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

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

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 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

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 #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

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 #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

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 #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

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 #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 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 #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

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 #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

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 #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

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 #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

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 #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

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 #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

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 #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

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