Three Ways to Overcome Financial Distress While Improving Employee Confidence
Business is tough. You win a big account but you don’t have the team to maintain it. You lose a big account and think about how to reduce fat. Your concept is funded, but you don’t know how to engage your team around a common goal. Regardless of their size, all companies are blocked.
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 finance
• Could count on your team to help improve the bottom line
• Had a common goal that aligned everyone
• Could impact the lives of your employees and interns by teaching them financial literacy
If that seems impossible, you must know Jack Stack.
CEO of SRC Holdings Corporation, Stack conceived the idea in 1983 while trying to save 119 jobs at a dying division of International Harvester. He shared the distress of finances with his employees, teaching them the rules of trade by opening the books. This new way of running the organization became known as The Great Game of Business (GGOB).
Like Jack, my business, Red Caffeine, has faced financial difficulties. After 10 years of partnership, I was forced to start over. Picking up the pieces following a toxic and costly business divorce hasn’t been easy. In the months leading up to the split, I was introduced to GGOB by a friend and mentor.
If you are facing financial difficulties, whatever the source, here are some ways to put your situation in a more positive light:
1. Be transparent.
Transparency in business starts at the top. CEOs who are comfortable being themselves speak true opinions, talk about failures as successes, and can create a workplace of psychological safety. A psychologically safe environment is a place where all employees feel comfortable contributing ideas, debating the status quo, and innovating.
Open Book Management (OBM), a core component of GGOB, takes transparency to the next level. This means that you entrust your team with knowledge of the financial health of the company. OBM works best when you teach financial literacy, empower team members to own the bottom line, and provide a way to earn by giving them a stake in successful business outcomes.
In my old company, we carefully concealed the ups and downs of business from our employees. But the idea of financial transparency and team accountability intrigued me. During the liquidation of my company, my team and I met weekly, sympathizing with the toxic antics of the office, but also talking about the new company, envisioning a better future. I didn’t realize that I was becoming a more vulnerable and authentic leader.
These meetings have been dubbed “Culture Club,” a gathering to talk about the future and share lunch or a craft beer. When starting my new business, I decided to open our books, and “we embrace transparency” is now a core value.
My employees have a full view of how our business is performing and how they can impact the numbers. When finances are healthy, they contribute to our success in the form of a bonus. Culture Club has become an essential ritual. Many of my new hires say transparency and OBM are critical factors that attracted them.
2. Learn to predict.
Most entrepreneurs know that employees think finances are much worse or much better than they really are. Corporate financing and forecasting is complicated, even for CPAs. Forecasts help create more predictable financial results. This gives you more confidence to make a capital purchase, hire new employees, or invest in a new product.
When we restarted our business, we were in a very difficult situation: we had a non-existent sales pipeline, more debt than contracts, and were responsible for all the operating expenses of the previous activity. We have created a financial literacy training, explaining the line items of tax returns and balance sheets. We have learned to plan for the ups and downs of our new venture. We have planned our billings and expenses. Keeping a close eye on net profit has been one of the ways to reduce debt quickly. With practice we got better at the game, and the first year we were debt free. We now forecast resource allocation, which helps us plan the work we can do each month and forecast new hire needs. In less than four years, our revenues and our workforce have increased by more than 125%.
3. Train yourself to endure.
Just like sport, you have to keep training to survive. With growth, we became less efficient, so we introduced mini-games, a short-term activity designed to correct a weakness or seize an opportunity. We use minigames to help reduce rework and quality control. Minigames work best when the team creates them, you have frequent progress huddles, and use non-monetary rewards.
A successful mini-game we recently completed was “Take Me to the Ball Game”, 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 (invoicing, projections, estimates, etc.). This directly affects resource allocation and profitability. The game involved every member of our team and required each member to record 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 Monday announcing the score. The theme promoted team-oriented messages and energy. Fortunately, we reaped the rewards of our victory at our recent offsite picnic.
A business divorce may have been my catalyst for change, but every business encounters obstacles. It’s human nature to want to win. If you’re ready to invest in people, help them understand their ability to impact the business, equip them with knowledge of business finance, and create incentives that reward good performance, you can tap into in this fundamental human characteristic. Business is tough, but when you build a culture of winning it becomes easier and a whole lot more fun.