My thoughts this week are about transparency. Everyone wants transparency with them. It is a far different game when asked to share information with others. My thesis this week is that the game has changed. Information is power has been replaced with Information is power if shared. Please allow me to explain.
The benefits of transparency were seared in my brain when I was leading the U.S. direct business for Orica, a global manufacturer of commercial explosives. I was actually an interim leader, having been asked to step into the role of a VP who was out on long-term sick leave. In reviewing our site-level performance, a single site stood out as by far our worst performer. It turns out, the site was saddled with a long-term contract with a global concrete and aggregate company to provide blasting services. This single service contract was about two-thirds of the site’s sales but was losing over $1.5 million a year. Thus, we needed a 25% price increase immediately just to get the contract to break even. In the world of commodity aggregates, where margins are in the low single digits, increasing a major cost like explosives and blasting is nuts. But our choice was stark — get the increase or close the site.
I was terrified. I was still new to sales and sales management and had never done anything close to this before. But I was desperate. I didn’t want to close our site. It was also delicate enough that I needed to lead from the front. So I put on my suit and tie, grabbed the regional director, and flew out to their North American headquarters. We took bets on the over/under for how long it would take us to get thrown out.
After introductions and a few pleasantries, I awkwardly raised the issue. What happened next changed my entire approach to selling and business transparency. In preparing for the meeting and trying to understand the root cause of our problems with the account, we calculated the true cost to serve the customer, down to the hourly wages, cost of idle time vs drive time, and daily depreciation on the $1 million machines. So when the executives across the table started to tense up, I grew desperate. I stopped the presentation and began to write on the whiteboard. I showed the math on the account. Actually, we ended up doing it together. Our issue was that we were giving away our services. We’d included the price of services in the price of our products. When we got beat up on the price of the products in the national bid, we lowered them to match “competing” offers that didn’t include the services.
I walked the executives through the calculations of cost-to-serve. I let them pick the numbers — how much to use for pay, benefits, cost of the machine, and useful life, etc. The whole bit. When we finished, the break-even cost to provide blasting services was just under $2,000 per day. And that carried no risk premium for being responsible for anything going wrong on blasts, something not insignificant when dealing with near-daily blasts of over 50,000 pounds at a time. I then showed them their invoices, which showed we weren’t charging them for services. “We had no idea,” they responded. At the end, one of them quietly admitted to me, “We never thought you’d be that dumb.”
I then explained the problem I had and why it was also their problem. I needed the contract to at least break even and ideally make a little profit. I could live with skinny margins but I couldn’t live with negative margins. And if we didn’t do that, we would have to close the site. And they would be left with a single supplier in the region. It didn’t take a genius to figure out what would happen to both their pricing and their service level under a single supplier.
In the end, we left with a new agreement. We solidified the relationship, got a 23% raise, and saved the site. Better yet, because we’d agreed to certain inflationary cost increases in the contract and were able to find some efficiencies, our profitability went from neutral to positive over the next two years at that location.
So why did it work? Yes, I was desperate and was prepared to walk away. But more importantly, I was fully transparent. In my inexperience and desperation, I had laid our cost structure bare. They believed our numbers because they had helped do the math. Radical transparency had saved the day.
Here’s the challenge with transparency. Everyone wants others to be transparent with them, yet many are not nearly so ready to be so with others. I’ve never met someone who says, “I’d like to know less about what is going on.” “Please keep me in the dark” said no one ever. Yet we constantly struggle with what to disclose. I can’t tell you how many times I’ve been told, “You’re explaining too much” or “Telling them that is going to cause problems.” And that is about Board presentations!
Disclose our true net costs to our salespeople? Our area managers and site managers want it but aren’t sure their people can handle it.
Talk openly about our incentive structure? I put out a memo a year ago that walked people through the incentive percentages by pay grade and got a massive earful from a lot of people about how much I’d upset folks.
Disclose inventory to our retails and co-ops? That feels risky to some as people fear abuse and hoarding.
Be open internally about our financial and operational performance? Our managers want to know but aren’t sure our employees are ready for it.
Share our agronomy trial information and data? Our sellers want it but others don’t want to give away the hard-earned information and our customers will take the information and go buy from a competitor.
To be clear, these are not hypothetical issues, but ones I’ve actually been part of…multiple times.
What do all these issues have in common? Fear and (mis)trust. Everyone wants to be trusted; wants to be in the know. But many in management don’t trust others themselves. We don’t trust our salespeople not to give away the margin. We don’t trust our co-ops to not hoard products. We don’t trust our employees to not ask for money if they understand that our more senior leaders have a higher percentage of their income at risk based on company performance. I would argue the real issue is that we don’t trust ourselves to have crucial conversations with our customers or our employees.
But here’s the rub. The foundation of any successful business is trust. And you can’t get it without giving it FIRST. It starts with giving. How can we ask our growers to trust us with a huge part of their business if we don’t trust them with detailed agronomy data? How can we expect our co-ops to trust us and help us improve our distribution system if we don’t trust them enough to show them the inventory in our warehouses? How can we trust our sellers to make good business decisions if we don’t trust them with the actual margins of the products they sell? How can we get our employees to trust leadership if we hide our performance or incentive and risk structure from them?
We can’t.
I’m guessing most of you who are still reading this are saying, “Duh. Another blinding flash of the obvious from LinkedIn.” Yet we have these debates every day. That’s because, intellectually, we know we need to trust people, but the decision to trust is usually an emotional decision. And we leaders get scared. Trusting someone with valuable information is about fear, about exposing yourself to a potentially uncomfortable situation or conversation. But it is only by making the first trust move that you signal to the other person that they can trust you.
Are there limits to transparency? Of course. Important ones. You don’t want to give away proprietary secrets that your competitors can use against you. There is also certain information about mergers, acquisitions, divestitures, and personnel decisions that are inappropriate to talk about publicly. On the personal side, you don’t want to share so much information that it becomes awkward or uncomfortable for the receiving party. There is being vulnerable as a leader and then there is “oversharing” like some sick old flasher in a trenchcoat.
We need to recognize the shift in expectations of our customers, our employees and our owners. We need to recognize our own expectations. Most of us were raised to believe information is power. It is no longer true in today’s world. Shared information is power. We no longer trust people, companies or institutions to do the right thing on our behalf. We need to trust in our plan, trust in our ability to execute it, trust our customers, and trust our people. Someone may occasionally abuse that trust. It doesn’t mean we should stop trusting everyone, just them.
What do you really have to lose? Scared that your customers will balk at you for making money. Most of us aren’t getting rich, even if a few products we sell have great gross margins. We in the ag supply chain certainly aren’t getting rich. GreenPoint had a record year last year. We blew it out of the water. And yet our net margins were in the mid-single digits. In a more normalized year, they are in the low single digits. For customers to expect us to make less than that is crazy. They run businesses too, whether on the farm or at a co-op. Like us, they are in capital-intensive businesses and they know the math.
So get out there and share something new, something valuable…for free. As business leader, Alex Hormozi, says of information, “If you’re not afraid of what you’re giving away, you’re not giving away enough.” Have real conversations with your customers. Don’t be scared to tell them the truth. Tell them what you’re good at. Tell them what you’re not good at. Help them find people who are good at those things. Be upfront, with your employees about your challenges, and your opportunities. Both will reward you with more trust, not less. And with more trust comes more engagement, deeper conversations, and more loyalty.
Onward!
Jeff
