This has always been an area of business that has really intrigued me. After completely opening up our books nearly five years ago, I thought I would share some more insights on my thoughts and experiences.
Let me start by saying that as a business owner, I have always shared a lot of information with my employees. While I did not always share the complete financials of the company, I was mostly open with the sales figures.
With that being said, the profitability of our company has improved drastically since developing an open book management approach in late 2011. The percentage going to our bottom line has improved EVERY year since 2011.
My Journey Started with a Book and Several More
Thanks to Mark Gandy I began reading and studying a lot in 2011. The first book he gave me was The Danger Zone, Lost in the Growth Transition by Jerry Mills. If you are an entrepreneur, you should read the book.
As I read page after page, I began to realize that there are people out there like me–people that live the same kind of lifestyle and people who truly understand what an entrepreneur deals with day in and day out.
Owning and running a business is not for the faint at heart. It’s not easy and frankly, it’s not all that glamorous, especially early on in a business’s life. If you are entrepreneur, you know what I am talking about.
After reading The Danger Zone I discovered that if I was going to continue to grow Pro Food Systems (PFS), I needed to take an aggressive approach to studying and learning. One book after another I was gaining valuable insight into changes I needed to make.
The Great Game of Business, Good To Great, Ownership Thinking, Mastering The Rockefeller Habits, The Big Book of Small Business, The No Complaining Rule, Topgrading, Simple Numbers Straight Talk & Big Profits, and the list goes on and on. The knowledge gained from these highly experienced authors was priceless.
The Mission, Vision Statement, and Core Values
I knew as PFS grew, I needed to do things much differently. I decided the first step was to formalize our mission statement, vision statement, and develop a solid set of core values. I didn’t use a “cookie cutter” template. Instead, I put a lot of thought into my views and what had gotten us to where we were. I came up with the Happiness Rule which consisted of 13 core values that I expected everyone to live by.
At the same time I introduced the Core Values, I took the first step to open book management and assigned every general ledger (GL) code in our company to a particular individual. The point is to assign the line item to the person who can most directly impact it.
At the time, my Controller (the only Accounting Department I had) and I were the only ones trying to review and keep up with over 500 GL codes. I can honestly say that our Controller was not on board at first with open book approach. In many cases, it is the Accounting Department that holds owners hostage and they are more unwilling to share the numbers than the owner. Many times, the initial reaction from accounting is fear of job security.
To successfully implement open book management, the folks in your Accounting Department must have a great deal of self-confidence and understand the end goal. Looking back, I did not do a very good job of educating this individual.
If I had it all to do over again, I would require this person to read the same books I had read so perhaps they could share the same vision of a vibrant culture and a company where everyone knew the rules.
[SIDE NOTE: Five years later we now have 7 individuals in our Accounting Department. There is still a major need for talented folks in accounting within an open book management company.]
For entrepreneurs who see value in creating an open book management approach, don’t think that you can open your books and expect major changes to occur. What you likely do not realize is that you don’t know what your employees don’t know.
I was extremely fortunate to grow up in a family that talked a lot about business. My parents owned a couple businesses as I was growing up and I was able to work in those businesses. My mother and father both had (and still have) great business minds.
Around the house and around the dinner table, we often talked about business. I went on to earn a degree in Business Management from Missouri State University. What’s my point? I took all of this knowledge for granted and falsely assumed that everyone else knew about business. That was a huge mistake on my part.
Education is at the Heart of Open Book Management
To be successful with an open book management approach, you must be committed to TEACHING and EDUCATING everyone. Here’s what I know today after conducting financial literacy sessions with every person we have hired in the last five years and everyone that is employed at PFS.
A very small percentage of people truly understand what it takes to make a business work. Everyone has a false impression of how much money business owners actually make. Even fewer people can explain the difference between profit and cash.
Most of the people I have hired in Accounting can explain the income statement, balance sheet, and cash flow statements. And NOBODY correctly answers the question about what percentage successful entrepreneurs pay for income taxes.
To be successful with open book management you MUST be committed to helping your entire company understand, as Jack Stack explains in The Great Game of Business, “the rules of the game”. They have to understand how a business operates. Otherwise, it’s like putting a bunch of fifth graders out on a football field and not explaining the rules and object of the game.
Filling the Bus with A Players
That leads me to the other challenge of open book management. You have to be working with people who WANT to learn and embrace change. Part of the journey for me over the past five years has been getting the right players on the team. Jim Collins, in his book Good to Great, refers to this as getting the right “people on the bus.”
Collins even expands on this analogy by saying “you have to have the right people on the bus and in the right seats.” For business owners, including myself, this means that in some cases you have to kick people off the bus, or encourage them to get off the bus, if they are not a fit.
Some people are simply not comfortable with making these tough decisions. I’ve even had people comment that “we’ve lost some good people.” I couldn’t agree more in most cases. We have undoubtedly lost good people over the years. However, over the past five years I firmly believe that we have not lost anyone that truly fits our PFS culture. This does not mean that they are not good people, because they are. However, they just didn’t fit the team we are building.
Open Book Management, Just Do It!
What do I say to anyone who wants to move to an open book management approach? “DO IT!” You have to take some first steps and don’t try to over plan it. Figure it out as you go and be willing to make changes as you learn what works and what doesn’t work. What do I say to anyone that is opposed to open book management? “You’re making a big mistake.”
I’ve always been a firm believer in the fact that most people come to work and want to do a good job. Yes, there are people out there who want to screw around and screw up in the process; don’t hire those people.
If they are on your team right now, trade them for a better player. When you teach people about financial literacy, when you develop a common goal that everyone can rally around, when you make results visible, and when you focus on hiring the right people, results happen.
Is open book management easy? “Absolutely not”. In fact, I believe creating the open book management framework and the mindset is far more difficult than running a business “traditionally”. However, once you get the right combination of people and once you get these folks educated and focused on continuous learning, everyone is much happier. The side effect–results improve drastically!
Got questions on open book management? Got reservations on implementing an open book management approach? Give me a call or connect with me in LinkedIn. I’d be glad to answer a few questions and offer some assistance.
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