Small Business, Big Lessons - Season 1, Episode 6: Open book management

Key Takeaways

welcome back to small business big lessons a buffer original series my name is Ash Reed head of content of buffer and throughout this series we're going on a journey to understand how great work happens we're telling stories of unique businesses and meeting the incredible people behind them examining how they're doing things differently and what we can learn from their Journeys zingerman has become an institution in the town of Ann Arbor of Michigan and it's hard to describe exactly what Zingerman's is on the surface it's a collection of food related businesses each with its own specialty all located in the Ann Arbor area but if you dig a Little Deeper you'll realize that Zingerman's is an incredibly unique business in fact Inc magazine once named it the coolest small business in America and it was the inspiration behind Bo burlingham's book small Giants there are hundreds of things that make Zingerman's unique from the fact its Founders rejected traditional growth formulas to its focus on community giving and being a good corporate citizen but today we're going to focus in on open book management and how Zingerman's commitment to sharing as much information as possible with everyone in the organization has helped its community of businesses to thrive [Music] my name is Ari I'm from Zingerman's community of businesses in Ann Arbor Michigan before Ari winesweig co-founded Zingerman's with Paul Saginaw in 1982 he was a regular college graduate looking for a job any job to pay his rent getting involved in the food industry was a happy accident one of my roommates was waiting tables in a restaurant in downtown Ann Arbor and so I went in there and applied for a job as a server like he had and they offered me a job washing dishes which I took started that night and that's how I got going so I have no glamorous story about childhood dreams of cooking I started to prep line cook and manage kitchens I worked for that restaurant group for about four years and then in the fall of 1981 which now seems like the Middle Ages I gave too much notice not knowing what I was going to do next Paul had left a few years earlier and opened this little very high quality Fish Market here in town and he and I had talked over the years of doing our own thing together and he didn't know I had given notice but he called me like two days later and he said there was this little building coming open across the street from the fish market that we should go check out and March 15 1982 is when we opened the deli from the very early days Arium pool had a high level vision for the kind of business they want wanted to start we knew from the beginning we wanted something unique I really like Originals I'm drawn to people who create in a way that's true to who they are and this is true in music it's true in art it's true in food and I think there's that different energy around those kinds of places so I knew that we knew we wanted great food great service and a great place for people to work that we would employ and from the beginning in the spirit of uniqueness we knew we only wanted one I never wanted multiple units of the same thing my experience of that everywhere in the world is the first one's awesome the second one's not bad the fourth one is fine and the eighth one it's like stopping at Starbucks which I'm not cutting on Starbucks that's their vision and they're entitled to go after what they want to do but it just wasn't work I wanted to be part of Zingerman's Deli was a hit people would come from far and wide to try their famous sandwiches and experience the exceptional service but with all of this success came pressure to grow the business uh 1993 uh Paul sits me down on this little old wooden bench that's out front of the deli and he kind of looks at me and he goes okay in 10 years what are we doing and I'm like what he's like in 10 years what are we doing I'm like I don't know I just haven't even thought about it he's like well I mean this is this crazy like you know we have this we're not going to open in other cities and we're turning down offers so we're losing money there and then people are opening on campus and They're copying a lot of what we do because we won't go open there I mean is this crazy are we crazy I'm like dude I don't know but I got work to do like if I don't get back in there and get set up we're gonna get killed today and he's like no this is our work so in in hindsight I realize he probably was barely sleeping for months worrying about this and he had essentially an intuitive sense that we had fulfilled that original Unwritten vision and in essence in our current language what he was asking me is what's your vision and I really didn't have one so we spent about a year of long walks lots of cursing arguing eye rolling coming back to the table some laughing and out of that is the first time that we wrote A Vision in the format that we now write them regularly as explored previously in the episode about keep the candle company visioning is the act of stepping back from the market and asking yourself questions like what is it that I'm trying to build what does it look like how does it feel and what impact does it have on the world and essentially it comes down to instead of trying to solve problems it's about coming at it from the heart and describing the future of your dreams so out of that work we wrote what was called install is called Zingerman's 2009 and we wrote this description of a community of businesses so he really wanted to grow I really wanted one place and after a year of conversation we came up with this idea that we could stay true to the having only the one original Unique Deli but still grow by opening other Zingerman's businesses where they would have their own unique specialty and that by doing that we could create opportunity for people in the organization to become partners because I really wanted partners and owners on site who had a passion for what that business did we really wanted somebody who was going to be in there baking for 20 or 30 years because achieving Mastery is not a two-year process it's for life right the community approach enabled Zingerman's to retain the best aspects of small business life whilst also finding ways to grow and scale now zingerman has over 10 businesses within its Community including the original Delhi that opened in 1982. they also have Zingerman's Roadhouse a restaurant selling classic American food and Zingerman's Bakehouse that makes traditionally baked Breads and pastries along the way Zingerman's became known for having a unique business model and in 1994 they added a business to their Community beyond the food industry called Zing train zinc train helps other organizations build healthy work cultures and think differently about how they operate they started teaching their philosophies about employee ownership sustainable growth and open book management Paul and I learned about open books sometime in the mid 90s so about 12 13 years 14 years into our business by reading the book great game of business at Jack Stack and Bob Burlingham wrote the great game of Business book led to a whole organization being formed to help business owners embrace the principles and practices of open book management I'm Ann Claire Broughton I'm based in Durham North Carolina USA my company is brought in Consulting and we do open book management consulting with the great game of business they use Sports metaphors so in essence the the model is based on the belief which I agree with that most businesses uh the players I.E the staff don't know how business works at all hence they like it when it's slow because their day is easier which makes no sense to a business person but if you don't know how business works it's awesome the quieter the more other things you can get done so with open book companies we organize everything around a critical number and a lot of times for first-time practitioners it's a profitability number so we're trying to bring in more revenue and we're trying to manage expenses and do things in a smarter way so that we make more money and when we make more money that gain share goes into a bonus plan for everyone so everyone is incentivized not only to create a great company but actually to have a bonus most Frontline people think the owners are making money like crazy and I'm sure there are a few out there but most people I know in business are barely making money so they don't know the score and then if the team wins or loses they don't really get anything this model is the inverse which is we teach people how business works we teach them the difference between cash flow and sales we teach them the difference between cash flow and profit they start to understand what depreciation is they know how it's going and so what starts to happen is if I walk into the business they're excited when it's busy and they're bummed out when they're slow in the same way that a good team still loses but they're on happy about the fact that they lost they're not going oh this is awesome we don't get into the playoffs this year my season's so much shorter I can go camping when it works well the benefits of open book management can seep into every aspect of a business it removes a lot of the traditional Boss versus worker power Dynamic and empowers employees within the company at any level to come up with ideas for improvements that benefit the whole Enterprise there's so many benefits the number one benefit I would say is you know that feeling when you set out to do something difficult with other people and you work really hard and you overcome obstacles and you do it that's the best feeling in the world and that's what we do every single day with open book companies we've got everybody on board everybody's pulling in the same direction and you are tapping the Ingenuity of every single person a big piece of what we do is teach everybody to think like a leader right and not only teach them to but expect them to act like a leader and so this is something that we teach people from the beginning is like there's things you understand on your third day that after 39 years of doing this I'm clueless about and so we need you to be able to participate in the conversation an open book allows everybody into the conversation so instead of the typical hierarchical model where you'd have to be here you know seven years before you got in the meeting you could be here seven days and you could raise your hand and say like I don't really think this makes sense the other thing is that Gallup poll engagement polls show that only 13 percent of employees are engaged worldwide so that's a huge waste we spend so much of our time at work why not be excited be engaged be using our full brains to pull towards a common goal you wouldn't play a game where you didn't know the score if we were bowling and the vice president was behind a curtain with the pins and he would say to you okay A little to the left a little to the right okay very good and you say well what's the score and he says well I'll let you know at the end of the year you wouldn't play a game that way it's not fun it's not motivating we need to know the score we play harder and we strategize better performance is better when people understand like the the cost of what it means to drop something and break it like the average Frontline employee in most organizations is like whatever man they got so much money like who cares if I dropped 10 plates like whatever whereas here like they see how small the margins really are and they understand like you're not a bad human I'm not going to yell at you for dropping them I've dropped them too but it does cost us money and if we drop 10 plates a day by the end of the year maybe it's five thousand dollars and if we need that five thousand to both donate to the community to pay out some small share of profit to the people working Etc like none of that can happen when employees understand how much it takes to make money that's a big aha a lot of times people think that a business is 40 50 profitable and that the owner is going to the Cayman Islands every year and buying boats and things and when they realize that it's hard to make money we have a certain amount in Revenue but then we have a lot of expense it costs money to make our product or service and then we have other overhead expenses administrative expenses and marketing expenses and what's left you know that profit at the end of the day is is hard to come by and it's not that much the average profitability of a company is six and a half percent some companies make more profit you know 10 20 some restaurants scrape by with one or two percent if they're lucky the Practical implementation of open book management revolves around transparency and ensuring everyone in the organization can see the bigger picture another key part of open book management is identifying targets and developing strategies to hit them we need to know what the most important metrics are and then we need to put them on a scoreboard a scoreboard doesn't have to be a bunch of numbers it's just a way of letting you know if you're winning or losing and that's what we need to know that's what's missing in business so a scoreboard lets you know are you winning are you losing who's accountable and it gives you that chance to strategize the other Beating Heart of Open book management is the huddle our companies huddle every single week at the same time they give big picture market conditions then they go through the numbers they highlight wins and losses and how they're going to change those numbers in order to make this process more engaging it can be gamified transforming what could have been a boring exercise in cost saving and efficiency into a fun and enjoyable experience we will set a critical number for the year and we huddle around that critical number every week but we also know that there are many drivers to that critical number so we might play a mini game just around changing one habit or going after one particular thing that's going to make a big difference and we also scoreboard that we theme that we have small medium and large milestones and small medium and large prizes so one mini game that I saw that I really liked was at New Belgium Brewing they had a liquid Center which is their bar and they were not selling enough they just didn't have the good habits around selling so they played a mini game if somebody came in and ordered a fat tire they would ask him if he wanted a case to take home or a t-shirt or something like that so the scoreboard was a giant vinyl record with slices of orange peel on it they wanted to go to a venue called the the orange peel and hear music and every time they brought in an additional 4 700 or so in profits they were able to peel off a slice of orange and then once all the orange peel was gone they could win their prize and go hear music there are countless examples of great ideas being generated by Frontline staff who have spotted an issue in their area of focus issues that would have been missed by management or previously seen as trivial and unimportant prior to the implementation of open book management there's a now famous example from Zingerman's Roadhouse that perfectly demonstrates these kinds of Innovations so it's kind of a Perpetual problem but in the beginning of any restaurant waste is generally a particularly difficult area of cost management so they were looking at their scoreboard forecasting the month and they said our food costs are so high what ideas do you have and one of the dishwashers said you know what I throw away so many french fries is it because they're bad no they're fabulous it's just the portion's too big so in the Huddle live we came up with well what if we cut the portion in half and offer free refills it's a great example because it's win-win-win you're sending less money everybody gets excited that they could get a free refill and so the guy who washed the dishes had the best idea it saved money for the business it made the guest experience better and it raised the bar on quality there are different levels of open book that companies can Embrace depending on the way their business Works my company buffer publishes all financial data including salaries internally and externally and while this particular practice is unusual different businesses can tailor their use of open book to suit their needs but the central concept is always to share the numbers that matter with all staff so openbook management is an operating system some companies reporting and that's great it's great to know how we did last quarter or last year and it's great to learn from past financials but open book management is a system where everybody is taught the measures of business success and expected and enabled to act on them to to actually promote the business and the analogy with this is if you knew your house was going to burn down in two weeks would you take different action than if it already burned down right you're able to take action you know during the month to prevent problems to increase successes and to get everybody thinking so the really special thing about open book management is we build line of sight so everybody knows how what they do every day affects the numbers and this is one of the things that got me so excited about open book management years ago before I was a coach I was at the conference and I heard from an I.T guy at a company he did not directly produce the product or service but once and he didn't feel very important but once he saw the numbers and he realized how much it cost for every hour that the computers were down he got super engaged and he knew he was critical to success but he didn't know that before so open book and sharing those numbers is key so I would suggest that open book is actually universally applicable uh we use it in our training business we use it in our Cafe we use it in our Bakery we use it in our mail order and then we you know we use it in the restaurant so I it's it's universally applicable I mean the metrics that are measured are changed always that's part of the principle of it to fit what you're currently struggling with or what's important for your business but it's 100 applicable in in all settings in my belief will it be used well in all settings no because it a lot depends on our ability As Leaders to implement it it effects on our ability to get buy-in it's impacted by the willingness of the Frontline staff to buy in if organizations as I believe are like ecosystems not everything that you plant is going to work everywhere but I think it can it's just the farmer has to be prepared to do the work that needs to be done and that is not as easy as it sounds while the positive effects of open book management are clear to see there are also some potential pitfalls to this practice that need to be taken into account to ensure success sometimes people will get excited about open book and implement it part way and then kind of lose interest and that is terrible for morale because you've gotten people's hopes up like people want to be listened to people want to give their ideas and if you start to do it and then lose interest that's awful for your morale they believe very strongly that people who get to Greatness whether it's a poet a professor a restaurant an athlete a musician they're all have stuck with stuff long long long after that shiny newness wore off and it's true with open book too it takes a couple years at least to really have it go up the use of open book helps everyone to feel engaged at work and to understand their impact it's also instrumental in building trust between business owners and workers an area that perhaps previously could be strained definitely growing because if you think about how Millennials and others want to be engaged from the beginning it's the perfect system Millennials don't want to come into a business and sort of pay their dues and be a cog and wait wait wait to have any Authority like people want to be engaged people want to know that their thoughts and ideas make a difference so it's definitely getting a lot more attention and if you think about the pace of global change we cannot have top-down command and control organizations we've got to have bottom-up participatory organizations that's how we're going to get the Innovation that's going to keep us competitive in global markets so it is the way to do business and it's fun I I still remember the year we opened and this is when phones were attached to walls so I my grandmother called and I answered the phone at home and then we're talking for a minute and she's like well wait a minute if you're not there and you're open who's watching the cash register I'm not blaming her it's just it's a negative belief about people like if you're not the owner's not standing there looking at the money all day somebody's gonna steal so if you have positive beliefs about people like the more trust we put in people the better they're gonna behave if you believe in diversity then it tells you that the perspective of the dishwasher is as interesting and valuable as yours it doesn't mean you just turn over your whole life and flip the rolls around but that you have conversations if you believe that there's no better people or Worse people regardless of college degrees or titles if you have beliefs like that if you believe that the more generous we are the better we're all going to do then open book is a logical conclusion open book can work across a range of sectors and can be scaled up or down depending on the size of the business so my clients alone I've had commercial laundry hydroponic Greenhouse marketing firm a architectural lighting design firm a builder a green Builder so yeah I've seen Manufacturing Services large companies small companies you know Southwest Airlines has played great game of business Harley Davidson some very very large companies and then I've worked with tiny little companies you might even have non-profits I know there's some Big Brother Big Sisters organizations that have played great game and there's even one County government so Greene County Missouri has played great game and they've been able to do a ton more save a ton of money without tax increases Ari even makes an argument that there are lessons to be learned around open book management that can and should be applied to everyday life outside of work all these things that we do visioning energy management servant leadership open book consensus work I mean all of these things are 100 applicable out of work as well as at work so what most people in most businesses are taught is actually antithetical to the way they want to live so you go to work and we teach you to compete compete compete dominate dominate Dominate and then you're supposed to go home and be kind and gentle and and it wears on you it's exhausting because you can't be yourself so the greater ecosystem is benefiting if you learn Energy Management you take it home because bad energy at home is just as ineffective as bad energy at work if you if you have a service mindset and you've learned how to internalize that you take it in with your kids so if you have a service mindset it's much more likely you can take a deep breath and go you know what who cares who did the dishes more last week it's completely irrelevant we don't need to go to war over this let me just do it because it's the right thing to do and in the long run we're all going to come out ahead so all of the stuff I realize that we're teaching people the whole belief system I mean it's it's it's just an awesome way it changes people's lives out of work and because it's one ecosystem the better they feel at home the better they're gonna do at work so really we all come out ahead [Music] so I said it was quite hard to Define exactly what Zingerman's is a community of food related businesses yep an Ann Arbor institution sure but it's so much more than that it's been a 40 plus year experiment into what it means to build a great business for its open book philosophies Zingerman's has created a thriving and motivating work environment where people are selling delightful sandwiches making traditional Sicilian gelato washing dishes and also learning about business you could almost call Zingerman's a business school open book management creates opportunities for people to grow it enables each employee to make a positive difference and ensures everyone knows how a company is performing financially and when you think about it it just makes sense to borrow the analogy Ari and Ann Claire shared with us it's almost impossible for people to make sound decisions in their work if they don't know the school this episode of small business big lessons was written by me Ash Reed script edited by my teammate Ariel Tannenbaum and produced by Rowan Bishop at message heard when making this podcast because we believe in a different way to do work and we want to share the stories of the businesses inspiring us we also share our own story transparently over at buffer.com forward slash open if this episode has inspired you or is helping you think about building your business in new ways we'd love to hear from you tweet us at buffer and head to Apple podcast to leave us a review