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Thursday, June 9, 2011

Secrets in the Boardroom...

by Smyth Performance on Friday, May 13, 2011 at 10:22am

Open the Books for the win.

In the early part of the 90's when I was finishing up my MBA at Bentley College there was talk of the "open Books" movement.  The not so new idea was to show your employees the books freely in your privately held company so that they could see the real successes and the challenges of what it takes to run a company profitably.  There is a reason that public companies have to disclose their financials every is good when you have many stakeholders and/or stockholders.  No secrets means no surprises.  Steady growth is what we all want in our companies.(I am excluding lifestyle folks here as I don't consider that a pure business).  The open and free access to a companies information enables the raising of capital since it reduces risk.  Secrets are risky.  Closed means no capital possibilities other than a line of credit...and even that requires you top open up to the bank.

The story and the reality.

The critics of open book management have a few points.  The first is always that if you are a small privately held firm you don't want the competition seeing how you are doing. Right.  Your super secret income statement and finances in your 1-50 million dollar company will make people change their business and hurt you in the market.  You are serious when you say that?  Why do you think you are a small company?  You are small because you serve a small market. No one really pays attention to you other than your small niche and customer base.  Your company enjoys success in that market because you serve it well...not because you are keeping your books private.   The other issue raised is that the employees will not understand.  They don't see the complexities of the margins and costs.  All they will see is the sales number which is in the millions and they will not be able to handle it.  Like many politicians that get voted out of office by assuming the electorate can't "understand" you are not quite right here.  People love this stuff.  Employees are incredibly loyal because you are giving them a good job and a good environment to learn and grow in their careers.  Now if you are not treating your employees with respect and not allowing them room to grow in their skills and careers then you don't deserve their loyalty anyway.  They really will understand....which maybe, just maybe,  is what scares you...

So here may be the real secret if we are honest as small businessmen and women.  You are keeping your books private because you are making tons of money or not making any at all.  If you are making millions you don't want these people working for you seeing it since you are not sharing...if you are not making money you are embarrassed because you are acting like the almighty entrepeneur but are really not all that great as a businessperson.  I have a friend who runs a nice 10 million dollar manufacturing company in Southern California.  He is so secret I don't think even he knows how much he is making.  You can see the detachment in the employees.  My guess is that when times were good the millions were worth it since he didn't have anybody asking him to justify not sharing...but now that the chopper business is slow and the margins tight...he could really use the help of a loyal involved workforce.  But it is not there for him.  Simple reality of his choice of investment.  He might not make it out of the slump but his odds would be better if the employees were "all in".  If you are messing up and losing the business...don't you want some help from those that know you and your customers?  My guess is that way before you implode you will have some warning signs brought to your attention by the very people that are able to fix them.  A true small business win.  Anything you can do to foster that trust and loyalty will be paid back both in the good times and the bad.

The standard way that small firms get advice and handle the serious issues of capital and investment are with a smart and involved board of directors/advisors.  Directors take this strategic advice role very seriously.  I relish the opportunity to serve on the Local Motors Board of Directors with Jay and Tom.  In the start up phase of a company that has raised millions from knowledgeable investors it is never boring.  It is the reason we start companies in the first add real value to a firm and create something real.  As valuable as a board is...I am thinking it is not enough for Smyth Performance.  For me I think that opening the books creates an environment that shatters barriers of class and privilege in a company.  The pecking order and status that an "insider" or "higher up"  in the organization enjoys because of access to information is done away with.  It may not be corporate socialism since skills and talent still get you to the top...but it definitely gets rid of the totalitarian manager when the shop floor has real access.

Secrets in business should be for new discoveries in R&D or a huge promotional plan that is targeting a competitor aggressively.  Small companies need to take a cue from wall street and share their plans for the next year with the people that are doing the work...and that means looking at the results of the company financially as well.

So why not open up folks.  If it works for the huge public companies it can work for you.  Get over your grandiose CEO view of yourself.  Admit it.  You run a small company...embrace the smallness by sharing the struggles and wins with your people not just in words but in actions.  Start with a profit share/stock ownership program today...and watch the reaction change the culture of your company for the better.  Underneath it all you know this is the right thing to do it.  If they see the millions and you are not sharing they will get upset...rightfully.  If they see your miserable margins after all the hard work you all put in they will start helping you change the way you make money...they may even see the need for a biut of trimming here and there.  Either way you all are stakeholders with your livelihoods on the line.  Most importantly the change to open books will prepare the company for a sale where all the employees get to see that when it is sold they will get a piece of the value that they helped create.  You don't have to go public to make money with stock...but you do have to have a sale able company.  Let your employees help you get to your harvest by including them.  That is how real wealth is generated in this country.  There are no secrets in is one of the purest forms of work and reward.  Open up and prosper.

Mark Smith

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1 comment:

  1. Good one Mark - strikes a chord with me. It takes real courage to be that honest, but I can tell you from experience - when things get tough if the owners are the only people who know the numbers, then nobody knows how they can help, or even that they need to. I was senior management in a start-up custom vehicle company that had spectacular product, consecutive years of double digit sales growth and a fiercely loyal customer base. But the owners kept everything under wraps. I spent two years asking to see the numbers without success, and when 2008 took it's toll the end came swiftly and without warning. As the head of sales I was first (but not last) up against the wall and count myself lucky that I was gone before the inevitable Chpt. 11, partnership dissolution, SBA defaults, etc..... I was uniquely positioned to help, had I only known, or been asked....