One Mid-Missouri Company Reaps the Benefits of Open Book Management
by: Mark Gandy
Outsourced CFO | Small Business Financial and Performance Management | Principal at G3CFO
Foreword: Check out this CEO interview where Shawn Burcham describes how open book management has helped PFSbrands rapidly grow. This is a must read CEO interview!
[This CEO interview was originally published on LinkedIn.]
“Mark, do you want this book?”
I picked it up, and on the cover there was a guy in a suit sitting on a large engine turned on its side. Then I read the title–brilliant. I didn’t get much sleep that night as I couldn’t put it down. So what was the name of the book?
Dennis Karstens, I owe you. The President of Orscheln Farm & Home gave that book to me in 1994. Since then, I’ve probably read it nearly a dozen times.
The central theme of the book is open book management. The author explains how opening the books and teaching every employee how their jobs impacted sales, gross profits, and bottom-line earnings turned a company from barely surviving to a stalwart of ongoing success.
If business had its own hall of fame, those who inducted Jack Stack would ensure he had his own wing and deservedly so.
While Stack’s first book, The Great Game of Business reads like a business biography of Springfield ReManufacturing Company, his second book, A Stake in the Outcome is like a tactical playbook for implementing open book management. Don’t read one, read both.
Finally, A Visionary CEO Who Gets It
When I started my controllership and CFO practice in 2001, I dreamed of working with a company practicing open book management.
Ten years later, I met a gifted and results-oriented CEO who is a perennial student of the game of business. He reads relentlessly. I call Shawn Burcham, the President and Founder of PFSbrands a kindred spirit. Not only has he read the Great Game of Business, he’s applying it to his fast-growing company.
Great leadership. Great teamwork. Great results. These are a few of the byproducts resulting from Shawn’s decision to not only open the books, but to teach the game of business to every employee throughout the company. Accordingly, every staff member understands how their contribution impacts the top and bottom lines at PFS.
Five Questions for Shawn Burcham
Shawn carved out some time to answer a few questions about open book management at his growing company. If you are like me, you may find yourself re-reading this a few times.
Mark Gandy We are both big fans of Open Book Management. What lead you to start opening the books to your employees?
Shawn Burcham We had two consecutive years of 25%-plus, top-line growth (nothing unusual since our start in 1998). However, our bottom line was essentially flat.
I had historically shared a lot of company information, but I never really educated everyone on how a business makes money and how our business generates cash.
I read a book written by Jack Stack called The Great Game of Business. Ironically, because of my athletic background I had frequently referred to operating our company like playing a game. However, I wasn’t executing like a good head coach because I was not teaching the players (our employees) the rules of the game and how to win.
As I began to read more books (Good To Great, Ownership Thinking,MasteringThe Rockefeller Habits, and many more) I started to develop an open book management “system” that fit PFS.
The first step was to assign EVERY general ledger code to someone in the company so everyone could help in monitoring costs.
Mark Gandy My perception is that most business owners are afraid to share the numbers for multiple reasons. Examples include fear of employees talking about the numbers outside the company or worries that employees may think the owner earns too much. Did you face those fears, and how did you overcome them?
Shawn Burcham I’ve always been one who believes it doesn’t matter if our competitors know what we are doing. If we work to execute our game plan and strive to consistently improve, we should be able to win.
I also believe in a saying, “The harder I work, the luckier I get”. If people think I make too much money then I encourage them to go out and do something on their own.
As a business owner you have to have thick skin and not let the negative thoughts and comments bother you.
Those of you who have started or run a business know how difficult it is to survive. One of our core values is Straight Talk. As I continue to teach financial literacy to all of our people, I consistently remind everyone that they have an opportunity to excel within our company.
The more responsibility you take on, the greater the rewards. Our country was founded on the belief that everyone has an opportunity to do whatever they want.
Unfortunately, many people in our society today are not teaching our youth about winning and losing but instead are teaching our youth that they are “entitled” to certain things.
I guess I got off topic there a bit. I guess as a business owner you have to ask yourself, “What is the worst that could happen if I share the numbers”?
In my mind, it doesn’t matter what type of business you are in. Even if your competitors know your numbers, how is that going to help them?
There is far more benefit in educating your employees about how your business works. If you were coaching a youth football or baseball team wouldn’t you want them to know the rules of the game before they go out and play?
Too many business owners just want their people to show up and “work” without explaining how they can help the company win.
Mark Gandy Can you share one employee or department success story that quickly comes to mind since adopting open book management practices?
Shawn Burcham Wow, that’s a tough one. Our bottom-line performance has improved so much since we started open book management in late 2011.
While the top-line revenue continues at double-digit growth rates, our bottom-line results have been more like 100% year-over-year growth due to everyone collectively working together to reduce expenses and enhance margins.
I really can’t point to one particular story because this journey has been such a massive team effort. In reality, there is a lot more to “open book management” than simply sharing the numbers. Our journey at PFS has been one where we teach everyone about the business and provide everyone a stake in the outcome.
Mark Gandy You have a practice of inviting employees to a financial huddle monthly to go over the numbers. Can you share the typical agenda your CFO,Trevor Monnig follows each month?
Shawn Burcham Absolutely. We have weekly KPI (key performance indicator) huddles and a company-wide monthly huddle. In his book, Jack Stack referred to these meetings as huddles so we just rolled with this terminology.
We start the meetings usually by introducing new team members. The nice thing about having a high-growth company is that we typically get to introduce at least one new team member each month.
After that we go over our “wins” for the month. Each departments submits accomplishments, and we recognize these wins.
After that, we go over the financial results from the previous month and year-to-date results. We highlight any challenges we had and talk about those.
We show the income statement, balance sheet, and talk openly about cash flow. Everyone is focused on our “critical number” each year which has been our EBT (Earnings Before Taxes) every year.
We wrap up the session by talking about what we need to do in the next 30 days.
Again, these are submitted by each department so the feedback is coming from the people who do the work and can affect the numbers.
Finally, we end with a Q&A session. Just like Bill O’ Reilly has THE NO SPIN ZONE, I have the STRAIGHT TALK ZONE. Questions can be sent in anonymously through a SurveyMonkey survey each month or people can ask questions live. No question is off limits and I answer the questions with honest, straight-forward feedback.
Mark Gandy You have escalated open book management to a new level by creating an Employee Stock Ownership Plan (ESOP) for the employees. What was the initial reaction to that announcement and how will this benefit the team?
Shawn Burcham The initial announcement was a combination of excitement, shock, and uncertainty. The ESOP is such a foreign concept for so many people.
We’ve done a lot of educating already and most people now are really excited about it. As our company continues to grow, those employees (future owners) that stick around will be absolutely shocked at how much this will benefit them.
I am completely confident in our team’s ability to grow this company indefinitely. That means the stock value of our company will continue to increase over time.
It’s going to be great to see so many people rewarded with a stake in the outcome. We are going to have a lot of people with retirement nest eggs that are meaningful.
The ESOP concept has always been fascinating to me. I wish our government would make the implementation and maintenance of ESOPs easier and less expensive.
Currently you have to be too large of a company to justify the expense and have the personnel necessary to manage the ESOP.
All of that being said, I am proud to be able to offer this ESOP to the people that have built and will continue to build this company. I plan to be a lifelong advocate for open book management, high involvement cultures, and the ESOP model.
Five Steps to Open Book Management
John Case has written a book entitled Open-Book Management.
Yet, there is no one-set method or prescribed way to implement open book management. But if we examined every company that’s implemented open book management during the past 25 years, we would probably find a few common denominators.
Below is my simple, 5-step framework for implementing open book management.
CEO Interview: Epilogue
Some time ago, I was invited to hear Shawn give a presentation on his company’s core values and how the numbers work and flow throughout his organization.
In my opinion, he provided the quote of the year.
When I started, I was only thinking about being a Missouri business.
Maybe we should call this the understatement of a lifetime. I’m not at liberty to share numbers, but the Inc. 5000 revealed a top line exceeding $40 million back in 2014 serving customers in nearly 40 states.
I think it’s fair to say that Shawn, his staff, and Open Book Management make a great team.
About the Author
Mark Gandy enjoys learning about the game of business as much as he does practicing it as a Free Agent CFO™ for small businesses in and around Missouri. While he worries he is butchering the English language, Mark still enjoys writing on his own turf over at G3CFO.
There are no hard and fast rules on how to implement Open Book Management. My favorite method is starting slowly, methodically, and with a driving purpose. Need a sounding board? I’m just a click a way.