3 Ways to Overcome Financial Distress While Improving Employee Trust
This article was originally published by the Forbes Agency Council on Forbes.com.
Business is hard. You win a big account but don’t have the team to service it. You lose a big account and think about how to trim the fat. Your concept gets funded, but you don’t know how to engage your team around a common purpose. Regardless of size, all businesses get stuck.
What if there was a way to make running a business easier? Imagine if you:
• Had more financial predictability
• Could teach your team to understand the finances
• Could rely on your team to help improve the bottom line
• Had a common purpose that aligned everyone
• Could impact the lives of your employees and interns by teaching them financial literacy
If this seems impossible, you need to know Jack Stack.
CEO of SRC Holdings Corporation, Stack conceived the idea in 1983 when he was trying to save 119 jobs at a dying division of International Harvester. He shared the distress of the financials with his employees, teaching them the rules of business by opening the books. This new way of managing the organization became known as The Great Game of Business (GGOB).
Like Jack, my company, Red Caffeine, faced financial distress. After a 10-year partnership, I was forced to start over. Picking up the pieces in the aftermath of a toxic and costly business divorce was not easy. In the months before the split, I was introduced to GGOB by a friend and mentor.
If you're facing financial distress, no matter the source, here are a few ways to shift your situation while improving employee trust:
1. Be Transparent
Transparency in business starts at the top. CEOs who are comfortable with being themselves express real opinions, talk about failures as well as successes and can create a workspace of psychological safety. A psychologically safe environment is a place where all employees feel comfortable to contribute ideas, debate the status quo and innovate.
Open book management (OBM), an essential component of GGOB, takes transparency to the next level. It means you entrust your team with the knowledge of the financial health of the company. OBM works best when you teach financial literacy, empower team members with owning the income statement and provide a way to win by giving them a stake in successful business outcomes.
In my past company, we had carefully kept the highs and lows of business from our employees. But the idea of financial transparency and empowerment of the team intrigued me. During the wind-down of my company, my team and I met weekly, commiserating over the toxic office antics but also talking about the new business, envisioning a better future. Little did I realize, I was becoming a more vulnerable and authentic leader.
These meetings were coined “Culture Club,” a gathering to talk about the future and share lunch or a craft beer. In the startup of my new company, I decided to open our books, and "we embrace transparency" is now a core value.
My employees get a full view of how our company is performing and ways they can impact the numbers. When finances are healthy, they have a stake in our success in the form of a bonus. Culture Club has become a cornerstone ritual. Many of my new hires say that transparency and OBM are critical factors that attracted them.
2. Learn to Forecast
Most entrepreneurs know that employees think finances are way worse or much better than they truly are. Business finance and forecasting are complicated, even for CPAs. Forecasting helps create more predictable financial outcomes. It provides you more confidence in making a capital purchase, hiring new staff or investing in a new product.
In the reboot of our company, we were in a very tight spot: We had a non-existent sales pipeline, more debt than contracts, and assumed all operating expenses of the prior business. We created financial literacy training, explaining the line items of income statements and balance sheets. We learned how to forecast the ups and downs of our new company. We predicted our billings and expenses.
Keeping a close eye on net profit was one of the ways we were able to reduce debt quickly. With practice, we became better at playing the game, and in the first year, we were debt free. We now forecast resource allocation, helping us to plan the work we can complete each month and project the need for new hires. In under four years, our revenues and staff have grown over 125%.
3. Train to Endure
Just like sports, you have to continue to train to survive. With growth, we became less efficient, so we introduced mini-games, a short-term activity designed to correct a weakness or pursue an opportunity. We use mini-games to help reduce rework and quality control. Mini-games work best when the team creates them, you have frequent huddles on progress and use non-cash rewards.
A successful mini-game we recently completed was "Take Me Out to the Ballgame," a 7-week competition to improve our team's time-tracking habits. When people don’t log their time, it slows down our operational process (billings, projections, estimates, etc.). This directly affects resource allocation and profitability.
The game involved every member of our team and required each member to log their time on time. As a team, each member was held accountable. A scoreboard hung in the kitchen and a humorous play-by-play email was sent on Mondays to announce the score. The theme promoted team-oriented messaging and energy. We happily reaped the rewards of winning at our recent offsite picnic.
A business divorce may have been my catalyst for change, but every business experiences roadblocks. It is human nature to want to win. If you are willing to invest in people, help them understand their ability to impact the company, arm them with the knowledge of business finance and create incentives that reward good outcomes, you can tap into this fundamental human characteristic. Business is hard, but when you build a culture of winning, it gets easier and much more fun.
Want to learn even more about Open Book Management? Read about why financial transparency matters to small Giants.