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Published: July 1, 2001

 
 

Jack Stack’s Story Is an Open Book

Nearly everyone at SRC embraced the Great Game, but Mr. Stack became its central figure — the guy everyone wanted to please, the leader who asked the tough questions, and the one who pressed people to think broadly. From 4 p.m. on, anyone who wanted to talk to him could find him at Joanne’s Expressway Lounge, a bar at the edge of town that became his open-door office. It also helped that everyone could see managers out on the floor at the end of the month, working to ship the last bit of product. In 1988, it became clear that the company had won its workers’ trust and respect when the staff at the plant voted to defer a bonus and build up the company’s balance sheet instead. By that time, the stock had risen from its original dime share price to $15.60. Then it had fallen to $13.02 (the slump was the reason for the bonus deferral), but that still meant a rise of 13,000 percent in four years.

In 1986, the company and Mr. Stack were the subject of a cover story in Inc. magazine called “The Turnaround.” This was followed by a spot on public television’s “MacNeil/Lehrer NewsHour,” the publication of The Great Game of Business, and a steady flow of reports in the business press and television. Meanwhile, the company began to diversify — the first time, into automobile engines in 1985, after a janitor (a former stockbroker at a major Wall Street firm who moved to Springfield for a less pressured life) stopped Mr. Stack in the hallway to remind him truck engines were a cyclical industry. By the early 1990s, there were so many requests for paid tours of the plant that SRC formed another business, the Great Game of Business, based on packaging and selling the Game, and continued looking into other forms of diversification

Clusters of Companies
In the midst of this wave of success, a challenge emerged from within, once again threatening SRC’s survival.

One of the original 12 managers who had bought the company with Mr. Stack left the company in 1986. Buying back his stock cost $660,000 — a huge amount of money in the SRC balance sheet in the mid-1980s. At most firms, either that figure would have been hidden, or there would have been a taboo against discussing it. But at SRC, it came up in one of the huddle meetings. As Mr. Stack tells the story, an hourly worker said he was very happy to have the ESOP stock, especially with its value rising so rapidly. But what would happen when he and his peers began to retire, many of them around the same time 20 years hence? Where would the money come from to purchase the stock? “We’ve got a lot of cash tied up in connecting rods,” he said. “We can’t eat connecting rods.”

“It was absolutely the right question to be asking at that time, and I should have been proud and happy to get it,” writes Mr. Stack in his memoir-in-progress. “That’s why we were teaching and coaching; this guy ‘got it,’ no question … [but] I was thrown for a loss. I hadn’t given any thought to how we were going to cash everybody out.” The more successful the company became, the larger the buybacks would have to be.

This is, of course, one of the great unspoken problems of entrepreneurialism, especially in places like Silicon Valley where stock options are rampant. Many companies solve this difficulty by going public. This leaves the entrepreneur with no real option but to leave, raise venture capital for a new company, and start the process all over again, in a blockbuster-style syndrome that, in the long run, is probably destructive to the entrepreneurs, the markets, and the industry.

 
 
 
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Resources

  1. H. Thomas Johnson and Anders Bröms, Profit Beyond Measure: Extraordinary Results Through Attention to Work and People,The Free Press, 2000
  2. Chuck Kremer, Ron Rizzuto, and John Case, Managing by the Numbers: A Commonsense Guide to Understanding and Using Your Company’s Financials, Cambridge, Perseus, 2000
  3. Jack Stack and Bo Burlingham, The Great Game of Business, Doubleday, 1992
  4. Jill Albrinck, Jennifer Hornery, David Kletter, and Gary Neilson, “Adventures in Corporate Venturing,” s+b, First Quarter 2001; Click here.
  5. Lucien Rhodes and Patricia Amend, “The Turnaround: How a Dying Division of International Harvester Became One of America’s Most Competitive Small Companies,” Inc., August 1986; Click here.
  6. The Great Game of Business: www.greatgame.com
 
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