The E-Myth Revisited explains why 80% of small businesses fail, and how to ensure yours isn’t among those by building a company that’s based on systems and not on the work of a single individual.
Another shockingly old book. Originally published as “The E Myth” in 1986 (that’s 30 years ago, btw), Michael Gerber revised and updated the book in 1995, which has long sold over a million copies.
You might know the common statistic that 80% of new businesses/startups fail and it’s exactly this phenomenon that Gerber digs into.
He explains how running a business and getting technical work done are two different things and shows you how you can set up a company that depends much more on systems, than on people, and can basically be handed over to anyone with the right instructions.
Here are 3 lessons that’ll help your business survive adolescence:
- Having great technical skills does not mean you know how to run a business.
- Imagine your business as a nationwide franchise from day one, then build the first store.
- The franchise approach makes sure you build a business based on systems, not people.
Ready to debunk the E-Myth? Let’s do it!
Lesson 1: Having great technical skills does not mean you know how to run a business.
4 out of 5 small businesses never make it past the 5-year mark, which is quite a depressing statistic. Why is that?
Gerber says it’s because of the entrepreneurial myth. People think being great at a technical skill also makes you great at running a business. This is just wrong.
Being a great baker, painter or writer, does not make you good at running a business in that industry. These are two entirely different things.
Once you start a business, you’re not just the person doing the technical work, all of a sudden you’re also the CEO, CFO, CTO, CMO, and a whole bunch of other things.
You have to get customers, track and manage finances, create advertising material, answer customer requests, set a strategy, and, and, and…
If all you know is how to make great coffee, then your first café is very likely to fail – after all you have no clue how to hire, outsource tasks, manage people and grow a business!
Lesson 2: Think of your business as a national franchise, then start with one store.
The solution to that problem, according to Gerber, lies in systems. Ever since McDonalds, businesses have relied on franchising to make handing over the keys easy and comfortable.
If you plan your business as a nationwide franchise from day one, you’ll end up systematizing everything as soon as you get a handle on things, which will then allow you to remove and replace yourself from that particular job and sustainably grow the business.
So imagine you’re just building your first franchise store, what’s your unique value for the customers?
Maybe it’s serving the most delicious flavored lattes in town, which all come with free cookies. You as the business owner of course know how to make those, but in a franchise you must ensure that all of your employees can make them just as well.
Therefore, you should come up with incredibly detailed how-to manuals, which you can then use to train your first employee! Taking it a step further, you will eventually also have to write a manual on how to train employees, so potential franchise owners also know how to school their staff.
Your franchise prototype, combined with a set of detailed manuals for everything, will make sure that every customer has the same experience and make your business results reliable and predictable.
Lesson 3: Build a system of systems, so your business doesn’t rely on people’s skills.
If you continue to weave the idea of systems as a constant thread in your business, you’ll end up with a system of systems, which seamlessly work together.
That means you can then go and change individual parts of each system, as long as you consider the effects on the other systems. Three kinds of systems will make up your business.
Hard systems – inanimate objects like your coffee machine.
Soft systems – ideas and living things, like your free cookie policy or the work attitude of your employees.
Information systems – training materials and manuals, and the data you collect, for example how many customers order lattes vs. cappuccinos.
Buying a new coffee machine will of course affect the other parts, for example your employees might not like it as much as the old one and therefore make worse lattes, so customers end up ordering more cappuccinos.
Instead of doing all the work yourself, it now becomes your job to make sure the systems run smoothly together, which will also help you make sure your future franchisees are successful in running their own cafés!
My personal take-aways
A very interesting book. The fact that it’s old doesn’t make it any less valuable. If anything, the book is even more relevant today, as more people than ever start their own businesses – and more than ever fail.
Gerber advocates doing a lot of thinking on the front end to prevent you from maneuvering yourself into a situation you can’t get out of. Incredibly thorough and helpful read!
The E-Myth Revisited by Michael Gerber
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The E-Myth Revisited Summary
The Book in Three Sentences
Most small business owners work in their business rather than on their business.
People who are exceptionally good in business are so because of their insatiable need to know more.
Understanding the technical work of a business does not mean you understand a business that does that technical work.
The Five Big Ideas
“If you are unwilling to change, your business will never be capable of giving you what you want.”
That Fatal Assumption: if you understand the technical work of a business, you understand a business that does that technical work.
The Entrepreneurial Seizure occurs the moment you decide it would be a great idea to start your own business.
“Everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and The Technician.”
We all have an Entrepreneur, Manager, and Technician inside us.
The E-Myth Revisited Summary
Michael believes that the people who are exceptionally good in business aren’t so because of what they know but because of their insatiable need to know more.
“If you are unwilling to change, your business will never be capable of giving you what you want.”
That Fatal Assumption: if you understand the technical work of a business, you understand a business that does that technical work.
The Entrepreneurial Seizure: the moment you decide it would be a great idea to start your own business.
The technician suffering from an Entrepreneurial Seizure takes the work he loves to do and turns it into a job.
“Everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and The Technician.”
The Entrepreneur
“The Entrepreneur lives in the future, never in the past, rarely in the present. He’s happiest when left free to construct images of ‘what-if’ and ‘if-when.’”
“The Entrepreneur is the innovator, the grand strategist, the creator of new methods for penetrating or creating new markets.”
“The Entrepreneur is our creative personality—always at its best dealing with the unknown, prodding the future, creating probabilities out of possibilities, engineering chaos into harmony.”
The Entrepreneur has an extraordinary need for control. He needs control of people and events in the present so that he can concentrate on his dreams.
“The Entrepreneur creates a great deal of havoc around him, which is predictably unsettling for those he enlists in his projects.”
The Entrepreneur’s worldview is a world made up of both an overabundance of opportunities and dragging feet.
“To The Entrepreneur, most people are problems that get in the way of the dream.”
The Manager
The Manager is pragmatic. Without him, there would be no planning, no order, no predictability.
“If The Entrepreneur lives in the future, The Manager lives in the past.”
“Where The Entrepreneur craves control, The Manager craves order.”
“Where The Entrepreneur thrives on change, The Manager compulsively clings to the status quo.”
“Where The Entrepreneur invariably sees the opportunity in events, The Manager invariably sees the problems.”
“The Manager is the one who runs after The Entrepreneur to clean up the mess.”
“Without The Manager, there could be no business, no society.”
“It is the tension between The Entrepreneur’s vision and The Manager’s pragmatism that creates the synthesis from which all great works are born.”
The Technician
“The Technician is the doer.”
“The Technician loves to tinker.”
“If The Entrepreneur lives in the future and The Manager lives in the past, The Technician lives in the present. He loves the feel of things and the fact that things can get done.”
“As long as The Technician is working, he is happy, but only on one thing at a time. He knows that two things can’t get done simultaneously; only a fool would try. So he works steadily and is happiest when he is in control of the workflow.”
“The Technician mistrusts those he works for because they are always trying to get more work done than is either possible or necessary.”
“To The Technician, thinking is unproductive unless it’s thinking about the work that needs to be done.”
“Thinking isn’t work; it gets in the way of work.”
“The Technician isn’t interested in ideas; he’s interested in ‘how to do it.’”
“To The Technician, all ideas need to be reduced to methodology if they are to be of any value.”
“The Technician knows that if it weren’t for him, the world would be in more trouble than it already is.”
“While The Entrepreneur dreams, The Manager frets, and The Technician ruminates.”
“Everyone gets in The Technician’s way.”
“To The Technician, ‘the system’ is dehumanizing, cold, antiseptic, and impersonal. It violates his individuality.”
*
“The fact of the matter is that we all have an Entrepreneur, Manager, and Technician inside us.”
“The typical small business owner is only 10 percent Entrepreneur, 20 percent Manager, and 70 percent Technician.”
“Most businesses are operated according to what the owner wants as opposed to what the business needs.”
“The three phases of a business’s growth: Infancy, Adolescence, and Maturity.”
“If your business depends on you, you don’t own a business—you have a job. And it’s the worst job in the world because you’re working for a lunatic!”
“The purpose of going into business is to get free of a job so you can create jobs for other people.”
“There’s a critical moment in every business when the owner hires his very first employee to do the work he doesn’t know how to do himself or doesn’t want to do.”
“Your job is to prepare yourself and your business for growth.
“A Mature company is founded on a broader perspective, an entrepreneurial perspective, a more intelligent point of view. About building a business that works not because of you but without you.”
“A Mature business knows how it got to be where it is, and what it must do to get where it wants to go.”
“The Entrepreneurial Model has less to do with what’s done in a business and more to do with how it’s done. The commodity isn’t what’s important—the way it’s delivered is.”
“Your business is not your life.”
“Once you recognize that the purpose of your life is not to serve your business, but that the primary purpose of your business is to serve your life, you can then go to work on your business, rather than in it, with a full understanding of why it is absolutely necessary for you to do so.”
“Pretend that the business you own—or want to own—is the prototype, or will be the prototype, for 5,000 more just like it.”
“Documentation says, ‘This is how we do it here.’”
“Without documentation, all routinized work turns into exceptions.”
“Documentation provides your people with the structure they need and with a written account of how to ‘get the job done’ in the most efficient and effective way.”
“What you do in your model is not nearly as important as doing what you do the same way, each and every time.”
Go to work on your business rather than in it, and ask yourself the following questions:
How can I get my business to work, but without me?
How can I get my people to work, but without my constant interference
How can I systematize my business in such a way that it could be replicated 5,000 times, so the 5,000th unit would run as smoothly as the first?
How can I own my business, and still be free of it?
How can I spend my time doing the work I love to do rather than the work I have to do?
Innovation is the mechanism through which your business identifies itself in the mind of your customer and establishes its individuality.
Quantification: the numbers related to the impact an Innovation makes.
“Orchestration is the elimination of discretion, or choice, at the operating level of your business.”
“Once you’ve innovated, quantified, and orchestrated something in your business, you must continue to innovate, quantify, and orchestrate it.”
“Think of your business as though it were the prototype for 5,000 more just like it.”
“Your Business Development Program is the vehicle through which you can create your Franchise Prototype.”
The Program is composed of seven distinct steps:
Your Primary Aim
Your Strategic Objective
Your Organizational Strategy
Your Management Strategy
Your People Strategy
Your Marketing Strategy
Your Systems Strategy
1. Your Primary Aim
But before you can determine what that role will be, you must ask yourself these questions:
What do I value most?
What kind of life do I want?
What do I want my life to look like, to feel like? Who do I wish to be?
Michael believes great people are those who know how they got where they are, and what they need to do to get where they’re going.
“Great people have a vision of their lives that they practice emulating each and every day.”
Michael believes that the difference between great people and everyone else is that great people create their lives actively, while everyone else is created by their lives, passively waiting to see where life takes them next.
“The difference between a warrior and an ordinary man is that a warrior sees everything as a challenge, while an ordinary man sees everything as either a blessing or a curse.”
Before you start your business, or before you return to it tomorrow, ask yourself the following questions:
What do I wish my life to look like?
How do I wish my life to be on a day-to-day basis?
What would I like to be able to say I truly know in my life, about my life?
How would I like to be with other people in my life—my family, my friends, my business associates, my customers, my employees, my community?
How would I like people to think about me?
What would I like to be doing two years from now? Ten years from now? Twenty years from now? When my life comes to a close?
What specifically would I like to learn during my life—spiritually, physically, financially, technically, intellectually? About relationships?
How much money will I need to do the things I wish to do? By when will I need it?
2. Your Strategic Objective
“Your Strategic Objective is a very clear statement of what your business has to ultimately do for you to achieve your Primary Aim.”
“How big is your vision? How big will your company be when it’s finally done? Will it be a $300,000 company? A million-dollar company? A $500-million company?”
“At the beginning of your business, any standards are better than no standards.”
“Creating money standards is not just strategically necessary for your business; it is strategically necessary for your life, for the realization of your Primary Aim.”
“The first question you must always ask when creating standards for your Strategic Objective is: What will serve my Primary Aim?”
“How much money do I need to live the way I wish? Not in income but in assets. In other words, how much money do you need in order to be independent of work, to be free?”
The ultimate reason to create a business of your own is to sell it.
“An Opportunity Worth Pursuing is a business that can fulfill the financial standards you’ve created for your Primary Aim and your Strategic Objective.”
“How do you know whether you have an Opportunity Worth Pursuing? Look around. Ask yourself: Does the business I have in mind alleviate a frustration experienced by a large enough group of consumers to make it worth my while?”
When asked what kind of business they’re in, most business owners respond with the name of the commodity they sell. Always the commodity, never the product.
The difference is the commodity is the thing your customer actually walks out with in his hand. The product is what your customer feels as he walks out of your business. What he feels about your business, not what he feels about the commodity.
Understanding the difference between the commodity and the product is what creating a great business is all about.
“What’s your product? What feeling will your customer walk away with? What is he really buying when he buys from you?”
“People buy feelings.”
3. Your Organizational Strategy
“Most companies organize around people rather than around accountabilities or responsibilities.”
“The result is almost always chaos.”
Without an Organizational Chart, everything hinges on luck and good feelings, on the personalities of the people and the goodwill they share.
An example of an Organizational Chart:
Organizational Chart
A Position Contract is a summary of the results to be achieved by each position in the company.
4. Your Management Strategy
You need a management system to successfully implement a management strategy.
“A system is a set of things, actions, ideas, and information that interact with each other, and in so doing, alter other systems.”
5. Your People Strategy
Your people want to for a boss who’s created a clearly defined structure for acting in the world. They want a structure through which they can test themselves and be tested. This structure is called a game.
The degree to which people buy into your game depends on how well you communicate the game to them at the outset of your relationship. Your People Strategy is the way you communicate this idea.
A few rules…
Never figure out what you want your people to do and then try to communicate a game out of it
Never create a game for your people you’re unwilling to play yourself
Make sure there are specific ways of winning the game without ending it
Change the game from time to time—the tactic, not the strategy
Never expect the game to be self-sustaining. People need to be reminded of it constantly
The game has to make sense
The game needs to be fun from time to time
If you can’t think of a good game, steal one
6. Your Marketing Strategy
“Forget everything but your customer.”
“Demographics and psychographics are the two essential pillars supporting a successful marketing program.”
“If you know who your customer is—demographics—you can then determine why he buys—psychographics.”
“If your customer doesn’t perceive he needs something, he doesn’t, even if he actually does.”
7. Your Systems Strategy
There are three kinds of systems in your business:
Hard Systems
Soft Systems
Information Systems.
“Hard Systems are inanimate, unliving things.”
“Soft Systems are either animate—living—or ideas.”
“Information Systems are those that provide us with information about the interaction between the other two.”
Recommended Reading
If you like The E-Myth Revisited, you may also enjoy the following books:
The 7 Day Startup: You Don’t Learn Until You Launch by Dan Norris by Dan Norris
Anything You Want: 40 Lessons for a New Kind of Entrepreneur by Derek Sivers
Deep Work: Rules for Focused Success in a Distracted World Book by Cal Newport
Buy this book–https://amzn.to/2V5Lnwe
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