to make my my future,

my retirement, my plan work just off of what we're making along the way.

And we benefited from that that double win that you're talking about.

So Nice.

so let's let's dive into that a little more.

I know we're both really anxious to talk about that.

you mentioned that Profit Doctor was really born from some of the mistakes

you had made previously.

can you li highlight a few of those and give us kind of like the

the big picture idea? What are some of the big lessons that you work with your

clients on? Yeah.

I'll tell you one of the the biggest lessons that that I

Did not understand or did not appreciate was how important it was to kind

of keep the owner's gas tank full.

And that is like a metaphor for your enthusiasm and energy and interest

in the business. Because they were going through vendor control.

Consolidation. So I figured if we get twice as big,

we're more likely to stay as a preferred vendor,

even if our total net profitability in terms of dollars stays the same,

which means our margins are essentially shrinking,

right? Or our our take-home margins,

so to speak. What I didn't appreciate is

Is that when you do less lower margin work for more marginal clients with

a less efficient system, you get more problems,

more headaches, more hassles. So while we got three times bigger with

the same net profit, we probably got 10 or 20 times more problems.

And those problems tended to roll downhill and land on my desk.

And it just it just kind of

Beat me up and burn me out. And so one of the things,

like one of the biggest lessons,

is how important it is to not have the negative things,

the problems, the headaches, the energy vampires that are gonna beat down the owner.

And many of the people on this podcast are probably could probably relate.

When you're when you're feeling on top of your game,

it's like no brick wall is thick enough that's gonna stop you from punching.

But when you're like having that off day and beat up and

You know, man, it it's like hard to get up and get after it.

And so I think that was one of the the biggest lessons that I had.

And also I think one of the most powerful things that we do to help

our clients is to help them kind of carve away some of the things that

are sucking that joy out of their life and out of their business

to kind of regenerate their own like fire and enthusiasm.

And then as the business gets kind of leaner.

Meaner, more efficient, more profitable,

less junky stuff, it's easier to make forward progress and the owner

at the same time is like more fired up to break through the walls.

And and the the combination of those things,

like realizing that all that drag

is is worse than it's than you might think at first.

And then it's even more powerful to kind of get more streamlined and have

the owner be like fired up and more intense and intentional.

And the combination of those two sides of the coin,

like really, really powerful.

how do you go about doing that?

I know again, going back to my experience,

we focused a lot on efficiency and staying lean and mean and streamlined,

and I I definitely still felt that.

as we started to scale, you know,

more problems, more jobs, more people,

more people create more problems on more jobs.

And it it did seem to all land on my desk and and felt like a weight.

And there's a lot of times where it's like,

Man, is this even worth it? You know,

I'm making Yeah. a lot more. More money, but life was probably better when I was making less money.

how do you solve that equation,

so that you're you're making more money and enjoying it along the way?

Yeah. Well there's

There's no one size fits all answer to how to have a business be more profitable,

but certainly one of the biggest levers is to focus on those products

or services or projects where your company is really,

really good, and then to do less of the project,

services, or projects where your company is not very good.

Because it's those not very good areas generally that are going to be lower margin,

more. Rework, more problems, less satisfied clients,

more pricing pressure. And all those things tend to lead to more headaches that kind

of beat you up, beat you down,

and hold down your net income and profitability.

And I think you you Hm. Okay. So w

said it yourself.

I think you said after a while we decided we're gonna do more of this kind

of job and less of that other kind of job.

What was that Yes. and why was that and what did you learn or benefit from those kind of decisions?

well that that was actually a lesson that was passed down to me.

I bought my business from my dad who started it and he spent gosh,

probably two decades very specialized.

He he wanted to be the absolute best at one thing.

And towards the end of his tenure the market shifted a little bit,

the product that we were really specialized on kind of got priced out

and the the market was just changing and so we opened it up a little

bit more where we were doing kind of any

Anything and everything that seemed like a a good job,

we would take it on. And when I took over,

our specialty was single ply membrane roofing,

big commercial flat roofs.

And even within that we specialize kinda on only a couple products.

But when I took over the business,

we were doing some metal roofs.

We were doing a couple of different types of single ply.

We were doing you know, a b a bigger variety of jobs just to keep things going

when our favored product had kind of priced out.

And I started looking at the financials and it's like,

man, when we do something that's not our bread and butter,

the learning curve to figure it out,

like you said, the the callbacks,

the solving problems.

I had to spend a lot more time personally on the job site because it

was new stuff that nobody really knew how to do.

So I had to learn how to do it and train everybody else.

And when we were doing the stuff that we did all day,

every day, like jobs just went smooth.

I worked in the office where I was supposed to be and my guys knew what to do.

And you know, we didn't get the callbacks,

we didn't get the this works but it looks ugly.

Can you fix it? you know, things just went a little bit smoother.

So we started

narrowing that scope a little bit more and kind of got it down to where

we had like two products. I was trying to avoid the the two over specialization that

my dad had done of being only on one product that kind of priced itself

out of the market. But we were running like two,

maybe three products that we really focused on and specialized on.

And they were very similar in execution.

So that, you know, the company was just set up to do that.

Yeah. Erick, the story that you just shared,

where a company was probably real successful doing quote one thing,

and then they're like, something changed in the market.

Now we've got to stay busy and try a bunch of things and be more opportunistic,

and how that really can crush your profitability and your spirit and more problems,

and then trying to narrow that to like,

hey, let's go back to focusing on what we'll just call it a handful

of things that we're really good at.

Like that arc is one of the most powerful.

Powerful tools for profitability.

And that is to stop doing the products and services and projects that you're

not very good at. Now, I can't say that for every business that's stick with

two things or 20 things, but generally,

if you look at the at the whole list of stuff you're doing,

there's probably a good chunk on the bottom,

like the worst stuff, that if you started saying no to that,

your business would be way better off.

Yeah. Yeah, that's probably true.

I think it's something else we did once we started to kind of scale a little bit,

you can tell me maybe this was a mistake.

but in in order to encourage some of that scale,

we started taking on a few jobs that were a little bit more outside

of that specialty. But going back to where we started,

we started changing our pricing model.

And so,

You know, I used to say that I loved bidding jobs where I was excited if

I got it and excited if I didn't.

you know, if it was kind of outside of our specialty Mm-hmm.

or specifically what we did or or just outside of kind

of our scheduling capabilities,

we would increase the price pretty significantly where we were confident,

okay, for that much money we can figure it out.

We can solve the problems. And so if you got the job

There's a lot of money in it to make it worthwhile and if you didn't get

the job you don't have to deal with all the headaches.

I is that a a proactive way to approach that or would you say that was a mistake?

I think that's case by case. You know,

it's certainly fortunate that a company can have,

quote, enough volume and be bidding things at a quote high price.

But maybe the reverse that is often a mistake is where people keep bidding jobs kind

of under or at a low price in order to get them.

And then if you're outside your sweet spot,

you know, it's one thing if you're like,

well, we're gonna take two or three jobs,

we know it's It's gonna be a little skinny,

but we're trying to make a name for ourselves in this area,

or we need to get some experience or learn something.

I mean, nothing against that. That's like a strategic investment,

right? But if you start doing a lot of that,

that's not necessarily a strategic investment anymore.

That's like a strategic initiative.

And now, like a big chunk of your work is not very profitable.

So that's probably not a good idea.

Yeah, I think having a a good control on that's a big deal.

I I interviewed someone a few months ago that talked about they they actually

intentionally did a segment of their business at a loss.

but it represented like five percent of their business.

And the pricing they offered for that segment increased the sales across

the segments where they were very profitable.

And so, you know, it was more like a marketing initiative rather than

a trying to grab more business.

They were willing to do five percent of their work at a loss because

it grew the segments that they were making really good money at by

far more than that five percent.

Sure, I mean if that's quote a loss leader,

like we'll do a we'll make it up,

a hundred and ninety nine dollar assessment and we know we're losing

a hundred bucks, but then you know,

a quarter of the time we find that there's a big problem and then it leads

to a twenty thousand dollar job.

Half the time we're like, Okay,

we gotta do ten of those assessments where we lose a hundred bucks each

in order to get a twenty five thousand dollar project.

Okay, maybe that makes sense.

Yeah. For sure. You know, just a story back to efficiency,

you know, you had mentioned that a couple of times.

You know, we we have a client in New York and they do commercial security systems.

And so it's a lot like a construction project,

right? It's a custom bid, you know,

you scope out the area and we're gonna do ten sensors over here

and you know whatever over there and you know we're routing cables and all that.

And you know, for so long they were focused on making sure the customer was happy.

But they were not focused necessarily on making sure the customer was happy,

profitably. And that was like one of the things that we helped instill in them.

And then they cascaded that down to their employees.

And so, you know, we were talking earlier about that translation layer of

how do you get your team to do the right stuff.

And so when the team realized this job has been bid at,

let's say, 140 quote man hours.

Man, you guys out in the field need to deliver that project at 140 man hours,

you know. and so I think one of the most powerful reasons to focus

and to translate what you're doing to your team is so that

you can deliver profitably. I'm so curious what you guys did to drive efficiency

and to deliver profitably.

man. well again I I feel like I stumbled onto it or stole ideas from people that

were a lot smarter than me. but we implemented a pretty strong profit sharing

program. I tried to set all of my guys up so that their base wage

was competitive for the space and paid them enough that they could

pay their bills. Kinda you know,

if if if things went way bad and we didn't have any profit sharing

They had a stable life. They weren't missing payments on stuff.

But we made a big portion of their income profit sharing.

And then you know, all the jobs,

all the guys got a a sheet for the the job before we started the job and it said,

you know, this job has been bid so that we're planning six guys for six days,

full days. You know, so if you guys get it done in five.

There's more money for profit sharing.

And if it takes us eight or nine days,

there's probably not any profit sharing that's gonna happen.

and Nice. so a lot of it was kinda like you're talking about the time,

trying to meet kind of schedules and and time frames and windows that way.

'cause the that labor was the biggest variable expense.

You know, the materials cost what they cost for that project.

although, I mean, we did talk a lot to our guys about waste.

caring for equipment, caring for vehicles that,

you know, every time a piece of equipment is down and we have to pay to fix it,

that's money that's not in that profit sharing pool.

every time we have to order additional materials because we wasted some

on this job or we lost some or we ruined some or whatever,

that's money that's not in that profit sharing pool.

and and just trying to push that that efficiency piece.

we talked a lot about Nice, nice.

in the space we were in, almost every job we got was we got it by being

the lowest price. you know, a lot of were a low bid scenario.

So we'd ask the question, you know,

you guys want to get paid more than other people in our space.

We want to pay you more than other people in the space.

So how do we charge our customer less and pay you guys more?

We have to be more efficient. Yeah. you know, that that's the only solution.

So we have that we do that by profit sharing.

We're gonna pay you a competitive wage.

equal to what you might make at another company and if you can help us

do it more efficiently than those other companies you get to share

in that benefit and that's where you make your extra money.

So That's a super cool story. Was it was it like that when you got involved when you got started?

Was that how people were looking at it before?

N no, it was a little bit smaller,

a little bit more streamlined before,

and I think my dad was kind of just able to will that quality

and efficiently efficiency. He was very involved,

you know, on a a pretty tight level.

And so, you know, when a when a job was going behind he knew it within

a couple hours and was there pushing and making it happen.

the that model was more something that I had implemented as we tried

to scale a little bit and I realized that I couldn't be on the front of everything.

So

I mean I think that's what

We try to share with many of our clients and in your s in in the space,

not just roofing, but construction in general,

you know, being able to deliver per the bid or per the estimate or the budget,

it sounds obvious in the telling right now,

but there's a lot of companies that are not doing that.

You know, the the guys on the implementation team or you know on the site don't have

visibility into how that project is going.

Relative to its budget or its estimated time and materials or whatever.

And if they don't have that and the incentives aren't aligned

and communication's not there,

you know, it's unlikely that you're gonna be like super efficient

in delivering on that. And to me,

that's probably one of the biggest opportunities in construction

and trades companies whose profitability is not great.

You know, something is broken between the bidding and the final,

you know, delivery. Delivery, right? Whether the bidding Yeah. is under bid or the delivery is underbid,

but you know, kind of continuing to go back through that and tune

and communicate and learn from your mistakes and make sure that,

you know, the bidding team or the sales team and the implementation team

are like aligned, right? And everybody Yeah. knows what's supposed to happen.

So what what do you recommend as far as how to communicate that?

I know I've I've talked to a lot of business owners.

Some of are just totally up front.

They share all the numbers of,

you know, what the job costs and what the expenses are supposed to be

and what we're supposed to make off of it.

A lot of business owners are uncomfortable sharing some of that information

or I mean, often some of those numbers just get so big that

It's a bit overwhelming for the average guy that's just in the field and you know,

it feels like, my gosh, well, this is a million dollar job.

We can spend a year here, it'll be fine.

Yep.

you know, so how Yeah. do you share appropriate information,

enough information to communicate that well,

without maybe oversharing or even you know,

communicating some of the oftentimes the owner is faced with some financial stresses

that aren't appropriate for each employee to carry.

You know, if things are not going well,

that's kind of their problem to carry,

not each employee's. So what metrics do you recommend using and and how much

do you share?

Yeah. So there's two parts I think.

One part is how much to share and then maybe what kind of metrics and how

to how to work with the with the folks on the ground.

So, how much to share? You know,

there's kind of a contested topic.

Should we be open book management like Bo Burlingame from The Great Game

of Business? Or I think I sorry,

that's small giants. I think I just messed that up.

or should we be too more close to the vest on things like profitability

and our PL and just share some other numbers?

And and I think that is like case by case.

I'm not generally a fan of open sorry,

I'm not a Of generally trying to tell people that they should do like open book management.

What I would say though is people on the ground need to have some kind

of metrics to know what they're shooting for and how it's going against those

targets. Let me tell you maybe an example from one of my clients.

So this was about a $12 million installation company.

So they're working in high-rises and mid-rise developments like apartment complexes

or towers. And they're implementing,

sorry, they're installing a bunch of stuff.

And so these projects, you know,

they have to coordinate with other trades,

and there's all sorts of scheduling things going on,

and these projects often take several months.

So it's not as obvious on how it's coming.

So what would happen is they would

I know you have some background with Dave Ramsey.

They would they would have too much work at the end of the budget

to be profitable on a lot of jobs,

or too much month at the end of the money,

which I think is one of his phrases.

And And my point there was, you know,

they were like, well, it's a big project,

we're hammering away, so to speak,

installing, installing, and then come to find out that we've,

quote, run out of money, but then there's a punch list that's actually

20% of the labor, as it turns out,

right? And so what we implemented with them is a weekly reporting system where

the foreman of each job would report how much of the project.

Had been completed by the end of the week.

And so that was like the feedback,

like, kind of like think progress billing,

except more internal. So if we're 40% of the way through the work,

sorry, 40% of the way through the job,

but we're 60% of the way through the budgeted manpower,

we got a big old problem. And pretty, Mm-hmm. pretty, please don't get 100% of the way through the scope with 100%

of the budget and forget that.

That there's another, I don't know,

10 to 20 percent, depending on what it is,

of you know, punch list, rework,

you forgot this, what about that?

So it's like maybe we need to get through the scope in let's just say

85% of the labor hours, so that we've got some buffer to really get through

the end of the project, right?

Yeah. And so we implemented, because again,

these are larger projects. It wasn't as obvious as maybe a single family roof where

you're looking at it, there's four steps,

you know, whatever it is, it's 2,000 square feet.

It's sort of obvious like what percent of the way we are through things,

right? But if you're on, you know,

four different levels of three different buildings and you're,

you know, you got 30 guys on there and like different trades and blah,

blah, blah, blah, blah, it's not as obvious, Yeah. right? So then you kind of got to break it down into some chunks.

Assign like a percentage of each project,

which should be because a project that complicated,

somebody had to bid that thing,

right? So theoretically, they came up with a hundred different chunks and

put a set of hours next to each one.

So theoretically, we already know what the hundred chunks are.

So the foreman could, and then we could,

I mean, the guy who bid it.

already assigned X hours to every one of those hundred chunks or or

s some version of that, even if it was sort of allocated, Yeah. Yeah. right? and

then the foreman should be like,

okay, chunk sixty-seven has been allocated seven and a half hours.

Is it done?

Is it half done? You know, and then of course you got your time card systems,

which are usually fairly accurate.

So we basically implemented every week the foreman is turning back

to the home office how far along the project is,

and then the home office is taking that plus the time card data to

be like basically we're 40% through the scope,

not counting, let's say the 20% buffer,

and we're 35% of the way through the,

or let's just say 40% of the way through the hours,

we're behind.

Guys, so then the message goes to the foreman:

Hey guys, we're behind. And I don't know why it is,

but when the guys in the field quote know they're behind.

If it's a good crew, somehow people start catching up.

I don't know why, like why they work Ha ha. faster or more efficiently when they're behind.

But again, it generally kind of works like that,

right? So that was the Yeah. system there. And I can't say that that's the perfect system for every problem,

but that's an example of a system,

right? And Yeah. that worked well because this was a

And again, you know, this is like a 30-person crew separated by different floors

and different buildings and stuff.

It's not as obvious as maybe a five-man crew on a residential roof,

let's just pretend, Yeah. right? Or in the case of that security system,

you know, there's like one or two guys installing that system.

So they kind of know if you tell them,

hey, you got 35 hours to install it,

that's what it's bid at. And by the way,

we when we bid it, here's the four chunks.

Eight hours, seven hours, two hours,

twelve hours, save five hours for the punch list,

you know, you should be able to kind of keep track of that.

And then of course the the the thing that makes it work is then you gotta kind

of go back after the jobs are done and figure out what went right

and what went wrong, and so then you can tune.

And over time you find Yeah. out either the estimator is too aggressive.

Or the team, like this one sucks and that one's great,

or or what, right? Or you come to find out we're not very good

at residential asphalt roofs. We gotta get out of that business because

I don't know, competitors are better at that 'cause whatever it is,

right? So we're gonna stay Yeah. with commercial flat, you know,

low slope membrane roofs or whatever,

you know. Yeah. Yeah. So we we talked earlier,

kinda I mean, businesses exist to make money,

n not just out of greed for the business owner,

but you know, they have to have some motivation to take the risk,

to put in the work, to to do what they do.

The company needs profits plugged back into the company to to maintain

all of its equipment, to grow,

to scale. The employees need incentive and and need to be taken care of well.

How do so many people so easily get distracted from that baseline goal

and end up watching something else and and kind of falling into this profititis

that you're talking about?

Yeah. Two things came out of that question that you just asked.

One is, why is profit so important,

and how to maybe communicate that to the folks on your team.

We're gonna call that profit bus,

like getting people on the profit bus.

We'll come back to that. But you're kind of roll you're circling back

to what we call the the biggest myth of profit,

which is that growth is so important.

And profit we don't have to worry about,

because if we just sell enough,

everything will work out. You know,

I think Mark Cuban, the former owner of the Mavericks,

had this famous quote that says,

Sales cures all. And I think what's happened actually is that people in,

let's just say, construction and trades,

business-to-business services,

law firms, accounting firms, retail,

restaurants, whatever.

They've kind of got this idea that has been planted in their heads from

the popular business press, which is so excited about like Silicon Valley,

IPOs, software as a service, unicorns,

whatever, which is all about spend as much of Daddy's money as possible

to become the number one, two,

or three player in a high-growth new space,

and then IPO, and then work it out.

And that might really make sense with like Zoom or,

you know, Claude AI or whatever.

But it doesn't make any sense for roofing or plumbing

or framing or laying driveways or any of that kind of stuff.

What I think of it is the popular business press is excited about lacrosse,

this kind of niche thing that let's just pretend is so sexy.

But most of the world is playing baseball.

And you need a baseball playbook if you're in the baseball league.

And most of people listening to this podcast,

if you're in construction or trades or blue collar stuff or like regular services,

as compared to VC back SaaS stuff.

You guys are in the baseball business,

Yeah. and you need a baseball playbook,

not a lacrosse playbook. And the baseball playbook is generally cash now,

cash flow exit, net profitability,

not doing work that's unprofitable,

working on margins, specializing to services and customer types that you're really

good at, and then growing within that context.

And I think it's just that big myth that's been put in there because

it feels sexy to talk about revenue or so many like magazine articles or TV,

newspaper, whatever, like growth,

growth, growth, rather than profit,

profit, profit. I think profit feels like it's a little bit of a dirty word because

then it gets to how much money are you making.

And when was the last time you were at a party of business owners that was like,

hey man, how much money do you make?

well, we're twenty-five million in revenue.

No, no, no.

Like what's your paycheck, bro?

People don't do that. But they're really boastful. Yeah.

Like we grew 37% last year, were even willing to publish it in Inc magazine,

but they're not publishing their profitability numbers.

And so that just gets Yeah. people thinking revenue instead.

Not everybody, but it gets so many people laser focused on revenue.

And and a lot of those people are are killing themselves

on profitability because they're not focused on it enough.

two thoughts popped into my head there.

One is how much of that do you think ego plays a role of wanting to be

the guy with the big numbers and throwing out the big numbers?

and then two, I feel like you just kinda touched on,

you know, we live in a culture where revenue represents service.

You you're providing services.

The r the revenue's the big number of how you're serving your community.

The profitability kind of lends itself more towards the how much money

are you making. And we live in a culture that has really villainized you know,

business owners, corporations that make a lot of money.

And so I think a lot of people miss that those two should be linked.

You you make a lot of profits when you provide a lot of services and help

a lot of people. but there seems to be this effort to try to disconnect those.

I guess can you speak to either of those?

How much of that do you think is ego of wanting to focus on the

big number rather than the important number?

And how much does our culture play into that?

I think both of those things are exactly right.

You know, ego of hey, I want to build something that I can be proud of,

and people can, you know, tell me how great I am,

as well as sort of the popular culture that is more focused on revenue and growth,

and it's more polite to talk about scale and growth than it is

to talk about profitability. Because theoretically,

if you're getting rich as a business owner,

if your company is highly profitable,

it's because, quote, you're screwing the customer or screwing the employer.

I guess I'll just say a page out of my own book.

I felt pretty proud of myself when we were growing 40% a year,

year over year, for like eight or ten years,

and everybody was like, Ben, you're a freaking genius.

And it is interesting that you know the popular culture rewards business owners

for growth, but you know, it's really that net profitability that makes

the business strong, that ultimately allows you to survive a storm,

you know, weather some.

bumps and to some extent it really is the scorecard of the marketplace more than

revenue because I mean I mean heck you could give away a billion dollars worth

of free roofing if you had a billion dollars to fund it but that's

not a good business.

No. yeah.

Yeah. Yeah. Businesses exist to make money and that's not a bad thing.

It it's an incredible amount of risk.

It's an incredible amount of work.

to found a business, it's an incredible amount of liability and responsibility.

And you know, someone taking that risk should be rewarded.

And then y you need profits to take care of your employees well,

to make an impact in your community and the places that you live and y you know,

just to continue to do good business.

it it's interesting to me that we live in a culture that has kind

of vilified profits when really that is the the foundation of our economy.

Yeah, Erick, you're totally right.

We have kind of vilified profits as a as a country,

as a you know, popular culture,

whatever. And I think it's really important for business owners to get their team

on what we call the profit bus by communicating with them

how improved profitability is good for the employee.

It allows the company to invest in training,

to typically grow more successfully.

Weather storms generally increase paychecks and offer steady employment.

You know, Mm-hmm. would you rather work for Google,

you know, number one in the industry and highly profitable,

or Yahoo, that's been getting crushed over the years?

You know, would you rather be at Kmart,

which went out of business due to profitability,

or Nordstrom, which did real well on profitability?

Great point. So I know when you first talk to a new client,

you put them through what you call the profit x-ray.

What does that x ray entail? What are you looking for?

What kind of questions or what kind of metrics are you really trying

to dial in on?

You know, we offer a 100% guarantee,

like 100% money-back guarantee,

that we are going to help our clients increase their net profitability

by five percentage points. So if you're at 3% net profitability,

you know, we guarantee that we're gonna get to 8% net profitability.

Now, the way that we can do that is to only accept clients that we know

we can deliver that for, right?

And so that is Yeah. part of what the profit extra.

Ray does is it helps us see is there enough,

I don't know if I'd use the word low-hanging fruit,

but obvious areas that we can help them improve profitability so we

can meet our service guarantee and deliver that kind of value.

It's big value as well, right?

Because five Yeah. percent or five points of net profitability is an extra fifty thousand a year

of net profit per million in revenue.

So for a five million dollar a year company,

that's another quarter million dollars a year of net profitability.

so it's a pretty big guarantee and it's a pretty big benefit,

but we can only offer it to those companies we know we can deliver it for.

And so you're like, what does that profit X ray?

dig into so that we could see if we could deliver for the customer.

And we want to see what their historical revenue and profitability is.

Do they have profititis? Has revenue gone up,

but profits have stayed flat? That often suggests if we could just restore

the healthy balance of what they had before,

we could get a pretty good lift,

right? And then we go through what we call the profit leakage detector,

where we go through the 10 biggest profit leaks to see which of those

may be affecting that company.

and by how much. And so if we don't see a lot of leaks and we see

a highly optimized company or one that never had a lot of profitability,

you know, it's just less likely that we're gonna be able to give them that big,

big jump in three to six months.

But we make a pretty good living delivering on that for people that get it.

and so I just invite people to reach out.

We actually offer that Profit Leaks detector for free.

you know, your listeners can can download it if they want it.

man, that's fantastic. That was gonna be my next question.

I was gonna say, I know I'm digging into your playbook a little bit here,

so feel free to tell me no. But can you can you give us those ten leaks just real

quick off the top? What are what are the ten things that you check

for were profit leaks?

Well, let me share a handful of them and then invite people to download

the copy for themselves. and so it Awesome. said, you know, profitdoctor.com/leak L E A K,

and then you can get the leakage detector yourself.

But some of the biggest ones are some that we already talked about.

So product product service or project selection.

And that basically means are you doing a lot of work that you're not very good

at or not very profitable?

That is a big, big, big leak. Another one is are you servicing customers that you're

not very good at? So let's just take a page out of your book.

You said you guys do a lot of or do a lot of commercial,

you do a lot of single membrane,

I think maybe low pitch, so I guess that's more flat, Yeah. Yep. right?

Let's just pretend I'm not sure that this is true.

Let's say that that is mostly commercial warehouse space.

I don't know. Let's say then industrial warehouses,

or let's just say industrial facilities,

not warehouses, are similar, but somehow those customers don't work good for you.

They're either too cheap or they don't pay or they've got so much heat

in their facility, it puts holes in that membrane.

I'm just making stuff up. But that would be an example of one kind

of customer being really good.

Or maybe, you know, mom and pops are good.

Mid-sized customers are usually mom and pop are less good,

mid-sized really good, and the super giant ones,

you know, they they say, yeah,

we'll do a hundred warehouses,

but then they beat you to death on price and terms,

you don't make any money. So that would be an example of it's almost

the exact same thing, but for a different type of customer.

And certain kind of customers,

like it takes just as much to sell the mom and pop,

but it's a tiny job. And it's so hard to get that big behemoth.

Client, and then they beat you up on the pricing,

you don't make any money. That would be an another one,

like focusing in on the right kind of customer,

whether that's Tom, Sally,

ABC Co. or whether it's the right target market.

You know, mid-size.

industrial or you know lar you know federal government or consumer retail

or whatever, right? So those are a couple of the biggest ones.

And we kind of talked a little bit about pricing.

You know, a big area that people in the construction and trades kind

of get in trouble is somewhere between mispricing and mis-execution,

right? I mean those are sort of two sides of the same coin.

But those would be four areas that are a a big challenge.

Well, we will make sure we get that link in the show notes so that

any listeners can just click right there and get right to it.

I know you've talked before that kind of standard accounting practices

can actually help hide some of these profit issues.

what does a conventional profit and loss statement fail to show and

how do you address that?

Yeah. I'd probably talk about a couple of of things here.

If you can believe this,

Trying remember his name. It's Robert something,

it might come back to me, who's got a who's a member of the Accounting Hall of Fame.

Wrote some very well-renowned books.

He's a Harvard University professor,

and and he has gone on record and saying that even in like Fortune

500 companies that have all the financial resources in the world to dial

in their accounting, traditional accounting techniques send managers astray when

it comes to optimizing for profitability.

in many cases, what's happening,

and you kind of touched on a little bit yourself,

Erick. They are like misrepresenting how soft costs and overhead are applied.

So like a very common way that it might be done are let's say for every dollar

of revenue we assign 15 cents of overhead costs to that.

Well, that's kind of true and it's kind of not true.

If you're doing a little boutique kind of job that's real tricky,

you know, and the CEO and the president and the senior guy for construction

are out there six times a month,

like tweaking it, that thing is not costing your company 15 cents on

the dollar of cost. It's probably 85 cents on the dollar of just manage like

senior-level managers coming out there and poking that thing,

right? So that

Yeah. That that equal apportionment of costs

is often a big culprit in mispricing things.

Also, where does like rework or customers not being happy

or customers crap talking you on Yelp or Google or Angie's list,

where does that show up in your accounting reports?

And the answer is it doesn't. And so for example,

if you guys are great at these commercial membrane roofs and quote terrible

at you know residential asphalt ching

Roofs, it's not showing up on the PL that every time you accept that residential

asphalt re-roof, all these other negative things are accruing to the business,

just as that example, right? Hm.

That's a big one. Another big one is a lot of business owners in

You know, even up to 20 million are often doing cash accounting instead

of accrual-based accounting. And what's happening there is they're often collecting

the money in one month and and getting the costs of actually doing

the work in another month. And the result of that is they look at their

PL and like revenue is going like this,

and costs are going like this,

and profit is going like this.

And so when you look at it month to month,

you're like, I can't make heads or tails of this.

And that is a recipe for not being able to tune up profitability.

Because it's like the the s you know there's more noise in the system than there

is signal. And if you're like,

man, if we could only improve profitability one or one percent a month in a year,

we'd be killing it. But if your PL like every month is jumping around by 10 to 20%,

there's not enough useful information there to help you.

So we definitely work with our clients.

to get that P&L straightened out or sometimes offer an alternative view into

what they're doing so that you can actually look at those numbers

to then optimize and tune things rather than just throwing up your hands because

it's like jumping up and down.

Gotcha. So what what does that process look like?

How do you kinda equalize that and get a a good look at financials to find

out where the leaks are at or if you can be of service to somebody?

Well that's like four questions in one.

But how to clean up somebody's financials?

I mean, I think the biggest thing is if the costs to do the work and

the revenue for doing the work are not sitting in the same time period,

your PL is kind of gibberish.

now at an annual level.

On average, things are happening in the same year.

So it kind of looks a little bit more reasonable.

But you can't really manage year to year.

You want to be managing at least month to month.

And so, you know, in most construction scenarios,

the the reven the the cash coming in.

and the cost going out to like pay to do the work are often not in

the same time period. And unless Yeah. you get them on the same time period in your accounting system,

your accounting reports are kind of gonna be useless for you to

man to optimize profitability.

man. Now I feel like it's you reading my mail.

that wa we struggled with that for a long time.

We we were on accrual accounting,

but we were just not good at importing or i inputting.

the information appropriately and in the right time frames and everything.

And Yeah. that was something we worked really hard to correct over the last year or

two that I owned the business to kind of clean things up.

And and really it wasn't until we got ready to sell that we saw the value

in making that happen. But I ran the business for over a decade

on annual reports rather than monthly reports for exactly

the reason you're describing. So yeah. Yeah. And I would I would just

hypothesize that you probably could have gotten another five points

of net profitability out of the system if month to month you could

see what's going on. Right? 'Cause if you can't I mean h how how are you gonna

Tune that up or you know, we w sometimes what we call is like no bad months.

One of the ways to avoid having a bad month is to see stuff coming.

So like if you're in August and your st your idea of what's going on

is still based on 2025.

Wouldn't it be nice if your idea of what was going on was based on July

or June of twenty twenty six? You know, Yeah.

it's a it's it's a big difference. It's like what we call looking through

the w windshield to try to steer the car versus looking out the rearview mirror

to steer, you know, like Yeah.

That's a great analogy. So I I know I've said a lot of the times,

sometimes what at the time was a difficult project or a difficult customer actually

ended up being a a loyal repeat customer and some of my best raving reviews because

of the way we handled the situation.

But there there are other customers that like you pointed out are just

a you can't serve them well. They're not a good customer for some reason.

How do you distinguish between the two?

Between a a a hiccup that can be corrected and brought on track to be

a a great loyal customer and a raving review versus a customer that needs

to be eliminated.

You know, for those of you who are you are longtime Southwest Airlines fans,

maybe before the last three years of them like totally changing things

up and being a different kind of airline,

they were run for many years by this guy named Herb Kelleher.

And there was this one lady who kept writing them kind of nasty letters.

I don't like it that I don't have my seat assigned and I don't like

it that you don't have food and I don't like it that you're run by these zones.

And finally there's this famous story where

Her Kelleher wrote her a note back which was just like,

Mrs. So and so, we'll miss you,

you know, as a customer because they just could not please her,

because her ideas of what she wanted did not align with what Southwest Airlines

was doing. And

you know, generally speaking, some of the best advice I guess on how

to please a customer that is either just generally unpleasable or

is unpleasable by you, you know,

because if they want to sign seats and you don't offer you're

not gonna make happy, is to serve them to becoming somebody else's customer.

yeah. we've been talking a lot about profitability versus growth and scale.

y you mentioned Dave Ramsey, I am a fan of a lot of his material.

how what is your view of using debt to grow a business?

you know, is that usually the futile attempt to to grow revenue without growing

profitability? Is there a time when it can be leveraged wisely?

how do you advise your clients regarding debt as a a lever to pull

to grow their business?

Well, in many cases, the clients that that I'm working with are people have

a lot of opportunity to grow their profitability.

And in many cases, these folks have debt on the books that they're

not currently able to pay off because their profitability is so low.

and so typically what we do, and I'll just give you an example,

his name is Robert, and he's on the website,

so it's okay to to share a little bit of the details.

You know, they had several hundred thousand dollars worth of debt.

They were losing $20 plus thousand dollars a month.

and he was like making a below market salary.

And so we worked with them to follow some of the things you'll see

on that profit leakage detector,

like optimizing what they were selling,

optimizing who they were selling it to,

optimizing their pricing, having fewer discounts,

tuning up the team that they had on board,

looking at when they were invoicing and things like that.

And as a result, they were able to go from

About negative 10% profitability to positive 10%,

or negative 20k a month to positive 20K a month.

And ultimately that allowed him to pay off that debt,

you know, solidify his position in the company vis-a-vis different investors

and other shareholders and things like that,

and ultimately sell the company for for a big win for him.

And so Yes, debt can be a powerful tool,

but what I almost always say is if you haven't figured out the profitability piece,

you can't grow your way out of a profit problem.

Said differently, if your profit engine is broken,

borrowing money to make that engine get bigger.

is a recipe to flush all that money and have a bigger company that

has more debt with lower profitability and is ultimately weaker on

the inside and less stable.

Yeah, that's a good answer. I can appreciate that.

So I know every industry is different,

every business is different. People have asked me this and I I give

a very soft answer or refuse to answer.

But I'm just curious, in the in the profit doctor and with the business that

you typically work with, what is a reasonable net profit margin or like what what

would you say is

an optimized ideal business versus one that has a lot of room to grow.

Is there kind of a range there that people can shoot for or is that

too diversified to comment?

You know, I'd say in very broad terms,

you know, businesses, you know,

two, three million up to twenty,

twenty-five million, very commonly the range is negative a few percentage points,

up to around twenty percent net profit.

And so we generally think that right around ten percent ish is kind

of the middle point. And so if you're low single digits,

you're likely in the bottom quartile.

And if you're like, you know, 13,

14, 15% plus, let's just say 15% and up,

you're probably in the top quarter,

right? And somewhere around 10% is even,

sorry, is average. The thing that that kind of muddies that water,

and something we cover in the profit x-ray,

is just imagine two businesses.

They have the same revenue, they have

the same net profit, but one business,

the owner, takes zero salary, and the other business,

the owner takes a million dollars in salary.

Are those two businesses the same?

Do they really have the same net profit?

And the answer is obviously those are very different businesses,

right? Let's say two businesses,

$10 million top line, one takes a million dollar salary,

one takes nothing, and then they both end up with a million dollars

at the bottom line. Really, this business is collecting something like

$2 million of paycheck for the owner or net profitability at a zero salary.

And this one's only at one. So that's like twice as profitable as the other one.

What we see very, very commonly is businesses that

are underperforming on profitability,

that CEO is taking a very low salary,

and then they artificially think that their profit is higher than it really is.

So that one Yeah. that was like $10 million top revenue,

$1 million profit, zero salary for the CEO.

If we assume that a market

Salary for a CEO who runs a $10 million company,

let's just say it's $450,000. I don't know,

and come up with all sorts of numbers.

Yeah. That business is not a 10% net profit,

it's really like five and a half percent.

And so we see that Yeah. all the time. And so that business where that guy,

like, hey, we're 10%, we're not doing bad,

I would say actually it's more like 5%,

and the you know, half full, half empty.

To me, that means there's a lot of room for improvement.

you probably could look like that other business and there's a lot more upside.

So what what is an appropriate way to kind of figure out that owner salary versus

business profitability?

Well, I think that everybody who's got an equity well,

everybody in the company, if we were to assume that they were getting

a salary for the work that they did,

that you would have to pay somebody else who was doing a job as good

as they were doing, that's a good starting point.

So if you were gonna

Quit as a CEO and just stay the owner,

and you are gonna backfill yourself as a CEO.

What would you have to offer that person assuming they didn't have

any equity in order to do that job?

And let's say let's just say it was 200 base with a bonus,

and then you know, if they did a good job,

that bonus would be 250K or whatever.

Well, to assume that 450 is the appropriate salary,

then makes some sense. And I'm not suggesting you should pay yourself that money.

and salary, that's like an accounting question.

Talk to your accountant. But from a understanding your profitability point of view,

should definitely factor that in.

And it can get real tricky when let's say you've got three partners

who are all taking a terrible salary.

But you know, before they quit their old job,

they're all making four hundred and some thousand dollars a year,

you're like, wow, you might be artificially pretending you have another million

dollars a year in net profit that you wouldn't really have if you were paying those

owners what it would cost to replace them with three like top notch employees.

Yeah, that's something I see with a lot of especially startup companies,

small companies, is they miss that you are both the owner of the company

and an employee of the company.

You should be getting paid for the work you perform as an employee.

And after paying yourself, you the business should also be profitable

and return a distribution to the owners.

you know, if you don't have both Yeah. I mean

of those pieces you you own a job rather than owning a business.

For sure. And again, I'm not suggesting

How that benefit should be paid to you,

whether it's distribution or W-2,

you know, that's a little bit of a tax question.

But 100% you should be considering both of those aspects,

right? Because if your $10 million company pays you nothing or has nothing

to pay you as Yeah. the owner of the company, that business isn't worth very much because anybody

who would buy it is trying to buy what the company spits out to ownership.

And the flip side is if that company is not paying you a salary,

you know, you are artificially inflating the perceived profit

of the company by a below market salary.

Yeah. man. Ben, well you are a wealth of knowledge.

This has been a ton of fun. I could talk to you for hours,

I think. I think we'd have some great conversations about business

and profitability and accounting,

but I want to be respectful of your time.

we have a few questions that we kinda like to learn about every guest before

we wrap up. So are you a person of a particular faith background?

And if so, how has that impacted your business journey and your leadership?

Yeah, I've never really had you know,

practicing appreciation for religion or gone to church.

I think as I've gotten older I feel more inspired to be kind of more spiritual

and kind of have a faith along those lines.

But but I'm definitely not a religious person.

Okay. And I know y yeah, like I said,

I I've just been impressed with your approach,

your wealth of knowledge. You you have incredible experience.

If we have some listeners that want to reach out to you to take advantage

of your services or take advantage of some of the resources you have available,

we'll we'll get the your website and the leak detector there in the show notes.

Are there other good ways to get a hold of you?

Well, so many. I mean we're on we're on LinkedIn and Instagram and all that stuff.

You can search for Profit Doctor.

But I think the website is definitely one of the best ways.

And on the website, you know, if you've got a like a five to fifty million dollar

business and you're like, Man,

I'm working too hard for what I'm earning or I'm underpaid.

You know, sometimes we joke the profit doctor helps owner CEOs go from underpaid

to overpaid. If that is interesting to anybody listening here,

I would recommend that you come to our website and either download

the profit leakage detector or

There's some links there on how you can like book a call and then we can

see if that profit x-ray is right for you.

we don't we don't offer the profit x-ray to everybody because sometimes it's

not really the right tool, but it's a very,

very eye-opening experience for people to see where they might be leaking profit

and where they could find, you know,

typically hundreds of thousands of dollars per year of incremental profitability

if they could Patch up those profit leaks.

And I know you you just have a wealth of experience,

knowledge, different careers,

I imagine a few mentors. w what has been your best resource to grow?

I guess I'll say too. There's a there's a group called Entrepreneurs Organization.

I'm a big fan of that. It's about 17,000 business owners around the world,

divided up into different chapters in most of the big,

you know, US cities as well as international.

That's a great one. And then, you know,

reading. And and partly

you know, years ago when somebody wrote a book,

it was usually the culmination of their best stuff and their most powerful

resources from a long successful career doing something.

Now sometimes I think it's like,

hey, between you and AI and a ghostwriter,

you can bust out a book and just give that away as a business card to drum

up some business. Well, you know,

buyer beware, I guess, on on those.

But what I love about reading is

If you pick a good book, not only can you get a wealth of knowledge where somebody

really, you know, took their life's work and packaged it in their best stuff

and worked on it for a year or whatever,

but also when you're sitting there in kind of a longer chunk of time going through

it, it really spurs me to you know to think deeper about a topic and kind

of build on itself. I like a lot of audibles for that because it's just

so hard to sit down, but I know whenever I

I do sit down with a book. It just unlocks so many ideas and and creates

a lot more action than when I'm doing the audible like riding my bike around Town

Lake. Good stuff. Awesome. Well, Ben,

thank you so much. Like I said,

I I feel like I'm just ver barely scratching the surface of what you have to offer.

I hope that some of our listeners reach out to you and engage your services.

it sounds like you have a great program and and can really help people grow their

businesses and look at things from a new light.

but I I really appreciate you taking as much time as you have to to be with

us today and offering all the insight that you have.

So thank you.

Awesome, thanks for having me.

And I'll just sort of say two final things.

You know, number one, we are in the business of helping people find hundreds

of thousands of dollars a year of hidden or lost profitability.

If you think that might be you,

you know, reach out to us. And then the second thing is the

the common business misconception is that I'm gonna grow,

grow, grow, and then I'm gonna sell this thing and cash out big time.

And what that often turns into is

I'm gonna grow, grow, grow. It's gonna be fairly low profit.

I think I'm just investing all my profits back in growth.

But often what's happening is we're just not very optimized for growth.

And then we're gonna hire some MA consultant and use the phrase lipstick on

a pig to polish that thing up for private equity or some other person trying

to buy the business. I'm like, man, why not?

Polish that thing up now so every year you can be cash flow exiting.

Exit on your own terms for probably four to ten times more.

and the risk that you are gonna have a zero- dollar sale like

I did goes way up when your profit stinks and you're kind of you know running

on empty. Yeah. man, that's good stuff and a message I think a lot of people need to hear.

So thank you. Okay. Thanks, Erick.

Thank you for joining us here on From the Ground Up Show.

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