Mark: Today on Power Tips Unscripted, we talk to Ken Kirsch, owner of Mak Design Build in Davis, California. Open Book Management can be a great way to motivate dedicated employees, but it’s important to think through your own motivations first. Ken’s going to share the lessons he learned in just a minute.

Victoria: You had me at hello. It looks like I’m a wreck. Did you know this is the whole nation? Hi, this is Victoria Dowding and welcome to Power Tips Unscripted, where we talk about tips, tactics and techniques to help you build a strong, profitable remodeling company. And I’m here with my co-host, Mark Harari.

Mark: Yeah, right across from you.

Victoria: Yeah, really. You know, I love this topic to be talking about today because it’s something, dear to my heart.

Mark: Open book, open book.

Victoria: You know, I love I love it I feel that it’s the only way to go. I mean, I remember one of the first times we presented a summit, which was probably back, and it is the second summit ever, I think. I think it I think it was in Tucson, Arizona, that and then we brought in Jack stack, sort of the godfather of open book management, and he’d written The Great Game of Business.

Victoria: And it’s been something I’ve believed in ever since. But not everybody does. And a lot of people don’t want to do it because they’re I think they’re afraid of it. So I’m excited about talking about today.

Mark: Yeah, I’d love to hear what what can I say? And I’m curious to hear the lessons he learned because, yeah.

Victoria: How to do it and do it successfully and not be stepping on your own toes. Yeah.

Mark: For sure. Yeah.

Victoria: Getting your employees all riled up. So shall we dive in?

Mark: Let’s do it.

Victoria: All right. Ken Kirsch is the owner of Mak Design Build, and along with his wife, has grown this into a really successful company since its launch in 2003. Ken’s been a member of one of our most influential and consistently successful roundtable groups for many years. We love having him in that generous to a fault, always willing to help.

Victoria: And we are delighted to have him here. As a matter of fact, I’m going to have Ken on a panel at the Pacific Coast Builders Conference in just a few weeks out in, PCB CEO in San Francisco. So excited about that too. So welcome. Ken.

Ken: All right. It’s good to be here. Thank you for having me. Oh.

Victoria: You bet. You know, I’ve called on so many members of the Krypton group to share, because you guys are all so smart and also successful, and so it’s really nice having you here.

Ken: Well, it’s good to be here.

Victoria: So open book management. What made you think about first starting this? Where’d you hear about it? And then, how did you first get used? Get started using it.

Ken: Well, I suppose I first heard about it was at that summit that you were talking about. Oh, wow. That someone was actually in San Diego. And that was my first RA meeting. And. And so that must have been the first time I was exposed to the idea. And that’s just part of my own education of going from, Carpenter, into, being a business owner and learning financials was, was, an essential part of that.

Victoria: Also, having that tie into open book management.

Ken: Well, I think well, for one thing, I’ve always thought of how I would want to be treated as an employee. And, and so as part of that being fully engaged as a person, not just as, as whatever role that I’m hired to, to fill. And so, understanding the big picture and my part in that is, is, I think essential in that part.

Victoria: You know, why don’t we start off what how would you define open book management for for our listeners?

Ken: Well, so, we share our, our profit and loss statement, our, balance sheet and the, the whip report that that goes along with those report. So and we do that, periodically as part of a bigger state of the company meeting that we have twice a year at Mak.

Mark: How many, how many employees?

Ken: We currently have 13 employees now. Okay.

Victoria: Okay. So so you’re sharing this information. You share with them, even though you only have two company wide meetings a year, do you share this information with them on a monthly basis?

Ken: No. The big picture, reports are the true open book. And and and showing the panel gets reviewed, twice a year. Okay. So that that goes along with. So in January, we talk about, how we did in the previous year. And then we have a budget to present to people for the upcoming year. And then in July, we check in again to see how we’re doing.

Ken: And then we’re able to, to, see what adjustments we made in the, in the budget for the year and, and track, our success.

Victoria: Okay. So when we got started doing this topic you talked about right off the bat, the mark used that little bit in your, intro that you have to think through your own motivations before you introduce this to as a motivator for your employees. What do you mean by that? And what’s your motivation?

Ken: So my motivation is to, is for employee longevity, to keep people around people, keep people engaged, and ultimately, to be profitable. So that’s part of it. So understanding, what those numbers are, is, is key to, being successful and being profitable as a company. So I want everybody to understand what those numbers are. And the other part of it is that in everybody’s job descriptions, we have metrics that are tied to these numbers that come from these reports.

Ken: So it makes sense to, for them to to see the original numbers and then how they relate to their individual job.

Victoria: So one of the things that I’ve heard, sort of a not a complaint, but a concern, is that they’re saying, hey, my people, my production guys, they don’t care about this, they don’t know how to read PNL balance sheets. They don’t know what the numbers mean. How why should I share that with them?

Ken: Thoughts? Well, yeah. So my thoughts are, there are some really key numbers that production people are interested in. So good production people are very much interested and and how they’re doing, in actuality, compared to estimates. So, understanding those numbers and looking at the whip report in particular and, and, and how that relates to the, to the profit and loss statement is part of that.

Ken: And I think just getting people familiar with numbers and, and, and being literate and that way, I think it’s is really helpful for them to, for those numbers on about their individual jobs to have an impact. So, we discuss these things, all the time and, and even in our production meeting every Monday morning, we have a job board that is essentially a modified whip report.

Ken: Cool. In which we take our job cost reports from from the previous week. And we, we, change those numbers and look at the GPU percentage, look at slippage, grip it, and and go through all those things, like we would as like we would fill out a whip report. And so the, the all the carpenters are there and, and it’s a way for them to really understand, how everybody’s doing and, and it’s, it’s literally a scoreboard.

Ken: And I think that’s, anybody who’s interested in doing well in a job is wants to know where they stand.

Victoria: No kidding.

Mark: That’s interesting. And so then what kind of things have you seen? Because it’s it’s one thing just to kind of look at the numbers and share it. But you want to take action based on that, right. So, right. Have you seen any like if you’re not hitting numbers or things aren’t looking good. What kind of things happen?

Mark: What kind of conversations take place?

Ken: Well, there is a certain, defensiveness that people get, let’s say, if there’s if we’re seeing that, we’re we just started this job and we’re already behind in demolition and framing, and then, the carpenters tend to get defensive about why that’s happening, and then there’s a tendency to to blame the estimate and or question the estimate.

Ken: And some of that, I think is healthy. And, and I point out to people that the, the point is not really to, to place blame on, on any, one person, but it’s really to understand how the two parts work together. And if it’s an estimating problem, then we’ll, we’ll look at that. Or maybe there is a management thing that’s going on, and you can tell by, past performance from, project managers, if they’re, issues with, framing going over and things like that or maybe those, those numbers come from the design department and, and that estimating process that we have.

Ken: So it’s a it’s just a way to call attention to it, to make people aware and then do whatever’s in their power to, to change things going forward.

Victoria: So tell us a little bit about how you got started. I mean, literally, how did you start doing this and how have things changed over the years from your approach?

Ken: Well, so we first started when we were, just starting out as a company. And, and so the conversation there were much fewer people in the company at that point, and it was much more of, like a band of brothers. And, and we were, like a lot of startup companies, we didn’t do well the first couple of years.

Ken: And, and, and so reviewing those numbers was a way to kind of check our vital signs and, and, and everybody, banded together to do for a common cause and to protect our jobs essentially. And so that has definitely changed over the years. Where, where, now we’re looking at, bigger picture, things we used to get much more in the weeds when at a certain time, there were staff members who were very interested and all the line items that went into the piano.

Ken: Now, I think people, are far more interested in and, the, the general numbers and the cost of goods and, the, the, overhead numbers and then that net profit also is a key element for people to understand that the company is doing well.

Victoria: Now, do you think that that interest has changed because you have trained them. And so now they’re more comfortable understanding the line items. They don’t need to dig into that details, or they can just focus on the bigger numbers.

Ken: I think it’s just the the makeup of the staff. Now, at the time that there were people who were very much interested in all the moving parts of the business, and I think there’s less interest now, but there’s still a general interest in whether or not the company is doing well.

Victoria: Okay. So again, so you your approach changing involves more of your employees now.

Ken: Well, we still do the staff wide, the company wide, state of the company meeting and and that so we’ll, we’ll look through the the the PNL will collapse certain things so we can keep, the salaries private and that and that sort of thing. But we’ll look at the, the, the, the overall budget for the, construction side, the, the design side.

Ken: And then when we get down to the net profit. And that seems to be the, the difficult thing for a lot of people, like, you know, how do we show, that, that we’re making money or how people react to that? Because I think people think that, once that number is exposed, that there’s going to be a tendency for people to want to ask for raises.

Ken: If you’ve and that, that sort of thing. And but I try to explain to people that, that they’re, there’s a longer view that has to be taken and that the company has to have, a certain amount of assets and, and, and cash just to be stable in case, events happen. And so you have to take the long view.

Ken: And just because there’s, there’s money in this year doesn’t necessarily mean that it’s going to happen next year. And the other thing that that I think really is important is just to show the amount of money that that comes through the company, because people see us getting checks and they don’t. And without open book, they wouldn’t understand necessarily that, you know, while millions of dollars may flow in, millions of dollars also flow out.

Ken: Right. And and, and so it’s up to us as owners to show that we have to manage this properly and, and take that long view.

Victoria: You know, and the thing that, one of the things that helps you there is that you are sharing the balance sheet too. So if you have a guideline, for example, that we talk about that we have here of having 4 to 6 months of overhead cash equivalent stashed somewhere in case, then you can show that on the balance sheet and they can see, okay, now we’re we’re starting to build that amount up to we’re safe.

Ken: Yeah. And so and the other thing for me is that it makes me accountable to our employees as much as we ask them to be accountable to us.

Victoria: How do you mean so?

Ken: Well, because we’re we’re showing them that that we have a big job to do just to manage this, this, all of this money that goes back and forth and that and that it’s our job to to do that and make sure that they get paid without interruption. And, and, and so that makes us accountable to them, that we have to perform at a certain level.

Mark: Can what would have been the greatest benefits to your company from being up book?

Ken: I think it’s really the, we’ve had really good luck at, keeping employees, and I think we have shown that we’ve been, pretty profitable over the years and that we’ve been able to grow, and, and also, it’s just a way for me personally to to feel like, that my employees are fully engaged in that.

Ken: And then I can talk to them about these things. And and there there is, more of a team effort, I think, that way. And the big picture step in as opposed to just doing the, the carpentry work or just in doing the design work or whatever, people are asked to do that, that we are engaged in this enterprise together.

Mark: Are your employees, are they younger or older a mix and age wise, do you have millennials or I would.

Ken: Say it’s a mixture of their. Most people are I think everybody is younger than me. But so that the, what did happen, and in terms of, unintended consequences is we had a, state of the company meeting a couple of years ago in which we unveiled our succession plan. So that was a ten year succession plan, where we showed projected economic growth for the for the state and the country as a whole.

Ken: And then our part in it, the history of how we’ve grown from, despite all the ups and downs at a steady, 6% or whatever it was over the years and how we expect to do that the same in the next ten years? Well, that whole, discussion and, really scared off, a lot of the, the original employees because they came with us when we were, just a little company huddled in our Airstream trailer, which is,

Victoria: That was fun.

Mark: Yeah, that was cool.

Ken: And so they they felt like that they didn’t have the connection to me anymore and that the company was getting they didn’t recognize the company anymore. And so there was a really high turnover as a result of sharing that information at that meeting. But what it and ultimately that was for the greater good because, that was going to happen anyhow.

Ken: And that that meeting just, just, initiated that a little more quickly, I think, than it otherwise would have happened. And, and, and so now we have a new, we built a staff that that has come into the company, with a very different, mindset. And, and, and so that’s just something that, that originally I would not have have, predicted in that meeting, but it was an outcome that, that, that we did have to deal with.

Victoria: That must have been sort of a bump in the road.

Ken: Yeah, it was a bump in the road, but and, but I think it was a necessary transition. And, and so, I don’t think those things are ever easy.

Mark: Did it cause you to at all second guess whether you should be doing this? Are we heads down full force all the way from the.

Ken: I guess it did again. It, I did wonder whether it was the best thing. And, but ultimately it’s just so embedded in our culture and, and there there are still a few employees that have been here for a long time. And, for me to change would seem really weird. And, and, like, I don’t. And the other thing is.

Ken: So now, if we were thinking about a succession plan and going forward as opposed to looking backwards, is if you’re going to, that this company is going to go on after I’m done managing it, then then we want to cultivate that for possibly turning over the company to the present employee. So, so maintaining that, that education and making that a common practice I think is, is essential.

Victoria: So okay, so one of the things so you know we’re pretty open book to same thing I love it I think it’s the only way to go. I don’t know how other people do it without sharing that information to get everybody on the same page. But one of the things we do is, you know, we’ve built up the security and the investments and yada yada.

Victoria: And now we do a little bit of profit sharing. Do you do that? Do you share the profits with your team?

Ken: And so we always bonus people and, but we don’t have a formal plan. And, and but we do we do give bonuses every year and, and obviously that’s dependent on how well we do or the amount of the bonus is dependent on, on the success of the company, but it’s not, formally structured.

Victoria: Okay. You know what? I remember one of the things that, came out of Jack stack or one of the things that I believe he believes is that you need one main number to strive toward. And for a lot of remodeling companies, that’s the gross profit number. But you chose net right to be your like the one main focus or the, the score that you’re trying to achieve.

Ken: Well, I would say that we’re still in in the gross profit as the primary number. I mean, I don’t hide from the net profit as a, as a number, but it’s not necessarily, the, the focus for most of the activity that’s done. So the, the job cost reports and and, and what the carpenters do and, and the for the project managers, the production manager and, and even the, the design side is still I would say it’s still, gross profit as opposed to net profit.

Victoria: So is this a detriment or a positive when you’re hiring new employees because you’re, again, you’re growing pretty steadily. Just bought a new building for yourself. Congratulations.

Ken: Yeah. Thank you.

Victoria: And so is this a detriment or is it people get excited about it when they’re thinking about coming with, you know.

Ken: Well, we don’t necessarily talk about that as people are coming on board, but once they get here, I think it’s it’s part of the excitement. I think everybody appreciates being treated as, as, as a, a thinking being and, and, and everybody, I want everybody to be intellectually engaged and, and so the whole process so, so I think it’s exciting for people.

Ken: I mean, I and I think when people come in and come from other companies and, and this isn’t something they’ve seen before, I think that’s very exciting.

Victoria: I would think so too. Yeah. For sure. You know, did you have any issues with your current team at that time before you did the succession plan and had it sort of blow up on you a bit, but before that, did you have anybody push back against this, like, oh, I don’t want to learn about this, I don’t care, I don’t I don’t want this.

Ken: No. Nobody ever pushed back. I mean, when you, when, when I present the numbers at the state of the company meeting, I think there are various levels of interest for people, and and, some people may glaze over, but nobody’s ever pushed back.

Victoria: Okay, good. So you show on pretty much the whole panel, except with certain areas collapse, like all the salaries, all the overhead salaries collapsed. Are there any other major categories that you have just given them? The higher level numbers?

Ken: No, that’s pretty much it. So other than that it’s it’s it’s basically the same report that, that I would submit for an hour meeting.

Victoria: Okay. And thank.

Ken: Yeah. Great. Thank you. And as I go as I, as I prepare for that meeting I’ll, I’ll highlight some some numbers that I think are significant. Like the cost of goods is one thing obviously, but then also like the, subcontractor percentage number. Yeah. And we do look at those percentages too. So as opposed to the percentage of income, the percentage of budget and, and how those things relate to each other, where 90% of our budget and we’re see that our labor is 110%.

Ken: And then we talk about.

Victoria: That’s really good. You know, I love that whole concept of training people to, to understand the numbers by percentage. I just was looking at a another member’s PNL and there were no percentages to be found. It’s just difficult to to get your head around the bigger numbers. It’s so much easier for percentages.

Ken: Yeah. I mean, I think it’s it’s all pretty exciting. It it took me a long time to understand the reports. And so, but knowing now how to read them, I just want to share that with people. And because I do think if, you know, we hire smart people and that’s, that’s going to be, engaging.

Victoria: Can you imagine now, going back to the days when you were not looking at financial reports and not using the whip and not understanding all that in inflow and outflow?

Ken: Well, I can when I sometimes I’ve talked to, contractors and the way they talk about their business, I know that they don’t know.

Victoria:

Ken: Any of those parts and they’re not looking at any financial reports. They’re just looking at cash in the bank or not in the bank. Right. And, yeah, that’s that’s scary to me.

Victoria: Well, you’ve come a long way. I can remember since when you joined. And, so you’re doing marvelously and, congratulations again on the building and all that stuff. That’s great.

Ken: All right. Thank you.

Mark: Hey, Ken. Guess what? What? Is the fun part is the fact that we just had the fun part now is that’s the mark part of Marcus.

Victoria: But I’m not sure the rest of us. But he enjoys himself. Yeah. It’s time for.

Mark: The lightning round. You ready? Okay. All right. Oh, and now here’s a reminders advantage. Lightning round. It’s a drop. All right, let’s put 60s on the clock. Here we go. What’s your favorite business book and why?

Ken: Favorite business book is, probably the goal by, Eliyahu Golden. And, that was, like a great book for me. But as I’ve prepared for our first Kaizen meeting and had this understanding, getting input from from everybody and also the concept of bottlenecks that move throughout process. As you fix one part, it moves to another area.

Ken: So that was that was an important concept for me.

Mark: If you weren’t owner of Mak Design Build, what do you think you’d be doing?

Ken: I think I would be doing something, like teaching art. That was the last job I did before I got, fully engaged in carpentry. So I would probably read, high school art teacher somewhere.

Victoria: And you are a very accomplished artist in your own right with shows and and beautiful work.

Ken: Sometimes. Yeah. So I still do it. I still have, paintings going on in the garage. So. So, yeah.

Mark: What are you not very good at?

Ken: Okay, I was thinking about this, and, I’m not very good at music, so visually, I’m good. Musically, I’m terrible. Can’t sing, can’t remember lyrics. I don’t play an instrument. I even bought a ukulele once, thinking that I can, at least learn how to play that. And, I failed.

Mark: Crayola announced. They’re adding a color, and it’s called Ken Kirsch. What color is it and why?

Ken: Oh, man, I think that’s red. Red has always been my favorite color. It’s, it’s it’s just there’s an intensity that I like, so it would be a, a very blood red.

Mark: I would if you were a pizza delivery man. How would you benefit from scissors and.

Victoria: Cheese between these things? I’m fighting with that question.

Ken: Yes, I guess I would keep them, to protect myself if I was, delivering this choice.

Mark: Yeah. And now, since you can’t sing, I need you to sing something.

Mark: Good job.

Victoria: Yeah. Thank you very much. This has been great. Very much enjoyed it. You’re going to be at PCB with me in a couple of weeks, which will be awesome. And so before we go, though, I want you to share your, five words of wisdom with the our listening audience.

Ken: Okay? My five words of wisdom are show up and be present.

Victoria: And what does that mean? Why is that resonate?

Ken: Well, I because there is a tendency to overthink things. I, for me at least. And and that just gives me, the opportunity to at least try and be open to some sort of outcome. And, and so it happens every time I go up to a house to, to meet a prospect, for instance. And, I’m about to knock on the door and I have no idea who that person will be.

Ken: And I have no idea what our, interaction will be. But at least I’m there and I’m open to something good happening.

Victoria: That’s awesome. Great. Yeah. Hey, thank you so much for sharing your journey. And open book management with us. I it’s been it’s been wonderful. And, I look forward to hearing more from you in the future.

Ken: All right. Well, thank you very much.

Mark: Thanks again and talk to you later.

Ken: Bye bye.

Mark: So that that was that was a good lightning round. Yes. And that was definitely a good interview.

Victoria: Yeah, yeah.

Mark: Let’s open book. I mean, we’re open book. So,

Victoria: I know and I love it. I really I cannot imagine running a business any other way and I don’t understand it. And even up even today, after being in this business all these years, I will still occasionally run into people that are so afraid of open book that they don’t even give the field crew the budgets for the job.

Mark: That’s insane. Yeah, well, you know, it’s so funny too, because, I mean, what’s a big buzzword these days is transparency. You know? I mean, that’s the big hot thing, especially when you’re talking about millennials. So I think eventually it’s going to make its way through anyway where it’s almost. And you would be an anomaly if you weren’t.

Victoria: Yeah. Yeah. Nobody would want to go work for your company if you weren’t doing it because they’re going to be so used to it. Right? It’s going to be the same.

Mark: Transparency is everywhere, right? That’s all it is. You know I really wish we would have gotten him to saying oh.

Victoria: I mean you know maybe we should add that in, although I think that our guest list would shrink considered.

Mark: Considerably except what we’d have Michael. Sorry.

Victoria: Yeah yeah I really I see her out and you know. Yeah.

Mark: It’s like they just be on every other week. I’ll do it. I’ll do it. Right. All right. Well, that was great. And, I enjoyed talking again, so. And the. Oh, the, What was it? What’s the name of that thing? The streamline thing. Their original office.

Victoria: Oh, the Airstream trailer game trailer.

Mark: Yeah, that was cool.

Victoria: I should get a picture that put it up on the. No.

Mark: Yeah, that was really cool. Yeah, we should totally do that. Because I remember seeing that think it was.

Victoria: Really parked in their driveway. That was our office. Very cool.

Mark: Tourist office. Yeah. We’ll have to share that with everybody. Yeah. Well, thank you so much for being here. We enjoy having you. I’m Mark Harari.

Victoria: I’m Victoria Downing. We’ll see you next week.