The E-Myth Revisited by Michael E. Gerber

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.

Many dream of owning a business, imagining freedom, profit, and success. However, the reality is harsh – about 20% of businesses fail within the first two years, 45% in five, and 65% in ten. Only 25% last 15 years or more. 

A major reason for these failures is the “Entrepreneurial Myth,” the false belief that understanding the technical work of a business means you understand how to run one. In truth, owning a business and performing technical work require different skills and mindsets. 

Many small businesses fail because they aren’t structured properly from the start. Gerber outlines how to grow and manage a business effectively, ensuring it supports your life goals.

The Entrepreneurial Myth

• Myth: if you understand the technical work of a business, you understand a business that does technical work
  • They require different skills and mindsets
• Owners have 3 roles: Entrepreneur, Manager, and Technician
  • E → visionary, sees opportunities, craves business control
  • M → pragmatic, orderly, sees problems, craves order
  • T → “doer,” execution over ideas, craves control over workflow
• Balance is key
  • Entrepreneur drives innovation
  • Manager stabilizes operations
  • Technician executes

Stages of Business

“Without the entrepreneurial mindset early on, the business is rebuilt at every growth stage, often unsuccessfully”

• Infancy
  • Owner is the business; does all the work
  • More success → more personal workload
  • Most businesses fail due to limited time, energy, or skills
  • If business depends on you, you own a job, not a business
  • If you only want technical work, consider selling the business
• Adolescence
  • Business grows beyond owner’s personal limits
  • Owner’s role: build structure for sustainable growth
  • First step: hire technical help
  • Common mistake: management by abdication
  • Owner overwhelmed, retreats into the work, abandons leadership
• Maturity
  • Runs without owner → systems, not dependency
  • Built on entrepreneurial perspective, not technician habits
  • Focus: develop the business, not do the work

A New View of Business

• Your business is the product you sell, not the commodity
  • Ex: McDonald’s sells the experience, not just hamburgers
• Turn your business into a system
  • Design for replication and consistency
  • Build as if franchising tomorrow
  • Ask: “Could I replicate this 5,000 times and it still work?”
  • Must deliver predictable services and be operable by low-skill staff
  • Should provide E the vision, M the order, T the work to do
• Work on your business, not in it
  • Owner’s job is to innovate and create systems
  • Employee’s job is to follow the system; ensure consistency

Building A Small Business

• Primary Aim
  • What do I want my life to look like? What do I value most?
  • Live with intention – work on your life, not just in it
  • Your business must align with your personal vision
• Strategic Objective
  • Define how the business must look to fulfill your Primary Aim
  • Ex: money, time, size, business form
• Organizational Strategy
  • Design an Organizational Position Map
  • Clarifies accountability and reporting structure
  • Positions stay consistent; personnel can change
  • Position Contracts: work, expected results, performance standards
• Management Strategy
  • Create your business system
  • Create operations manual for each position
  • Hire apprentices (experts follow learned standard, not the system)
  • Start at bottom of organizational map
• People Strategy
  • Motivation: purpose, values, relationships
  • Constantly remind workers of purpose
  • Employees need clear structure
  • Must be logical and make sense
• Marketing Strategy
  • Understanding customers is key
  • Demographics: age, gender, income
  • Psychographics: values, interests, behaviors
  • Identify perceived needs and focus on fulfilling them
• Systems Strategy
  • Hard systems: tangible elements (computers, equipment)
  • Soft systems: intangible elements (sales processes, procedures)
  • Information systems: gather data on system performance