Jack Stack, President and CEO at SRC Holdings, reads chapter 7 from Change The Game. This chapter shares a story of a struggling theatre's turnaround just by opening the books and taking a closer look at the financials.
Episode with guest: Jack Stack
President and CEO at SRC Holdings
(Previously Recorded)
Key Episode Take-Aways:
1. Having line of sight towards the team's critical number helps everyone understand they can make a difference if working towards the same goal. (click to jump to this topic below) But what a feeling and his creative powers to engineer new products and attempt new markets that would then allow his theater to flourish in a sustainable way? It was critical to get all the staff members to understand that they needed to think beyond their individual responsibilities and look at their theater in a new, bigger light. They needed to understand that they could all make a difference—if they were all working on the same goal.
2. You do not have to be an accountant or financial advisor to understand the numbers of running a successful business. (click to jump to this topic below) Once Beth understood the system and the power of diversification, she transformed as a person. It was her aha moment. She was no longer just an actor, producer, director; she had become a business person. Once that kind of mind shift happens and changes your life forever. To this day, anytime they perform a play, Beth and her team are thinking about how to produce revenue beyond the play itself. More recently, she created a new system of income by renting out the stage sets that they had designed and built.
3. Huddle weekly with your team to keep everyone aligned on ways to move the bottom line. (click to jump to this topic below) “The sky's the limit—as long as you can pay for it. We use a checklist to ask ourselves, during our weekly huddle, How do we serve the bottom line? Just like we serve our students, our staff, and the community, we have to treat the bottom line equally. It's also getting people understand that every single person can make a difference, and that even minor changes in our budget can have major impacts on the bottom line.”
Continue scrolling to read the full episode transcription.
Announcer 0:02
Welcome to the "Change the Game" Podcast, where we share stories of open-book management and highlight capitalism at its best. Thank you for tuning in to this episode of the "Change the Game" Podcast. In this episode, Jack Stack will read from Change The Game chapter 7 Unleashing the Creatives. Be sure to stay to the end for an exclusive offer.
Jack Stack 0:28
Chapter Seven, Unleashing the Creatives. A while back, my wife Betsy served on the board of a local community theater, something she got involved in because our youngest daughter was interested in pursuing a career in the arts. The theater, which is more than one hundred years old, attracted something like two hundred volunteers who helped support the dozen or so folks who worked there full time. At the time, Betsy joined the board, the theater had just hired a new director from New York. He had been brought in with the idea that he could direct and promote the cutting edge plays he had been known for his work on Broadway. Everyone was excited that this director would bring different kinds of performances to the Midwest, unlike anything that theater had presented in its long history. Whenever she got back from one of those board meetings, Betsy would tell me that they had endless conversations about the plays, the costumes and the set designs. The director promised that everything was going to be "state of the art." The board discussed every aspect of the theater, everything except the budgets and the financials, which usually got mentioned only in passing at the end of every meeting. That got Betsy concerned. She began asking me to come with her to a meeting so I could take a look at the copies of the theaters financial reports. I always found an excuse to say no. I didn't think I could add anything to the arts. Then one December after she begged me once again to come to a meeting, I agreed to go--but only as an observer. As everyone took their seats and rickety folding chairs, the conversation immediately turned to various aspects of the latest productions. They talked about everything they needed to do in the upcoming season. I felt totally out of my element me and asked myself why I was there. I'm not sure I've ever been as uncomfortable as I was in that creaky metal chair. I was definitely going to let Betsy know that she owed me one for this. Finally, as they concluded the discussion of the seasonal program for the next year, someone casually mentioned that they didn't have enough money to make payroll for the full-time employees that month. I just about fell out of my chair. When I heard this. It was as if a bomb had gone off inside my head. This was a crisis situation. And yet they hadn't spent more than five minutes talking about money, budgets, financials, and payrolls. I sat there wondering how they could not make payroll and it was two weeks until Christmas. I sat there, gripping the edge of my seat, my knuckles turning white, waiting for someone, anyone to say something. Nobody did. So I stood up and asked, "How can we not make payroll?" Quite frankly, I was angry and lost most of my patience by that point. We had never missed a payroll more than 40 years and our business. The only thing I can think about was all the kids who might not get Christmas presents. And still nobody said anything. I was furious. Rather than waiting longer for my answer, I wrote a check to cover what they needed. Betsy, and I then headed home, taking with us the theatre’s books, and a 12 pack of beer I picked up on the way. We stayed up the whole night with the books spread out on the kitchen table, trying to figure out what had been going wrong, while also looking for a path to make this thing successful. I also looked at the theater’s organizational chart and noticed that there was no name in the box for a sales and marketing person. I asked Betsy why the theater hadn't hired anyone for that role. She told me that it was because the director thought it was more important to hire a set designer. A set designer, when they couldn't make payroll? I couldn't believe it. I was out of my mind. There are only so many checks I was willing to write. As we continue to work through the numbers, the story of why the theater was struggling became clear. The theater had a capacity of 650 seats, but was only trying an average crowd of 250 per performance. Worse, several of the patrons--companies and organizations that ran cosponsorship programs with the theater--had backed away from their financial commitments because of the line-up. Even the volunteer support seemed to be waning. It seemed clear to me that the theater wasn't putting on plays people wanted to come and see. While the new director wanted to continue to create artsy productions, he didn't seem to consider whether anyone actually wanted to see them. And by doing that, he put the theater on the jobs of the people who work there, at risk of failure. They didn't need a new set designer; they needed a sales and marketing person who could draw up community interest in their performances. That was the transformation they needed: to make the shift from just creating individual plays to thinking of the theater as their major responsibility. It was obvious that the theaters critical number—the one thing that could sink it—was ensuring a butt sat in every available seat. They needed to start thinking about what their customers are willing to buy tickets to. Now that can be a hard adjustment for some creative people such as that theater director. In his mind, was making his art was enough.
But what a feeling and his creative powers to engineer new products and attempt new markets that would then allow his theater to flourish in a sustainable way? It was critical to get all the staff members to understand that they needed to think beyond their individual responsibilities and look at their theater in a new, bigger light. They needed to understand that they could all make a difference—if they were all working on the same goal. While addressing that critical number of butts and seats was crucial to getting things back on track, we also needed to tackle a bigger issue, getting everyone involved in the theatre to think and act as if they were owners. When I think about what ownership means, I think about empowerment, freedom, trust, clear goals, and roles. That's what I call slinking ownership, I think about people's ability to make a difference to understand what they can do, and how to apply it themselves to do it. In my experience, anyone can begin to feel an act as an owner would, whether they own equity or not. We're talking about achieving a different mindset. We want people to try to take responsibility for their jobs, they have a sense of pride in what they do. And to feel they're making a difference to each other as well. What we're really trying to do is get as many people as possible, working toward a shared mutually beneficial goal from which everyone benefits. Ownership has that fire in the belly, that motivation to tackle a task not just for yourself, but also for the people around you. You might have psyching ownership of the line on the cash flow statement, such as ticket sales, or a production expense on the income statement such as costumes, and you treat that money as if it was your own. And when something has been done well, to help make the entire organization successful. You want to raise your fist in the air and celebrate, we look at ownership is teamwork. It's not just about working a job for eight hours and then going home. It's about developing a real sense of commitment and involvement. Knowing that if you don't follow through on your responsibilities, you let someone else down, you begin to think outside yourself. You need to feel that sense of responsibility and commitment to whatever you are embarking upon. You're responsible for the plan and the results because you made the plan, you own the task and the outcome, it all comes back to making a commitment to do well, not just for you, but also for others. When you feel you're an owner, you become stronger, more competitive, and you begin to differentiate yourself in the marketplace. I see ownership as engagement, the tool that allows people to truly respect the contributions from each and every person in the organization. We wanted to change their mindset. We wanted these incredibly creative artists to start thinking that the theater, their business was their real product, not just the plays that were putting on stage. It wasn't enough that the employees were working hard on her individual tasks, we needed to get them thinking about the big picture, what it was going to take to make the theater financially viable. The incentive was clear that unless big changes were made, the theater and their jobs would be lost. The first big change happened when the director from the arc quit. You can also say he was encouraged to leave. As soon as he realized that he was going to be accountable for his decisions, he probably figured out he was in way over his head. It was a great example of addition by subtraction. We then decided to create an incentive program for the employees based on audience attendance at the performances. We charged them with finding new ways to get people into the seats to improve the theater’s cash flow. One great example there teamwork in action was only realized on their own that they needed to perform plays at a much wider appeal in the ones that they had previously been staging. They recognized that they needed to start performing plays and involve kids which would then draw on parents and grandparents, maybe even neighbors to all of whom would buy tickets and pack the place. Once the team started to see results. They stuck with the program and continue to come up with better ideas. After about four months they were generating enough cash flow to cover not only the payroll, but also some needed maintenance on the theater, they were on their way to making their bonus. We're also fortunate to promote one of the theater star performers a woman named Beth to take over as Artistic Director. Unlike the director she replace Beth bought into the system right from the start, even though she had always avoided math like the plague dating back to her grade school algebra class, but she was willing to take on new challenges given the stakes at risk. In my first year, all of us were motivated to keep our jobs that told me we knew we had to develop an accountability to the numbers to be willing to change. We had to run pretty lean and mean. We also had to keep people informed about what we were doing and why we're doing it used to be easy to think that anything having to do with numbers didn't affect me. That all changed. We realized that without the open communication the system had promised we could end up in hell, Beth and her team made use of anything they had on hand, such as used desk calendars, which they then hung on their walls and scorecards to track their progress on their goals. Creative people are such visual creatures she told me, I personally love these thermometers that fill up the closer you get your goals, we all found it so exciting to track our progress together. It gave us accountability to each other, and it helped bring us even closer together as a team. One day Beth called me discussing ideas she had. Beth and her team had decided that they wanted to put together production of Beauty and the Beast. But to do that she figured they needed about 20,000 hours to create the high-end costumes that would really blow the audience away. What she didn't know was where she could get that kind of money. She started by creating a business plan. Best Idea was the theater could tap into the new entrepreneurial fund that had been set up by our local United Way that allowed nonprofits to access low interest loans to build new programs. She could borrow the money she needed for the costumes, but she didn't stop there. After searching online, Beth and her team found that something like 20 other theaters across the country were also planning a production of the show. And her business plan. She speculated that theatre could rent her costumes to other theaters, something she figured could be worth $7,500 a show. Even if she just rented the costumes four times, she could bring in another 30,000 annually. I thought it was a brilliant idea. After a conversation, Beth and her team put the plan into action, and it raised about 60,000, in just six months. She blew her plan away. That was a breakthrough moment for the theater, and it helped pay off, 18 months early, the loan taken out to make the costumes. That was the foundation for us to diversify our stream of income Beth told me and we have continued to build on that foundation. I now find it exciting to tackle challenges and find ways to squeeze $20 out of every dollar we spend.
Once Beth understood the system and the power of diversification, she transformed as a person. It was her aha moment. She was no longer just an actor, producer, director; she had become a business person. Once that kind of mind shift happens and changes your life forever. To this day, anytime they perform a play, Beth and her team are thinking about how to produce revenue beyond the play itself. More recently, she created a new system of income by renting out the stage sets that they had designed and built. That's often a problem with the mindset in nonprofits, that you don't have to make money that told me I've learned to look at this like a business where you don't just zero out your books at the end of the year. We always need to be creative and finding ways to fund ourselves so we can control our own destiny. If you're not growing, you're dying. One year, Beth and her team decided to stage a production of the play The Full Monty, which if you are unfamiliar with it features a cast of male strippers. I thought they had perhaps pushed the envelope too far with that choice. But there was a smash hit and people love that which didn't come as a surprise to Beth and her team. They had begun to understand what their customers wanted. And when they could put on a more edgy production or something the other theaters their competition might shy away from. The team also learned to appreciate the power of having contingency and backup plans to help ensure they can recover for performance didn't measure up to expectations. I have learned it's about getting ahead of stuff and embracing open communication that told me we have learned to follow through on answering the question of what F as long as the right hand knows what the left hand is doing. Life is good. Otherwise, you have the head asking why Beth and her team are already working on their next project to help put them ahead of their competition. They are running a campaign to raise several million dollars in capital to purchase another theater in town. That theater is about 1/3 the size of their existing theater. It has about 185 seats, which will give them the ability to stage performances that don't have to appeal to as large an audience best said that this was important because in analyzing the trends in the market and seeing what her competition was offering, she and her team recognized that making room for non musical plays or comedy acts was important to their customer base. As we take the temperature what the community is looking for. We see the need to continue to diversify the kind of performance we can offer. She told me it's easy to invest in an organization such as this one when you know your investments are going to get results. The challenge with creative people can be making sure you give them the tools they need to avoid running out of cash. Because once you get them turned down with all their gifts, talents and amazing ideas, Holy Christmas they take off like rocket ships. When you see the moment the light bulb goes on inside people's eyes snap. It's a wonderful thing to see people realize that once they do something for the first time they can do it again and again and again, it becomes a pattern of thought. As a testament to their success. Beth and her team have grown their annual budget over a fifteen-year period from a starting point of $450,000 up to about $2 million today. Another big driver of that growth has been the expansion of yet another diversified income stream developed by the theater: an education program designed to give young people the opportunity to perform in the community, while also teaching them the skills they might need to one day turn their passion into a career. That program is run by Lorianne, another theater employee who also happens to be an extremely accomplished ballerina and a nationally recognized choreographer. The education program is aimed at people looking for that pre professional training ground, Lorianne told me, we can now boast of having one of the elite programs in the country that helps people gain employment in the arts. And it's not just about the performing arts. The program recently launched a new film laboratory to train young people to produce videos. Lorianne believes they can generate income from the lab by giving kids the experience of making marketing videos for local businesses that might not have the budget to hire big advertising firms. Part of the reasons behind purchasing the new building is to provide more room for the education program and the number of students that can serve doesn't make you wonder why we aren't offering similar kinds of education to all of our kids. Lorianne admits that she and her team are always bursting with new ideas about how they can expand their program. But the system serves as a guidepost to evaluate which of those initiatives are the ones they should really pursue. They also include their volunteers and their students in huddles as a way to keep them connected to what they are doing, and why they're doing it. “Going back to the numbers helps you distill those ideas into what is actually going to propel the bottom line forward,” she told me.
“The sky's the limit—as long as you can pay for it. We use a checklist to ask ourselves, during our weekly huddle, How do we serve the bottom line? Just like we serve our students, our staff and the community, we have to treat the bottom line equally. It's also getting people understand that every single person can make a difference, and that even minor changes in our budget can have major impacts on the bottom line.” By learning to better evaluate where to invest their time and money. Lorianne has been able to not only expand the number of kids, she can have an impact on the create a thriving business as well. On the program launched generated $20,000 in income with a couple dozen kids participating. Things have only exploded from there, as income from the program is now almost $600,000 A year touching the lives of more than 1000 kids a year. We're helping people build their dreams Lorianne told me in the data one is the strongest part to building a way of life, perhaps just as exciting. Lorianne said that several of the graduates of the education program have gone on to start their own businesses in the arts, and they've taken the lessons of the game with them oriental is that some degree of business education is needed for some of our students, when they first enroll in the program is also needed for any new members they add to their staff. Many of them have stars in their eyes when they come to work here, she said they think it's all about dancing around and being clever. But then the siren started to go off and they begin to realize the intensity of the work. There's a learning curve for them to appreciate that it's called show business and that show arts, we have to teach them that profit isn't a dirty word. Profit isn't such a bad thing when you're talking about having a quality life where the staff can be paid living wages. That's not happening in every arts organization. I have been told that 97% of people who want to be actors are unemployed. For those of us who get to enjoy full time jobs working the arts, profit is a wonderful thing. An important lesson that fine arts colleges and public universities could learn is the value of teaching creative people about business. Lorianne told me that most people interested in the arts leave the field by the time they're 35 years old, because they don't make any money. What about those who study piano? Might they want to run a piano company someday? It still seems that the artistic mindset is to hope and pray for a benefactor and entitlement attitude in the lines of if you build it, they will come. But they don't always come. It's like hoping to win the lottery someday without buying a ticket. Beth, Lorianne, and their team remain artists in heart. But once they got the idea of ownership, they began to think differently. One of the things we often hear business owners say is if only I could get my employees to think like owners, they're looking for that you've got to want to spirit that burning desire to go the extra mile. One way to do it is to be Give them their own shares in the company. But that's not always practical. And I also don't think it's essential. There's something more powerful that goes beyond a stock certificate. What you can do, regardless of the kind of organization you work on, is develop a mindset of psyche ownership, that inner pride and sense of self esteem that can truly unleash the creative power of your people. That's the sweet spot where people truly begin to feel they can grab the brass ring for themselves. As Beth and Lorianne told me, if everyone would embrace playing the game, the entire world would change. We know the system changes lives, because it's changed ours.
Announcer 21:04
We hope you enjoyed this episode of the "Change the Game" Podcast. For a free hardback copy of Change The Game, visit greatgame.com/podcastoffer. That's greatgame.com/podcast offer.
Announcer 21:201
The "Change the Game" Podcast is produced by the Great Game of Business. To learn more, visit greatgame.com