Learning From Literature

The E-Myth Revisited by Michael E. Gerber

Cover of The E-Myth Revisited

The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael E. Gerber is a small business book published in 1995.

Everybody fantasizes about owning their own business. You probably daydream about being your own boss, raking in the money, and receiving other benefits. Despite the attractiveness, about 20% of companies fail during the first two years, 45% during the first five years, and 65% during the first ten years. Only 25% of new businesses make it to 15 years or more. Some of these failures can be attributed to the owner’s belief in the Entrepreneurial Myth, which states:

“If you understand the technical work of a business, you understand a business that does technical work.”

Sadly, this is false. Owning a business and understanding the company’s work are two separate things that require different skills, mindsets, and more. Due to a lack of these unique ownership skills, many small businesses fail because they aren’t structured correctly from the beginning. Gerber explains how to build and manage a company from infancy to maturity in a way that best supports your life goals.

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Enjoy!

Table of Contents

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PART I : THE E-MYTH AND AMERICAN SMALL BUSINESS

The Entrepreneurial Myth
  • Fatal Assumption → If you understand the technical work of a business, you understand a business that does technical work
    • They are two separate things that require different skills, mindsets, and more
The Entrepreneur, The Manager, and The Technician

Business owners are 3 people in 1 —- the Entrepreneur, Manager, and Technician

  • Entrepreneur
    • Visionary / Innovator
    • Lives in the future
    • Thrives on change
    • Sees opportunities in events
    • Craves control
  • Manager
    • Pragmatic / Orderly
    • Lives in the past
    • Thrives on status quo
    • Sees problems in events
    • Craves order
  • Technician 
    • The “Doer”
    • Lives in the present
    • No interest in ideas – only getting things done
    • “If you want something done right, do it yourself”
    • Craves control over workflow

In perfect alignment, E forges into new areas of innovation, M solidifies the base of operations, and T does the work

  • Root of all problems = lack of balance between the three
    • Think about your day and notice how each comes out
    • The business will mirror your lopsidedness
Infancy : The Technician Phase
  • 3 phases of business growth
    • Infancy
    • Adolescence
    • Maturity
  • Infancy → owner IS the business and does all the work
    • More success = more work
  • A cap of time, effort, capability, etc is eventually reached (where most businesses fail)
  • Realize:
    • The purpose of business is to get free of a job
    • If a business depends on you, you own a job, not a business
  • If you don’t change your technician perspective, you will continue in a stressful position
    • If you only want to do technical work, sell your business
Adolescence : Getting Some Help
  • Infancy ends when the owner realizes that the business has to change
    • Usually needs to hire help in a technical area
    • Big Error = management by abdication rather than delegation
      • Out of desperation and stress, the owner does what he’s best at (often technical work) and abdicates other strategic responsibilities
Beyond The Comfort Zone
  • Every adolescent business reaches a point where it pushes beyond the owner’s comfort zone
    • For T → how much he/she can do themself
    • For M → how much work he/she can supervise effectively
    • For E → how many people he/she can engage in their vision
  • At this point, owners take 3 actions
    • Go Small Again (return to infancy)
      • You return to owning a job and eventually burn out
    • Go For Broke
      • Grows faster and faster until the business self-destructs
    • Try To Survive At Current Level
      • Pour everything you have into it (time, effort, money, etc)
      • Eventually a limit is reached and you snap
  • How big can your business naturally become?
    • Business limitations are shaped by personal limitations
    • Ex – A business that “gets small again” is a business reduced to the level of the owner’s resistance to change (comfort level)
  • Owner’s job = ensure the business foundation / structure can handle growth
Maturity and the Entrepreneurial Perspective
  • Companies that reach maturity are founded on a broader, entrepreneurial perspective
    • Devote to business development from the beginning, not doing business 
    • Build it to work without you
    • Makes vision = reality while adolescent companies rely on chance
  • You need the Entrepreneurial Perspective from the beginning
    • Otherwise, the owner has to build a new business model at every stage of growth and usually fails because each stage has different needs
  • The Entrepreneurial Perspective vs The Technician Perspective
    • E — Business is a system that gets external results for customers
    • E — “How must the business work?”
    • T — Business is internal process (what I can do) that results in income
    • T — “What work has to be done?”

PART II : THE TURN-KEY REVOLUTION : A NEW VIEW OF BUSINESS

The Turn-Key Revolution
  • Your business is the product you sell, not the commodity
    • McDonald’s doesn’t sell hamburgers, it sells the entirety of the McDonald’s experience (quick, consistent, etc.)
  • A system is necessary and provides:
    • E → vision in the real world
    • M → order and consistency
    • T → work to do
The Franchise Prototype
  • From a certain viewpoint, every great business in the world is a franchise
  • How To Turn Your Business Into A System?
    • Pretend you’re going to franchise your company
    • Ask — How could you replicate your business process 5,000 times and it would still work the same?
  • A System Must:
    • Provide consistent value + predictable services
    • Be operable with the lowest skill-level people
      • You will not provide consistent value if your business is based on people (even exceptional ones)
    • Have impeccable order
    • List processes in operations manuals
    • Use the same uniform, facilities, etc
Working On Your Business, Not In It
  • The system is what frees your life
  • Work ON your business not IN your business
  • How can I get it to work without my interference? — Build it into the system
  • To innovate and create systems is hard work
    • However, that is your job as an owner
    • The employees’ job is to follow the system 

PART III : BUILDING A SMALL BUSINESS THAT WORKS

The Business Development Process
  1. Innovation
  2. Quantification
  3. Orchestration
  • Innovation
    • Take the customer’s perspective
    • “What is standing in the way of getting the customer exactly what they want?”
    • “What is the best way to do this part of the system?”
    • Goal → simplify business to only the essential
    • Doesn’t have to be an expensive idea
      • “Can I help you?” vs “Have you been in before?”
  • Quantification
    • Without quantification (data), how can you know whether the innovation worked?
    • Without numbers you can’t see where you are, much less where you are going 
  • Orchestration
    • Implementation — eliminate discretion out of the system
    • Without standardization, you can’t provide consistent value
    • If it works → Do it every time
    • If it isn’t orchestrated → You don’t own it

Innovate systems as a solution to people-problems → Quantify to see if it works → Orchestrate it to happen every time

Your Business Development Program
  1. Primary Aim
  2. Strategic Objective
  3. Organizational Strategy 
  4. Management Strategy
  5. People Strategy
  6. Marketing Strategy
  7. Systems Strategy
Step 1 – Primary Aim

Ask yourself:

  • What do I value most?
  • What kind of life do I want?
  • What do I want my life to look like?
  • Who do I wish to be?

Great people have a vision of their lives that they attempt to live every day. They go to work ON their lives, not IN them

If you want your business to support your primary aim, you have to build it to reflect these answers

  • Establishes a clear purpose to base decisions on
Step 2 – Strategic Objective

For your business to fill your Primary Aim (step one), how does it have to look?

  • Describe in definitive benchmarks, such as:
    • Money
    • Time
    • Size
    • Business Form
    • + More
Step 3 – Organizational Strategy
  • Create an organizational position map based on your vision of the company as stated in your Primary Aim + Strategic Objective (steps 1 & 2)
    • Include what each position is accountable for + who they report to
    • Responsibilities will always be the same for a position, only the people will change
  • Create “position contracts” that include:
    • Results Expected
    • Work Accountable For
    • Standards To Judge Performance By
    • Signatures
Step 4 – Management Strategy
  • Create your business “system”
    • Goal = find and retain customers
    • The more automatic the system is → the more successful your business
  • Create an operations manual for each position (franchise prototype for each position)
    • Actions repeatable with consistent results by low-skill employees
  • Hiring
    • Hire an apprentice, not an expert → Highly-qualified people will work to their learned standards, not to your system
    • Start at the bottom of the organizational map → Find technical workers so you can do strategic work
Step 5 – People Strategy
  • What makes people work is an idea worth working for
    • Have to make doing the work become a way of life and more important than not doing it
  • Employees want a clear structure for acting in the world and through which they can test themselves (what the author calls a “game”)
    • People work for purpose, values, a game worth playing, a sense of relationship
  • Rules:
    • The game comes 1st… Work reflects one’s belief in it
    • Don’t create a game you won’t live
    • Adjust it sometimes (but not overall strategy)
    • Constantly remind workers of it
    • It has to be logical (make sense)
Step 6 – Marketing Strategy
  • Customer = the most important thing
  • The choice to buy is usually unconscious and emotional
  • You can’t know what your customers want until you know your customer
    • 2 Pillars → Demographics + Psychographics
    • Use these to determine what’s psychologically correct for your business
  • How do you acquire this information?
    • Ask the customer – questionnaires, in conversation, etc
  • Find a perceived need and fill it
Step 7 – Systems Strategy
  • Develop your systems and put them in place
  • Adjusting one system affects all the others – integrate them
  • Hard Systems
    • Tangible (ex – computer)
  • Soft Systems
    • Ideas (ex – sales system)
  • Information Systems
    • How to get necessary information about the other two systems (what works / doesn’t work)

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