Key Question:
A: Use open-book management.
Q: In the meeting you saw on the tape, did Lorraine set goals or did the employees offer their ideas?
A: Lorraine asked the employees to set the goals. They were all looking at the year-end numbers, which included all the costs of doing business. It is very common for employees to know what the sales are, but most employees don't know what it costs to run a business.
Q: Why would some business owners hesitate to share all the numbers of the business with employees?
A: The owner may think the employees will be jealous or think the owner is making too much money. In reality, when employees see how much it really costs to run a business, they are surprised and have greater respect for the owner. Lorraine's employees think she should take more salary and benefits from the business.
For example, if an employee is earning $30,000 a year in salary, just the required employment taxes paid to the Federal Government for that employee will be an additional $10,000 or more. That employee only sees what is in the paycheck and forgets the employer must pay the additional $10,000.
Employees are shocked to see the cost of a lease, insurance, utilities, advertising, telephones, etc.
Another reason business owners don't share information is they think they don't have time. Lorraine and others will say the benefit derived from sharing information far outweighs the liability of taking time to do so.
To learn how to run her company with open-book management techniques, Lorraine took a course taught by Jack Stack, author of "The Great Game of Business."
Also, the following books can be useful:
"Open-Book Management: The Coming Business Revolution" by John Case
"The Open-Book Experience: Lessons From Over 100 Companies Who Successfully Transformed Themselves" by John Case
"The Power of Open-Book Management" by John P. Schuster
Think about it
How do your employees know if they are doing good? Do you share your financial statements with your employees?
Clip from: Cactus & Tropicals
Salt Lake City: Meet Lorraine Miller; in 1976 she invested $2,000 to start the business of her dreams. Initially she just sold house plants. Today Cactus & Tropicals provides indoor and outdoor landscaping for over 500 customers and her retail store and greenhouse are full of exotic plants and gifts.
It is a place people just like to go to hang out!
In 1994 she was named Utah's Small Business Person of the Year then went on to become the first woman to win the national award from the US Small Business Administration. In 1997 Lorraine was named by Ernst & Young as one of Salt Lake's outstanding entrepreneurs.
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Cactus and Tropicals
Lorraine Miller, founder,
Scott and Karin Pynes, owners
2735 South 2000 East
Salt Lake City, UT 84109
801 485 2542
Visit our web site: http://www.cactusandtropicals.com
Office: 801 485 2542
Business Classification:
Plants/Gardening
Year Founded: 1975
Open the Books
LORRAINE: We have a bonus program here. And what I have told them is that for this year...we started learning how to do--read income and teaching all of--everyone here how to read financials.
HATTIE: Right.
LORRAINE: I think you all have a copy of that. And it looks like our overall increase in the nursery sales last year were 15 percent. They know what our net income was year before last. We're just closing out our year right now. We're--we're two minutes away from it. My promise to them was the staff will split 40 percent of the increase of net income from last year to this. And when we all set our goals together, we said, `We're gonna split $16,000.' Well, they beat their sales goals and their cost-of-goods goals so well that they are splitting $40,000.
HATTIE: Wow!
LORRAINE: And every quarter they get a check based on how we're doing for that quarter, and we're about to have a party in a couple of weeks, pass out the last bonus check for last year. We've set our goals--or we're almost done setting our goals for this year and we'll see what that increase will be again.
Unidentified Woman #5: And it's scary to think that we might be able to do the same increase just because we had such a huge jump last year.
LORRAINE: Well, what types of things are we gonna do this year that we didn't do last year that would make a difference? They know very clearly that if we throw this idea in the garbage or if we sell it, it goes right to the bottom line. And so now we're more motivated to take care of it.
HATTIE: OK. So what you're saying is information is power.
LORRAINE: Yes.
HATTIE: By you putting information in the hands of everyone the business has thrived.
LORRAINE: Right. They control it.
HATTIE: So advice you would give a small-business owner is don't play close to the vest.
LORRAINE: Well, everybody's afraid to let their employees see their bottom line. And I think maybe it's because we're doing something we shouldn't be doing. I'm thrilled to let them see it because they own it, they've created it. And you know the neat part about it, Hattie? Is that they know how hard I've worked to build it up to this point and sometimes it's them that's saying, `Take more, Lorraine.'
`Why don't you go get a new car? You don't'--you know? You know, they want it for me, too. I think there is so much mutual respect and trust going on here that, you know, while I want it to be better--their lives to be better for them, they want that same wish for me, too. So...
HATTIE: Pretty wonderful.
LORRAINE: ...I'm pretty happy.
HATTIE: Lorraine is glad she quit her job in 1975. She's proud to own a business where people come first.
LORRAINE: What owning your own business does is it gives you an opportunity to self-actualize. It gives you an opportunity to be whoever you are. When you work for a big corporation and you're putting the papers in the slots that they tell you, nothing in your creative spirit, nothing in your soul, nothing in your own desire to grow can happen there, you know? But when you get into a small business that is greedy to hear your ideas, you know then you have an opportunity to say, `This is something about me that is in my heart and I didn't even know it was there,' I've been working, pushing this paper into this slot for so long.
This is a place where everybody can self-actualize. Most of the ideas and things that we do here come from the staff. And maybe my input is to say, `Those are such great ideas I have nothing to say.' But everybody here has an opportunity to be the very best they can be. They can be free and they can be creative and there is no limit to it.
HATTIE: Remember, "boss" is a four-letter word.
