You Gotta Wanna Booklet PDF

“The best, most efficient, most profitable way to operate a business is to give everyone in the company a voice in how it’s run and a stake in the financial outcome - good or bad.” Jack Stack, CEO of SRC Holdings, and Father of Open-Book Management YOU gotta wanna...

“The best, most efficient, most profitable way to operate a business is to give everyone in the company a voice in how it’s run and a stake in the financial outcome - good or bad.” Jack Stack, CEO of SRC Holdings, and Father of Open-Book Management YOU gotta wanna THE ONLY SENSIBLE WAY TO RUN A COMPANY 10 higher laws of business DRAWN FROM The Great Game of Business® BY JACK STACK AND BO BURLINGHAM #  YOU gotta wanna THE ONLY SENSIBLE WAY TO RUN A COMPANY 10 higher laws of business DRAWN FROM The Great Game of Business® BY JACK STACK AND BO BURLINGHAM To order additional copies of You Gotta Wanna or for more information on other Great Game of Business® re- sources and initiatives, please contact us at: 1.800.386.2752 or visit us online at greatgame.com You Gotta Wanna: The Only Sensible Way to Run a Business Copyright ©2018 by The Great Game of Business, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or use of any information-storage or retrieval system, for any purpose without express written permission of The Great Game of Business, Inc. The Great Game of Business®, Great Game®, A Stake in the Outcome® and The Great Game of Education® are registered trademarks and Critical Number™, MiniGames™, Know & Teach the Rules™, Follow the Action & Keep Score™ are trademarks of The Great Game of Business, Inc. All rights reserved. Registered and/or pending trademarks of The Great Game of Business in the United States and international countries are used throughout this work. Use of the trademark symbols are limited to one or two prominent trademark uses for each mark. Any trademark or service mark of any third party mentioned in this document is for illustration or explanatory purposes only and is not intended to suggest or imply any endorsement by the owner of such marks. The 10 Higher Laws of Business, drawn from The Great Game of Business® by Jack Stack and Bo Burlingham The Ownership Rules, drawn from A Stake in the Outcome® by Jack Stack and Bo Burlingham  ACKNOWLEDGEMENTS Dedicated to Jack Stack, Bo Burlingham, and The Employee Owners of SRC Holdings Corporation Special Thanks to the GGOB Team Who Produced This Book: Denise Bredfeldt Charlotte Eckley Steve Baker Darren Dahl Rich Armstrong “When you appeal to the highest level of thinking, you get the highest level of performance.” jack stack  Who is SRC and THE Great ® Game of Business ? ® ORIGINAL PIONEERS OF OPEN-BOOK MANAGEMENT In 1983, Jack Stack and 12 managers scraped together $100,000 in cash, borrowed $8.9 million and transformed a failing division of International Harvester into one of the most successful and competitive companies in America. Under Stack’s leadership and open-book management ap- proach (later coined the Great Game of Business), this once failing company in Springfield, Missouri, has now become SRC Holdings Corporation, a thriving company of 1,600+ engaged employees operating business units across a variety of indus- tries, and producing more than $600 million in annual consol- idated sales. The company has increased its value from 10 cents per share in 1983 to over $612 (pre-split) in 2018. As a result, the Great Game of Business (GGOB) has become a celebrated approach to open-book management – and a well-proven strategy based on the powerful belief that “the most efficient, most profitable way to operate a business is to educate everyone on how the business works, give them a voice in how the company is run, and provide them with a stake in the financial outcome, good or bad.” It requires understanding how profitability is driven, assets are used, cash is generated, and how all of their day-to-day actions and decisions can make or break the business. We want our employees to think and act like owners, because they are,owners through our Employee Stock Ownership Plan (ESOP). As of July 2018, ESOP owns 100% of SRC. 1  Why Open-Book? It saved our company and our jobs. When SRC started, we were on life support. We needed every person focused on making the company succeed. No one person had all the an- swers. Cash was so tight that a tiny hiccup would’ve been the end of it. To operate under those conditions required totally open com- munication of real-time information (financial forecasts, parts shortages, shipping deadlines, etc.) on a daily and even hourly basis, so everyone knew what was happening. It worked and we survived. That process evolved into our open-book op- erating system called the Great Game of Business, and it’s the common-sense way we run all SRC companies. The first Great Game of Business book, by Jack Stack, explains how and why we teach employees to think and act like owners. The Higher Laws of Business are in- troduced there. You won’t find them taught in Harvard Univer- sity’s MBA Program or the World Dictionary of Business Idioms. Rather, these common sense factoids exist in the minds and souls of people who are street smart, walk the talk, and have re- al-life experience in the world of business. Mention any of these laws, and they’ll likely grin and say, “been there, done that.” 2  Why you Gotta Wanna? “The Game gives us the means to challenge ourselves inter- nally and create friendly competition between departments. Along the way, we even have fun, and there is laughter in the halls.” What does it take to play? As we say at SRC - “You Gotta Wanna!” Denise Bredfeldt Former Director of Research and Transmission Rebuilder, SRC HIGHER LAW #5 YOU gotta wanna People only get beyond work when their motivation is coming from inside. Whatever goal you are trying to accomplish, if you don’t want it inside of you, it ain’t gonna happen. When you’re a winner nobody has to tell you. You feel it inside. You know it. 3  HIGHER LAW #1 YOU get what you give. Employees have to understand that they have a di- rect role to play in creating the kind of company they want, and creating such a company is their responsi- bility. You spend a good portion of your waking hours at work, so why not make it more than just punching the clock? 4  HIGHER LAW #2 It’s easy to stop one guy, but it’s pretty hard to stop 100. Successful businesses have employees who depend on one another, and keep their promises and com- mitments to and with each other. The more engaged employees are in the business, the better the out- comes. Focused on a common goal, armed with the knowledge to act, the freedom to go after it, and fire in the belly, they are unstoppable. They almost always exceed expectations. 5  HIGHER LAW #3 WHAT GOES AROUND COMES AROUND. Lying and dishonesty have no place in business, nor does taking advantage of people, or bosses who act like S.O.B’s. We’ve all said it, karma can come back to you as we see someone finally get their comeup- pance. You only gain credibility by telling the truth. Business doesn’t work unless employees believe you and one another. Be the kind of person for whom you want to work for and with. Let someone else keep karma busy. 6  HIGHER LAW #4 YOU GOTTA DO WHAT YOU GOTTA DO. You drop everything else. You focus night and day on that one thing. When your back is up against the wall you gotta figure out how to move the wall back. You do whatever it takes because people’s livelihoods are on the line. Take the hill! You gotta take the hill. 7  HIGHER LAW #5 YOU GOTTA WANNA. People only get beyond work when their motivation is coming from inside. Whatever goal you are trying to accomplish, if you don’t want it inside of you, it ain’t gonna happen. When you’re a winner nobody has to tell you. You feel it inside. You know it. 8  HIGHER LAW #6 YOU CAN SOMETIMES FOOL THE FANS, BUT YOU CAN NEVER FOOL THE PLAYERS. Sometimes management forgets that workers usually know more about the products or services than they do. Rather than guess or make up answers, why not ask for help? It builds trust and credibility, and shows their opinions are valued. Besides, employees quickly figure out if you’re blowing smoke, which never bene- fits you, them, or the company. 9  HIGHER LAW #7 WHEN YOU RAISE THE BOTTOM, THE TOP RISES. If you teach employees how their actions impact the financial numbers, they’ll figure out how to improve them. Why? Because nobody wants to be on the bot- tom of the pile. People want to win. They want to know they’re the best at what they do, not just in the company, but in the marketplace against the compe- tition. When workers think this way, they are becom- ing business people. 10  HIGHER LAW #8 WHEN PEOPLE SET THEIR OWN TARGETS, THEY USUALLY HIT THEM. Our employees set their own labor and material stan- dards, sales forecasts, and other benchmarks based on their experience and knowledge. They own those numbers for the entire year and must answer for de- viations of plus or minus 5% from the standard. They don’t give targets they can’t hit. It is about keeping your word and doing what you told everyone in the company you would do. 11  HIGHER LAW #9 IF NOBODY PAYS ATTENTION, PEOPLE STOP CARING. People have to see the effects of what they do, or they won’t care. It doesn’t matter if the effects are good or bad. If people go to work every day and nobody ac- knowledges whether they are doing a good, bad or in- different job, they assume no one cares. Soon they stop caring too. 12  HIGHER LAW #10 AS THEY SAY IN MISSOURI, SHIT ROLLS DOWNHILL. BY WHICH WE MEAN CHANGE BEGINS AT THE TOP. Responsibility for the future rests squarely on the shoulders of people who run businesses. We’re the only ones left with the credibility and clout to affect real change. We have to eliminate the blame game and teach people to take responsibility for themselves, become self-reliant, and accountable. This won’t hap- pen unless business steps up. Since we’re paying for it anyway, why not lead the charge? 13  ULTIMATE HIGHER LAW WHEN YOU APPEAL TO THE HIGHEST LEVEL OF THINKING, YOU GET THE HIGHEST LEVEL OF PERFORMANCE. The Great Game of Business creates an environment in which you can appeal to people’s best instincts, in which you ask them to rise above the day-to-day frus- trations, and use all of their intelligence, ingenuity, and resourcefulness to help each other reach com- mon goals. Ironically, it is also when employees are happiest and most productive. 14 it’s money. it’s people. it’s both. 15  HIGHER LAWS OF BUSINESS 1 You get what you give. 2 It’s easy to stop one guy, but it’s pretty hard to stop 100. 3 What goes around comes around. 4 You do what you gotta do. 5 You gotta wanna. 6 You can sometimes fool the fans, but you can never fool the players. 7 When you raise the bottom, the top rises. 8 When people set their own targets, they usually hit them. 9 If nobody pays attention, people stop caring. 10 As they say in Missouri: Shit rolls downhill. By which we mean change begins at the top. ULTIMATE LAW When you appeal to the highest level of thinking, you get the highest level of performance. 16  “These principles broaden the definition of ownership. The premise of ownership should be to increase the general well being of humanity where everyone can flourish and prosper. I wish someone told me these things when I was kid.” JACK STACK, CEO of SRC Holdings, and Father of Open-Book Management YOU gotta wanna INSPIRING A CULTURE OF OWNERSHIP 14 Ownership rules DRAWN FROM A STAKE IN THE OUTCOME® BY JACK STACK AND BO BURLINGHAM  YOU gotta wanna INSPIRING A CULTURE OF OWNERSHIP 14 Ownership rules DRAWN FROM A STAKE IN THE OUTCOME® BY JACK STACK AND BO BURLINGHAM To order additional copies of You Gotta Wanna or for more information on other Great Game of Business® re- sources and initiatives, please contact us at: 1.800.386.2752 or visit us online at greatgame.com You Gotta Wanna: Inspiring a Culture of Ownership Copyright ©2018 by The Great Game of Business, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or use of any information-storage or retrieval system, for any purpose without express written permission of The Great Game of Business, Inc. The Great Game of Business®, Great Game®, A Stake in the Outcome® and The Great Game of Education® are registered trademarks and Critical Number™, MiniGames™, Know & Teach the Rules™, Follow the Action & Keep Score™ are trademarks of The Great Game of Business, Inc. All rights reserved. Registered and/or pending trademarks of The Great Game of Business in the United States and international countries are used throughout this work. Use of the trademark symbols are limited to one or two prominent trademark uses for each mark. Any trademark or service mark of any third party mentioned in this document is for illustration or explanatory purposes only and is not intended to suggest or imply any endorsement by the owner of such marks. The 10 Higher Laws of Business, drawn from The Great Game of Business® by Jack Stack and Bo Burlingham The Ownership Rules, drawn from A Stake in the Outcome® by Jack Stack and Bo Burlingham  ACKNOWLEDGEMENTS Dedicated to Jack Stack, Bo Burlingham, and The Employee Owners of SRC Holdings Corporation Special Thanks to the GGOB Team Who Produced This Book: Denise Bredfeldt Charlotte Eckley Steve Baker Darren Dahl Rich Armstrong “WHEN YOU OPEN YOUR BOOKS - REALLY OPEN THEM - YOU ALSO OPEN YOUR MIND, AND NEITHER YOUR MIND NOR YOUR BOOKS WILL BE CLOSED AGAIN.” jack stack A stake in the outcome  Who is SRC and THE Great ® Game of Business ? ® ORIGINAL PIONEERS OF OPEN-BOOK MANAGEMENT In 1983, Jack Stack and 12 managers scraped together $100,000 in cash, borrowed $8.9 million and transformed a failing division of International Harvester into one of the most successful and competitive companies in America. Under Stack’s leadership and open-book management ap- proach (later coined the Great Game of Business), this once failing company in Springfield, Missouri, has now become SRC Holdings Corporation, a thriving company of 1,600+ engaged employees operating business units across a variety of indus- tries, and producing more than $600 million in annual consol- idated sales. The company has increased its value from 10 cents per share in 1983 to over $612 (pre-split) in 2018. As a result, the Great Game of Business (GGOB) has become a celebrated approach to open-book management – and a well-proven strategy based on the powerful belief that “the most efficient, most profitable way to operate a business is to educate everyone on how the business works, give them a voice in how the company is run, and provide them with a stake in the financial outcome, good or bad.” It requires understanding how profitability is driven, assets are used, cash is generated, and how all of their day-to-day ac- tions and decisions can make or break the business. We want our employees to think and act like owners, because they are owners through our Employee Stock Ownership Plan (ESOP). As of July 2018, ESOP owns 100% of SRC. 1  why ownership? In 1992, Jack Stack wrote the first Great Game of Business book to explain our management system for teaching em- ployees to think and act like owners. Interest was so great, a subsidiary company was actually created to host seminars/ conferences and handle inquiries. Then in 2002, Jack wrote a follow-up book, Stake in the Out- come, detailing the motivation and lessons learned in giving employees a piece of the action through company stock. The Rules of Ownership listed in this booklet were introduced in that book. We use stock ownership through ESOP and selected stock offer- ings as a vehicle to drive change in behavior and promote stra- tegic thinking. That, in turn, in- creases the value of our compa- ny, which drives the stock price up, which improves the quality of life and financial security for our employees. Ownership is a core value for our company. We can’t imagine life without skin in the game. A com- pany of owners will outperform a company of employees any day of the week. More importantly, our employee owners know they can and do make a difference in the success of SRC. 2  Why you Gotta Wanna? “If I’ve learned anything in this journey, it’s that you make your own destiny in this world. You determine your own outcomes. If you have the will, there’s almost always a way. It may not be the most direct route. You’ll have to overcome some obstacles. But you’ll get there eventually.” Jack Stack, CEO of SRC Holdings, and Father of Open-Book Management OWNERSHIP RULE #14 YOU gotta wanna You gotta wanna. It’s one of the higher laws of business from the first Great Game of Business book, and a fundamental rule of ownership. People only get beyond work when their mo- tivation is coming from the inside. Whatever goal you have - saving jobs, owning your own company, meeting this month’s profit target - if you don’t have it inside of you, it ain’t gonna happen. 3  OWNERSHIP RULE #1 THE COMPANY IS THE PRODUCT. People have to understand that they have a direct role to play in creating the kind of company they want, and creating such a company is their responsibility and the ultimate goal of the business. It is the end result of all their efforts. 4  EVERYONE WINS! We know when our employees win, the company wins. We want our people to think and act like owners. We want their brains as well as their skills to help build a great company. Our success is due to our open-book management system called the Great Game of Business (GGOB). The basic premise is to teach employees to think and act like owners, sharing with them the rewards of great performance as well as the agony of missed opportunities. We openly share financials, regularly communicate informa- tion, and reward performance. GGOB’s backbone is a culture of continuous financial discipline, which teaches everyone to make business decisions based on what makes their lives stronger. 5  OWNERSHIP RULE #2 A COMPANY ISN’T WORTH ANYTHING IF NOBODY ELSE WANTS TO OWN IT. To build value in a company, you have to look at it from the outside in. Look at it like an investor does - coldly, objectively, without any sentimental attach- ments to people, buildings, products, services, histo- ry, or culture. Why? Because people don’t put money into a business unless they feel it’s a good investment. 6  NO ‘SCHMOZZLE’ People with money looking to invest in your business expect you to have great products/services, super people, and turn a profit. That is a given, so don’t bother peddling it. They are after something entirely different. One venture capitalist summed it up perfectly -- “Great pre- sentation, kid. But it’s got no ‘schmozzle’.” What the heck is “schmozzle?” To a venture capitalist it meant how big is the market, what percentage do you have, how will you grow that percentage, what specific steps will you take to get it, what does that mean to me, can I get 40% compounded over the next 5 years and a 500% return on equity when I get out at that time? There are four types of investors: those who lend you money because they want to help you build an enduring company (very few in number), those who just want to get in and get out, those who are predators (they give you money hoping you blow it, so they can steal the company from you for a song), and those who charge you through the nose and break your kneecaps if you don’t pay up. Needless to say, it is best to find someone in the first two groups, like we did. How far out on a limb can you go? Pretty far..... SRC’s life began on Feb 1, 1983, with $8.9 million in debt against $100,000 in equity from 13 managers of the company, an 89:1 debt to equity ratio, an interest rate of 18%, and 119 employees. 7  OWNERSHIP RULE #3 THE BIGGER THE PIE, THE BIGGER THE INDIVIDUAL SLICES. One challenge of equity sharing is getting people to think about what’s possible rather than what they have. You hope stock motivates them to grow the business and be thinking “Gee, how much could this stock be worth in 10 years? How do we maximize the value?” Instead, many only see what’s on their plate right now and ask, “How much did so-and-so get?” Thoughts like this cause people to miss some great opportunities. 8  APPLE OR CHERRY? The promise of ownership for every employee has always been a core value. It was made before SRC was even formed. However, we didn’t know there were limits on the number of direct shareholders a company can have, so the promise of “ownership for all” was in jeopardy. To simplify and comply legally, a core group of 13 SRC managers ended up as our first shareholders. The managers promised to make it right with everyone. Yes, people were upset at being left out. Because of the trust and honesty already built amongst us, it didn’t tear us apart, but people were watching. Management kept their word and implemented an Employee Stock Ownership Plan (ESOP). Today, ESOP owns 100% of SRC. Apple or cherry? A running joke in the beginning was would you rather have 100% of SRC stock or 1% of General Motors? At that time, GM was hot and worth far more than SRC who was close to a neg- ative net worth. So essentially do you want 100% of nothing (and you owe the bank a lot) or 1% of something big? That was our first lesson about growing the pie. The bigger we make the pie (SRC), the more our slice (share) is worth. Turn the focus to figuring out how to increase the value of the stock. Odds are, along the way opportunities will pop up that others in the organization can use to get a bigger slice or may- be even start a new pie. 9  OWNERSHIP RULE #4 STOCK IS NOT A MAGIC PILL. Stock doesn’t change anybody’s behavior, at least not overnight. People don’t suddenly put their differenc- es aside and join for the common good just because they’ve become owners. If you’ve spent your entire adult life focusing on a job description, it is difficult to stop thinking like an employee and start thinking about what is best for the company as a whole. 10  SHIFT YOUR THINKING Shifting from employee thinking to ownership thinking is tricky, especially when most have more experience with the former. In reality, there is a deep chasm in the way people view com- panies, owners, and employees. Not because they prefer or dislike one over another, but because they haven’t learned the game of business and what really matters in creating wealth. Be prepared for those who play the ownership card. Early in the journey, our second largest shareholder lost his way and let his ego get the better of him. He made decisions without asking for any opinions, acted like employees weren’t worthy of his attention, and felt company assets were his to use per- sonally. He was let go. Was it scary to lose a key player so early? Absolutely. But putting what was best for the company first made the decision easy. Owners need to keep it under control. You can’t do it alone. To build value in the company, you need everyone pulling in the same direction. Stock certainly isn’t magic. You have to constantly educate, teach, and model acceptable expectations and behavior for building an ownership culture within your company. 11  OWNERSHIP RULE #5 IT TAKES A TEAM TO BUILD EQUITY VALUE. An ownership culture is built on mutual trust and re- spect, and it’s almost impossible to have either unless people throughout the company are engaged in frank, open, and honest communication about the state of the business. 12  STOCK INCREASES A major customer asked for a 6% price reduction on a pump we sold to them or he would give the business to a competitor. This 6% was the difference between making money and losing money. We explained the issue to our employees. Our pump price was $200. We needed to save $12 per unit. If we don’t, we’ll lose the business and maybe even jobs. What can we do? Employees were amazing. They put a chart on the wall and got to work figuring out how to save nickels, dimes, and dollars. They questioned everything that put cost into the pump. Nine- ty days later, they had cut $40 out of the cost, a 20% savings. Their decision? They passed 10% of the reduction to the cus- tomer, who passed it on to the marketplace. The volume rose and created even more jobs. Had we not taught employees about how business works, fi- nancial literacy, market conditions, and competitive pressures, we could have had a much different result. Everyone through- out the company was talking about the impact of losing this business, jobs, profits, and the potential hit to our stock price. They understood how the future of this one product would affect the entire company. Over the years, we have had some brutally honest, downright uncomfortable discussions about our business. Our employ- ees are smart enough and brave enough to ask about the ele- phant in the room. They want to know what is happening. We share it all. They want to know they are the best at what they do, not only within the company, but in the marketplace. They want to win. Stock increases happen by working together to build value in the company. You need a group of people to create a compa- ny whose stock can be bought and sold. It is almost impossi- ble to do it alone. 13  OWNERSHIP RULE #6 FAILURES ARE FINE AS LONG AS THEY STRENGTHEN THE COMPANY. Everything depends on making the company success- ful. Yes, you want all the players to have a chance at the rewards. But rewards come only after success, not before. As long as people understand that rule, you can handle failures. You can learn from your mis- takes. The company gets in trouble only when people lose sight of the common goal. 14  UNDERSTANDING THE “BIG PICTURE” We started our first subsidiary company, Remanufacturing Sales Company (RSC), a manufacturing rep firm, by hiring four superstar sales people using the carrot of company equity. The venture equity split was 60% SRC, and each sales per- son owned 10%. They had a sales commission, guaranteed base salary, and expense draw. They could sell whatever they wanted to whomever they wanted (SRC had first right of re- fusal). They did not have to ante up any personal money. SRC financed the whole deal. What could possibly go wrong? In short --Everything! Instead of building value in RSC, they argued over territories, titles, and who was the boss. When they didn’t get their way, they complained. Rivalries, personal grievances, lack of teamwork, and not understanding how to think like owners destroyed the venture. In spite of it all, they brought us millions of dollars in new business. What did we learn? Old school habits die hard. RSC was more interested in competing with each other than building their company or SRC. Personal interests trumped everything. Commissions encouraged short-term thinking and discour- aged teamwork. Individualism was the enemy of perfor- mance. Commissions should’ve been figured on gross margin instead of sales dollars. Saddest of all though, RSC employ- ees never fully understood the ownership angle. We failed to teach them how to be an owner. Never assume just because someone has been around the block (sometimes many times), that they understand the “big picture” of business or what ownership truly means. 15  OWNERSHIP RULE #7 OWNERSHIP NEEDS TO BE TAUGHT. Just giving someone stock doesn’t mean they under- stand what they have. Stock won’t produce a compa- ny of owners or a culture of ownership all by itself. If people don’t recognize the opportunity they have to create some financial security for themselves and one another, they won’t be motivated by it. 16  HOW WEALTH IS CREATED Since most business success is measured through financial re- sults, we constantly teach lessons about the numbers. A test of these efforts comes when employees use this knowledge to make real-life choices. Our employees had to choose between paying a bonus (right before Christmas) or protecting their equity. We had already missed 2 quarters of bonus payouts, and the 3rd quarter pay- out was looking like a bust. We were going to miss by.01% on the current ratio target. Employees were upset there was no bonus payout before Christmas and because the miss was so close. They’d been working hard all year. The good news was we’d probably make it by fiscal year end. Employees were given a choice. We could advance the money from the 4th quarter payout so they could have the cash in time for Christmas. But, if we didn’t hit the 4th quarter tar- get, we’re out the money paid. That money has to come from somewhere, likely from profits. If that happens, our stock val- ue won’t go up as much as it should. Employees, it’s your deci- sion. Pay the bonus now, or wait until we’ve earned it. After meetings and discussions, supervisors concluded about 40% (mostly new employees with minimal stock) wanted the bonus, while the remaining 60% wanted to wait. Employees were forced to decide since they had to live with the conse- quences. The vote was overwhelmingly against forward pay- ing the bonus. They understood the impact of profits on their equity stake. Failing the bonus program deepened everyone’s understanding of how wealth is created. We also learned that employees want to earn the bonus payout fair and square, based on the rules set forth. FYI- As it turned out, we missed the bonus again in the 4th quarter by.01%. 17  OWNERSHIP RULE #8 YOU BUILD AN OWNERSHIP CULTURE BY BREAKING DOWN WALLS. You have to show people that ownership means op- portunity, not exclusion. You have to convince them that, with ownership, they can go as far as their tal- ent, their will, and their energy can carry them. They won’t be blocked by class distinction, bogus barriers, or someone else’s decision to keep them out of the club. 18  DO MORE THAN ROLL THE DICE In 2009, some employees from a Kentucky manufacturing subsidiary of a big multinational billion-dollar company con- tacted SRC’s management team to find out if SRC would be in- terested in buying their operation. This subsidiary made high- tech mining equipment on an enormous scale, such as drive shafts weighing more than five tons. Their parent company was shutting them down, and one hundred jobs would be lost in the community—unless SRC bought them. The catch to any deal with SRC was that the business had to turn a profit in thirty-six months or less. This group of people had been trained to work in a very hierarchical way. They had never been taught how their individual actions and decisions impacted their business. They also understood that owner- ship meant nothing if you didn’t have a voice in the business. SRC agreed to teach them the financial skills to become a prof- itable operation and learn the Great Game process, which would help them take their operation up a notch. They knew SRC believed that ownership began from the bottom up, not the top down. So, it was up to them to set their forecasts and work plans. They—not SRC—would be responsible for the suc- cess of their operation. SRC was simply giving them a chance. If successful, they would be eligible to join SRC’s (ESOP) em- ployee stock ownership plan. For any company to survive and thrive, its people need to feel invested and start acting as if they are owners. That’s how you win at playing The Great Game of Business. No one can make someone get that feeling; it comes from within. All you can do is put it out there. It’s up to them to reach out and grab the brass ring. At Lexington, Kentucky, they found the ring and have blown the doors off with their success. 19  OWNERSHIP RULE #9 Getting out is harder than getting in. We work on exit strategies every single day. When you are a founder or majority shareholder of a private- ly held company, there is a secret no one talks about. How do you leave with a clean conscience? How do you leave knowing the company will be ok? 20  POWER OF LEVERAGE We started Engines Plus (EP) to find a fix for oil coolers and to see if we could generate wealth using the power of leverage. In short, EP would receive old coolers at no charge, fix them, and sell them back to SRC. Revenue from the coolers was a cash flow generator and overhead absorber, which let EP quickly become self-sustainable. In months, EP was shipping 1000 units a month. We invested $1,000 total in EP, with shares at 10 cents each for 10,000 shares. A $50,000 line of credit gave EP a 50:1 debt to equity ratio. In 3 years, the stock rose 13,000%, from 10 cents to $13 per share. How? By using more debt and less equity to finance the startup, the greater the rise in stock value. Power of leverage You need $100,000 to start a business. You put in $10,000 and someone else puts in $90,000 as equity. Starting book value (BV) is $100,000 (BV = equity investment plus retained earnings). In 4 years you earned $125,000 per year = $500,000 in retained earnings. BV is now $600,000. If stock was $1 per share in the beginning, it is now worth $6 a share, 500% over your initial investment. Same example but the $90,000 is borrowed. Now EP goes from $10,000 to $510,000 or a 5000% increase over the ini- tial investment. Stock jumps from $1 per share to $51. You’re 8-1/2 times richer by using leveraged debt. The smaller the eq- uity base, the bigger the jump in equity. Creating and selling more EP’s was our answer to funding shareholder pay outs. Figuring out how to get out taught us to create businesses with minimal cash, get people ready to run them, generate new sources of cash flow, do alliances, buy and sell companies, and turn customers into partners. With all these strategies, our shareholders should receive their “stake”. 21  OWNERSHIP RULE #10 To maximize equity value, you have to think strategically. The value of a business is more than efficient produc- tion, great customer service, on-time delivery, and all the other things you think about operationally. You have to start looking at the business strategically to increase equity value. You have to think about im- proving its position in the marketplace. 22  POWER OF HIGH-INVOLVEMENT PLANNING™ An effective HIP process separates exceptional companies from mediocre companies. Our GGOB HIP process delineates who we are, where we’re going, and how we’ll get there. It is our roadmap for growth and accelerates the learning curve in dealing with strategic issues. It’s a highly participative process and without it, you cannot unlock the true potential of GGOB. Part of HIP is the sales/marketing reviews presented twice a year. In 35 years, the format hasn’t changed much, but the quality and accuracy has vastly improved. Each company pres- ents current sales performance, future projections, competi- tor analysis, market conditions, customer satisfaction levels, and their strategy for growth. Our continuing life blood comes from using the Strategy for Growth Playbook, an in-depth guide to developing and com- municating measured strategic growth in two phases. The long-term strategy contains the company’s shared Purpose, Vision, and Values statements, and our five year financial goals with a prioritized list of strategic objectives that support those goals. The short-term focus is simpler with development of the company’s annual financial plan, strategic objectives, and the critical number. To get focused, we choose 3-5 strategic priorities to execute every 3-6 months. The purpose of HIP is to bring the realities of the marketplace to our people and get everyone’s buy-in and confidence in the company’s growth strategy. Employees see presentations first to assess if it is doable and if they support it. Their level of buy-in is measured and reported. Blowing smoke doesn’t work with this crowd. Bottom line - it’s about knowing your business, industry, customers, markets, and then keeping your promise by doing what you said you would do. Once HIP plans are done, our strategy for growth roadmap is built. 23  OWNERSHIP RULE #11 You create wealth by building companies, not by selling products or services. The true profit of business is in building companies. If you sell a pen, you can make a penny. If you sell the pen company, you can make $10 million. When you play the game of business at the highest level, you un- derstand that the company is your product, not the pen. 24  Firecracker Factory People ask us why we have so many companies. Our response - “because we believe in the Chinese Firecracker Factory The- ory.” What the heck is that? One of the largest firecracker factories in China consists of a village deep in the middle of nowhere made up of hundreds of small huts. Each hut has two workers inside building fireworks. Why aren’t they all un- der one roof? Because if one hut blows up, it doesn’t destroy the whole village. Most of our companies were started to provide a solution to a problem for a customer. Initially these small companies have a sole focus on producing the product or service needed, go- ing above and beyond nurturing the customer relationship, and becoming experts on anything that could possibly affect the business. Soon, they look for growth and diversification. We look internally to rising stars to staff new ventures. This keeps opportunities fresh so people can move up in the com- pany. We start companies with the intent of selling them to raise cash and pay shareholders. Engines Plus (EP) discovered they could sell their same basic power units into the irrigation and natural gas markets, which were exploding in growth. At that time, public companies sim- ilar to EP were trading at a price earnings multiple of 30-80. We figured if we dressed up EP correctly for a sale, we could get that for them. If they stayed inside the SRC family, they were stuck with our corporate multiple of 10. The difference between a 30-80 multiple vs. 10 multiple was millions. 25  OWNERSHIP RULE #12 A company is only as good as its people. To build a culture of ownership, you need to get the cycle of leadership development going - with people coming in, learning skills, moving up, and repeating. Setting up such a process is a long-term, arduous, of- ten frustrating undertaking, and takes a ton of time and energy, but it is where all the rewards come from. 26  KEEPING THE CULTURE Good people make the difference for success, sustainability, and keeping the culture. Our employees have superb work ethic. Peer pressure to hit targets and keep promises to each other pushes them. They know we expect more than just working the line. Our growth strategy is starting new compa- nies which provides opportunities to move up. Many of our leaders come up through the ranks. We measure associate morale every 6 months by asking 15 simple questions focusing on employee satisfaction. We look for trends in answers and compare results for the past three years. Analyzing reasons for a change in scores gives great insight into the effectiveness of our communication and edu- cation efforts and where improvements need to be focused. Our Employee Annual Report is a career development tool which helps the employee and management identify career goals and opportunities. Career opportunities are provided through succession planning. We always look inside first. If there is no internal candidate, we market it outside. At least two candidates are picked for every management, superviso- ry, and support position. Talented people may show up more than once. Special projects help grow people and identify leaders. SRC Electrical just introduced a new ERP system. An amazing group of workers stepped up, took full ownership of a process they first had to learn, understand, and then teach their peers, while still handling their normal daily activities. Use ‘em or lose ‘em: People want challenges and opportu- nities to grow and move up. If you don’t provide them, they will go looking. Some people leave us for better jobs and we wish them great success. Some come back and help after re- tirement. Some return years later after life elsewhere, and tell us how much they missed the sense of community and camaraderie. 27  OWNERSHIP RULE #13 Ownership is all about the future. Educating employees about the long-term is critical in maintaining the motivational power of ownership and keeping the focus on what really matters. 28  LOVE TO WIN In SRC’s 35 years of life, we’ve had 34 years of continued prof- its ($60K loss the first year), grown sales to $600M, survived four recessions, started multiple operating companies, hired 1600+ employees, and founded joint ventures with Navistar, John Deere, and Case New Holland (CNH). SRC stock grew from 10 cents per share to $612 pre-split. ESOP now owns 100% of SRC. None of that would have happened without having engaged participative employees playing the Great Game of Business. No doubt, the enticement of company ownership played a part. Before ownership has meaning, you must have pride. We are fortunate our people have a strong proud work ethic; they do what is right, and love to win. They graciously give their talent and intelligence to create a fantastic place to work—it’s not always utopia. But when something goes wrong, we step up, admit it, fix it, and move on. We may disagree with each other (different perspectives are needed for success), but do so with respect and civility. Because we are always starting new companies, opportunities abound for movement and advancement. You can go as far as you push yourself. You experience more business activity and make more business decisions than many people with MBA’s. Most jobs are filled with internal candidates, so people who started as janitors, machinists, and assemblers are now SRC vice presidents, general managers, supervisors, and depart- ment managers. The first wave of long-term employees hit retirement age about 4 years ago. Many of them are millionaires. For our younger employees, watching the ownership promise come full circle gives them hope that one day they will have the same. We have a proven management system in GGOB and via- ble exit strategies that people fully embrace. We have had 35 years of great success. If we stay true to our philosophy, fellow workers, and ourselves, we will have another wild and crazy 35 years. 29  OWNERSHIP RULE #14 YOU GOTTA WANNA. You gotta wanna. It’s one of the higher laws of busi- ness from the first Great Game of Business book, and a fundamental rule of ownership. People only get be- yond work when their motivation is coming from the inside. Whatever goal you have - saving jobs, owning your own company, meeting this month’s profit tar- get - if you don’t have it inside of you, it ain’t gonna happen. 30  SUPERSTARS ARE EVERYWHERE Superstars are everywhere in the company, you just have to find them. Growing up, Dwayne was a gear head. He found his way to SRC, starting in sales and moving up several positions to pro- duction manager of SRC Automotive. Years ago, they lost a major bid to produce engines for a giant OEM. Dwayne and his crew were bummed at the loss. SRC Automotive kept their eye on that business for 10 years, continually working their relationship with the customer. As time passed, whenever they bought equipment, meeting that production capability someday was always in the back of their mind. Year after year they tried and lost, while the other ven- dor’s contract continued to be extended. After 10 years, the contract opened and went out through a competitive bid pro- cess. Through tenacity and relationship building, they finally won the contract worth over $100 million. Dwayne was a su- perstar before all this. Now he’s a SRC legend (and the most humble person you’ll ever meet). We have learned, over and over, that a group of people with a common goal, the knowledge to act, the freedom to go after it, and a burning fire in the belly, are impossible to stop once they get rolling. Results usually far exceed expectations. 31  OWNERSHIP RULES 1 The company is the product. 2 A company isn’t worth anything if nobody else wants to own it. 3 The bigger the pie, the bigger the individual slices. 4 Stock is not a magic pill. 5 It takes a team to build equity value. 6 Failures are fine as long as they strengthen the company. 7 Ownership needs to be taught. 8 You build an ownership culture by breaking down walls. 9 Getting out is harder than getting in. 10 To maximize equity value, you have to think strategically. 11 You create wealth by building companies not by selling products and services. 12 A company is only as good as its people. 13 Ownership is all about the future. 14 You gotta wanna. 32