E88 | Surviving A Black Swan with Jack Stack
If you’re struggling to see how your business is going to survive the current Black Swan, then you should listen to Jack Stack, CEO of SRC Holdings Corp, the oldest employee-owned remanufacturer to original equipment manufacturers (OEMs) in North America, to learn why The Great Game of Business could help you.
Jack is currently in his 5th Black Swan event. That’s right. His 5th. And each one he’s been through has been a significant catalyst for further growth for the company. In fact, after each recession, the business has doubled in the next five years.
“When we do our business plans, we say, okay, we know there’s something out there we can’t even figure out, so let’s set money aside for the most catastrophic event you can imagine. So in ‘09, we actually put together a long term plan to raise $100 million in cash for the next Black Swan.”
In today’s conversation, Dom and Jack discuss how the open-book management approach is a way of running your business by making your financial instruments personal, giving people a stake in your business and getting people to own elements of the income statement and the P&L.
They also discuss how, if you’re an organisation, you might follow in Jack’s footsteps and run your employee bonus programmes based on the weaknesses of your financial statements, rather than a profit share or based on revenue goals.
For our lucky listeners, Jack is offering a preview of both his new books along with a resource kit. See the links below for more information.
On today’s podcast:
- What Jack is famous for
- The advantage of financial literacy
- Writing The Great Game of Business book
- How Jack saved International Harvester
- Surviving his fifth Black Swan
- Starting an open-book journey
Links:
Playing The Great Game with Jack Stack
What is Jack Stack famous for? No, not BBQ. Jack Stack is the CEO of SRC Holdings Corp, formerly International Harvester, the oldest employee-owned remanufacturer to original equipment manufacturers (OEMs) in North America.
But engines are incidental to what they actually do – they teach people about business. They give business leaders the knowledge that will enable them to go out and play The Great Game of Business, no matter what industry they’re in.
The beginning of open-book management
For Jack it all began when he sought a way to save 119 jobs at International Harvester’s engine remanufacturing facility in Springfield, Missouri, in 1983.
Having secured backing from a bank that was in serious trouble and looking to increase their margins by taking a high risk, Jack went back to the 119 employees and taught them what he had learned over the 2 years it took to secure the money to save the company.
“The first day of business when we brought the 119 people back, we took a blank income statement and a blank cash flow statement and we went around the room. We said, Bob, ‘what do you sell?’ We broke down the cost of goods. We went to Irene who ran purchasing and said, ‘purchasing, what are you gonna buy?’ And by the end of 20 minutes, we’d put an income statement together. And it was crazy, because at that moment, we realised that everybody owned a line on that income statement.”
They humanised the financial statements, assigning a line for each person to take responsibility, and for 37 years they’ve been teaching this as open-book management – teaching people financial literacy.
“We really promoted this whole idea that people can understand debt, that they can understand financials and it’s one of the most powerful tools that we have. And even to this day, so few people understand it.”
Why share your company’s finances
So many management teams don’t want to teach financial literacy to their employees, but doing so is, according to Jack, is the true definition of transparency.
“It’s just absolutely dynamite when everybody can see for themselves, you know, the contributions they make. It’s like, each line in an income statement is their own business plan. You see things that are just absolutely miracles that occur, because of the talent that you have.”
And it enables everyone, no matter their level in your business, to contribute to your success.
“We see janitors figuring out how to dilute chemicals so they last longer, so they enhance cash flow to an organisation. Everybody, and we know everybody can make a difference in this world.”
Being braced for a Black Swan
“Every Black Swan I’ve been through is worse than the previous Black Swan. But being through these Black Swans, we really understand that you have to in all your planning processes, you have to be prepared that there’s always going to be a Black Swan.”
In fact, says Jack, they’ve had to deal with a Black Swan event every 10 years since they started. And five years after each one they see the value of the company double, because they were ready for each one to happen, and they were braced for impact.
“When we do our business plans, we say, okay, we know there’s something out there we can’t even figure out, so let’s set money aside for the most catastrophic event you can imagine. So in ‘09, we actually put together a long term plan to raise $100 million in cash for the next Black Swan.”
Starting your own open-book journey
First things first – go out and get a copy of The Great Game of Business and A Stake in the Outcome.
And then, says Jack, hit the ground running. Know how strong you are, know exactly where you are right now, know how much cash you have to hand and what your capacity relative to debt is.
But don’t do any of that in a vacuum. Get your people around you to work with you. Be honest and open with them. And remember that innovation is more likely to come out of scarcity. I.e. If people know exactly what your financial situation is, it’s likely to inspire them to work harder.
“Ask your people to do the plan. All right. Ask your people to put the business together. Okay. Teach them how it comes together, teach them how, you know, their contributions are so significant.”
Once you figure out a survival mode, then you can figure out a new normal, and then you can figure out a bold move mode and you’re off.