Should I Open My Books to My Employees?

Hello everyone. Welcome to the 21 Hats podcast. I'm your host, Lauren Feldman. This week we have something a little different, a remarkable conversation that focuses on the merits of open book management. The conversation features 6 business owners, 3 of whom are open book skeptics. You may recognize their name, and 3 of whom are true believers. It's not a fight. It's not an argument. It's not even a debate. Instead, it's a lively exchange owner to owner about management strategies, what works and what doesn't. My guess is that this conversation may dissuade some listeners who are intrigued by the notion of opening their books, and I think that's OK. Open book isn't for everybody. On the other hand, I suspect many listeners will have their interests confirmed, but if they choose to proceed, they will do so with their eyes open. Most important, I believe that even listeners who have no interest in opening their books will be fascinated by this intimate discussion of how 6 smart owners run their businesses. First, some background. The father of open book management is Jack Stack, who led a group of factory workers who took over a Springfield, Missouri manufacturing plant some 40 years ago. Stack introduced the concept of revealing the company's finances and training employees to understand them so that they can better understand what drives the business. The idea is to get employees more engaged. All of this has certainly worked for Stack's Company, which is now known as SRC, and where he is still CEO. SRC has become something of a mini conglomerate with dozens of businesses and more than $600 million in annual revenue. One of the businesses created by Stack and SRC is known as the Great Game of Business, which promotes open book management and holds an annual conference, The Gathering of Games, which attracts hundreds of businesses from around the world. The conversation you're about to listen to was hosted last year by the great Game of Business, and I think they deserve tremendous credit for allowing us to have such an honest and hype-free discussion. I've been looking for an opportunity to publish it, and this seems as good a time as any. I started the conversation by asking each of the three skeptics why exactly they're skeptical. Those three skeptics are Jay Gatz, whose companies in Chicago include a picture frame business, artist frame service, and a home furnishing store, Jason Ho. William Vander Bloemen, who is CEO of Vander Bloemen Search Group, a recruiting firm based in Houston that works with churches and other faith-based organizations. And Dana White, who is CEO of Parole Boyd, a chain of hair salons based in Detroit. The true believers are Michael Kielbasa, who is CEO of Kielbasa Smoked Meats, a sausage maker based in San Antonio, Chris McKee, who is managing partner of Venturity, an accounting firm based in Dallas, and Bob Schwartz, who is CEO of Supersuds, a chain of laundromats based in Fredericksburg, Virginia. The episode is titled, Should I Open my books to my employees? I want to start by asking each of our skeptics what their biggest concern is, what's keeping them from opening their books, cause they've all thought about it a little bit. Dana, let me start with you. What's your biggest concern? So I have started or I have tried an open book management system with my staff. Um, uh, at the time, pre-COVID, I had a staff of 19 people. Um, and it has been successful with my operations manager. However, um, my, what I've learned in sharing it, um, I've learned that it's not necessarily a fit for everyone depending on the industry you're in. You know, when you look at your Staff, the culture might be there with your team. But if you're working with people who have some like challenges or aren't there for the business mindset, um, it's really hard to open up your balance sheet and your profit and loss and explain it. They, they'll see it and say, oh, well, you're making this. Why aren't you paying me more? And no matter how many or how many ways we try to explain it to them, um, we found that opening our books can cause some resentment, um, and some questioning as to how we're running the business and even though we were open, we found that it didn't really help the morale of the company. It was fine to do it amongst managers, right? But when it went to our day to day operations with people, it wound up not helping as much as we had hoped. I suspect that's a concern, a lot of people who come to this, uh, share. Uh, William, how about you? What's your biggest concern? Well, maybe I just have a fear of the unknown, Lauren. There are a lot of smart people that do open book and uh they seem to be doing really well. I got good speakers today, so I, I don't know that I have the answer for everyone, but I think that right now I have the best. for our situation. Some of that may be baggage that I'm carrying from having worked in a form of open books uh in my prior life. My prior career was uh actually senior pastor of fairly good sized churches. And in the type of church that we were, uh, everything was open book, uh, including the compensation of every pastor to a congregational vote every year, every line item, how much on books, how much on vacation, how much time, and, and it, it, while it sounds like a transparent thing that quote the stockholders should get to vote on, it, it made it very Very hard to keep people engaged, uh, where we were supposed to be a cause-based business, you'd find people, you know, being envious and you'd like to think that pastors don't act that way, but they do. And, uh, not only was it open book for our company, but it was open book for the world. Everything was on the internet, so it was pretty uh um. Shocking to work in that system. And so maybe I'm just dealing with scar tissue from what I felt to be overly transparent. Well, it's not like you're just imagining these concerns. You, you have some experience in this area. Give us an example. What went wrong? When we try and hire people, they could see what, well, why are you paying the older guys. Who's been here longer but isn't doing nearly as much as I am more than what I'm getting. So the, the, the decision making had to be driven by the dollar, uh, and, and as now in my current career as an owner, I make decisions for the good of the business that don't always make sense for the immediate P&L. And if everyone in my company is looking at everything on the P&L and why in the world are we doing that? That doesn't make sense. Now I've got a bunch of people who are acting like owners when they're not. Freest example, uh, we do searches for all kinds of faith-based teams, so we help churches find their pastors, so that's one of the things we do. Uh, recently, there was a pastor who's about 35 years old, 4 small kids. He's just given a sermon on helping the, the, being the good Samaritan and helping the guy on the side of the road. A couple of nights later, he's driving down the side of the road, sees a car pulled over, stops to help them, um, is trying to repair their car, gets hit by a truck, ends up dying. It's a tiny little church. They would never be able to afford help finding a new pastor, and they're decimated. And I said, we're doing this search and we're not charging them a nickel. And if everything were open books, I guarantee you I'd have somebody saying, but what about the P&L? It's, it's those kinds of, uh, as an owner, the ability to still make highly agile decisions. The currency of our company is our cause. It's why people come to work here, it's why they're engaged, it's why they say it's a fun place to be, a meaningful, significant place to be. Not all businesses are based in a cause for a higher good. Totally understand that. But for us, I read through all of the advantages of Open books, higher employer engagement, more fun in the office, more, uh, you know, front line with customers. All of that for us goes back to our cause and not to our dollar bottom line. So maybe it's baggage from my past, maybe it's that we're. Cause-based and not so dollars based. Uh, but for us right now, it's just not the decision I want to make. I think part of what I'm hearing from you, William, is you're doing OK with what you're doing. Opening the books is a big, seems like a big risky adventure that you don't have a compelling, compelling reason to, uh, to try right now. And Lauren, I should say it also seems like a one-way street, meaning There's no going back once you open them, not unless you want to start over with your staff, and it's interesting. I was reading, getting preparing for this one of the big um competitive advantages of Open book is that you're gonna be forced to keep your book so well that when Investors want to come and look at your company as a potential purchase, they're gonna say, oh, everything's kept so well, and that's usually the big stop on purchases. Well, that's fine. Well, but investors may not want to buy an open book company, and I don't know how they undo that once they buy it. Jay Goltz, you've known Jack Stack for years. You've actually sent people to a gathering of games. You've given this real thought. You've never been able to pull the trigger or gotten to the point where you wanted to pull the trigger, I should say. Tell us what, what, what stopped you. Oh, I did, I did send 3 people down there and I have an unusual business in that I've got everything from 40 factory workers who make, you know, $15.16 $17 an hour. I have managers making $600.80 dollars, $100,000 a year. I've got sales people making $500 so I've got a full, a big range of, of salaries and jobs. Responsibilities. I don't need my employees to act like owners. My employees are responsible. I almost never find them doing anything that I wouldn't be doing. I, I, I have employees that are fully engaged, to look out for the best interests of the company, and they're really solid work with kind of employees. So I don't have an issue with that. The problem, but I have been, I have played around with the Open book. Um, theories because it does make sense on many levels, and I'm sure it works very well for many companies, but the problem I had with it is, you know, oh wait, let's talk about my industry, you know, all, all my businesses are home furnishing related. We took a 30% hit and my guys went down to the The games probably right after that, or a few years after that, and they came back and said, half the people there said they hadn't shown a profit for 5 years and there was no, there was no sharing of any money. How demoralizing. And I had been living through that myself with, I, I decided I was gonna start doing a bonus plan based upon profits and I used to just give it per year. If, uh, you got $25 a year. If you were there 20 years, you got a $500 bonus. If you were there 2 years, you got $50. So I abandoned that and went to some sort of my own half-ass, you know, game of figuring out profits and handing it out. And every year, I dreaded going to the last meeting of the year go, Listen, guys, we really didn't make the money we thought we were going to make. We can't give you a bonus this year. And I Red it. And then finally, a few years ago, I decided to go back to my old method, and I have to tell you, it was this huge albatross off of me. They get their bonus at the end of the year of how long they've been there, everybody's happy, and I've just decided at the moment and I'm still open to it, and like someone can convince me otherwise, I've decided that there's 3 things you could either Not do it, OK, it's working fine. I could do it badly, that would be worse than anything, or I could do it in the best possible way, and I haven't figured out how to get the metrics to work for that. And William, I, I'm right there with every single thing you said, including making decisions. But if I want to buy new trucks because I don't want my trucks to be driving around the city of Chicago all rusted out. The employees go, wait a second, that truck was perfectly good. We could have driven that for another, I didn't get in the business the answer to what everybody thinks they should be doing in the business. I don't really want to leave myself open to having 110 people telling me that, oh no, you shouldn't have spent money on that. We've covered a lot of ground here. We got 3 people now on the hook to answer a lot of questions. Um. Let me, Michael Kielbasa, let me start with you. There's so much to cover and feel free to go anywhere you want to go, but I, I would ask you to start with this question. How do you deal with the, the transparency issue? I, yeah, I, I know this was a concern for yours early on, that uh if people looked at what the numbers really were, that they would run out the door and find a job somewhere else. How have you dealt with people knowing what the real numbers are, uh, inside the business? Well, thank you, Lauren, for uh asking me to be on this, and I, I guess I'm listening to, uh, Dana and William and Jay talk. I'm nodding my head in agreement. More than I thought. Um, it's a risky deal and, and really the reason uh we opened our books was, you know, we were growing our business, we're a sausage manufacturer. Uh, it was 2013, we were We had just launched this program called Values-based Leadership, which is a leadership development program that really puts your, your mission and your vision and your core values at the center of everything you do. And we were starting to grow really fast. We've been growing around 15% a year, and we started growing 25% a year. And that may not sound, sound like a big difference, but it's, it really stretched all of our systems and processes. And I had two conversations going on in our, in our business and we were profitable, don't get me wrong, we were making money, but we, when you're growing 25% a year, you need to be making the margin necessary to finance that growth. And if you don't, you're gonna have to leverage your balance sheet to, to finish. that growth. So I had two conversations going on with my senior managers at this time. One was, hey, Michael, we need to uh start building a new plant, uh, to keep up with our, our, our growth. And the one going on in my head was, hey, we need to start building cash. And, uh, I had to bridge that gap somehow and so I, I reached out, uh, to Vern Harnish actually, some of y'all may know Vern, and he led me to the great game of business. And we opened up our books. And um it was, it was a very uh scary moment for me. I mean, transparency is, is not easy, um, and, but I felt like it was the right thing to do and I really needed to teach people how the business made money and why cash flow. Forget profit, why cash flow is so important. And um, And the moment I opened up the books, I did it with about, we had at the time, we probably had 150 employees. I, uh, I brought in the top 30 managers, including my senior team, and I said, OK, here's reality, guys. This is what we're making. This is how much cash we're generating every year, and it's not enough to keep up with our growth. We got to figure out how to do this. And I went from being a, you know, a boss that was Uh, acting like I was letting them make decisions, but I was really making them all to giving them the information and becoming a coach to allow them to learn how the business makes money and generate cash. So that was 7 or 8 years ago. We've gone through, you know, a lot of peaks and valleys during that, that period, opening up your books is not a panacea. It's, uh, it is, it's a commitment, but we've, you know, growing the business 5X. Over the last 8 years, and, but the more, I guess the most important part of that is we've grown the, the bottom line about T0X. And so um it wouldn't have happened if I, if I didn't have the alignment within my organization over how we make money and generate cash. And so uh it's been a very powerful uh program for us. I, uh, William, to your point, um, I, we, I think we're a little bit unique in the great game of business community. I don't know that we're totally unique, but I think that having the values-based culture and the, and the foundation of that really uh accelerated the adoption of the great Gang principles without having a lot of the drama associated with it. Um. We do not share individual salaries. Um, we are beginning to share uh the balance sheet and teach the balance sheet to our team members. That's a very complex. Uh, element of this. And so we've been really, I say we, we're in, we've been doing that for about a year now. And, um, and so you do have to explain dividends and distributions and things like that. Michael, do you feel like you have people looking over your shoulder? Uh, do, do they challenge you on like Jay's example, buying a truck or, or something like that? Well, I would say they challenged me in a good way. I'll tell you a quick story. We were, uh, this is about. A year after we adopted the great game of business, we had, uh, an HR person had come to me and said, I need help. And I said, Do you want help above you or below you? And she said, no, I'd rather have someone coming above me to help. So I went out on a, on a search to find somebody. I found a very capable person to help. Um, and I brought it to my senior team, and we had vetted this person out, and we were getting ready to pull the trigger on, on bringing her on. And I said to my senior team, tell me what the guys on the school saying about this, bringing in so and so. And, and uh my VP of engineering said, Do you really wanna know? And I said, yeah, I really wanna know. And he, uh, he said, the guys in the maintenance room want to know why we're bringing, why we're adding overhead when we're not making our budget yet. Yeah. I said, wow, that's pretty good, uh, that's pretty good, pretty good, uh, question. Sounds like my father. Anyway, we pulled back on it and we did not hire her and we, we, we lost the person that had come to me and said she needed some help, but we, we managed through it and it was a, uh, a very positive and powerful experience um because it, it told me that the guys on, uh, at least in the maintenance room really understood, uh, how important it is to uh generate. Uh, Ibida and uh cash flow. I have to say, what you've described is, is not necessarily open book management. The fact that the guys in the machine room decided that you shouldn't hire the what? Maybe you would have gotten sued for, for, for not keeping track, maybe you haven't seen the rest of that movie yet. Maybe you think you came out ahead, but maybe you really did need an HR person. You, what you've just told me is, you have Delegated running the company to the guys in the machine room. And I, I, I, I don't see what that has to do with open book management. It, they told you don't spend the money on something that they really don't have the facilities to understand what an HR person really does and the lawsuits and the legal responsibilities and all of that. So that's not helping me with saying, oh this is a good idea. Well, I, I appreciate it, Jay, but, but, but really, um What it did is it challenged our own systems and processes for bringing on additional headcounts and especially uh we had uh it challenged me to think about uh the HR role and um and what we exact, what we really needed. I've been over the over my history, I've been very quick to bring in uh people and um And they just challenged it. And I, I actually give them a lot of credit for challenging uh me. A friend of mine told me along with who is uh one of the most successful business people I've ever been around, said that the, uh, and I believe in this. He said the secret to being successful is surrounding yourself with really smart people and, uh, and then telling them where you want to go and then get out of the way. And so, um, You know, I, I, uh, I do not consider myself the smartest guy in the room in our company, by any stretch of the imagination. Did the people in the machine room ask you what the responsibilities of that job were so they understood what they were mixing? Did they say to you, tell us, explain to us why you think you need to, did they go through that conversation with you? Well, we, we explained that the, the reason we're hiring uh one HR person felt overwhelmed. And they needed help. And their response was, well, let's get rid of her and go find, go find somebody that can, they can, they can take her job. Did you do that? That's what we ended up doing, rather than adding a head count. Chris McKee, I want to bring you into this. You have an accounting firm, you have accountants who presumably, without open book management, had a pretty good feel for how the company was going. I'm curious, how did the transparency change things for you at an accounting firm? I'll say, you know, a lot of the things that the other folks who said really resonate. I actually became aware of the great business probably 5 years before we implemented it, and I was thinking to myself, yeah, that, that's, that, that can't work for us. Why? What were you thinking? Well, like Michael, I was worried that they would be shocked at how little money we were making, and we were doing fine financially, but we were mostly marginally profitable, and there was a lot of opportunity. Um, for, uh, improvement there. And we felt as we, as we grew as an organization, most of what we were trying to do to improve profitability and improve performance was to run around and, and tell people, well, you need to do this, you need to do that, and that was just becoming not at all scalable and, and it wasn't having an impact. And um you know, for us, our gross margin and profitability didn't really Change in those years leading up to implementing the great game of business. So, um, I finally, uh, after, it was kind of after trying everything else, went with opening the books completely, and the great game of business, we brought in a coach and, and took our team through their process, and it helped a ton with educating people and preparing them for um being aware of like what does profit really mean, some of the things that Michael talked about, what are You know, what are, what are these dividends and how does this, and, you know, we have found that we've, um, they really, uh, after going through that process, they really understand that we've got to be profitable as a company to invest in the future and to protect their jobs and, and it actually brought them a real comfort level, uh, at least I think I'm gonna speak from my team, and knowing that we were profitable and, and that they could have an impact on that profitability. So, Um, and I just haven't seen a lot of the issues with, I feel like I do have 40 people running the company now, uh, where they're really having an impact on the things that they do every day, how can we be more efficient and effective, efficient in terms of, um, uh, efficient with our processes and therefore, uh, leading to more profitability and effective in terms of creating a better experience for our clients and therefore retaining our clients and helping us grow as a company. So, I don't know, those are, those are some of the things that kind of came out of it for me, but I, I, I resisted for a long time for some of those same reasons. And, and once I kind of got past that, it was a, we've tried everything else and since then, it really has made a huge impact on, similar to what Michael talked about on profitability. I don't feel like I've got 40 bosses. I feel like I've got 40 fellow leaders or 45 fellow leaders really helping me. Run the company and it's just been a huge weight off of my shoulders from that perspective. Do your people know what everybody makes? No, we don't, we don't reveal salaries. We know they know broadly, you know, we have categories of salaries like um uh the cost of goods sold, salaries that are related to client delivery and then sales and marketing, salaries, DNA salaries, so very broad categories. And, you know, and frankly, we are a little mindful when we're adding GNA salaries, um, uh, about the transparency of that and it really causes us to make, uh, to, um, to ask ourselves, um, if I were, uh, an average employee in this organization, how would this appear to me? And it, it, I think it makes us think about it more mindfully and make better decisions, um, and, and also explain those decisions to the team as well and give them a context for those decisions that we're making. So far in 3 years, I think it's been very collaborative and um I think we've had some good, we've had some decision points in the company where having that sort of thought process and even some of those conversations has held us a little more accountable to some of the decisions that we're making and some we've moved forward with and some we pulled back with like, like Michael's talked about. So, um I think that's, and I think that's even brought more credibility to the open book process for us is that process of really listening to the team. How much does the average person make that works for you though? That's a great question. I, I, you know, it's gonna be, it's obviously gonna be more than in your, in your situation. Like multiple times more, is it? Um, I don't know if it's quite that high. I think it's, it's probably more in the 60s, but sure, it's, it's gonna be a little bit more. And hey, look, we have a, I'm gonna say we have an advantage in that we are an accounting firms so people have some financial literacy, but I, you know, some of my folks are on, are on the call, so they're gonna probably be upset for me telling a story on that. But before we just. Before we showed them the P&L, we asked the team, how much money do you think we're making top line and bottom line revenue, and then how much of that is making it to the bottom line like net income. And, and my team is accountants and they're very conversant with financials. And at the time, we were roughly a $4.5 million dollar company, and we had and, and about probably 35 folks, and we had guesses anywhere from revenue of $500,000 to $50 million and net income of $250,000 to $25 million. Um, and so there was a thought that I was potentially making maybe $25 million a year. And so, you know, even accountants, I mean, opening the books really gave them much more of a perspective, and they see clients' financials every day. Um, but everyone thought that 50% of revenue was dropping to the bottom line, whether it was $500,000 or $50 million. So, um, yeah, I think, yeah, I think the education process has got to occur regardless, and I think people are capable of learning. Chris, this is a, that's a great point. Jack Stack always talks about how, you know, when people ask him, um, you know, say to him, I don't want people to in the company to know how much we're making, he says, you know, believe me, they already assume you're making way more than you really are. And if that was true in an accounting firm. You can imagine it being true elsewhere. Um, Bob Schwartz, I, I want to get to you in Super suds. You have a, uh, particularly interesting situation. You have a Wall Street background, you bought a chain of laundromats. It's not an obvious, um, you know, target for open book management. I don't think you have multiple locations, employees who aren't paid, uh, a lot of money. Uh, what, what, what attracted you to it? Oh, thanks for Including, including our company in this, I really appreciate it. Um, yeah, the, the background real quick, um, was a Wall Street background years ago. So I came from a financial background. I understood numbers. I was the deal guy, right, uh, investment banker. Um, but there's a, what I learned out of frustration and ignorance was there's a big difference between investing in a business and operating a business, you know. Um, and at the end of the day, after 20 some years of different stuff, I got frustrated with the operating side. Um, I, I didn't consider myself a great operator, a great manager necessarily. I thought I was a pretty good deal person. But like I said, there's a big difference. And so, I think one thing, a couple of things that I, I wanted to bring out to everybody here and some comments was one. I think open book management is just one piece of it, right? Sharing the numbers is just a piece of the great game. Um, it's, you could say it's the foundation, but there's so much more to it than just sharing numbers. Um, you know, there's the engagement. There's other components to the great game, just in addition, just sharing numbers from huddles, um, people trust you, our employees trust each other. You know, it's not easy, it's not a panacea. It takes a lot of hard work, but, um, you know, our performance has been, you know, remarkable since we've done this, and it's You know, you don't have to share the salaries like like Chris has said, you can create. Open book any way you want. To meet the needs of the company. So you don't have to share what you make personally, um, but you're still getting the same effect. You're getting buy-in, you're getting trust, you're getting alignment. Well, let me stop you there, don't your employees have some sense of how much money you're taking out of the business if, if the books are open? Yeah, they have some sense, but it, but as a result, there's a level of trust, I believe that they have with what we're doing that at the end of the day, people want to be part of a team. They want to be included, they want to be heard, they want to be felt, right? And, you know, at the end of the day, they're not pointing fingers at the owner and saying, oh look at him. They may have been prior to doing this, but now that we've opened it up, my CFO knows basically, obviously what I make. But it's, you don't have to bring it down to the hourly wage person, know what I'm bringing home to get the same effect of open book management, I don't think. That makes sense. And why do you think opening the books improved the performance of the company? What difference did it make? I'll give you a simple uh examples. I mean, we, we have 20. You know, anytime we have somewhere between 25 to 30 stores depending upon what we're doing or selling or building. Um, so a lot of our, uh, you know, it's a big capex business. We are, we have utilities are a big component of it, right? So we have all these locations, all these stores, and it sounds crazy, but just to the very simple level, our store staff or store team members are responsible for, you know, The P&L at each store and a big driver that is utilities. So prior to this, you know, the doors were left open, waters, I mean, it just goes on and on. The utility costs went through the roof. The minute we started saying, OK, here's the deal. Here's our P&L at this store, bonuses are tied to the profitability. All of a sudden, it's like the light switch comes on, and it's amazing what people will do. To, to, to tighten down the hatches and, and to drive proper. I mean, it's just, it's just human nature. I don't know how to say it, you know, they're shutting off running water valves or closing their doors, they're not running the AC all the time. It goes on and on and on. And, you know, after 3 or 4 years, it really adds up. Bobby, you're, you're, uh, as you said, a deal guy. You, you bought Super suds with the idea that you would probably flip it. I wonder if you would address William's concern about what it would mean if you were looking to sell the business at some point, uh, having gone down the open book road. Yeah, no, that's a good question. Um, You know, that was my, that was one of my problems is I got in the business and I, and I enjoy running it. Now, but I didn't at first, but now I'm like, OK, how do I get out of this, you know, um, and what's my exit strategy? Everybody's different, everybody's personal story is different. In my case, um, I've made the decision that I want to continue to operate the business. Um, my plan is to create an ESOP out of it. We'll be the first in the entire industry to do it, as far as I know. Um, so there's a way for me to exit through an ESOP, right, which I was not even aware of until I got into this whole great game thing. So it's created an exit strategy for me that I was not aware of. Um, at the end of the day, Financial buyers care about, if you're going to sell it to a financial buyer, they care about what your profit loss is, you know, what kind of return you're getting. And if you can, if it's open book and it's driving numbers, all the better. I think, you know, they're gonna, they're gonna buy what you're, you're selling and you're selling an open book, that's fine. Now, if, if you don't, you don't have to create an open book, you know, like Jay, you don't, you know, if you're happy running the business the way you're running it, you know, I mean, It, it, for me, it was a personal decision to create a better operating structure at the end of the day. That's what, that's my decision, you know, I just needed a better way to operate my business. I mean, some of what I've heard is we had bad management, we had employees that weren't doing what they were supposed to be doing. We have managers that had no clue how much money we were making, and that this fixed all that. OK, well, to me, that's a false choice. There's good management, there's bad management, and it's a great game of business, which is a form of good management. I don't know that one needs to jump to the. Great game of business to start practicing good management, which is, Bob, in your case. Why is the air conditioning on and why is the faucet on, and why is the door wide open? To me, that's management. Like, why did it take having to put the great game of business in to have a manager who knows to shut the door, turn off the air conditioning, and turn off the water and, and the other 1 1000 things that managers are supposed to be doing, I found. That you can get people to act like responsible managers without doing this, and that there's some downsides to doing this that I, at the moment, and I'm still open to it, believe it or not, I look at some of the downsides and I say to myself, it's just not worth all the energy. I would just look at someone with a $10 million business and say, if somebody's pulling $600,000 out of the business, how do you either Hide that in the financials if you're truly open book and they see management and they see that number, it's just, it's someone's gonna go, oh, that's OK, he deserves $6000. He put all the risk into it and he's been working at it for 30 years, and when he loses money, I don't put it, I, I, I just don't know that I want to open myself up to having to explain why the owner of a business should be making a return on investment and what it should be. Even that, you know, we don't practice open book management with the entire staff. Everybody on my staff knows what everybody makes. We have that open book, right? And they know, you know, because I'm young and the business is young, Dana's not pulling out anything. Um, but I believe when the time comes and it's time for me to draw a salary from my business, I know not to disclose that. Um, just like I know not to pull up to the salon in the Cadillac, you pull up in the Pontiac, right? And. That's having a culture, but I just think it's interesting how this open book manager, but we don't really talk about what the what everybody makes versus, you know, we try to practice it, it really, you know, hurt the business as far as how people interact with each other. But everybody knows what everybody makes. Just an interesting clip on it. I like to jump in and address Jay's point about bad management versus good management. Look, we have mostly the same people that we had before we implemented the great game of business. Go open book management, whether it's to the great game of business or some other methodology, has made them better managers, better leaders. Better team members because now they can see a lot more how the business all fits together and works and how they can have an impact. And so, and, and quite frankly, they're, they're better um at servicing our clients as well because the things that our team has learned and learning how our business works, um learn uh teaches them how to uh talk with our clients about how their businesses work because we, we do the accounting for our clients. So, Um, yeah, I think that's, you know, for us, we've got all the same people. It's just this has really helped us, um, uh, help, help educate them, um, and take them to the next level. They were already really smart, uh, effective people, but it's an additional tool that's helped them grow. Yeah, Chris, I, I would second that by this education of uh the financials, we've created some managers that have become really good, uh, that maybe weren't as Financially sophisticated as they were prior to the point now we're creating some other uh vertical businesses within Supersize unrelated stuff that I'm gonna get, you know, that they're gonna manage, um, which they couldn't have, honestly, they probably weren't prepared to do it. 5 years ago. I mean, look how many businesses SRC has. What do they have? Like 50 or 60. You know, the, the point is, there's, there's a big, there's a big bandwidth. Um, I'm doing some of the, I'm probably doing half of what the great game of business is about. Wait a second, a quarter, uh some part, I, I'm not suggesting keep everyone in the dark. It's, it's when it gets down to tying their compensation to how the company is doing. So my question is. And maybe some of you don't have businesses that ever have bad times. For those of you that have had periods where the company just didn't make money for 2345 years, do you feel it added a different level of stress to yourself and your employees? Michael, maybe you could uh address this. To what extent do your employees uh profit more when the company does better and how big an issue is it if the company has a tough time? Well, they've got a direct line of sight to whether the company's doing well or not, which kind of demystifies the whole uh process. I, I will, I want to jump back to something that I may, maybe I think William brought it up or maybe it was Jay. Um, you know, we're, we're a branded sausage business and so When you're building a brand, you're, you're making investments unnecessarily translate into profits right away. Whether it's going into a new market, whether it's introducing a new product line, whether it's uh getting a relationship with a new customer. I mean, those takes, that takes investments and for years, we had a real disconnect in our business because we were, we were bonusing off of even. What I was trying to do is really real, build brand value. Which is two different dynamics and it really caused a lot of stress in the organization and, and uh it wasn't an easy conversation, but I had to spend a lot of time coaching people uh on the importance of the brand value. Um, and, uh, but we, we, we have made I guess, you know, with the addition of a really great CFO who's who, who's come in, uh, and helped as we've grown the business, we've been able to really uh gel around uh EIA and uh, and, and, and get to a, a performance standard for a brand. Uh, so we just got through paying a, um, almost a million dollars out in, in bonuses to our team members last, uh, last. Well, it was for the past 6 months, and I cannot tell you the excitement, and they knew what was coming because they saw the, they saw the financials uh every month, but they, they were just, you can't imagine the excitement. And going back to Bob's uh comment around trust, the transparency of the, uh, you know, the great game of business and the great game of business. is simply an operating system that uses OpenBook management as part of the tool. It's, and that's very important to understand. Um, it's an operating system that, uh, we recommitted to actually back in 2017. And since we've recommitted to it, it's been an amazing, amazing journey. But the transparency of the, of, of the great game of business magnified the trust in our organization, which unleashed creativity in every area. of our business, create much more creativity than me or even my whole senior team could, could unleash. And that to me is the secret sauce that makes businesses successful is the creativity. To the point of challenging your employees challenging your decisions. You, you had a tough decision last year where you walked away from a very big client of yours, uh, which Might have been a tough decision to explain. Can you tell us about that? We talk about a gut-wrenching decision. So we just spent about $4 million adding capacity to our, to our business. We added a new production line and increased our, our capacity about 50%. Uh, right after we did that, um, our third biggest customer. came to us and said, hey, that, that branded product that you make that we sell, well, we want to convert it to a private label product and what you make it. And I said, well, we really don't do private label. And the buyer said, well, if you don't do it, I'm gonna get somebody else to do it. So I had to go to our team, OK, what do you want to do here? Let's talk about this because again, I'm not the smartest guy in the room here. I want to get everybody involved in this. We quickly understood that although this guy was our 3rd biggest customer and had 20% of our business, it was our lowest gross profit, uh, margin customer, and we really didn't need to replace the uh top line dollars associated with this. We had to replace the gros. Profit associated with this. And so that became a much different conversation over how we could replace the gross profit associated with this. And it made the conversation and the decision much easier for us to make. As a result of that, I mean, we still walked away, you know, we had to replace that business, but it was an educated and uh, and we're, we call it holding hands in our business, um. It was a chance for us to hold hands on a, on a strategy to actually become more profitable than we would have had we maybe not framed the conversation in, in, in terms of gross profit. So how many people were in that meeting that you discussed that with the whole company? Um, No, no, no, no. Probably, uh, initially, it was the top 7, team members in my, or, so I call my senior team, but then we took that, uh, took that conversation down to uh our mid-level managers, which are about 5 people, and, and explained it to them and got their input. Uh, and they all agreed that, you know, look, let's go chase after the lost gross profit. I do the exact same thing. So I, I, that's why I'm trying, I'm struggling with, that's what any good company would do. They talk to their key people and have that conversation. I don't know what that has to do with having a great game of business down to the, the guy in the loading dock. I, I, I, any good company would have that conversation. So I don't think this is all or nothing. I don't think this is a great game of business or you don't tell anybody anything. I think there. Somewhere in between, and I just wanted to ask you, the million dollar bonus, what percentage of profit was that? Uh, it was about 15%. OK. And Jay, uh, you know, how you have those conversations, but when you've opened the books and really educated them about the business, those conversations, I think it's part of Michael's point. It, uh, the conversation was a different conversation because they understood the business a little bit better rather than, well, gosh, we just need to keep Every customer at all costs. You know, if they don't really have that perspective on the financials, some of these decisions are just, they're just, uh the, the feedback that you get is, is not as, uh, is not as informed, um, because they just don't have the context and I think, I think that's where I think it's part of Michael's point is you just get better decisioning all the way down to the loading dock. Um, uh, it's, it's not just about asking them, it's about giving them the tools to actually help you. I wanted to go back to you, William. When you gave the example of the church that you wanted to help out without charging them because their pastor had died being a good Samaritan. I have a hard time believing that your employees would struggle with that. I think that, I know you've hired people who are looking for a, a larger cause. I think they probably would have been OK with that. So I don't think that's the real reason you've shied away from doing this. I'm curious if you're hearing anything here that's, that's making you think about it at all. You know. So Lauren, we're all in sales here, right? Everyone on this call. So I picked the easiest example, OK, but the underlying principle is the same, and it was a question I'd like to raise with Michael's example. This is fascinating decision you had to go through Michael props to you for getting through it and makes me want to go buy your sausage over at HEV unless they were the customer. They were not the customer. So props to you, but what happens? So two layered question. One's actually just selfish. I'm curious to know of that senior leadership table that you have, Michael, your family-run business. Were any of those people related to you in any way? No, none of them were related. OK, that, that clears a lot up because I, we work with a lot of, we're a family business. We got a lot. So where does that come into everybody knowing what's going on and that's a whole different, whole different onion peel. To me, you know, I'm really not the smartest guy on this call. I am truly a recovering pastor that's just trying to figure out how to run a business and What has served me well over the years are some gut level decisions that really didn't make sense at the time. And to me that that's not a, it sounds like a non data driven uh reason to not be open book. But I've got a a friend who is a pastor of a very large church, and he was talking about his compensation and retirement and such and He said to me, William, I don't, I don't think they pay me to preach anymore. And I said, what do you mean, Mark? And he said, yeah, the preaching's fine. I like doing it, it's kind of for free, but where I earn my salary, I get paid to make about 4 decisions a year no one else wants to make. And you can be as open as you want, but sometimes the owner makes a call that's gonna go against the grain of what everyone else thinks or believes. Now, maybe you're in a purely data-driven business, maybe you're more mature as a business. I mean, Michael, your business has been around a long time, way to go for being open, you know, what, almost 70 years or a little more. That's a long time, so you've got a lot of data. We're Young, things shift, things change, and we have to decide during the pandemic, what are we gonna do? Churches and schools have been closed. That's put a little bit of a damper on our business. So we've had to make some pretty hard decisions, uh, some of which we've done very similarly to what I've heard the panelists that are are pro open book do. But, but at the end of the day, the decision is with the people who have the name on the door and, and I, Lauren, I'm just not, I'm not getting more convinced. Uh, if anything, I'm more convinced of my position. I think what I'm learning is uh Open books doesn't have to be telling everybody what everybody makes. That's a big deal. Um, but what I'm also learning is the things I'm hearing which are super good practices in the companies using Open Books are things we're doing anyway, but we're driving our conversations by our values. And I do have people that have worked their fingers to the bone during a time when we've been. Down in business and for me to say we're gonna take on a search, which is a big tall order. We sell big widgets, not little ones, and nobody's going to make anything, but you still need to work just as hard. But that's just not gonna go well, even if it's the good Samaritan getting killed. Now I did pick the easiest decision, so valid call on me, but, but whether it's that decision or another, they're they're. Through the history of our company, a number of times where we've done the thing that's counterintuitive and it's been our best decision. I hear you. Did you see the question here? I'd be interested to hear the panel's take on sharing specific financial performance metrics versus totally open book management. Can you get the benefit without the downside? I believe so. I, that's kind of my whole point. I think I can't think of one time in 42 years where I had my key people sit around at a table. They gave me their opinion and I said, thanks for the input, but here's what we're doing. It's my business. I totally am doing all that stuff. It's the connecting it to income that I choke on because I think that's. Where it just adds a whole new layer of potential problems that I don't want to accept. Chris McKay, you not only have a, a window into your own business, but you're an accountant, you uh talk to lots of other businesses. Maybe you could deal with that question, uh, that, that Jay just read off the uh the screen. Yeah, you know, we had considered um just opening the books, and in fact, for a number of years, I considered just opening it down the gross margin, and that is our critical number, uh, and, and great game of business parlance, which is what our bonus is based off of. Um, and we, um, and I think that's something that's very doable. So you could, you could open up down to a, up to it, or down to a certain level, and everybody, uh, and, and, and gross margin for us is sort of the thing that everyone has the ability to impact the most in all the little decisions they make every day and that's really the piece that's changed the most for us. So I, I would say it's a process that everybody's got to go through. When they're implementing the uh open book management, however they decide to do it. Um, and that, that piece of it has, has been really impactful. Um, we decided to go ahead and open all the way down to the bottom line because we really wanted people to understand the content. in which we were operating and why it was important perhaps to generate more gross margin beyond the theory that there's a lot of other bills that you've got to pay. But I, I don't think it's an absolute requirement. You know, I'd say the only difference really when we used to just open the books down to gross margin. We were bonusing people off the gross margin that they were generating. We're organizing little teams and we're bonusing based on gross margin by team. And we were finding some teams that were doing great and some teams that were doing not so great. And in the end, the company wasn't, it didn't move the needle for the company at all. It was Just we were paying out bonuses to people that were already doing well and, and, and, um, and not to people that um uh that needed help and that kind of thing. And so what it really move into the great game of business methodology sort of pull that all together and we all began working together much more. As a team. Um, but I, I do think there could be uh situations where you open the books down to a certain point and that and you design your bonus structure to, to create movement around that number. And you don't have to necessarily open all the way to the bottom line and show owners compensation. And if that's a big piece of the heartburn, um, you know, I, I think there is an opportunity to consider that. If you're a sole-owned business and you show all the way down to your bottom, bottom line, how do you not show owners' compensation? Yeah, no, I, I agree, I agree. But you know, I think there's an education process again that goes on with that money doesn't all just sort of go into my pocket if you will, and, and we do have a couple of other, several other owners within the company, but I'm still the majority owner. But they understand, uh, we've educated them about what we, we, there, there's, uh, we have to finance receivables, you know, that, that, that we don't, I don't get to just take all that money out every day at the end of the. day and write myself a big check, there's, there's cash flow demands of the business and maybe my team understands that a little better cause their accountants are always easier for them to figure out, but I, I know by going through that education process, they understand why a business needs to show a profit at the end of the day and sometimes it's a substantial profit because there's gonna be times, difficult times where, where you've got to be able to dig into that profit as well. As super well said, Chris, one of the things that uh my wife and I have talked about this a number of times, we've talked with a lot of other entrepreneurs and, and one thing that keeps coming up is, you know, if we were a publicly traded company and we had a just call it a small number, 100,000 shares out there with 500 owners, and there was a rock bottom line that was getting getting split among shareholders. I don't think employees would have a problem with that, but when it's one shareholder, they do. And that's what I keep hearing over and over it's a $1 million business or a $10 million is if, if there is only one stockholder and you're running the business at healthy margins that will be appealing to somebody like Bob if you're coming to do a deal, I'm not gonna buy that business if they're only making 1% a year, but I'd buy them if they, you know, assuming healthy margins and one owner, I, I, I don't know how every business can say open books is good categorically. And, and I think it might be. Great for some, I think, gosh, Bob, as thinking about ESO, this makes total sense. I mean, wow, that's perfect for us and where we are in our life as a company. It, it just doesn't. So, here's the question. Open book management, let's, everyone's given their opinion. I'd like to know officially from someone that works for the great game of business. Open book management to me has always meant open book management. All the numbers are out there. And now I'm told, well, no, not necessarily, it doesn't have to. So what is it? Is it, is it the employees, is it the owner's salary, or is it not? Because I could, I could take an $800,000 salary and leave a $100,000 profit and go, yeah, we're barely making money. So, so I like to call, I'd like a clarification on that. Jay, I think uh I can answer that that no one has ever said it associated with the great game of business that Salaries have to be included. Uh, Chris McKee, am I right about that? We don't. And um again, I do think that, uh, and, and, and I will let some, if somebody from the great images that business does want to jump in and sort of say, verify that, you know, it, it, it's tailored to every company's needs. You go through an implementation process and, and you and the team helped design how open book management is gonna work for your company. We have a saying. Adapt versus adopt the great game of business. Nice. Yes. Thank you, Donna. Bob Schwartz, I wanted to ask you, um, maybe to address a point William made earlier about what it's like doing this through a, through a down period. Uh, I don't actually know for sure, but I'm guessing this has been a tough year for a chain of laundromats. I assume you had to be closed for a while. What has it been like for you, uh, with your employees? Yeah, no, I, I was gonna, I was gonna address that, you know, when the times are tough is when you want to be doing this at the end of the day. Come March, we were, we were sweated because there was, you know, we're in 5 different states and every state had a different view as what's considered essential business. And so, fortunately, we were considered essential, which means we, we stayed open. Um, but what happened to us, And I didn't bring it up. I had many employees come to me and say, do we need to take a pay cut? I'm willing to take a pay cut, defer my bonus. OK, that would never have happened, never have happened. You know, it would always been me making a tough decision. And now the tables are turned, uh, because people generally understand. How we operate and they have a level of trust that we're going to do the right thing by them, right? And they want to stay in this in the long term. Can you do without great game? I'm sure you can. It's just, it was a better operating system for me, um, to run it this way, and especially when times are tough, you want to be transparent to people. You want, they'll, they'll come to the right decision, I believe, at the end of the day if you're open with them. Michael, does it work for you in tough times? Yeah, I mean, when we, when we walked away from that 20% of our business or volume, and after we just added a 50% capacity, we were able to, to really engage everybody throughout the organization on how do we reduce costs. To get through this because you lose, we didn't replace that gross profit right away. It took time. What Bob says is exactly, exactly right. And I, I'm not, I don't want to, uh, I don't want it to sound like, you know, I am a, uh, this is the only way to make it work. I mean, it sounds like Jay and, and, and William have great operating systems that, that can produce the same, same impact. It's just, it works for our culture. Um, it works for our, the way I want to run the business. It, uh, we have aspirations, Bob, as well as you do for ESOP down the road. So it's, uh, it's setting us up for that, um, uh, option. I don't want anyone to walk away thinking that this is the only way to do it. There's a hell of a lot of successful companies that don't do open book management, but For our culture, and for the way I want to run the business, it's really, uh, it's Uh, it's been very, very effective for us. I believe that 75% of the great game of business is just called good management, and I, I think I'm doing the exact same thing many of you were doing. There's that other 25% that, and believe me, I still, there's probably some more I should be doing, and I'm thinking more about it now as usual and bringing it down to a lower level and having some more meetings on there. So I don't. I think this is all or nothing, and I'm thrilled to hear your, your saying of adapt, don't adopt. I'm, I'm thrilled to hear that because I think that makes perfect sense. I think it's a matter of, of, of bandwidth, and you're gonna do 75%, you're gonna do 100%, you're gonna do 80%, and after this conversation, I'll probably add another 5% because I probably could have some more probably, I could have some more meetings with my lower level people that frankly, I haven't had in 5 years, and it reminded me to do that. Dana. You know, you can create a great culture, you know, you can have all of that, but I think as a business owner, you have to also know your staff and you have to know what they're dealing with. Um, my staff doesn't want to look at the P&L and figure out, or not even figure out, but be told how they're contributing to it or how not. They want to know how much you're paying me, when am I getting it? And is there a bonus? How much of that are you giving me? That's it. When during COVID, and I would be on these, you know, in these zooms and I, and everybody's like, oh, we're doing a dueling piano bar, happy hour for our staff. And it's not that I work with bad people, but I understand the issues that are facing the women that I'm working with. Single mother of three kids. She's OK, like, so does this mean I'm not getting my check on Friday so I can pay for this, or what does this mean? Um, I'm not working with people who want to be business owners, and so I'm listening to everybody and just thinking, wow, I just come from a very different culture. That's a great comment, Dana. Let me take that to Bob. Uh, Bob, you don't operate a hair salon, but I suspect your employees were not in before our open book. We're not thinking about what it would be like to be a business owner either. Could you address, uh, Dana's concerns? Yeah, it's a process. I mean, what we found is it's a process that takes time. Uh, adoption is not easy, you know, it, it takes a, it takes work. What we've done is, yeah, we share all the numbers, we share the company P&L. We don't, you know, people don't know that, you know, Mary makes this and Sally makes this, and yada yada ya. You don't get into that. Minutia. Uh, we do share P&Ls every month, every quarter, but what really matters to employees at the stores is like you said, what am I getting paid? Can I get paid, and oh, what is my bonus and you can create a scoreboard in our sense, every store has a very simple, you know, scoreboard that we've worked with GGOB to develop that matters to us. And it's basically 6 or 7 items. And that's what they're looking at every day. It drives the number, but, you know, it's not into, you know, the, the, the minutia of the P&L. It's very simple, but again, it's line of sight that ultimately drives the bottom line of the company. And they share in that bonus, simple as that. So we have our key performance indicators for our staff, um, and we give them bonuses based on that. But what we found that when we shared the balance sheet and the profit and loss with anybody that wasn't managers, the mindset wasn't, wow, I want to make this better. It's why aren't you giving me more? If they and they they just were not connecting. The culture at P Parole Boyd is, these women are extremely committed to healthy and quality hair care for women that have been overlooked, right? And, and for being committed to timeliness, being committed to healthy hair care. Dana, this is really important to me. Um, you mentioned about the socioeconomic, um, you know, cultural, cultural, uh, uh, you know, we, we talk about the great divide. You know, and, and the haves and have-nots, you know, this is my personal opinion. You, you're free to agree or disagree, but in my opinion, the, the, the free enterprise system is the most powerful engine for social justice the world has ever seen. Horatio Alger stories do you want to hear of people going from immigrants coming over to this country and starting with nothing and creating something because of their Uh, entrepreneurial and the resourcefulness, and this is, this is what's made this country great and we're at the, I think we, we're at a risk of, of losing that because we're unwilling to uh to grab the narrative on the power of the free market to lift people up. And um, and part of that is our unwillingness to, to be transparent in how business operates and why profit is necessary and, and really teach. When I, when we opened up the books and, and keep in mind half, over half of my workforce, uh primary language is Spanish and um And when we opened up the, the books and we started uh teaching them about, OK, this is, I'll never forget, we did our, we did our first open book budget and I got to the bottom line and I said, OK, guys, what do y'all want to do with this money? What do we want to do with this money? I mean, uh, Clearly we're in a, you know, we're in a business that if I take everything out every year, we're not going to be around very long. So we had to reinvest this money and, and, and they started talking about these items that we needed to invest in, whether it's equipment or whatever. And I said, wait a second, I forgot to tell you something. I said 40% of that, this is several years ago, so 40% of that goes to the government taxes. And they couldn't believe. The 40% of that money that they were working very hard to get was gonna go to the government. And I, I'm not trying to tell you this, I'm not trying to make a political statement here. I really think that you bring up a really powerful element of the great, of why it's important for us if we don't adopt a great game of business and, and there's lots of different ways, we at least need to initiate a conversation around Uh, the importance of the free market in this world, uh, and especially in this country, cause I, I think we are, um, In danger of losing the narrative here. Guys, I, I hate to do it, but I think I have to end this conversation. My thanks to Dana White of Parole Boyd, Jay Goltz of Artist Frame Service, and Jason Holme, William Vander Bloemen of Vander Bloemen's Search Group, Michael Kielbasa of Kielbasa Smoked Meats, Chris McKee of Venturity and. Schwartz of Supersuds. I do think we may have changed some lives today. I think people learned some things here, uh, either by convincing some people to give this a shot or by convincing them to run in the other direction, which is service as well. Uh, we all know it's not right for everyone. Thank you all for taking your time, the time today. I really appreciate it. Wait, wait, don't leave yet. If you have a question or a comment that you'd like the 21 hat's owners to address, send it to me by replying to your morning report or by email at lauren@21hats.com. That's L O R E N at 21 hats.com. Do it now before you forget and don't be afraid to tell Jay what you really think. You can take it. And if you got something out of this conversation, help us reach more business owners. Tell a friend, subscribe and review us wherever you get your podcasts. Follow us on Twitter. Subscribe to the Morning Report at 21 hats.com. This episode was produced by Jess Thuberon, founder of Blank Word Productions. OK, now you can leave. Thanks for listening, everyone.