E96: Gamifying Your Business for The Win W/ Steve Baker: The Great Game of Business -VP - How2Exit

[00:00:00] Ron Skelton: Hey, welcome back, and we're here today with Steve Baker, the Vice President of the Great Game of Business. Thank you for being on the show today, Steve. 

[00:00:08] Steve Baker: Ron, it is a pleasure. I'm so glad to be here. 

[00:00:10] Ron Skelton: All right. I mean, the book's been around since 1983. I did a little intro earlier. So Steve wasn't on when I did the intro cause I thought I might mess it up. I'm gonna catch him up for, but I didn't know about it until about six or seven months ago. I was on a podcast and somebody says, have you read The Great Game of Business? It's like, I love to read. I read a bunch of books. I was just noticing I even in my audio books, I think I had 170 audio books in my library, right? Been doing it for a little while. And, so I went through it. I was like, man, this is totally different. Why didn't they teach us an NBA or whatever? So, let's just jump in with your origin story. Kind of how did you get started? How did you end up with the great Game of Business guys? And, let's just go from there. 

[00:00:45] Steve Baker: Yeah. Great question because rarely do people want to hear that, right? Because I wasn't meant to be with the Great Game of Business or with SRC Holdings at all. That's not in the universe's plan. I don't think I went to art school, Ron, and now I [00:01:00] speak right, and teach business internationally. What the hell? So I am living proof that anyone can learn business. I went to art school, man. I moved to Springfield, Missouri to go learn how to be a graphic designer. This is back in the eighties when Jack Stack and his group was starting out. And what I learned was when you leave school with an art degree and you're good with people, you get a job in sales. That's what happened.

[00:01:26] And I took jobs for survival. I met my wife Joanne. We talked about her before the show, met her in college and boy, now I gotta get a job. I gotta pay some bills. And oh my gosh, now we wanna buy a house. And oh my God, now she's pregnant. There's all these things. And so I'm constantly taking jobs because I need the money. And what's weird is I'm a very creative guy. I'm a problem solver, I'm intelligent, all the stuff, and I had good upbringing. My dad was an entrepreneur. The thing was, is I took jobs and I tried to help my bosses, achieve their goals. I never had any [00:02:00] access to any real information. When I needed money, I would go to the boss and say, Hey, Joanne's pregnant again. They're like, congratulations. I go, I need more money. How do I get it? They go, well sell more. Ron in Springfield, Missouri, remember, I'm traveling, all over North America, coast to coast, top to bottom. And it is about sell, sell, sell stuff, nobody needs. You with me?

[00:02:23] Ron Skelton: So what kinda stuff are you selling? 

[00:02:25] Steve Baker: It was consumer goods. Anything from wooden wear, giftware. I was in Bath and Body. In fact, Ron, you might even add this to your podcast, you are talking to the king of fragrant bath salts. That is correct sir. An origin story, most people don't hear this, but, so it actually, it speaks right to where we're coming from. I was working for this great little bath of body manufacturing company. I had opened up, Bloomingdale's, Williams Sonoma. I'm talking about all the big retailers and that's hard to do. That takes time. And I was using my creative background, right? I'd go to market, see what was cool, bring it [00:03:00] back, design a new package, new fragrances, all that sort of thing.

[00:03:03] And then we'd take it back and we'd sell it. Well, When we got pregnant with my youngest Jackson, and this has gotta be, 22 years ago. I go to the boss and I go, Hey, we're at it again. I need a raise. How do I get more money? They go sell more. Instead of getting on a plane, I said, if I'm gonna sell, I'm gonna sell big. I got in my, company vehicle. I drove to Bentonville, Arkansas, and you know who lives in Bentonville, Arkansas?

[00:03:29] Ron Skelton: Sam Walton, Walmart, right? 

[00:03:30] Steve Baker: That's correct. And who's the worst possible commercial partner you can think of for a small business?

[00:03:36] Ron Skelton: Sam Walton of Walmart. They'll drive you into the dirt. Yep. 

[00:03:39] Steve Baker: So one Christmas season, we shipped, the largest shipment of fragrant baths, salts to Sam's Club. You may even own some, I don't know, but, and that was a long time ago. Good company and everything else, but I'm telling you, we didn't make any money on it. And I had no idea. Had no idea. I thought I crushed it. Years later, I went back and had dinner with [00:04:00] the owner. This is years after I left. And she said, now Steve, you realize, you got a bonus. I had to second out on my house for the materials for that. I'm like, you've gotta be kidding me. And I swore as to God and everyone else, like I will never let that happen again. Started my own thing doing marketing and branding cuz I was blending my business. What I thought was, business acumen. And, my creativeness.

[00:04:23] And that's what I was really good at. And, pitched src, and specifically the great game because they're here in Springfield and I had spent my life everywhere else. And, Rich Armstrong at the time who was running it and my co-author of, getting the Game, which is the cookbook for Jack's original, getting a Great Game of Business book. He goes, I don't need a consultant. What I really need is someone inside. And that's how I joined 17 years ago. And dude, it is alarming how much you can learn very, very quickly about business when you have access and someone with the patience enough to teach you. 

[00:04:55] Ron Skelton: That's awesome. The concept behind the Great Game of Business is it's open [00:05:00] books, right? It's open financials. Which your books actually is needed. So it's, the funny thing is, I listened to the first book. I didn't read it. I'm traveling, I live in a tiny home, so trying to accumulate less physical books here, by their wife's request. So I listened to the audio book version of the, the Great Game of Business and one of the things like, it was left open for me is like, okay, how do I teach everybody else how to reach financials? Because, I have a master's degree. Even my undergrad, I had some accounting classes cuz it's a management information systems degree, and then my MBA is in marketing, right? And, so I had to take those classes. I actually, my master's degree, I started down the path of technical management and decided, I was like, just not doing that anymore.

[00:05:40] Like you, I did whatever would pay me. And I was really good with computers. I kind of hated 'em from day one, but I got into tech because I was really good with them. When I finally got to the age where I was like, okay, I either need to learn how to play golf or go get a master's degree if I wanna be a vp. I kept getting the senior director titles at companies. I went and got an MBA. And about right before I got to the [00:06:00] capstone courses where you're like, your major, I finished all my bases. Like I'm just not doing technical management where I'm gonna find something else. And I went into the office to quit. 

[00:06:08] Fast forward now I'm in all kinds of businesses, but my background and my joy is like understanding the marketing side of things. 

[00:06:15] Steve Baker: So you started that by saying, open books and the great game, just to clarify what it's all about, is, we're known as the birthplace of open book management. And it, it infers that if you throw your financials on the conference room table, someone's going to give a crap and they won't. The thing is, it's a language they don't understand. No one ever taught 'em in this country. We are financially illiterate. And so really what the Great Game is, it's less about opening the books and really more about teaching people that it's hard to make money. It's hard to generate cash. What do we do here to do those two things? Cuz that's the objective of any organization.

[00:06:51] We've gotta make money and generate cash. I wanna connect people with direct line of sight to how they help us do those two things. And ask 'em to help and [00:07:00] give 'em a stake in the outcome. So Great Game is a way to take the numbers and demystify them, right. To knock business off its magical pedestal and just make it accessible to people. In a way, that's why Jack Stack our founder and author of the original book, the Great Game. It was really about how do I get a bunch of mechanics and machinists and guys turning wrenches in Springfield, Missouri to help me make the bank loan payment because they were leveraged 89 to one. That's what we probably heard in the book.

[00:07:27] I mean, come on, buying a dying division of International Harvester in the eighties. Not a smart move at all. But Jack couldn't understand why he had 119 people who were the best in the world at remanufacturing, and they were facing a layoff. He couldn't understand it. So he went out, started talking to banks, and the banks taught him one thing. We don't care about the quality of your engines, we don't care about the services you provide. The company is the product. And that's a huge takeaway for everybody listening today. Is if you focused all of your energy, your education [00:08:00] process, your accountability rhythm and your incentive program to building a great company, won't you have great quality and great technology and great service and great pe?

[00:08:10] Yes. So we flip the funnel on everything. We ask the people responsible for creating the numbers in the business to participate. Holy shit, that's not such a big ask, is it? But we have to teach 'em because they don't come ready made Ron. They don't. And I'm a great example of that. Totally financially illiterate until I walked in here 17 years ago. Not stupid, but nobody ever gave me the insights to understand the secret language that bankers have been talking for 500 years, since 1494. That's when the income statement and the balance sheet were first popularized. Can you believe that? 

[00:08:45] Ron Skelton: When was it? 1494 you said? 

[00:08:47] Steve Baker: 1494 Luca. Wow. Pat. I'm using my best Italian and I'm not Italian. Luca Paciolo Franciscan Fryer, was the first guy to popularize the income statement and the balance sheet as we know them today. They [00:09:00] haven't changed in 500 years. All we do is we start to teach people how the financials work, where they fit in. The one thing that Brother Luca forgot to put in the original income statement was an extra column for someone's name. Cuz somebody's responsible for every line item on there. And all we do is we teach people how they fit. It's phenomenally simple. I'm not saying it's easy cuz you do have to keep it up. And it does take courage for an entrepreneur to go, wait a minute, I'm not really comfortable with these things at all. So it's just like, it's not about making 'em accountants, it's about helping 'em understand how can we move money that comes in on the top line to steward it right now to the bottom line and share a piece of the action.

[00:09:44] Ron Skelton: It's interesting is I had the same resistance when I listened to. It's like, to this day, having owned all the businesses I've owned. Owning the ones I own now. Having started and failed at many, many startups. The one thing I still don't know is accounting. If left to my own devices, I'll be in so much trouble on the accounting side. [00:10:00] So I still bring in accountants. So how do you go about doing that? Is there a process? I guess that's what your, the book I haven't read yet. The one you've done kind of starts teaching you how to teach that. 

[00:10:10] Steve Baker: Yeah, so the original book was sort of like where it came from and what it's all about. And, it's been around, I mean, SRC has been around for 40 years. The book's been around for 30, Rich Armstrong and I wrote the cookbook, get in the Game, and it's 10 steps. So your question is how do you teach this stuff? Simply we start out really simple. We first of all ask people, how much money do you think we make? And they usually come back according to the research in the US the average employee thinks you make 36 cents on the dollar at a minimum. And usually it's higher than that. Depending on the business. People will go up to like 75, 80 cents on the dollar. Well, in reality, the average company makes six and a half cents.

[00:10:49] That's across 212 industries. In remanufacturing, like, like we do at src, a nickel on the dollar. So we actually go through, no, it's crazy. Why do you get up in the morning, Ron? [00:11:00] I mean, that's what people will say to you. Well, the reality is you have to then say, well, what are we gonna do about this? How can we throw more to the bottom line? And a quick way to do it is, in the book that, that Rich and I wrote, we created a number of different exercises that we actually use to get people in the game quickly. One of which is to say, look, let's just say it's six and a half cents on the dollar. How many do we have to sell on the top line to get a dollar of profit on the bottom line? Cuz I'm gonna build my bonus plan as a self-funding team based bonus program out of that. Well, people start to scratch their, I don't even know how to calculate that. Well, of course you don't cuz you went to school in America. We don't teach people math very well. And so we start doing it. Maybe if you're 10 cents on the dollar, you gotta sell 10 bucks up here.

[00:11:43] At src, it's a nickel on the bottom. So you gotta sell 20 at the top line, right? Well, at six and a half cents you have to sell 1538. We have to teach people how to do a reciprocal. One divided by your bottom line number. Gives you 1538. So now when I look at my [00:12:00] costs and expenses, I can actually, and we'll draw this out on a flip chart with people, we'll ask folks to come up and say, well, you're in the finishing department. Tell me about that. Well, I buy paint. Had I known it was worth so much. I could get that paint for a dollar less. Or if you're writing code, I love when people go, yeah, you're manufacturing, you don't get it. I'm like, okay, show me somebody, show me a company in, tech. And they'll go, yeah, here's my guys. And they're, and I'll get the tech guys and I'll go, guys, how much do you love rewriting lines of code? And they're like, we hate rework. Ah. And then I go, look, it's worth four to seven times the original work. I know it's driving me crazy, but I'm being pressed. And I'm like, okay, we're gonna slow down to speed up.

[00:12:36] What is that worth? Well, the thing is, when you put that extra line out there and give line item ownership and you give a developer, billable hours or something like that for their particular spot, they're so proud of it. They start to own it and they start to really become a good steward. It's powerful stuff Ron. So the bottom line is, is a guy that yesterday thought it didn't matter. What shrink wrap cost. Today is [00:13:00] like the shrink wrap police. Cause they own it, man. It's so cool. And it's not about accounting, it's about common sense financials. Cuz that's how people live at home every day. And they're very good at managing their cash flow cuz they're constantly going, well, they keep the cell phones on. I need to probably put off, this Amazon Prime purchase or maybe I'll pause my Netflix account. Yeah, I mean they, they do it every day. . But the thing is that we want to teach 'em more.

[00:13:25] We want to take 'em next level, help 'em understand how we understand business. We'll always need accountants. We love accountants cuz I don't wanna have to do all that stuff. And we always have great technicians of any kind. So I want to just tap everybody's expertise. Show 'em one common language, get 'em on the same page and say here's our critical number, the one thing that defines winning for this year. And we'll build a bonus print plan around that. And that way we were all headed to the same place. 

[00:13:53] Ron Skelton: So a step in my world for a second. We buy a company we already have like the last three years of financials so we kind [00:14:00] of know the historics of it cuz that's part of the due diligence. We probably have their last three years of tax returns probably wouldn't share those just because that was under the NDA. And it's kind of personal cuz a lot of times they have to show, a lot of these business have to show their personal tax returns cuz the way they're structured. But we have that information. You buy it, you go in, you sit down and you show, I mean, I think you, you'd have to start with the basics, right?

[00:14:24] If I wasn't gonna show anybody anything about financials, the only ones I probably could easily explain are the balance statement, income statement, and then cashflow analysis is different from every company I've ever, like. 

[00:14:34] Steve Baker: I gotcha. Hey, I got you covered, man. Everybody listening, everybody take a breath. Cuz I heard a whole lot of buttholes clenching out there. I'm sorry, but that's what I just heard a squeal. I'm gonna tell you start with the income statement. We just wanna start somewhere simple and it's not gap financials. Just picture it, revenue, cogs, gross expenses, and net. And then what we're gonna do is build it together and say, well, where does revenue come from? [00:15:00] And we're gonna build that out and we're gonna build out our cogs. I wanna see where people belong on that income. We will eventually in time, especially with employee-owned companies, if ESOP happens to be one of your exits that you're going for, we want to teach people more about that. But to get 'em to think and act like owners, we gotta start with the basics.

[00:15:17] How do I affect these numbers? And every number is represented by the way. Not every number's detailed, like we don't share salary information other than a consolidated line item. Salaries and benefits. The reason is, why does everyone need to know? I mean, we're not hippies. Come on, man. We don't have to know everybody's all together. We want to know, Hey, this is what we've got out there. And in a company like you're talking about in transition, I may need to compensate my executive team at a certain level. It's just the way that it is. Well, if I focus on salaries, where people are gonna focus their attention on forever, salaries. I really wanna focus on, how do we make money? How do we generate cash? Start with the income statement and [00:16:00] simplified at that. Every number represented, not every number detailed. 

[00:16:05] Ron Skelton: I got it. So every number represented, not every number detailed. So when I, when you say an open books, that's one of the things I thought that a lot of people would push back for. It's like sharing salary information because sometimes it just takes more like to bring a key on employee on, I'm going back to my tech industry world. There were very often there were times where, I'm the senior director of operations running the tech division of a company, and there were employees that worked for me that made more money than I did. And it's just part of the nature of the business is. And for anybody in the tech industry, if you're thinking, well, I make as much as I rest of the guys, if you are an Oracle DBA, I can assure you, you're making more than most of the guys.

[00:16:40] If you are like a top level network routing guy and you got the top Cisco certifications and stuff, you're making more money than your boss most likely. Cuz those guys are, that's just what it takes to get 'em into your division of your company. That was what one of the concerns I would have in this open book strategy is sometimes that's disruptive. Somebody who's like, look, I've got a four year degree and this guy's got a [00:17:00] certification. It's like, yeah, but you chose the wrong path, right. You've got a four year degree in marketing and this guy went out and studied, how to read, sniffers and watch binary numbers go across routers to make sure that the network stays up and is most efficient. There's only like four people on the planet that has his level of certification. I'm gonna pay him more. Right. 

[00:17:19] Steve Baker: Ron, that's the market. And so everything about the Great Game is market based because that's where it begins and ends, isn't it? I mean, the company's only worth what someone's willing to pay for it. Our talent is only worth what someone's willing to pay for it. And so what we try to do is we try to recognize that and we say, look, we in Great Game companies, and this isn't just SRC, but Great Game practitioners around the world as they say, let's try to go out there and get the talent that we need at market. As much close to the market as possible. That's our fixed comp, if you will. Variable comp is that incentive plan I mentioned where it's a self-funding incentive plan based on performance. Cuz if we outperform the market, [00:18:00] boom, we should get better than market. But it doesn't hamstring the company where you've got super high paid employees that then when you hit a natural business cycle, you're laying people off. In 40 years, SRC has never laid a person off. Can you believe that? 

[00:18:14] Ron Skelton: Wow. So the interesting thing was, as part of me, like there's a part of me that said, when you said that you guys basically make six and a half cents on the dollar. Like in my head I'm checking that off as okay. I'm never going into, heavy equipment remanufacturing as a career. There's a beauty in the fact that it has to run so lean and, cause that's how this was born. This operating system wasn't born out of, it sounds like a cool thing to do. It was born outta necessity, right? If you're running on a six and a half percent profit margin or net profit, six, you're only making six and a half cents on the dollar.

[00:18:41] Take home, you don't have a lot of room for mistake. Sometimes that, that pressure creates the diamond, right? That's what I see here is like the, you guys had a problem that most business operating systems wouldn't have solved. The only way to solve it and get everybody in alignment to see the scale of the problem is the, to teach 'em the scale of the problem, [00:19:00] right? And it works in the high pressure like, like you can either get laid off, right, or you can help us solve this. How does it work over the years when you buy companies that are running really good, they're really profitable. Do you guys play in that realm? Like I, I'm thinking some of the spaces I look at, like, in the tech industry, software as a service companies typically run at 75 cents on the dollar. It's not uncommon for a SaaS company to make 75 cents, they take home 75 cents, on the dollar. 

[00:19:27] Steve Baker: So let me flip it back to you and say this, what's your biggest problem? What's your biggest challenge in a SaaS company then? 

[00:19:34] Ron Skelton: Key employees keeping, keeping talent. 

[00:19:35] Steve Baker: It's talent. Guess what our biggest problem is in remanufacturing? It's talent. Dude. It is talent. So what we always look at is we say, no matter where you are, someone's beating you and someone is going out of business, whatever industry it is. So we compare those. I'll actually put a stack of coins out on a table for someone if we're coaching a company, or I'll put it up on the big screen, and I'll say, here's us and we're doing [00:20:00] okay, but does anyone know anyone that's like not doing so well? Oh yeah, I just came from a company and they're going bankrupt. Or, they're really struggling. You know anyone that's beating us? Oh yeah, those guys over there. Oh my, they're, they've got better tech and they've got better people. I'm like, well, how can we be that way? I don't want to get their ire up.

[00:20:17] I want 'em, get 'em going. Hey, this is what's in our way of being that great company we wanna be. It doesn't matter if it's 75 cents or 5 cents, but I will, I wanna point something out that. Six and a half cents I mentioned is actually the medium in the United States against 212 industries. So it is harder out there for people to make money than tech companies might think and it is powerful because if you look at that aggregate, that's a lot of people that are making living and living, and it's the backbone of our economy off very little return. Right? And so what we wanna do is show people their connection to how to make more of that. Because if I can just inch it up a little bit, even if you're making 75, 76 is better, if [00:21:00] you're making five, six is amazingly better.

[00:21:02] You know what I mean? If you're making it, like a lot of software companies we've run into, make between 30 and 40 cents on the dollar. That is pretty normal, but boy, would 35 be better or would 41 be better? It's all about the, how can we be the best in the industry world class without, just going out and hiring the, the AODs of the world, because and I'm not qualified to use his name. I'm sure, but you know the, it's like Moneyball. How can you make the business work and operate? You remember that movie? It's Michael Lewis book and a Brad Pitt movie. The whole thing was you can go buy your way to winning or you can number your way to winning. And it's about getting those solid players in place and training them up, teaching 'em up, believing in them, and creating a sustainable organization that can win systematically. Cuz you know what, you're high, your top players come and go pretty frequently cuz they're chasing the dollar. I need people who are trying to build something special.

[00:21:59] Ron Skelton: Let's go [00:22:00] into, like, we talked a little bit about like employee and competitiveness and stuff like that. How do you fire up the employees? How do you get 'em to see the competitive landscape and to drive the company to be more competitive or?

[00:22:13] Steve Baker: So the first way we do it is we bring the marketplace to our people, right, Ron? And so most people don't even know what they're doing day to day. Like big picture. They might know, oh, I work at a company that makes signs, or I work at a company that, oh, I'm thinking about a company in Canada that does, writes software for, satellites. Around resource management, that sort of thing. And, when we first started talking, they're like, we're scientists. We are engineers and we're developers and we're scientists. I just went back to I understand that, but, who here needs to make a little more money. It's the economics of it, right? It's like, well, yeah, why are you working here and not at a university? Or why do you not have a lab or something? And the answer was always, it wasn't that I was trying to demean them. I was trying to say, we all have to make money. This is a way to do it and to make [00:23:00] some other contribution to society, right?

[00:23:02] So if you work at a university world, you're teaching other people. If you're working on at this place and you're helping manage resources, look at what you could do if we were better at it. So I'm actually trying to bring the marketplace in and say, look, remanufacturing Ron is not sexy. We take old broken down ass stuff, dirty diesel engines and turbochargers and stuff that someone else has broken. And we literally strip 'em down to their lowest common denominator and start over again. And we reman and remachine. It's not rebuilt, it's reborn completely. Well, that is dirty, dangerous work, and you can make more money in Springfield, Missouri by going across the street to Bass Pro shops international headquarters, or across the other street to O'Reilly Automotive's National World Headquarters. Or down, go across town. And Amazon just built a million square feet. We're competing with some big people here in Springfield. What I'm getting at Ron is that, people hear about SRC and they go, [00:24:00] oh, that's the place where, oh, they'll turn you into a business person. That's weird. Nobody else trusts me enough, respects me enough.

[00:24:07] Nobody wants to put the money. Hell on the way to Branson, Missouri. You know where that is, right? So we're just north of there. We're competing in a very difficult marketplace where in America there's two jobs for every person in the workforce. You tell me what we're gonna do. We appeal to a higher level of thinking. We bring the marketplace to people, we show 'em how hard it is to make money, and we ask them, what could you do differently? And you know what that allows people to do. It lets the expert come out. They go, you know what, if I was doing this, I would do it differently. And I had mentioned the shrink wrap guy. We have so many great stories about that. The tech guys I was just talking about, oh, well I didn't realize, one of our biggest problems with people that bill by the hour is time sheet compliance.

[00:24:51] And everyone listening is going, yeah, I know. It's weird. When you show them the impact of actually logging their time to the right client and how it, it [00:25:00] affects their bonus program. Damn, you wanna see some ownership? They're all over it. It's all about connecting their daily actions and decisions to financial outcomes. And most operating systems divorce them from that. And they, you dumb it down and you say, am I getting too emotional here, Ron? 

[00:25:17] Ron Skelton: No, you're, you're right. You're right. I like it. 

[00:25:19] Steve Baker: I'm telling you, until I got here, no one ever said, here's what we're trying to accomplish. Instead they handed me a KPI and they say, do more, sell more. Do this, do that. Get your check. I don't need you for your big ideas. All of a sudden it's, I would like your big ideas, but first let me teach you how we make money here. And then you can show me how your ideas will help us make money. So it is an investment in time and patience. But dude, the people who stick around cuz not everyone will, some people just want to punch the clock baby, and they'll do their work. They'll be a great technician and they'll go home and be a great parent. Awesome. Keep spending money, keep paying your taxes. I need you. The people that stay in Great Game [00:26:00] companies become business people. And now you're talking about a value that your competitors cannot match. 

[00:26:07] Ron Skelton: It reminds me of a, I won't say who it is, cuz they might listen to the show now. I was, in the middle of an acquisition. It failed during the due diligence process. Mainly because I found problems in their accounting that they didn't know existed and they had to deal with them. Let's just say whoever do their CFO's got some explaining to do. And it wasn't me. I had somebody else find it cuz it just, something was awkward. But what we got far enough down in the process to where I actually was starting to talk to employees. They'd already told 'em they were selling, they kind of, some of their employees seen it on like a Biz Buy Sell type of website. And anyway, so I started interviewing it, I was shocked. And they had, I'll just say, just cuz I don't wanna call 'em out directly, just say close to 50 um, employees and I probably interviewed seven or eight of the executive level and probably two or three of the like, floor level guys before we found the issue and said, Hey, we just can't move forward until you deal [00:27:00] with this. Cuz this is gonna have some repercussions. Like maybe legal stuff.

[00:27:04] I was amazed by how many people, one of my favorite questions is like, Hey, you're aware that myself and my team are acquiring the company. What would you do if you bought it? Like, what would you, be honest with me here. You're not gonna, like, I promise you, for the first 60 days, I'm not letting anybody go. I don't know the company well enough to let anybody go in the first 60 days. And then after that we'll figure out who's performing, who's not. And probably everybody's gonna stay. Cuz you've been running it for this long. You have immunity. Like, what would you, tell me anything you wanna tell me. What would you fix if you would you fix this? And it was funny, as one of the guys said, I came from the accounting department. They demoted me, moved me into, onto the floor out here. If I were you and I was buying this, I'd have a forensic CPA look at that damn accounting. And then, I have a friend that does that. So I brought him in. It's like, I brought him and her, that was a team, and they said, oh, wait a second here. So anyway. 

[00:27:50] Steve Baker: There was a multimillion dollar tip from someone on the floor right there. You don't know who you have until you start opening things up. I love that example. 

[00:27:59] Ron Skelton: [00:28:00] And employees always have the best, Hey, we've been doing this thing wrong for 15 years. It's just because the, it's the old, I used it during the Thanksgiving season. We had a ham and my, sister-in-law was wanting to cook it in the, in a pressure cooker. We have a electric pressure cooker. I said, well, if it doesn't fit, use the grandma method. Right. Same thing happens in business. People do things they've always done because they told, Hey this, we make the widgets this way, do step one, two, and three. And that's the way it's be done.

[00:28:27] But when you're new and you get it to go in there and say, Hey, if you could change anything here, what would you do that would make improvements? I see that what you guys are doing inside of this opens that conversation up to be a continuous conversation of how do we improve, how do we improve, how do we improve? As opposed to a conversation of, Hey, this, the standard operating procedure says to do this. Step 1, 2, 3, don't tell me anything else. I want you to go out there and turn the gear that makes the widget and come back at the end of the day, play the homer senses and walk in there. Push the button when it says to push the button and leave. 

[00:28:57] Steve Baker: You're nailing it, man. That is exactly what the game is about. It's [00:29:00] not about like the grandma's ham is a perfect example, right? In fact, we tell that story a lot because when people go, oh yeah, grandma's Pan was too short, grandma's Oven was too, the different versions, it's all the same story. What we're trying to get at is you can lean a business out. But then there's a point where you just, you're lean as you're gonna get. We need people to think beyond and how do we compete better? How do we outthink the, competition? How do we outperform the market? What I wanna know is, I, you would be amazed at great game companies, and I'm not, I don't mean just SRC companies.

[00:29:32] I love it when I meet someone who's playing at a high level because I can go out on the floor. And that means if it's a call center, it's someone with a headset on. If they're writing code, I'm in the back room, where people have multiple monitors on the floor, and I mean, like your people creating the numbers. I love it when they are watching things you never thought they would watch, like the price of copper or, lithium or something, right? They're going, we need to be aware of this. Did you know that most of this, rare element comes from the [00:30:00] Republic of Congo? And, real story, I was speaking at the architectural Woodwork Institute. These are the guys that create the standards for all woodworking companies. This is last year. And, someone was from a, an extrusion company, they make aluminum extrusions for like sliding glass doors and windows and things. And I go, wow, I bet your people are really, worried about the coup in Ghana right now.

[00:30:23] And they're like, what? And I go, no. I mean, really you're not. Where does most box site come from? Well, I didn't know that till I read it in the Wall Street Journal and I'm going, oh, box site comes from there. Guess what's gonna happen to aluminum prices? Right. Well, at great game companies, people are watching that stuff because they're thinking like, business will not like the technician who's gonna punch that into the machine and just do the number. Right. That's the powerful part, man. You nailed it. When you're like going, oh wait a minute, this is my number. I need to understand it better. 

[00:30:55] Ron Skelton: The thing that comes to my mind is like, how do you hedge against it? When you know things are coming like that down the path? [00:31:00] Like employees that come to you, like Southwest Airlines was used to be really good at this. I don't know if they still do it, but they bought option contracts and fuel cuz they were really good at forecasting what fuel was gonna do. And they managed to keep their fuel prices down, which enabled them to be more competitive at lower prices than anybody else. So that comes from keeping your eye on the game. So I love the game thing. I love the whole concept of game and gameifying something. Do you guys go further into it? Is there a scoreboard or is there a way to show people that they're winning the game? 

[00:31:31] Steve Baker: Yeah. So you're picking up on the true elements of any game, right? Jack wanted to teach people business because they had an 89 to one loan. They were financially brain dead and didn't even know it. They needed to make that bank loan payment. And so, his people were like, Hey, we got the loan, we saved the jobs. Give me the wrench. I'll turn it. Just get outta my way. Let me do my job cuz I'm the best in the world. Right? He goes, no, that's what we were doing before we almost lost it all.

[00:31:55] So we used the analogy of a game to simply make it approachable. So he goes, [00:32:00] there's a goal. That's the critical number. There are rules, there's a scoreboard. Those are the financials, and there's a reward for winning. In the early days it was you get to keep your job. Later it became a bonus plan. And later, beyond that, employee ownership. The thing is that we have to tipple the rules of the game. Because when would they have learned that we don't teach it in school. We don't teach it in college. You've got an MBA and you're telling me that really, how much do I really understand about business? You learned most of it on the job, didn't you? Out in the field. 

[00:32:29] Ron Skelton: What's interesting is I just recently told the team around the podcast the same thing. It's like, look, financials are open. I actually have a little, kind of a deal, room thing for them to look at. You can see what I'm spending to run the podcast right now. It is not profitable at this moment. Eventually it will be, we have some good sponsors and stuff, and it's gonna happen. But the point is, is like I put in, it's like, look, , we're getting this much traffic right now in order to us to hit profitability and stuff. We either need to do X, y, or Z, and there's a 20%, net profit share to all the employees.

[00:32:59] And I built a [00:33:00] program around how it's spent in. So it's based on their clocked hours. It's a bunch of stuff. So I gamified this thing and I show it to everybody. And now I've got, these are, VAs in the Philippines and some other some people that help me local and some people that are, I'm looking at even the guys I'm interviewing for the, like writing positions to do writing. I'm showing them the same thing. What the whole purpose of is, look, you come on here, there's this opportunity, right? And, I'm shielding all the expense off the beginning, but if you can help us get to our goals, we hit our goals. Look, this is what it looks like. And, I got that concept from, your open book strategy.

[00:33:34] It is like, okay, let's just show 'em what we're going for and let's make 'em part of it. I had two of the VAs that helped me out. They've never met each other actually. Just realized that I'd just chat with 'em individually. But I had two of the, the VAs did, like, looked at it and just had no idea how much I spent per month to keep this thing running.

[00:33:50] Steve Baker: How could they? How could they know? Exactly. Man, I love it. And you're doing it naturally. You're playing the game because you're saying, Hey, if I'm playing a game, I'd like to have [00:34:00] some sort of a stake in the outcome. You've made it very clear. You documented it, and now you just, you happen to, come upon another detail that might empower them even more. Introduce 'em and then they start talking. They go, what could we do differently? What is someone else doing? Do you know any, have you ever worked anyone, with anyone that has a podcast? What are they doing, man? I'm telling you, it's different. When they have a stake in the game, they'll behave differently.

[00:34:23] Players do the same thing. I can sit on the sidelines, I can sit in the stands, but if I'm gonna be on the field, I wanna know who I'm fighting against. I wanna know where the goal is and what I have to do to get there.

[00:34:34] Ron Skelton: Yeah. So one of 'em works on the podcast and the other one helps me find other businesses and stuff. So they're not actually in the same realm, but, gotcha. Yeah. So that's the only reason they've never, ever actually, chatted. And one of them's pretty much full-time and the other one comes in on projects. But it's still not a bad idea to like, Hey, let's all have a, a monthly meeting or something. Or every couple weeks let's sit together and like, here are our broad goals and, how do we make this happen? Because [00:35:00] they're all related, like the podcast is around buying and selling companies. Even the person is not working on the podcast. She's working on the buying and selling company side. 

[00:35:06] Steve Baker: Well, the thing is if you have a podcast around mergers and acquisitions, what do you need? More stories. So you've got a new person feeding your funnel. I just love it. 

[00:35:15] Ron Skelton: Yep. So in the traditional model of business, and even like EOS, we're gonna have EOS on here, we're gonna interview them in a couple days here actually. But, so I see them as a management structure and I see you guys as really like a business operating system where they can compliment each other. I don't see 'em as competitors per se. And I'm sure there's some overlap and there's some probably, competition between the two in different realms. But in the traditional business model, the management is responsible for the financials and the goals and setting all that stuff. And then in this model, everybody gets to see insight into that and can take responsibility like the, so there's accountability and responsibility. How's that delve [00:36:00] out differently inside of this model? Do you still have a, did you change a management structure? Because it looks like the management structure could change fairly easily when everybody's playing the game differently. 

[00:36:10] Steve Baker: Well, I would look at it this way. Rather than calling it an operating system, I prefer to think of it as a growth system because it does help you operate your business. But because you're engaging your people in actually creating the numbers, what happens is you find growth organically, outperforms the market. It just does. We got more people thinking about it. A lot of systems focus mainly on leadership cuz that's where the numbers need to stay. That's where they're comfortable staying and we just need to basically give everybody a number, meaning a KPI or metric.

[00:36:43] We measure everything Ron. I have never been at a place that had more measurements than SRC. As Jack says, literally we can time study a NAT SaaS, right? But the thing is, if people know that that equals so many pennies or so many dollars and that sort of thing, why do we have these KPIs? Is [00:37:00] what's important. So does the management structure change? I would say it's enhanced in the sense of we're constantly looking for ways to create more leaders. Because in a growth minded business, what are we really doing? We're looking for the next thing. And so I think that you knew this already since 83, we've spun off or acquired 69 different companies since 1983. Most of which have been run by former frontline people.

[00:37:27] So people that used to turn wrenches, that learned business actually became our talent pool. And that is what's fascinating. The opportunity that I got was to become more than just an artist or a sales guy, or a marketing dude or whatever. Right? Punch the clock, do your job. I am telling you, it is fascinating. Who would've thought I'd be writing books and teaching internationally and speaking at Inc. 5,000 on a regular basis? The thing is, we're challenging people every single day. Most operating systems and management systems try to keep people right [00:38:00] where they are. And if you're constantly developing leaders, you've gotta have the humility and the guts.

[00:38:06] To say, wow, what if we needed to, start something new? Would I have the talent that I need or do I have to go find it? It's crazy, but it does work. And it's fascinating how much more nimble you can be in economic, situations that are either explosive, right? You're growing in, the wheels are falling off or constrictive where it's like, oh my God, there's a pandemic. What do we do? It's fascinating. 

[00:38:30] Ron Skelton: So you hit a very, sensitive topic for most acquisitions. Most of our audience, your acquisition entrepreneurs is finding great operators. What I'd read out of that is if you're running the great game of business and you're doing it well, at least in your historic, like the history of your company, you've been able to find those operators, to define operator in case you don't know the term. It's a, some of our terms are like really keyed into, acquisition of mergers guys. So an operator is a general manager or CEO of a new division you just bought. So the operator may not get the [00:39:00] CEO title right off the bat. If it's probably less than five or 6 million a year in revenue. You're not gonna call him the CEO, but he'll be at the GM, right?

[00:39:06] He's running the day-to-day operations. He's responsible for the goals setting and, working with you for vision and goals and then getting them there. Finding great operators is the number one thing that most of these guys will make the maker if they're not buying a company that operate for their own right? I'm old enough where I'm looking for companies that are, have an operator in place that's gonna stay and or I know who's gonna be the operator cuz I don't wanna pull 60 hour weeks. I just don't. Grooming your own internally just sounds really intriguing, right? Everybody in your company understands financials. Everybody understands what it takes to run a company. Then you get to pick out the people who excel. And say give them opportunities. 

[00:39:51] Steve Baker: Yeah. That's what we're looking for, Ron. And let me be clear that in a growth company, you're always adding people. So will everyone understand all the numbers? No. Cuz everybody's lights come [00:40:00] on at a different time. You hired somebody last Friday, somebody else just doesn't want to opt in. Somebody's a tremendous technician and they've decided to stay and they'll play along with your little game, but they just wanna do their thing. I need some of those people. But what I'm looking for is that one weirdo, that one Ron Skelton, that's like, well I didn't go to school for this. But he is like, he's got an entrepreneurial mind, an entrepreneur, if you will. Yes. Do we have to get talent from outside? Absolutely. We're always looking for great talent, but what we're looking for, and again, not just SRC, but in great game companies around the world, we're looking to build within because it should be the most freeing operating system ever. If we build people with an understanding of the business, they're gonna help us more than hinder us. 

[00:40:44] Ron Skelton: I purposely reach out quite a bit on LinkedIn and make new connections. To the tune of, I probably pick up three or 400 new connections a month at least. And so, I mean, and they're all in the small, medium businesses and they're all, they all have some interest in acquiring a company. Like I [00:41:00] was just thinking back the last seven or eight days I've been getting really good at, like, when somebody connects with me, I'll say, cool, what is your role currently in the small to medium business space? And when they say they're looking to acquire a lot, most of 'em are like looking to acquire, cuz that's how I'm looking for them. And they're like, well I'm looking to acquire company. Cool. What are you doing now? Now I work for a big company and I'm an entrepreneur stuck at a job because I don't know how to, I don't know what to do next and I'm looking to, my next thing is I'm gonna buy one. Right? There are so many people out there, including myself.

[00:41:28] I would never recommend anybody to go down the path I recommend and, to my family and extended family. Thank you very much for allowing me to go down this path. But cuz it took some help from, my wife and family and everybody like to help me stay on this path because, what happened for me was, I'll be, I mean, this is really kind of vulnerable here, but my father was laying on his deathbed and he told me, he said, look, don't spend another day doing something you hate doing. I was like, I had already had the marketing MBA. I was still in the tech space cuz yeah, that's just what was paying me well. And I [00:42:00] called my fiance. Now my wife, now my fiance at the time say, look, I don't know what to tell you here. I'm moving to, I'm staying here in Oklahoma. I'm probably not coming back. I thought he was gonna make it. At this point, I didn't know he was within days, but I was like, I'm staying here and I don't know what I'm gonna do next, but I'm not going back to tech.

[00:42:16] I'll live in a cardboard box before I go back to tech. I hated it. I don't want anything to do with it. To me a computer now is a hammer. It's a tool. I wanna lift the lid, do what I wanna do, is shut the lid. And it's sad a little bit because I'm really good at computers. But that said, And she was really on board. She stuck with it and circling back around to what we're talking about there, the whole concept of, entrepreneurs trapped inside of a business, it's very common. I mean, probably seven or eight, I can think of seven or eight people in the last four or five days at least that said, oh, I'm looking, I'm working here with this company. It's paying me really well, but I'm looking to get out. The next thing I do, I've accumulated a down payment. I'm looking to buy my next thing. And that's one of the reasons in[00:43:00] that conversation was often enough. I was thinking, man, most of these guys didn't go through what I went through. Right? They didn't go through the first five or six years of failure and trying again and making enough to get by, but it's not doing really well. Right? They don't, it's just there were months where like we needed help from family to pay bills, that type of stuff. In the beginning they didn't haven't been through that.

[00:43:20] And they're thinking about acquiring something that's up and running. The whole reason I'm doing this series is, you bought it now what, right? There's a difference between buying of, when you create something, you gotta figure out product market fit. You gotta figure out, to me, I think it's a little easier to buy something up and running because it's not yours to create. You don't have to figure out all the moving parts, can you generate revenue and everything. It's yours to mess up, but you can mess 'em up pretty quick. I know of a couple guys right now who, they came out, they were IT guys and they wanted to get outta IT. They saved up their money, they had some stock options stuff. They bought a company and now they're looking at selling the thing cuz it is failing miserably. They had no business on how to run a business. So the [00:44:00] whole point of this is, I love the lead, lead with value. Give back before you get anything. So the whole reason I do the show, the whole reason I do the podcast is for that is, lead with value in any market I'm going into.

[00:44:11] So creating a series, a mini-series on, you bought it now what? That's what this is all about. So what would be, we're already 50 minutes into our conversation. I love this kind of, chit chat and going back and forth. 

[00:44:24] Steve Baker: I do too. I appreciate it. 

[00:44:26] Ron Skelton: If somebody were to acquire a company and they're, now they've got this thing, it's running, the gears are turning well, and they want to implement something like what you guys do. What would your, like, top three pieces of the device, besides read the book and stuff, but what would be your top three pieces of the device for them to take a look at this and or other, growth operating systems or business operating systems to put something in to teach them and their employees how to run this thing correctly. 

[00:44:52] Steve Baker: Yeah, no, that's a great question. I'll put it this way. I'll be really agnostic. I'll say whatever, you need an operating system. You need an operating system. [00:45:00] Why not start with your, call it a design team. Maybe it's your leadership team, whatever. Get comfortable with your own numbers and how the business operates, and then work out one notch. Maybe it's to managers or something like that. And then work out again. There's no rule that says you have to go full open kimono tomorrow. And as I pointed out in the beginning of the show, it's not about every number. All numbers are represented. Not every number's detailed. We just want people to understand. What you understand as an entrepreneur is that we need to make money and generate cash.

[00:45:31] How can you connect people as quickly as you can with line of sight to how they can, their actions and decisions every day affect the numbers. Work your way out from the center, right? From the leadership team to management, et cetera. Do what Ron just did. Be vulnerable. Tell your story. Talk about what you lay awake at night worrying about. Someone's gonna go, I had no idea. And by the way, people like to work for humans, not automatons. And the thing is, a lot of people, I'll give you this big piece of advice [00:46:00] here. The top things that people worry about when they think about teaching people business. They go, what if they find out what we make, they're gonna wanna have more. Here's the secret, they already do. We're in America, baby. We already want more. And guess what? I want people that want more. Cuz if I have people that are not ambitious, not hungry, they probably need to work at my competitors.

[00:46:23] And let them punch the clock and do the minimum amount of work and quiet quit and all the other stuff you're reading about. Let 'em go. They need to work for someone else. But here's the thing, man. I'm telling you, people are just looking for a way to get cut loose. And contribute. So, number one, just give 'em a chance. They will want more. But guess what? When you teach 'em about the marketplace, it's an easier conversation. When they find out, you know what it really is out there. If it's Joe's Crab Shack will give me 1500 bucks. Do they really wanna work there? I mean, that's an extreme example. The second worry that people have is what if the numbers are bad?

[00:46:59] Will they [00:47:00] run for the hills? And you know what? In many acquisitions, the numbers are bad. There's a reason that this thing is on fire sale. Well, the thing is, most often employees, you know what Ron? We've talked about this. People don't like change. Nobody likes change, but a wet baby. So what we wanna do is we wanna say, Hey guys, we're here to, make a change, to make a difference. And here's the reality. The economic reality is this is where we're at. Most people, and I'm telling you this from experience, not anecdotally. Most people say, oh, I didn't know. What can we do to help? Because if you ask people that have ever been laid off in their life, they usually were doing a pretty good job.

[00:47:37] They just didn't know what the challenges were for the business. And then finally, I guess one of my favorite things is when people start to get real personal, they're like, hey, you know what, what if I train these people up? What if I teach 'em about business? And they get smart and they get really good and they leave. And I'm like, dude, what is your alternative? If they're stupid [00:48:00] and they stay. Workforce I can possibly have. And everyone listening, man, I'm telling you, if you're looking at companies, you need to remember this. In the next five years, the companies that have the smartest, best educated, best trained up, workforce will dominate in their industry next five years, maybe 10. So, Believe in your people, you'll build trust and respect more quickly with, a more transparent workplace than anything else. Do what Ron did. Model some vulnerability, some courage, and say, this is what I'm dealing with. Can you help? And build a self-funding incentive plan that's built around the metrics of building a great company instead of just hitting a KPI.

[00:48:43] It is so demoralizing to go, if you just do what I tell you to do, everything will take care of itself. What if I'm part of something bigger? Will I tap to my discretionary energy, my discretionary innovation, and my wisdom and my experience? What about the guy that was [00:49:00] an accountant that was on the floor triggered you to go, oh, wow, there's a problem here, we really need to look into. I'm sorry, I get so worked up Ron, but dude, this stuff changes lives. It's changed my life and I am so, so engaged around this that, don't tell Jack this, I'd probably do it for free. It's just, it's transformative. It really is. 

[00:49:22] Ron Skelton: So, three top takeaways. If somebody can, cuz we're hitting the top of the hour here. So if somebody can't remember anything else about what we learned today and they only can remember three things today, what would be the three things you want 'em to remember?

[00:49:35] Steve Baker: Yeah, the company is the product. So align your, education program, your accountability program, and your incentive program to building a great company. If you have debt, that's probably in your way. If you have a lack of talent, that's probably in your way. If it's technology, you get the point. Build a great company. The second one would be is to build a business of business people who think and act and feel more like you do. You will be [00:50:00] freed. And the third thing is believe in people. I am telling you man, people are just looking for purpose. And next gen workers, they want to know, can I do well? And can I do good at the same time?

[00:50:12] Guess what? At great game companies, even if you're remanufacturing internal combustion engines, guess what guys? That is still a tremendous purpose because there are still 350 million internal combustions engines out there that will end up in the landfill if there aren't guys like us. There's purpose. You can do well, and you can do good at the same time. 

[00:50:34] Ron Skelton: What's interesting is the majority of people on this planet lack fulfillment, and I think it's because they spend, the majority of their time at work and they're not, there's no sense of fulfillment in most jobs, right? It's just like you go in and do your job and you go home. But I think there's a, there's potential here. I think if I surveyed the, what do you think you guys have right now? 1200 to 1500 employees. I didn't see your employee size.

[00:50:58] Steve Baker: 2000. [00:51:00] Yeah. And they don't think of themselves as mechanics and machinists and remanufacturer. They think of themselves as business people. We're building a hundred year company. If you ask our employees, that's what they're building. 

[00:51:09] Ron Skelton: I bet if you interviewed, if we interviewed them and talked to them or somebody did a survey on them, they would feel more fulfilled in their job, in their family lives even because they don't carry that lack of fulfillment home. Right. They know they're part of something. They know what they're part of. And to be quite honest, if they don't fit, like they feel like they're a fit inside of that, they're not leaving because it's an unknown. And they know what they're not a fit for, and then they can leave, and pursue things they would fit in. I see that's a huge value inside of this. How do people reach out to you? How do they connect? We'll put it in the show notes, but for people just listening while they're driving and stuff, what's the best way to reach out to you and learn about the game of business? The Great Game of Business. 

[00:51:45] Steve Baker: Yeah, so greatgame.com will get to you to our website. I wanna offer your listeners, Ron, because they're a different level of folks. Get 'em access to the original book, Jack's original Great Game of Business book on audio. You can find that,[00:52:00] at great game.com/steve and you'll find the original audio book. You'll get an excerpt from my book on how to get started in 90 days. Just some great resources, no charge or anything. We're just trying to spread the word and get people exposed cuz if it's right for you, it'll change your life. If it isn't right for you, tell a friend. 

[00:52:21] Ron Skelton: Yeah. Awesome. I appreciate that. I'll put that in the show notes so everybody knows how to get up to it. Thank you for being on the show today. We'll wrap this up. 

[00:52:29] Steve Baker: Man, it's been a real pleasure. Ron. Thank you so much for doing what you're doing. 

[00:52:32] Ron Skelton: Awesome. Hang out for just a second after the show. That's the show guys.