The Great Game of Business

Less Is More: How Great Companies Improve Productivity Without Layoffs
by Jason Jennings

(Page 4 of 6)

Jack Stack is the CEO of SRC Holdings. Twenty years ago, as a young production whiz for International Harvester, he was sent to Missouri to run Springfield Remanufacturing Corporation, a business unit that rebuilt dirty broken-down engines into like-brand-new and sold them for 60 percent of the cost of a new one.

While Stack was turning around the facility and making it profitable, parent company Harvester was harvesting themselves into a deep mess, eventually trying to recover from owing the banks billions by chucking assets and laying off tens of thousands of people-in time eliminating more than 100,000 workers out of 115,000. During that huge, gory bloodletting, workers would come to Stack and say, "What should I do?" "Should I buy a new car?" "Should I get married?" "Will I have a job?"

Finally, Stack responded to the pain of his people. Deciding, "This is bullshit," he went to them and said, "Look, don't buy the new car and don't get married. One of three things is going to happen. Harvester can sell us, they can close us or we'll all die a slow death from them not being able to supply our capital needs."

But Stack also offered hope in one other possibility. "I went around and asked people if we should try to buy the company from Harvester. I kept waiting for someone to say no. Nobody did and so we made an offer."

At the time, Stack's total net worth was $28,000 and he needed to raise $9 million. Banding together with a dozen other managers in the company, he was able to scrape together $100,000 for the down payment on a $9 million purchase. Then Stack embarked on a grueling, two-year search for financing that changed his life. "I was out there looking for this huge pile of money and the bankers had me jumping through hoops and learning a new vocabulary," he remembers. "All of a sudden, out of nowhere, came things like equity ratios, liquidity ratios, debt financing and bonds. I'd always thought you kept the accountants and finance people in the back room and they did whatever they wanted with the numbers. The more I got into it, the more I loved it and thought, 'Wow, all this stuff with the numbers is great, it's a really neat system.'"

This led him to the conclusion that "the only way to win is by performance." During Stack's time in the field, two things happened. "First," he says, "I was like a kid in a candy store. I loved learning about business. It got so that I could write and rewrite business plans in the back of a taxicab between pitches to bankers."

But during his search for financing, Stack also got mad. "I was completely angry with the company I'd worked for, for fourteen years. During my entire time with them, they'd never taught me business and never asked me to make money or generate cash. I could manufacture whatever they wanted me to make. I could build engines. I could make fifty-ton trucks. But I didn't know a darn thing about making money."

On February 1, 1983, when Stack and his co-owners got their factory, they had $100,000 in equity and $8.9 million in debt. His first order of business was to gather all three hundred workers together in a lunchroom and tell them that although they had jobs for the moment, the company was essentially comatose.

He explained to them that at a debt to equity ratio of 89 to 1, the company was brain-dead, but that if they were able to turn that number upside down and have 89 times more equity than debt, that was where real wealth would be found.

"I was so excited by what I'd learned that I wanted to share it with everyone," Stack recalls. "I knew cash-flow statements, income statements, balance sheets, I'd learned the lingo of the venture capitalists, the commercial bankers and the angel capitalists."

What he'd learned, he would share. "That day I made a promise to teach business to every worker in the company."

The factory workers, the managers and even the other executives were all as much in the dark about business as Stack had been. "We'd all thought it was about building great products, that it was only about delivery, quality, service and housekeeping-but along the way we'd missed the boat. We'd been kept in a jungle of making stuff but had never been allowed to see the big picture."

Stack made good on his promise to teach everyone business, with steps that include calling the whole company together weekly for a detailed update on the firm's profit and loss statement and balance sheet. Today a visit to any SRC facility starts in the lunchroom where an entire wall details the company's financial statement including how much money they have in the bank. As you walk the factory floor engaging people in conversation, you find workers who are as comfortable talking price-equity as pistons, cash flows as cylinders.

SRC Holdings has become a widely diversified manufacturing holding company that grows 15 percent per year in good times and bad, whose twenty-two plants are involved in fifteen different manufacturing operations. With revenues greater than $200 million annually, the company handily beats their competitors on all the productivity metrics-revenue per employee, operating income per employee and return on invested capital.

Stack's simple BIG objective was to teach everyone the rules of business and then turn it into a game where everybody has a clear awareness of how his work impacts the numbers.

Copyright © November 2002, Portfolio Books, a member of Penguin Putnam, Inc., used by permission.

About the Author

Jason Jennings has spent more than twenty years teaching businesspeople how to build great organizations. He gives more than sixty keynote speeches every year and is the author of two previous business bestsellers: Less Is More and It's Not the Big That Eat the Small, It's the Fast that Eat the Slow. He lives near San Francisco.