A farm without financial secrets could be more profitable

This article appears in the December 2015 issue of Dairy Herd Management.

Imagine your neighbors know exactly how much you made (or lost) last year, down to the penny. Your new 16-year-old milker gets to peek at your cash-on-hand and total labor costs every Tuesday. Or, you invite your entire farm staff to get involved in a weekly debate over your finances.

Sound like a nightmare? It could be a dream, according to several businesses converting to Open Book Management (OBM), a system that engages employees in high-level decision-making without handing over the reins or ownership.

My wife and I stumbled onto OBM through one the movement’s current leaders, Ari Weinzweig, part-owner of several enterprises that are part of the Zingerman’s community of businesses based in Ann Arbor, Mich. We are slowly converting our businesses to the method, which allows for more sharing and transparency with friends, family and neighbors – and less gossip.

Weinzweig is a self-proclaimed anarchist with a Russian history degree from the University of Michigan. Don’t let those qualifications scare you off; his company’s radical approach to management led to the development of 10 food-related businesses with total sales of $50 million.

If you are curious about how Zingerman’s makes money, virtually anything you want to know can be learned by showing up to the business’ weekly “huddles” – meetings open to all employees and the public – where they share important numbers so team members are on the same page.

 

A new idea, over 30 years old

The origin of OBM dates to an International Harvester plant losing $2 million per year, only to be purchased by 12 managers, including CEO Jack Stack, who was originally hired to shut the plant down. After moving to town, Stack and his wife fell in love with Springfield, Mo., where the plant was located.

Burdened with an 89:1 debt-to-equity ratio and 18 % interest rate, the company, called SRC (Springfield ReManufacturing Corp.), lost their biggest customer just weeks into the re-launch. So, Stack and his employee co-owners turned to their employees, also their co-shareholders, to show how bad things looked. At that point, workers began learning how to save their own jobs and make the business more profitable, while watching their employees’ stock price rise from 10¢ to $13.02 in just four years.

The turnaround morphed into a book authored by Stack, titled “The Great Game of Business.” It details how a public numbers board tracking key business numbers in the company, along with regular meetings, helps keep people on the same page. It also describes how they spun off related companies in an effort to keep the original company solvent if they needed a quick influx of cash when aging employee-owners “cashed-out” in retirement.

SRC is now a family of businesses grounded in engine re-building, including one plant previously jointly owned by John Deere, and another currently jointly run with CNH.

One-for-all

A side benefit of the open-book approach was financial literacy gained by employees. For Weinzweig, that’s been invaluable.

“We often think what happens at home isn’t our business,” Weinzweig said. “But if things are bad at home, financially or otherwise, do you think that might affect how they work?” Weinzweig profiled one employee facing $100,000s in credit card and other debts. As an hourly employee busing tables at the Zingerman’s Roadhouse restaurant, his wife asked the already overworked husband to work just five more hours a week to make ends meet for the couple and their two young children.

Instead, after realizing the open-book approach was working at Zingerman’s, he implemented it at home and is now, a few years later, on a path to being debt free.

Like SRC, Zingerman’s expanded in an add-on fashion, after starting a deli sourcing fresh bread from 46 miles away in Detroit each morning, for 10 years. They needed a local bake house to better control their deli and other baked good products. So, with some current employees as partners, they started their own independent bakery. As they expanded, they decided they wanted to remain in Ann Arbor, rather than franchising out the successful business. Today, there are 10 businesses ranging from the original deli to a training business, and from a cheese plant to a mail-order business.

 

Sharing everything

The very basic concept to open book management involves two things: numbers and huddles. ZingTrain – the Zingerman’s training company – teaches a two-day course for $1,250 if you want to get into the details. But Jack Stack’s book, “The Great Game of Business,” is a good start.

The numbers you share are numbers picked by you, put on a white board for all employees to see though the week. A typical whiteboard for a farm might look like this, containing both financial and non-financial goals.

 

“The conversion helps employees understand why things cost so much money.” — Adeline Druart, General Manager, Vermont Creamery

“The conversion helps employees understand why things cost so much money.”

— Adeline Druart, General Manager, Vermont Creamery

It’s not for everyone, and supporters say your company’s vision and values must align with the numbers you are tracking. Researchers of the system who implemented it into food cooperatives saw it was important to add non-financial numbers to the system. Each “line” of data is owned by one person, who briefly reviews the previous week, and explains why and how next week will change. Meetings are typically held with time limits of 20-30 minutes.

At Zingerman’s, each “huddle” is recorded, with minutes sent to the rest of associated companies’ 700 employees. Even Zingerman’s high-level “Partners” meetings are open to the public.

“I believe everyone has the ability to use their brain to make our business better,” Weinzweig said. “I’ve been at my business for 30 years, but sometimes that 16-year-old kid cleaning tables in our Roadhouse restaurant sees something we’ve all missed and can call us out.”

In the end, if the employees see the numbers going up, and profits following, they can realize greater monetary rewards could be on the way for them as well.

“At first, many people are apprehensive about sharing some of these numbers,” Weinzweig said. “But in a football game, you don’t break the huddle and think about which of the 11 is making the most money. Everyone does their job because they know what goal they are heading towards. If you have not told your employees you would like more profit, how would they know?”

You do not need to share everything, Weinzweig emphasized. For example, they do not share salary information for the sake of worker privacy, although he doubts sharing something like that would change much.

“Once people know the numbers, they stop guessing and just worry about the big goals on the whiteboard,” Weinzweig said.

 

“We didn’t have a business background. When we wanted to manage our business, this was a system that made sense even to us.” — Mateo Kehler, Jasper Hill Farm

“We didn’t have a business background. When we wanted to manage our business, this was a system that made sense even to us.”

— Mateo Kehler, Jasper Hill Farm

Finances on the farm

Two award-winning Vermont farmstead cheese plants recently switched to open book management after hearing Weinzweig’s presentation.

For Mateo Kehler of Jasper Hill Farm, Greensboro, Vt., it was a lack of structure that led them up the path.

“We didn’t have a business background,” Kehler said. “When we wanted to manage our business, this was a system that made sense even to us.”

Jasper Hill milks 45 Ayrshire cows and makes a handful of cheeses, then ages their cheeses and cheese made by many other companies, including several versions of Cabot Cheddar, in their famous Cellars at Jasper Hill. Jasper Hill’s bark-wrapped Harbison won third place Best of Show in 2015, following a 2013 overall Best of Show win with their Winnimere in the American Cheese Society competition.

Likewise, the renowned Vermont Creamery, a goat cheese plant with several producer suppliers that has received a steady stream of awards for their butter, cheeses and other dairy products, saw a need to convert to open-book management when they undertook a recent expansion.

“Founder Allison Hooper wanted to communicate with our employees that their jobs were safe. All they were hearing was that we were spending a significant sum building a new cheese plant,” recalled Adeline Druart, Vermont Creamery’s general manager. “We track sales, profit, electricity, water and trash weight every week.”

The conversion helps employees understand why things cost so much money, Druart said. Hopefully, that helps build confidence management is making the right decisions.

Weinzweig is quick to remind those new to the concept that open meetings do not create a democracy. Ownership and management are still free to make rules, hire and fire, give raises or pay cuts as they wish. But the shared responsibility for the numbers does allow ownership to give up some of the stress involved in running a small business.

“I sat in on a Zingerman’s Bakehouse meeting during the 2009 recession that makes me tear up every time,” Weinzweig said. “The management got to the end of the report showing Bakehouse would run out of cash within six months, and asked, ‘We’ll take suggestions on what to do next. We have to consider lay-offs, pay cuts and other options.”

“One employee stood up and volunteered to take a pay cut, telling the roomful of co-workers, ‘This place has been great to me. I can take a pay cut.’ One-by-one, other employees said they would also take a cut. But one guy said, ‘Sorry guys, I can’t, times are too tight for me.’ But when it got back around, that first employee said, ‘You don’t need to take a pay cut.’

“The Bakehouse did not end up running out of cash, and those who took pay cuts got back their money within a matter of months,” Weinzweig said.

“It is one of the most memorable moments of all my years in business. Don’t you think it’s nice if your employees are also wondering how you will make payroll this week?”