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Episode Summary
You stare at your bank balance, watch the news, and try to figure out what to do next while everyone on payroll waits for you to have the answer. Your CPA closed the books last month. Your banker wants an updated forecast. Nobody in your building can read a balance sheet except you, and you’re not actually sure you can either. That’s the gap Jack Stack closed at SRC Holdings 38 years ago, and the gap that turned a $100,000 down payment and a $9M loan into a 360,000% increase in stock value. I had Jack back on the show to talk through what’s different about this downturn, why $100M of cash sitting on their balance sheet was a deliberate decision they made starting in ‘09, and how SRC has doubled the value of the business after every one of the last five recessions. We got into why most owners can’t guess their own valuation within six multiples, why the people who don’t have access to the numbers make up their own, and the brutal honest version of what it takes to teach a shop floor to read a three-statement model like it’s their own paycheck. Because it is.
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## Top 10 Takeaways- Cash on the balance sheet during a black swan is how you double the value of your company five years after every recession.
- Your team doesn’t need a 360 review. They need their own line on the income statement.
- The people who don’t have access to the numbers make up their own, and they’re off by six multiples.
- If you’re scaling top-line revenue but can’t see the train coming through the tunnel, you’re scaling yourself into needing to sell.
- Always run the company as if it’s ready to sell. Ready to sell means peak performance.
- Fear of the financials, not lack of intelligence, is why your team runs out of the room when you offer to teach them.
- The CEO’s average life expectancy is now five years because owners try to carry the whole game alone.
- Your KPIs probably don’t tie to a single line on your income statement, balance sheet, or cash flow statement. Fix that first.
- There are only eight places cash can go in your business. Pick which buckets get filled before the year starts, not after.
- An ESOP is a mechanism. The culture of financial literacy is what actually weathers the storm.
Sound Bites
“We saved $100 million from ‘09 to ‘20, knowing fully well there was gonna be a recession so we could go out there and make investments, we wouldn’t have to lay people off. Our history dictated that in the past four black swans, we doubled the value of the business five years after every black swan.” (@TBD) — Jack Stack
“The people that don’t have access to the information make up their own. They have their own idea what sales are. They have their own ideas what the owner’s taking home. And they’re off by six times multiple.” (@TBD) — Jack Stack
“We always want our companies ready to sell, because if they’re ready to sell, they’re at peak performance. That’s the best case scenario.” (@TBD) — Jack Stack
“I had to get their confidence. I had to get them to believe that they could understand these things. We had spent a long time telling them they’re too stupid or this is confidential and it’s not for your eyes.” (@TBD) — Jack Stack
“I’ve always thought success would be when this company is strong 10 years after I’m gone.” (@TBD) — Jack Stack
About This Episode
Jack Stack is the founder and CEO of SRC Holdings Corporation, a 100% employee-owned remanufacturing company in Springfield, Missouri, and the author of The Great Game of Business, A Stake in the Outcome, and Change the Game. Often called the father of open-book management, Jack started SRC in 1983 with a $100,000 down payment, a $9M loan, and a six-cent share price. Today SRC has owned more than 60 businesses, increased its stock value 360,000%, and saved roughly $100M in cash between the ‘09 recession and 2020. Inc. has called him one of the smartest strategists in America; Fortune named him one of the top 10 minds in small business. This is his return appearance on the show.
Resources Mentioned
- The Great Game of Business by Jack Stack — The original open-book management playbook
- A Stake in the Outcome by Jack Stack — On building an ownership culture
- Change the Game by Jack Stack — Saving the American dream by closing the gap between the haves and have-nots
- SRC Holdings Corporation — Jack’s 100% employee-owned company in Springfield, MO
- The Great Game of Business — greatgame.com/jack
- Finish Big by Bo Burlingham — Referenced on what it means to finish well
- Fool’s Company / Daniel Goldstein — Referenced as a 135-year-old ESOP example
- Ray Dalio — Referenced in the conscious capitalism conversation
Connections
Phase + Module:
- Module 3 — Owner’s Playbook — The cadence and rhythm that makes financial literacy a company-wide habit
- Module 4 — Sustainable Financials — The three-statement discipline Jack teaches every employee
Milestones:
- Milestone 9 — Monthly Ownership Meetings — Jack’s weekly huddle, owner-grade version
- Milestone 10 — Three-Statement Model — The scorecard every employee learns to read
- Milestone 12 — Five-Year Forecast — Voting the forecast with the team before execution
- Milestone 7 — Value Growth Plan — Saving $100M to capitalize on the next downturn
Concepts referenced:
- Three-Statement Model — The closed loop SRC teaches the shop floor to read
- Distributable Cash — The eight buckets every dollar can flow into
- The Four Value Levers — Why valuation, not revenue, is the right target
- The Multiple & WACC — Why $1 of profit can be worth $22 at a 22x multiple
- Independence by Design™ — Decoupling owner income from the daily grind through ownership culture
- The Owner-Operator Trap™ — The loneliness Jack names as the prison most CEOs live in