How Opening the Books Can Help Businesses and Their Employees Succeed

Written by Amanda Maher

As an employee, it can easy to dismiss your decisions as not having a big impact on your company. But in reality, all of the little decisions made by individual employees can add up to have a big impact on a small business’s bottom line.

To show employees the impact of their decisions, and to incentivize them to help grow the company’s profitability, a new group of business owners is turning to Open-Book Management (OBM).

OBM is a management technique popularized by John Case of Inc. Magazine in 1993, but which showed practical success after it was implemented by John Stack and his team at SRC Holdings. The fundamental assumption is that employees will be able to make better decisions if they understand the company’s financials and can see just how much their individual contributions matter.

Karim El-Gamal and Michael Kasseris are about to find out whether this novel concept can really work. Shortly after graduating from Babson’s business school, Karim and Michael decided to make their foray into the food industry. They opened Rail Trail Flatbread Co., a local tavern in Hudson, MA that serves wood-fired pizzas. After customers started asking for dessert, the owners launched New City Microcreamery, a nitrogen ice cream shop located across the street. Both businesses were a hit, and soon grew to have more than 150 employees combined.

Given the quick success of these establishments, the owners decided to bring in a management consultant to help refine financials and operations as the companies grow. What’s more, the owners wanted to explore ways to incentivize employees—particularly those, like Jason Kleinerman, who showed tremendous leadership potential. Jason was a hometown friend of Michael’s. He started working as a bar back, but quickly escalated to become the company’s General Manager, and now, is one of Karim and Michael’s business partners.

It was during these conversations with their management consultant that the restaurateurs learned about OBM. They were told to go home and read The Great Game of Business, a book written by Stack that lays out three basic rules for OBM implementation:

1. Know and teach the rules: Every employee should be given the measures of business success and taught to understand them;
2. Follow the Action & Keep Score: Every employee should be expected and enabled to use his/her knowledge to improve performance; and
3. Provide a Stake in the Outcome: Every employee should have a direct stake in the company’s success—and in the risk of failure.

The book had the attention of these social entrepreneurs. If they were able to motivate Jason through the promise of ownership, could the company retain other leaders using a similar incentive-based business model? The owners decided to give OBM a try.

“The traditional model in the service industry is maximizing profits for the owners,” explained Karim. “We think profit should be more collaborative versus adversarial, with profit shared by stakeholders instead of thinking about just shareholders. And there are many stakeholders, including our team, community, environment and suppliers. It’s important for us to try to create win-win profit situations for all of our stakeholders.”

By opening up the books and using the OBM strategy, even the front-line service workers will be asked to find ways to add value – but they’ll also be given the opportunity to share in the value that’s created.

“Most people who work in the service industry have skills that are undervalued,” said Michael. Implementing OBM will help the owners identify and leverage talent that might otherwise fall under the radar. “Someone might not be the fastest prep cook, but he might be valuable in seeing bigger-picture things. If moved into an administrative or managerial role, that person could still add tremendous benefit to the organization.”

The management team has spent the past year fine-tuning their OBM strategy, and two months ago launched the educational component. Classes are expected to last 32 weeks and will be taught in both English and Spanish. It might sound daunting, but the sessions are designed to be highly interactive and fun. Employees play games, engage in goal setting and actually begin reviewing the company’s basic financial information. Each week, employees build off the skills they’ve already learned in order to tackle more complex financial and operational material.

While it’s hard to see employees leave, the owners are also hoping the OBM training will teach its entrepreneurial workers the skills they need to venture off and start their own businesses too someday. “Many people who aspire to launch their own food businesses are using this job for experience, but a lot of them don’t know what it takes to run a business. Someone might be a great bread baker, but they don’t know how to run a bakery. This affords them that understanding and education needed to pursue their dreams,” said Karim.

Eventually, if employees spin out to start their own businesses, the owners hope collaboration can continue—either through direct investment or through partnership with each other. After all, it makes it easier to invest in someone when you know he/she has a strong foundation in business management.

Although Rail Trail’s OBM strategy is still in its early stages, the management team is already starting to notice a difference. Conversations around the workplace are changing. Instead of talking about their plans for the weekend, employees are chatting with each other about ways to improve the business. And importantly, the program is starting to bridge the gap between front line workers and management.

“There’s a common misconception that if you’re a business owner, you’re very successful. If you have a busy restaurant, you must be loaded. Usually, employees think that the business owners are doing much better than they really are,” the owners said. “Through this training, all of these expenses start to come out – depreciation, taxes, re-investment in capital equipment, etc. OBM helps all employees understand the company’s financials, and through value-generating goals and incentives we can help all employees share in the profits.”