The SRC Story - As told by Jack Stack, Founder & CEO

hello i'm jim canfield ceo of renaissance executive forums and i'd like to welcome you to strategies for success 2011. i'm really excited today to be with jack stack jack is ceo of src holdings formerly known as springfield remanufacturing and probably as importantly he's the founder and thought leader behind the great game of business jack thanks for being with us today thank you jack the story of the great game of business and src is it's an american success story could you tell us about those early days and how this whole thing got started well i'm going to go back to one of the earlier recessions which is around 1983 but 14 years prior to 1983 i worked at a very very large company a fortune 500 company called international harvester i was in manufacturing i grew up in manufacturing i was manufacturing a very metric driven business we were taught all the aspects of quality control and we were talking the aspects of delivery and and the company was roughly 100 years old and ran into a real financial crisis when we hit the wall in in the 82 combination of global competition combination of old style management count combined with the fact is that we couldn't change because we were so deeply rooted into a confrontational style leadership um we took on a serious amount of debt we we owed 200 banks 6 billion interest rates hit 22 and we were hemorrhaging cash and i was running a little factory in springfield missouri i had a great career within the company they were very good to me i finished my education there they paid for my education i went to every program you could have whether it was ollie white school of management or whether it's a assignments i mean i they they were tremendous to me but we were dying and we had to sell assets and we began to close factories and we went on one of the worst layoffs in the history of a company we laid off a thousand people a week for two years went from 115 000 now to 11 000 people i had one of the 17 manufacturing plants in the world and it was in springfield missouri and i had been transferred down here in 79 to close the factory and fell in love with the people just fell in love had a tremendous entrepreneurial non-union type of people that says give me the tools to do the job and get the hell out of my way that was their attitude and we just had a tremendous time from 79 to 80 we ran numbers we ran we went any goal that they hadn't sent a company we wanted to exceed and we did and all of a sudden then we were the headlines we were on cameras we were on prints prince the whole idea was that um you know the company was not going to survive we were going to be the first big company that was going to take the hit i would walk the floor people would ask me things like should i get married should i have a kid should i buy a car am i going to have a job well they you know well i have a college education and here i was a leader in a small town and you have a lot of materialistic things and yet at the same time you can't help people out and you're impotent when it really came down to leadership i mean i was the plant manager had my own parking spot my own secretary my own offices okay your your the city loves you because you're a large company but when it really came down to helping people you're no different than the janitor that they hired the previous day your job is to do your job nothing more nothing less than if they said lay off the factory it's the layout of the factory and it was a very very difficult time because you start questioning you know how do we design a management system where people go to work every single day and just put their whole futures in in people's hands and they don't understand you know whether it's going to have any sustainability or whether it's going to have any longevity and you know what kind of system do we have where people are asking me godlike questions about whether i should have a baby or not okay so finally you deal with this for a period of time the whole conceptual idea of leadership and finally i called everybody and said hey don't get married don't have a kid the economic reality the harsh reality is that we are not part of the core businesses and there's a real good chance they'll close us and i looked at them and said look we got we got three alternatives one is that they'll close as two is that they may sell us and three is that if we do survive it could be really tough so why don't we take a chance to try to buy the company that was not a thought process okay that was an instant reaction that was trying to get rid of the guilt of saying to myself at least i tried before i had to lay him off i was like i was only like 29 years old so i didn't how much like to have on your resume well what was your last job well i closed down a factory and i laid off the people so i was expecting somebody in the audience to sit there and say look you know building an engine is a hell of a lot different than building the company and they were scared they were petrified they had a foul last see they'd found a flicker they'd followed anybody they'd had any idea i just didn't want to go into some promised land and so i ended up going on this odyssey i went on this odyssey to rise capital i know i i built engines 360 engines a shift i built 50 ton trucks i had no conceptual idea on how to build a company and so my first business plan that i went out there with and i had supervised over 2000 people in this 14-year run with the company my first business plan was a letter of intent saying that we wanted to buy the place i took my resume my college degree all my fancy courses and you know my quality control ribbons and all my statistical process control degrees and the bottom line was is that the bankers looked at me and laughed they go this is what do you mean what are you showing me this far you know they began to ask me these silly questions like well when are you going to pay this money back and i went wow really good question you know i wasn't here to pay the money back i was here trying to borrow money to buy the factory so i went on this credible odyssey and the odyssey was that i was a factory person that spent 14 years learning how to build a product or service in manufacturing you have the metrics to measure a nance ass okay i mean we're so metric driven all right but now i'm going out in the financial community to raise capital and i cannot use one metric all right that i had learned in an entire time frame that i had been with the company there was like two sets of metrics out there there's a metric to build a product and there's a metric to build a service but the investors look at metrics differently and they look metrics relating to the to the company and as i began to have to write the business plans okay and to now transition myself from something that made a product to something now to make a company right i had to learn the whole new reporting system the balance sheets and the income statements and the cash flows all right and maybe i was lucky from the time that because in 1983 you didn't have spreadsheets all right we had those 18 count green god-awful columns of paper you know with red lines and number two pencils with erasers and every banker wanted to see cash flow projections for 12 months every banker wanted to see four years worth of cash flow all right every banker wanted to see it differently than the previous banker depending on what cycle a hell i went to to be able to borrow the money okay and so after you manually write these things out at three o'clock in the morning you begin to realize that this is not rocket science okay that i could understand these these metrics right and then when i got denied the loan i would really get angry and i would get angry not at the lending institution i got angry at the company that i work for because of the 14 years that i would at that company they didn't think i could understand those metrics they thought all i could do was build a truck put it on the trailer ship it to russia get it to them on time and that all the financial aspects of the business was only going to be handled in sophisticated people's hands okay or you know i wasn't in a at a position where that that confidentiality would be you know trusted with me and so you know i i it was like i came from manufacturing and i began to see two systems i saw a system where they took these metrics they consolidate them they put them in a safe and then they close the safe and then they said okay now we got to design a new way of managing the people to get what's in that safe but we can't tell them what's in it safe and i'm sitting there going wow you know to increase productivity you take constraints out of the process and so i made a promise to god that i'd say if i ever got this loan and there was a bad i mean this was i mean i was trying to float a receivable that 200 banks already had six billion dollars on all right so who's going to be the 201st bank it didn't look real good but i was totally economically literate so i i had no fear i didn't know okay what the odds were against us all what i was trying to do was save 300 jobs right that's what i was trying to do is just save the job i can't look yeah right now and say i was there to stay okay i was trying to make absolutely certain i didn't have this guilt and so i would i went to 54 financial institutions all right and got turned down by every single one of them but i made this promise i said if i ever get this thing i said this aha moment that i have okay about combining the two metrics it's that that to build a company that is really productive from the standpoint of really understand what it takes to make a great company that i saw that as a competitive edge i thought i could differentiate my business by appealing to a higher level intelligence than most companies by teaching people the metrics of a great company because wouldn't you then have to have great products wouldn't you have to have great services to create a great company that for 14 years in a leadership role i was dumbing people down you know i would take tqm to the ultimate level and say to people you do this it'll change your life forever well it did it laid them off all right it wasn't by aspiration okay but if i could teach people cash flow and i could teach them debt to equity i could teach them how to read a balance sheet okay maybe they will never ask me again you know should they get married should they have a car should they have a kid that they truly can understand that the health of a balance sheet and the health of the company go hand in hand and so i made the promise i made the promise i said boy if i ever get this business i ever get this company i said the first thing i'm going to do is teach people literacy i'm going to teach them the metrics that they need to look for on creating something great and something sustainable all right because if they can keep their eyes focused in terms of those particular metrics we will be innovating we will be creative because we had the skill level we were overly skilled we were always getting really good grades on our performance in the company okay it was mind-boggling that we could do so well and the company could do so badly we were totally out of sync and so our my idea was to sit there and align everybody up and create a great company let's just create a great company and let's forget about all the things that we learned in the past you know and really focus on the metrics this reporting system because this is a reporting system it's going to have an impact on our lives what happened was a wall street journal came across my desk and i talked about a bank that was in serious trouble and everybody was in trouble in 1982 everybody was in trouble and this one needed to have a higher net interest margins and that's indicative that they got to take riskier loans and you learned this lot this this this language okay and i finally interpreted it as saying well they got to take risky loans they said boy this is the bank for me you know they're looking for wow we're the perfect customer for that absolutely so i took my 54th business plan flew to chicago and said i hear your book and bad loans i got a doozy for you and on february 1st 1983 we booked the worst loan in corporate america we ended up borrowing 8.9 million dollars and the irony of it is is that we only had a hundred thousand dollars worth of equity so we were at to 1 debt to equity buyout at 18 interest rates and we were able then to start the company with our backs totally up against the wall with no room to move whatsoever totally economically illiterate all right but at the same time had no idea of the risks and no idea of how difficult it was going to be all we knew is we had a chance