Episode Transcript

For the first time Agency Unfiltered has two featured guests. We're joined by Mike and Nikole Rose CEO and COO of Dallas based Mojo Media labs a diamond HubSpot agency partner. Mike and Nikole join us to talk about Open Book Financial Management: a practice in which Mojo shares their financials with the team to have everyone think like business owners. We talked about why they incorporated this financial transparency, how its impacted the organization and how they've been able to level up the team's financial literacy. Are you looking to lean in to OBM yourself to reap the benefits on your own revenue growth and culture? There's no better place to start than this episode. Let's do it.

KD: Well, hello both of you another “couchy” episode of Agency Unfiltered, actually I know we were just talking about this but the first time we've ever had two guests, so very excited to be digging in with both of you today.

NR: I'm sorry to you.

KD: It'll be a whole new dynamic.

MR: I'm sorry I can't go anywhere without Nikole.

KD: So, we're over here to talk about today Open Book Management, Open Book Financial Management. It sounds like something Mojo leans into pretty well and so I'm excited to unpack it; maybe the easiest place to start is to just explain what OBM is and why should the viewers today care or why do they deserve to hear about it?

MR: Sure, would you like to start?

NR: No, you go ahead.

MR: So OBM is an acronym for Open Book Management, or Open Book Financial Management, is essentially a practice to share the financials within in our case the agency to hopefully have everybody think and act like business owners.

NR: Yeah, and so he hit upon like why should agencies care and why do we care? Number one, we wanted to create a transparent agency. We believe that everybody comes to work each day wanting to do their best job and to be able to help to contribute to the success of the company. And oftentimes, the issues start to become pretty apparent based out of the numbers that you see and so, when those are hidden, when the team members don't understand what the numbers are saying, they can't help so much right? So this is a great way to be transparent, but ultimately the idea is to help a lot of people to think and act like owners.

MR: And on the transparent side, we're married—so with that, I think in the center of any healthy relationship is trust. And rather you're husband and wife, or your part of an agency, or you’re a spouse outside the agency, whatever the relationship is, really trust is the center point. So the way we demonstrate trust in our agency is to share the numbers and become very transparent is part of the process to establish trust. So we can't think of another way to be more transparent than to open up how the business is performing financially whether it's good or bad and that's just one of the pillars of transparency that we have which is OBM.

KD: I love that, so it sounds like if anything trust and transparency breeds buying in across the organization right? Like you feel, the trust piece okay this is great like I'm a part of this business I'm thinking like a business owner but then there's buying for it to succeed and perform well right? Which I bet yields very positive results.

NR: Absolutely. And it's easier for the team members to understand why decisions are made, right? Because they understand what's happening so there's agreement there's transparency and also we talk about those types of decisions and how they're going to impact the numbers. But one fundamental thing with OBM is more than just sharing the financials. So I want to touch upon that really quickly, because within Open Book Management, everybody in our company has a part and responsibility in actually managing the numbers and so we'll get into that a little bit later. So it's one thing to kind of share your P&L and open up your books which we did that many years ago and it didn't have the impact that we were hoping. So this is a lot more in-depth and exciting.

KD: So it's not just the visibility—here it is—but it's actually sounds like owning a piece of it? And then so that actually leads to my next question: if I'm bought in, what are the core components you mentioned numbers so what specifically are they having access to, what do they look at, what numbers specifically do they own? Let’s unpack that a little bit.

MR: Sure, I think before the numbers though is really starting with general numbers; Gross profit, Net income those kind of very simple things in order to really establish what financial literacy is. A lot of people think that if an agency owner... If the agency is making a million dollars a year then clearly the agency owners are making a million dollars a year and that's not the way it works, what you bring in is not what you bring home. So some of us take that for granted and in order to establish a culture of financial literacy we really start with the most basic and the most fundamental of numbers and over time as people continue to play, practice the rituals and whatnot then they start to understand that there's a difference between what a fixed expense is and what a variable expense is and what gross profit is and what net income is, and overtime, they can then see how they fit into that hole it's income and expense structure and then how to impact the numbers positively. But for us, we decided to open the books up to include everything, except for individual salaries. A lot of people start with just very high up on what we would call profit and loss statement and just sharing revenue and revenue is an open book right? But really getting into the fundamental numbers of the entire profit and loss statement is really important to us.

NR: I think your question was kind of around the components of OBM, and so you touched upon the most important part which is really the critical number, but you have to start with creating a plan or a budget. So in essence, creating what your year is going to look like and then for us from a line item ownership we actually have every single line item on our P&L; that is managed and overseen by somebody at Mojo. For example, we've got one of our digital marketing specialists who manages the general office expenses. And so his responsibility is to; one truly understand that number what goes into it, he helps to forecast what we're going to be spending every given month. And then if we have variable expenses come up people have to pass them through him and he really ultimately makes the call on whether or not we make those expenditures this month. And so it's really empowering, I mean it's great it took a little while for people to stop coming to us and saying well can I do this? It's like well you know the numbers and so make a decision and people do it. So it's from top to bottom that from a line item ownership perspective.

MR: And our folks though they may not know this coming in but they definitely know it within the first few months of practicing the game is what general ledger expenses are or what general ledger numbers are. So the GL numbers in the items are shared some of them are rolled up to like you mentioned general office expense, some is under software-as-a-service. So as an agency we and utilize a lot of software and that's a big expense and it only seems to always come in at $15 a month or $5 a month or convenient payments of X which don't seem to be a lot. But if you're managing software-as-a-service as a line item and you've budgeted your number out for the entire year and that one easy installment of $5 comes in and we don't make that decision, it goes to that person managing that line item and then they make the decision whether we should do it or not. If it's within budget and it makes sense he will, if not then they'll try to figure out okay team let's come together, let's look at what we're paying for and what we actually need and see if we can make room for this tool that you might want.

NR: So the magic really comes in on our weekly huddles. So the entire company comes together Monday at 11 a.m. and every person who owns a line item comes prepared to share what their forecast is for what that, how that month is going to end. So week one is where forecasting is probably not going to be as accurate as when we get further along to the month and have a better idea but at the end of the year,

KD: Weekly meetings but it's for that month?

NR: Its for that month yes, exactly. So we all meet, everybody reports out on their number and in essence we're building our P&L every single week. And so there's variables, we're going to know more maybe prospects have gotten further in the pipeline so revenue, numbers are more clear, expenses and so forth and so it's really cool. Everybody comes to the huddle, it's 20 minutes, we report on our numbers and then we break—and as you can imagine, everybody is bought in from knowing the numbers but we also all win together, we all lose together and so based on hitting the goals of the company which for us our critical number is profit before tax so basically the bottom line profit. If we're meeting our numbers then everybody it's tied to a bonus program and everybody knows exactly what kind of bonus they'll be able to get, so it's basically a lookup chart 1 through 20.

MR: And that's another part of Open Book is choosing your critical number. We've decided to choose bottom line or net income or profit before tax—however you want to describe it, EBITA—but some companies decide to share gross profit or whatever the case might be but the lower you can go down on the profit and loss statement, the more transparent you're going to become as an agency.

KD: There's two things I want to unpack there. This is incredibly helpful. You've mentioned financial literacy and then you mentioned like how each individual owns a number. So I want to do both of those. The first one in regards to financial literacy, how do you build a process or what is the formal training look like for new hires or anybody that's going to be becoming an owner for a number? Or how do you ensure that their financial literacy is top-notch ready to have the strategic forecasting and budget huddle?

MR: So the way we get people up to speed on OBM particularly if they're a new hire, a new Mojo Maker as we say, we don't like to use the word employee, so we say Mojo Makers, they basically get paired with somebody who's been playing much longer or been practicing. So we're moving into I think our fourth year of practicing Open Book Management? So there's some veterans on the team, so generally they'll shadow somebody. A great example of getting people up to speed are the interns. So we have interns every summer and as you can imagine, the interns knowledge of how a business operates may not be as great, but when they do leave they know exactly how businesses run. So a good example would be an intern would shadow somebody on a line item and help them go through the exercise of forecasting that number for the week, every week throughout the month and that means they have to have access to the budget, they have to look at the line items that are coming in from the charges perspective and be able to help forecast that number.

Ultimately though, we start with the most basic of fundamentals like how to manage a home budget or how to if you get a dollar, how do you spend that dollar through the month if it were to be sectioned off as those percent. So if your rent is 10% and your food budget is 5%, then how do you invest this money moving forward? A business is not complicated—I think we have a tendency to make it much more complicated than it really is, but really breaking it down to its fundamental levels and then teaching that literacy, it's got just tremendous impact on them personally because we've learned that they then take it home and then start saying “hey, how much are we putting away for this? Or how much are we saving for that? Or with decision-making process are we going to set ourselves up personally on a financial plan?”

KD: Yeah their personal budgets are probably way more buttoned up than what they have.

NR: We hope that, that happens because we just feel that people, our children are so underserved in schools and not learning how budgets work or how to save for money or save for future expenses or going into debt like we're hearing all the time. So if we can impact people on a personal level at work that becomes a pretty special thing and it really fits into our mission as an agency which is to help people grow smarter, so if we can help folks grow smarter on the personal side as well as on the professional side then we feel like we've accomplished our mission.

KD: That's great. The second half of that question was how do we assign a Mojo Maker to a particular number? So is there a thought process? Or is it just based on what's available? I mean what does the process look like to assign person to number, if there's one?

NR: Yeah so what we try to do is first of all someone will own a line item typically for six months maybe a year if it's really complex and so we have a chance to change it up and sometimes when someone else gets a line item they might have a new fresh perspective on it.

KD: So it rotates—its not permanent or anything?

NR: It rotates so but what we try to do first is who would naturally be closest to this expense to this line item? And so we try to go there first and then some are just going to be outside of it like we have a travel budget well there's no one on our team who actually is responsible for managing all of our travel right? We're an agency and so from that perspective it's who's left, we oftentimes will ask for volunteer who was interested in wanting to know more about that information and things like that and then we'll assign.

KD: So there's obviously I think bigger higher priority numbers and then there's like smaller secondary numbers and so it's assignment but then well whoever wants to volunteer for some of those smaller ones is that what we are saying?

NR: Yeah, I mean I kind of and I wouldn't say they're all important, right?

KD: Oh, sure you're right. I guess, the cadence in which they need to be updated might be different?

MR: I think we've really talked through this but I think one of the ways we intuitively go through it is there are variable expenses and then fixed expenses, right? So a fixed expense might be rent and rent is going to be static all year long, so it's easy to forecast it on a weekly basis because it's fixed but some of the variable costs are is something that goes to somebody a little bit more experienced and all revenue for the most part is pretty much variable and in an agency you have retainers but then you have renewals in turn and everything else. So, we really break out the revenue into I think four or five different line items so we can spread that weight out but generally somebody who's a little bit more experienced to have been playing a little bit longer we'll take a more variable line-item. But then somebody who with a fixed expense may or a fixed line item might be able to grow into by shadowing and then playing with something like that.

NR: I'll give you an example. Our website project manager has the website revenue line item. So she is the one who's responsible for it, so obviously she's the closest to it. We have our senior lead developer, and he is very passionate about software-as-a-service, and so he owns the software-as-a-service line-item. So he gets to evaluate all the new tech that's coming in to the agency and going are we using it? Who should be using it? And so we try to just naturally assign to people who would be closest to it, our director of new business development owns the sales and marketing budget and so forth. So we try to do that first but some things just don't fit that way and then we take volunteers who would like to own those and then go from there.

NR: To use an example outside the agency world, it's pretty common in the OBM community to take a restaurant, for example. A restaurant may take put a bunch of expenses under one line item or one general ledger code, but as people get more involved as they become more comfortable with transparency, as employees learn how businesses run and they're thinking like owners, then they can start unpacking some of those line items that are generally rolled up. So for the restaurant example, there was a waiter who then got the responsibility of managing utensils down to the utensil expense side and then he came up with an idea like an owner probably would is, what if I were to ask people coming into the restaurant, do you want a straw or do you not want a straw? By asking that question he was able to save the company which is many different locations thousands of dollars a month based on that and that was eco-friendly and everything else but when it comes down to the expense side they were able to save a lot of money because they were managing that line item. The same thing with throwing away utensils and saving utensils, the dishwasher was able to manage a line-item on saving utensils. So it's really how far, how deep and how broad you really want to take it which it gets exciting.

KD: The restaurant example makes a ton of sense. I'd be interested to put you on the spot here: has there been an agency example where asking that sort of question or like having that owner mindset allowed you to save money somewhere or increase revenue or a fattened profit margin somewhere?

NR: Every day. Some examples are small, and some are larger, but one of the first things that we saw when we implemented OBM was one of the girls who was managing, at the time, our general office expenses. Well, we buy coffee and we go through a lot of coffee and what she ended up realizing is that people were making these big bats of coffee at the end of the day but maybe only taking one cup. So they were thrown away, so she went out to the team and said, “okay guys, you know what this coffee is expensive, and we're having to purchase it now every few weeks instead of on a monthly basis. So from now on, if you're going to be making coffee at the end of the day you need to make sure it's going to drink it.”

MR: And to even roll that small thing up to a larger thing—does every agency in the world offer free snacks? Our folks don't take that for granted. You take coffee and you roll it up into snacks as an agency. I mean, that's a pretty decent budget for us anyway, so being able to say hey, not “if I'm going to take a snack or not”, but to know that this snack, these free beer, wine, keg all this stuff that we have is provided truly because we care. And they see the expense that, that from the agency is now incurring as a result of that, and that becomes a pretty special thing, right? I think though my favorite story is going back to an intern.

NR: Oh, yeah for sure this was good.

MR: We have a line item recruiting fees so if we need to hire another Mojo Maker there's ways to go about to attract and recruit new folks. One of the ways to do that, as most people know, is to go through a placement agency—and that is very expensive to do. Long story short, we made an announcement in a staff meeting that we hired this person and the intern stood up and just quickly said that, “my line item is the recruiting fee, how did we get this person? Do we have to go through a recruiting agency, and if we did, how much was that? Because I don't want it to impact my line item.” And the result was no we didn't, it was somebody referred this person to the company, and it was through that thought process to say: how can we reduce this line item or perhaps eliminate it altogether by going through and having current happy employees refer the next happy employee and so that really drove that.

KD: I don't know the cadence in which you have performance reviews, or how you assess your team, but I assume that they have their primary day job and then they also have the number, too. How does that factor into performance reviews and how they're assessed as a team member?

NR: You know that's a good question, we don't necessarily role in the OBM number to their assessment, if you will. Really, their reward on good or bad is the bonus plan where it's tied to that and so that's really where the motivation is. And it's kind of a game at our company to forecast really well. So it's like who can get closest to what the actuals are going to be, right? And so everybody takes it very seriously, because they don't want to be the one line item that's so far off when we thought we were going to be hitting a 14% bonus that quarter but, because of their line item that wasn't forecasted well, we're at 5%. So you don't want to be that guy. So from that perspective it's pretty self motivating and really the whole team was behind it, so there's no true management than it really needs to happen there from us around...

KD: So, it’s not like a formal review piece, but for the overall number ownership, it sounds like there's a gamification piece.

NR: It's great that you mentioned the word “game”, because that's really what this is. We have gamified, this isn't boring, our meetings are exciting and it really is a game. In fact a part of Open Book Management is called Mini Games, and so Mini Games are literally little Mini Games that you play on a quarterly basis to fix a problem that can help you to reach your goals, for us it’s profit goals, and so they could be any which thing. We had one Mini Game that, in essence people are getting distracted by too many people come in interrupting and things like that—so we implemented time blocking. So that everybody could have like blocks of time, specified times of the day, to make sure that everybody could get their work done so we could be a lot more efficient and effective and hit our due dates. And so we called it “time blocking is a beach”. And the team made an entire like physical game board, that every time we hit a good time block day, there'd be a little flip-flop that'd be put on the game board little mini prizes along the way to get there and so there's lots of gamification within us.

KD: For an agency that does not currently utilize OBM, it's not currently a piece of their methodology or process, how do I get started today? Where's the easiest place to get going and to implement this back home?

MR: My take is: I think it starts with the culture. I mean we had to get our culture right first. We had the wrong culture for a lot of years, and as a result, we appreciate a great culture because we've had a bad one. And we've tried to implement in the past and we had some failed attempts for many different reasons but we had to really focus on our mission, vision, values first and make sure that we have the right people on the team. Though they may not be in the right seats, we knew we had the right people, and with that, then we were as we do as an agency. We were transparent and saying “listen, this is where we want to go. This is where we ultimately want to be. This is the benefits behind it, we don't have all the answers, so let's sit down and figure this out together.” So we started with a design team for six months and then we slowly rolled it out to everything else.

NR: Yeah, so I couldn't agree more, I mean definitely culture having a good culture is I think an important foundational element before rolling something like this out. But I tell agency owners, if you're not ready to jump in with both feet then you're not ready, don't do it yet. To try to dip your toe in the water and do little bits of it it's not going to be effective that's kind of what I've witnessed with quite a few companies who've done a little bit and they're like I don't get it, this isn't working. You have to be immersive either all in or all out. And so but take it slow and so the design team what Mike was referring to was basically getting a group together of probably four or five and planning out what your budget is going to be and then just rolling out all the pieces of it and then playing the game amongst the design team for several months and trying to do the Huddle's. And it's going to be kind of awkward and weird at first and then roll it out to the entire company.

KD: The design team is like a pilot group?

NR: Yeah, exactly. The group who's building the program piece by piece before rolling it out and then practicing it to see where the issues might be.

MR: And this was a big complicated topic and I can see if I'm listening or watching this that it's like it's this might be too difficult to implement or I don't still don't understand the benefit of doing something like this, but we have three pillars to our culture; it's the Values, it's Open Book Management, there's another piece called ROWE, Results Only Work Environment, but for OBM I would encourage at least to start learning the topic because I promise there are people in your agency right now who are breathing life into your company or they're sucking the life out of it. And you the more people you can get breathing fresh air into your company and not trying to be in it for what's in it for me kind of sucking the life out of it, it weeds those people out really fast and that's important just from a culture filter perspective but it really does drive ultimately business results. And if you want to figure out a way to monetize a great culture or to show from a quantitative perspective that you have a great culture beyond just an NPS or Glassdoor rating, is really the financial performance of the agency and we should be running healthy businesses that there's so many benefits to that. And owners work way too hard way too long to not have a healthy profit margin and everybody can play a role into that and if they do then they all get the benefit and ultimately that's what we feel like it's all about.

KD: I think you both mentioned the OBM community a few times. So if I wanted to learn more, what does the community look like? What are resources out there that I can learn more if this is, to your point, something I do want to jump into head first?

NR: One website that I'd recommend checking out is greatgame.com, Great Game of Business. In essence, it’s telling the story of someone who helped create the concept of Open Book Management. But there's all sorts of resources just googling “Open Book Management” will unlock all sorts of things.

MR: And there's an annual gathering in Dallas every year called The Great Games. The Great Game Of Business and that too has just been very helpful to find that community but it's really not a well-known kind, it's almost like an underground kind of community right now and it should be more well known. I think it's more prevalent in the manufacturing space where there is more waste that could potentially occur though our waste in our agency world is time, so it's not a product per se but we have to monetize time and therefore we're finding other agency owners who have been playing this and playing it longer than us and we love connecting with those folks and seeing what they really have on their huddle board as we say. Sometimes it's not just quantitative, sometimes it's how many steps the folks have taken for the past month for a healthy lifestyle or community, how much love you get from a client, from the client base on how many loves you've got or, so it can be really kind of organically grown over time to say: hey we're tracking this and we're forecasting this now let's track this too and it really becomes really fun when it starts to become a life of its own.

NR: The team members in our agency, the Mojo Makers, they own it. So just to kind of prove that point, Mike and I don't lead the huddles. In fact, we have a line item and sometimes we're there sometimes we're not. But the team, we've got people who lead it and if they're not there, they turn over to someone else. So they're managing the entire huddle and so it's the collaboration of the entire team.

MR: And I think that's a good point. I think it's important to get to a point in time very sure that the owners are not involved. And that's when it can take a life of its own in a very positive way and there's a lot more life being breathed into the agency than being sucked out.

KD: That's great, it's the ideal state. I've got final question for you both and you might have a unique OBM-esque answer to this but what do you think is the weirdest part of agency life?

NR: The weirdest part? For our agency, it's Mike.

KD: Good answer.

MR: Agency life in general—if you're not specializing, we're just in so many different businesses, and we have the opportunity to impact those businesses. I think one of the more difficult things, from an agency perspective, is managing many different clients. I think there's this fascination if you're on the agency side, what it's like to be on the client side or what's it like to be dealing with a single brand? But even working on the client-side, you're going to be most likely managing multiple different channels managed by many different agencies, so there's always this multiplier effect. I think it's having such a great impact on (or maybe not depending on how your team's set up) on your clients businesses.
KD: Yeah, that's great, awesome. Well that's it for me! I appreciate you both coming on Agency Unfiltered, this has been an exciting episode, obviously with two guests, but it's been a lot of fun thank you both.

NR: Thank you, appreciate it.

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