Throw a pool party

Written by Brian Scudamore

There are two things to take care of in building a business: your people and your bottom line. I think I’ve found an exciting strategy that considers both.

Toward the end of 2003, I tossed around the idea of creating a company-wide profit-sharing program. My reason was simple: I wanted to retain the great people we have worked so hard to develop, and I felt that sharing the wealth among stakeholders would help accomplish that. When I announced the program to everyone at 1-800-GOT-JUNK?, our employees were excited by the possibilities. I fully expected that. What I didn’t anticipate was just how beneficial profit-sharing would be to our bottom line.

Here’s how it came together. I wanted the profit-sharing pool to be significant. Having determined that we needed 75% of our profits to maintain our annual growth rate of nearly 100%, I committed the remaining 25% to a profit-sharing program that followed a simple distribution formula: employees would receive a share of the pool proportionate to their respective salaries.

Like most business owners, I thought that profit-sharing would increase the company’s overall profits, but not enough to cover the profit-sharing payout; thus, 1-800-GOT-JUNK? would recoup less of its net earnings. Was I ever wrong! In fiscal 2004, the program’s first year, our bottom line after profit-sharing payouts increased by almost 800%. This year, our annual profit is trending 50% higher than it was in 2004. To me, that’s a clear sign the program is working.

How did we achieve such a huge increase in profits? We found that the profit-sharing program compelled every employee to take real ownership in everything they did for the business. People became obsessed with driving revenue and saving money, knowing that they could significantly increase their annual earnings. People started watching everything from the macro, including company-wide revenue and profit, to the micro, such as the entertainment or telephone expenses of individual departments.

One employee took the initiative to replace our expensive bottled-water service with a filtered-water system, cutting our drinking-water costs by a third and inspiring the rest of the team to find wins of their own.

Today, employees hold one another accountable for reducing any kind of waste. If someone prints too many photocopies, for example, you might hear a friendly “GGOB” reminder from one of their teammates. GGOB is the acronym for our program, which we call the Great Game of Business. The name is borrowed from the book of the same name by Jack Stack, a legendary entrepreneur and one of the great proponents of open-book management.

Which brings me to an important point: bonusing out your profits alone is not guaranteed to cause employees to act in the best interests of the business. They have to know which of their actions matter. So we spent a tremendous amount of time educating our people on our financials: what they mean and how each member of the team impacts the bottom line.

Now, opening the books to facilitate a profit-sharing program isn’t all roses. Imagine two employees with competing ideas on improving profitability: one says to print the sales flyers on cheaper paper; the other argues that better paper will close more sales. Who’s right? I am a big believer in letting people or departments duke it out within a limited time frame, ultimately choosing the option that is believed to be the biggest win for the company. It causes friction, but it’s a healthy friction that helps the company learn to make better decisions and, more important to the employees, maximizes the profit-sharing pool that belongs to them.

Our open-book management process is simple. We gather the entire staff of 55 people every month to review our income statement. A different person is SPA (single-point accountable) for each line item. With 17 line items, that’s 17 people-some of whom don’t have a financial background—who become intimately involved in a particular financial area of the business. It’s that person’s job to report publicly to the team why they hit or missed on their revenue or expense target. No one likes to miss a goal and let the team down, especially in public, so people work hard to make their numbers. We share everything except salaries, which prompts questions and healthy debate.

Financials can be dry, so at every step in our GGOB process we try to add an element of fun. When it comes time for the semi-annual Profit Pool Pay-Out Party, for instance, the theme from The Apprentice is played as everyone applauds their colleagues as they collect their cheques.

An additional benefit of GGOB has been cultural—it has made us a tighter team. Employees tell me how much they appreciate being involved in the financial management of 1-800-GOT-JUNK?, and it has given everyone much greater confidence in our financial health. I think a huge opportunity awaits any business that opens its books, as secrecy in the workplace only limits growth and creativity. When employees are in the know, the result is better alignment, communication and co-operation.

What have you got to lose by sharing your profits? In my opinion, you can only gain.

Originally appeared on PROFITguide.com