When I sold my company Mordam Records in 2005, I discovered and read a book by John Case called Open-Book Management: the Coming Business Revolution. What amazed me about this book at the time was that John Case published it in 1995. But back in 1983, when I started Mordam Records, I was already running an open-book company. John Case said in 1995 that it was a coming revolution.
In 2005 it was still a coming revolution, and now it is 2013 and I want to explain it to you. And if you already know a little bit about open-book management, I want to encourage you to become a part of the business 2.0 revolution. The world is calling on us to be authentic and transparent and open-book management is an amazing way to do it.
When I started my company I didn’t know there was a term “open-book management,” and I didn’t know that I was going to do it. I came from a culture where there was distain for the rich getting richer and the poor getting poorer. Honestly, I still have a distain for that. There was also a prevailing idea amongst that music community that money is the root of evil. Now clearly I do not agree that money is the root of evil, but I do agree that money can be evil.
The first concept, the first idea, that I really grabbed a hold on to in my business was to avoid this idea of the rich getting richer and poor getting poorer-the divide between capital and labor.
How can we bridge that gap? And what I came up with was a profit share: if I could tie compensation to the profitability of my business, then when I prosper everybody else will prosper. And if I can’t prosper than nobody else will prosper. It seemed like the most fair and equitable idea that I could come up with. And now I understand that there is a whole school of organizational design in business management built around that idea.
The second thing that occurred to me was that I had to teach people how to be smart about money in business. In order to do that I had to share the numbers that I was using to create the profit share. As soon as I started sharing those numbers the people who were working with me became smarter. They became my peers. They were just as interested in prospering as I was. And they were putting their chips in with me with every brain cell they had. It made us more prosperous the smarter that they got.
Here are the five things that happen when you open the books in your business:
1. You will share your financial information.
Along with everything else that you will be sharing, you will be transparent and moving together as a tribe. Everybody will have their eyes on their numbers in the same way that you do.
2. Everybody in the business is going to understand what the key performance indicators are.
Now sometimes key performance indicators are a part of the financial information. But what ends up happening when people are looking at the numbers is that they start to identify the other things that they are counting in your business-the other things that are key in your industry. And they keep their eye on that alongside you.
3. When you teach the language of business and you close the divide between capital and labor, people gain clarity about speaking the language. Everybody gets smarter.
4. When they get smarter and they understand the language, they start to think in the same way that you do.
They start to think like an owner. And when people are all thinking like an owner they are loving and protecting your business in the same way that you do. I experienced that. Not by design, by accident. But I can help you do this by design.
5. When people are compensated based on the profitability of your business, not only is it exciting to everybody in the business, it is 100% scalable.