Confessions of an Entrepreneur: Open Book Management is a Fantastic Tool Any Business Owner Can Use
March 9, 2021 | By Mark Zweig
Open book management — i.e., sharing key financial information and other company performance metrics — is a tool any business owner can employ.
It was a key part of our management approach at Zweig Group from the beginning nearly 33 years ago, and we made it the Inc. 500 list of fastest-growing, privately-held firms twice, and in our third iteration, the Inc. 5000 list as well. We also helped implement it in some form in dozens of client companies over the years.
Yet, very few entrepreneurs and small business owners practice it in their businesses. Business owners will give all kinds of reasons why they don’t use open book management, including:
“Our people wouldn’t understand the numbers if we shared them.”
My response — your people are smarter than you think and will understand it if you educate them.
“Our employees will be upset if they see how much money we are making.”
My response — you need to educate your people on why making a profit is essential and where that money goes. And if you are embarrassed by how much your business makes relative to how much of that bounty you share with your people, maybe you are being greedy. Not to mention the fact that studies have shown employees who are not informed about their firm’s performance are generally under the impression that owners make much more than they actually do from their businesses.
“People will be upset if they see what other people make.”
My response — never share what individual salaries and bonuses are. Individuals could feel they are paid fairly until they find out someone else in the same or similar role makes $2000 a year more than they do. That is not part of open book management!
“Our employees will be scared if they see what poor condition we’re in.”
Some may, but odds are they think things are even worse than they probably are in actuality. It’s your job as the owner to keep everyone informed and educated!
“We don’t have good numbers, and can’t get them out quickly enough.”
You need good numbers for yourself, so you better fix that situation quickly!!
“We don’t want our competitors to see our numbers.”
Why? What are the real odds they will see it, and more importantly, what would they do with that information if they did have it?
In my experience, none of these excuses are legitimate, and business owners are missing out on the wide variety of benefits they could get from using open book management.
Some of these include:
- Open book management can help train employees in how your business makes money, which hopefully will make your business more successful. It builds bench strength for future management roles.
- Open book management helps build trust between management and employees. Employees appreciate that they are being clued in as to how the business is really performing.
- Open book management helps the owner(s) prepare the firm for the owner(s) eventual exit, as there are other people who have been prepared to step in in their absence.
- Open book management creates accountability and can help generate peer pressure to perform. All of the numbers are out in the open for everyone to see.
- Open book management forces management to have timely and accurate reporting because everyone expects to see the report on a consistent basis.
- Open book management reports can be used to keep the firm’s lenders and investors informed on how the business is doing.
- Open book management should be motivational to all employees! It helps contribute to “psychological ownership.” This alone should be enough to implement it.
According to a 2017 article in Forbes magazine authored by John Case and Bill Fotsch, “companies register as much as a 30% increase in productivity and profitability in the first year alone, when they implement the (open book) approach properly.”
Business owners reading this — what are you waiting for?