Q: I own a very successful string of salons with five locations and 25 employees. While I love my employees, I can’t believe how much they waste – shampoo, supplies, time, etc. I have talked about this problem until I am blue in the face. Nothing seems to work. Do you have some suggestions?

Steve,  Boston, MA

A: One of the joys of being an employee is that you don’t have to worry about the company budget too much. You show up, do your job, and every two weeks, you get a check. While money is an issue for many an employee in other areas of their life, the truth is, it is nice to be able to send a FedEx or nab some extra pens from the stockroom without having to pay for it. So it is not surprising that waste and high overhead are both issues for many small businesses. Without consequences, employees can spend like a drunken sailor.

Is there a solution? You bet. But first, a little background:

Small businesspeople usually go into business without a lot of formal business training. They don’t have Harvard MBAs, and sophisticated management strategies are probably not their cup of tea. So one of the joys of this column is that, when applicable, I get to share with my small business brethren some Secrets of the Big Boys. Today is one of those days.

Jack Stack is a revolutionary businessman who runs a company called the Springfield Remanufacturing Corporation (SRC.) SRC began in the early 1980s as many businesses do – in debt and struggling to find its way. When it began, SRC’s stock was valued at but 10 cents a share, and had a debt to equity ratio of 89 – 1 (for every $89 of debt there was $1 of equity.)

Not a good start.

Within five years however, Stack had created a new way of doing business, something he dubbed “The Great Game of Business.” Using it, by year five, SRC’s debt to equity ratio was down to 1.8 – 1, it was turning a substantial annual profit, the business was valued at $43 million, and the stock was selling for $13 a share – a 13,000% increase. So, just what is this Great Game of Business, you ask?

It’s amazingly simple and has been adopted by large corporations across the country. It is equally applicable to a small business.

Here is Stack’s game: He taught his employees about business. He helped them understand the finances of his business, their business (employees came to own the business too), he showed them how their department’s finances run, and how they can help the company and themselves make or break a profit.

This system came to be called “open book management” because the company opened its books to its employees. This is probably a fairly heretical thought to most small business owners. Most want their profits (or losses) to remain private. While understandable, I am here to tell you that there is another way, and the other way works.

At SRC, employees don’t waste products because they know what those products cost. They know that wasting them takes money out of their own pockets. Accordingly, Stack’s staff is highly motivated because they have an investment in the company. Work to them means more than a paycheck every two weeks. Everyone, from secretaries to engine assemblers, can tell you what kind of return their work creates for the company, and what the costs of the products they use are.

By opening the books, by giving his employees the knowledge that what they do makes a big difference in the bottom line. By giving them an ownership interest in that bottom line, Stack created a workforce of small business owners. We all know how motivated small business owners are.

If you would like to know more about this management technique,  pick up A Stake in the Outcome: Building a Culture of Ownership for the Long-Term Success of Your Business, by Jack Stack.

Today’s Tip:
Most small business owners have computers loaded with heaps of Microsoft software, most of which they either don’t know how to use, or use without understanding all it can do. Outside of hiring an expensive consultant to come in and teach you how to use what you’ve got, what do you do?

I just found out about some free seminars that can help. Covering everything from creating a marketing campaign to reducing spam to reaching untapped markets. Microsoft’s traveling Touchpoint Seminar series is designed to help you get the most from your computer and business. And, at no cost that’s pretty hard to beat. You can find out when the next seminar will be held in your neck of the woods by going to http://www.connect-ms.com/mstps/ and clicking on your state.

Managing Employee Waste

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