Why Zingerman’s Teaches All Staff About Money Circulation, Income, Depreciation, and Expense Management

Zingerman’s is a community of over 10 companies that grew out of a single deli in Ann Arbor, Michigan.

The company has grown rapidly since 1982, but co-founders Ari Weinzweig and Paul Saginaw rejected traditional growth paths in the food industry such as franchising or vertical integration. Instead, the company found its scaling path through a combination of in-depth knowledge of the “why” and leveraging the power of open book management.

With insights from Buffer’s Small Business, Big Lessons Podcast Episode Six and the accompanying unpublished interview, Zingermans Co-founder Ari Weinzweig talked about the founding history of the company and how Open Book Management opened up new scaling options for the company.

Ari Weinzweig, co-founder of Zingerman’s

Reject growth for the sake of growth

Just before Zingerman’s Deli opened in March 1982, they all told them it was going to fail because so many others had failed before them and they opened in a “bad” neighborhood.

The deal was a hit.

In 1986 the deli expanded its restaurant space and in 1991 the store bought the house next door to convert it into a café. But copycat and competition came from other restaurants who wanted a piece of the market that Zingerman had built up with success.

After ten years in the business, Paul Ari sat down and asked him a serious question: What are we doing?

“In our current language, he asked me, ‘What’s your vision,’ and I really didn’t have one,” said Ari.

After a year deep conversations about the “why” of the company – some friendly and some tense – the duo realized that they wanted to grow but didn’t want to sell the Zingerman model as a franchise like other large restaurant chains did in the 80s and 90s. This gave rise to the idea of ​​a group of companies, each one unique. That way, the business could grow, but it would not require a franchise model.

Looking back, Ari described her strategic approach and said it was about the heart.

“Instead of trying to solve problems and” intellectually “figure out where you want to go, it’s about getting from the heart and describing the future of your dreams,” said Ari.

Teach everyone business skills

While pondering what business to build next and how to build what Ari called a “joint venture,” he came across the concept of open book management, which states that every employee should be able to do so to see as much as possible about it and to know how the business is doing.

Using a sports metaphor to explain how open book management works, Ari explained that the “players” (employees) are often not told how the business works, resulting in misaligned incentives. An employee who doesn’t understand business figures, for example, is happy on a slow day because it makes their work a little easier. However, too many slow days will ruin a business.

“They don’t know the score and if the team wins or loses they don’t really get anything,” said Ari. When they get something it is generally in a very paternalistic kind of ‘nice job honey, this is fifty dollars’. “

Ari and Paul wanted to build their business differently, with people who understand the business and root its success. This is where open book management came into play. The two shared the company’s numbers and provided people with information on how the company actually worked and showed total sales through to bottom line.

“We teach people how business works, we teach them the difference between cash flow and revenue, we teach them the difference between cash flow and profit,” said Ari.

A broken plate and some fries for your thoughts

Open book management critics say that disclosing too much financial information about the company discourages employees or jeopardizes your competitive position. Ari and Paul say they experienced the opposite: people have innovated and focused on business goals now that they have all the information.

“Performance is better when people understand – that’s huge – what it means to drop something and break it,” said Ari. “The average frontline worker in most organizations says, ‘Anyway, they have so much money, who cares if I drop 10 plates.’ Here, on the other hand, you can see how small the margins really are. “

Being honest with a broken plate doesn’t mean being punished – Ari is the first to admit he dropped many during his time at Zingermans – it’s about being conscious. For example, if the company needs to replace hundreds of broken plates year-round, it creates an extra hassle that reduces the ability to donate to charity or give a profit share to employees.

In addition to clear costs like a broken plate, open book management also helped Zingerman’s Roadhouse, a classic American diner, come up with an innovative solution when it was faced with skyrocketing food costs.

Everyone could see the rising food costs in the books, so the team huddled together to ponder possible solutions.

There were lots of great ideas, but the winning idea came from a dishwasher in the restaurant. He found that he often had to throw away significant amounts of french fries before washing up. After doing a taste test and verifying that the fries tasted good, the team determined that it was likely because the portions were too big for some people. In response, the team came up with a solution: cut the regular roast portion in half, but offer free refills to anyone who has enjoyed the previous larger portion.

“This is a great example because it’s win-win-win; you spend less money [and] Everyone is happy that they could get a free refill, ”said Ari. “… It enriches your experience culinary and emotionally. It saved the company money, improved the guest experience and raised the bar for quality. “

A Zingerman’s for everyone

When he thinks back to that conversation back in 1993 when he pushed franchising back, Ari is still glad he made that choice. Now the Zingerman branding community has their original deli, a roadhouse, several other restaurants, a catering company, and even a training company working with other companies looking to introduce open book management.

While he potentially could have made more money by franchising the delicatessen brand Zingerman’s and focusing on a broader vision and “why” powered by open book management, the company has grown consistently and run several profitable hospitality businesses , an extraordinary feat in the small business world.

And regardless of money, Ari focuses on quality and uniqueness, which he just doesn’t think is possible with a massive franchise model.

“My experience with it all over the world is the first great, the second not bad, the fourth is fine, and the eighth is like a stop at Starbucks,” said Ari. “I’m not cutting off Starbucks, that’s their vision and they have the right to do what they want, but it just wasn’t a job I wanted to be a part of.”

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