The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It

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3 Sentence Summary

Too much time spent working in the business and not enough time spent working on the business is a big reason why 50% of new ventures fail within the first 5 years. In this book, Michael Gerber teaches us how to think about growing a business as if we were planning to franchise it. His Business Development Process is a framework for developing turn-key systems throughout an organization to produce predictable results and grow in a sustainable way.

5 Key Takeaways

1. Doing the technical work is a different set of skills from operating a successful business.
2. The business is the product.
3. You need a systems-dependent business, not a people-dependent business.
4. Make the customer experience consistent and predictable.
5. The greatest businesses in the world are franchises. They repeatedly produce high quality output.

The E-Myth Revisited Summary

The Entrepreneurial Myth

• Fatal Assumption: If you understand the technical work of a business, then you understand a business that does technical work. This is simply NOT true.
• A technician who tries to start a business will take the work he loves to do and turn it into a job.

The Entrepreneur, The Manager, and The Technician

• We are all three people at the same time.
• The Entrepreneur is the visionary. The dreamer. The catalyst for change.
• To the Entrepreneur, most people are problems that get in the way of the dream.
• The Manager is pragmatic. He plans, organizes, and compulsively clings to the status quo.
• 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 is the doer. He is happiest working in the current moment. He believes that thinking isn’t work; it gets in the way of work.
• The typical small business owner is only 10 percent Entrepreneur, 20 percent Manager, and 70 percent Technician.

Infancy: The Technician’s Phase

• The owner and the business are one and the same thing. Without you, the business would not exist.
• Infancy ends when the owner realizes that the business cannot continue to operate if you do it all yourself. At this point, you either close the doors or move on to adolescence.
• Remember: The purpose of going into business is to get free of a job so you can create jobs for other people.

Adolescence: Getting Some Help

• Many small business owners get another technician to help.
• But then they manage by abdication, rather than by delegation. The owner gets some of their time back as they give the new help more responsibility. But over time, the quality of the work begins to slip. Suddenly you realize that nobody really cares about your business the way that you do, or is willing to work as hard.

Beyond the Comfort Zone

• Every adolescent business reaches a point where it pushes beyond its owner’s Comfort Zone – the boundary within which he feels secure in his ability to control his environment, and outside of which he begins to lose that control.
• When this happens, many technician-turned-business-owners “get small” again. They get rid of what they could not control. They go back to infancy.
• You eventually find that you don’t own a business – you own a job.
• Other adolescent businesses will continue to grow faster and faster until they self-destruct from their own momentum.
• Still, others go into adolescent survival mode. The owners are there all the time because they have to be. Eventually, the business doesn’t break down – but you do.
• To avoid all of this, you have a job as a business owner to prepare yourself and your business for growth. To educate yourself sufficiently so that, as your business grows, the businesses foundation and structure can carry the additional weight.
• The key is to plan, envision, and articulate what you see in the future both for yourself and for your employees. Because if you don’t articulate it – write it down clearly – you don’t own it.
• A Mature company is different from an Adolescent company in that it starts differently. It is founded on a broader perspective of building something that works not because of you, but without you.

Maturity and the Entrepreneurial Perspective

• Mature companies started out as mature companies. They know how they got to be where they are, and what they must do to get where they want to go.
• “I realized that for IBM to become a great company it would have to act like a great company long before it ever became one.” – Tom Watson, Founder of IBM.

The Entrepreneurial Perspective

• Asks “How must the business work?”
• Sees the business as a system for producing outside results – for the customer – resulting in profit.
• Starts with a picture of a well-defined future, and then comes back to the present with the intention of changing it to match the vision.
• Envisions the business in its entirety, from which is derived its parts.
• Is an integrated vision of the world.
• The present-day world is modeled after his vision.

The Entrepreneurial Model

• Has less to do with what’s done in ta business and more to do with how it’s done. The commodity isn’t what’s important – the way it’s delivered is.
• It understands that without a clear picture of that customer, no business can succeed.
• The business is the product.
• The customer is always an opportunity.

The Turn-Key Revolution

• McDonald’s calls itself the “most successful small business in the world” because that’s exactly what it is.
• The Business Format Franchise proves the franchisee with an entire system of doing business.
• The true product of a business is the business itself.
• Ray Kroc understood that at McDonald’s, the hamburger wasn’t the product. McDonald’s was.
• You need a systems-dependent business, not a people-dependent business.
• You can’t say that McDonald’s doesn’t keep its promise. It does. Better than just about any other business in the world.
• McDonald’s has created a model for small businesses to emulate. One that does what it says it will do – every time.

The Franchise Prototype

• The Franchise Prototype is the place where all assumptions are put to the test to see how well they work before becoming operational in the business.
• It is the answer to the perpetual questions, “How do I give my customer what he wants while maintaining control of the business that’s giving it to him?”
• A Business Format Franchise is a proprietary way of doing business that successfully and preferentially differentiates every extraordinary business from every one of its competitors. In this light, every great business in the world is a franchise.
• How do we build a business that works predictably, effortlessly, and profitably each and every day?
• How do you build a business that works without you?
• How do you get free of your business to live a fuller life?

Working On Your Business, Not In It

• Your business is not your life. They are separate things.
• 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. Perfect replicas.
• Pretend that you are going to franchise your business.
• Great businesses are not built by extraordinary people but by ordinary people doing extraordinary things. But for ordinary people to do extraordinary things, a system – “a way of doing things” – is absolutely essential in order to compensate for the disparity between the skills your people have and the skills your business needs if it is to produce consistent results.
• The typical owner of a small business prefers highly skilled people because he believes they make his job easier. That is, they prefer management by abdication rather than by delegation.
• In a world of chaos, people crave order.
• The “Burnt Child” Syndrome is where a child is alternately punished and rewarded for the same kind of behavior. This form of behavior in a parent can be disastrous to the child; he never knows what to expect or how to act. It can also be disastrous to the customer. Make the experience consistent and predictable.

Rules to Follow

1. Must provide consistent value to your customers, employees, suppliers, and lenders, beyond what they expect.
2. It will be operated by people with the lowest possible level of skill.
3. It will stand out as a place of impeccable order.
4. All work will be documented in Operations Manuals.
5. It will provide a uniformly predictable service to the customer.
6. It will utilize a uniform color, dress and facilities code.

The Business Development Process

• Building the prototype of your business is a continuous process:
  1. Innovation
  2. Quantification
  3. Orchestration
• The franchisor aims his innovative energies at the way in which his business does business.
• The entire process by which the business does business is a marketing tool, a mechanism for finding and keeping customers.
• The business is the product, and how the business interacts with the consumer is more important than what it sells.

Innovation

• Innovation continually poses the question: What is standing in the way of my customers getting what he wants from my business?
• Innovation is the mechanism through which your business identifies itself in the mind of your customer and establishes its individuality.

Quantification

• Quantification is the numbers related to the impact an innovation makes.
• Without the numbers you can’t possibly know where you are, let alone where you’re going.

Orchestration

• Orchestration is the elimination of discretion, or choice, at the operating level of your business.
• Orchestration is the pursuit of producing a consistent, predictable result in the world of business.
• If you haven’t orchestrated it, you don’t own it.
• A franchise is simply your unique way of doing business. And unless your unique way of doing business can be replicated every single time, you don’t own it.
• The system must provide the vehicle to facilitate predictability. To give your customer what he wants every single time.
• Orchestration is nothing more than a habit.

Your Business Development Process

• Imagine yourself taking the potential buyer through your business, explaining each component and how it works with every other component.
• Your Business Development Program is the vehicle through which you can create your Franchise Prototype.

7 Step Process

1. Primary Aim
2. Strategic Objective
3. Organizational Strategy
4. Management Strategy
5. People Strategy
6. Marketing Strategy
7. Systems Strategy

Your Primary Aim

• What would you like to be able to say about your life after it’s too late to do anything about it?
• If you were to write a script for the tape to be played for the mourners at your funeral, how would you like it to read?
• Create an intentional life.
• As with Mature companies, I believe great people to be 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 for their lives that they practice emulating each and every day.
• They go to work on their lives, not just in their lives.
• “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.” – Don Juan from Carlos Castaneda’s A Separate Peace.
• Your Primary Aim gives you purpose, energy, and the grist for your day-to-day mill.

Before Starting, Ask Yourself

• 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?

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.
• Your business is a means rather than an end, a vehicle to enrich your life rather than one that drains the life you have.
• When creating standards for your Strategic Objective always ask yourself: What will serve my Primary Aim?
• The first standard of your Strategic Objective is money. Gross revenues. How big is your vision? How big will your business be when it’s finally done?
• To answer, you must ask: How much money do I need to live the way I wish?
• There is ultimately only one reason to create a business of your own, and that is to sell it.
• The second standard is to evaluate if this is an opportunity worth pursuing. Can it fulfill the financial standards you’ve set? This standard helps define two other requirements:
  1. What kind of business am I in? Not the product, but what the customer feels when they are served by you. People buy feelings.
  2. Who is my customer? What are the customer’s emotional or perceived needs?

Other Strategic Objectives

• When is your Prototype going to be completed? In two years? Three? Ten?
• Where are you going to be in business? Locally? Regionally? Nationally? Internationally?
• How are you going to be in business? Retail? Wholesale? A combination of the two?
• What standards are you going to insist upon regarding reporting, cleanliness, clothing, management, hiring, firing, and so forth?

Your Organizational Strategy

• You cannot organize a company around personalities. You must organize around accountabilities and responsibilities.
• Start with the org chart.
• Separate shareholders from employees. Remove yourself from the business.
• Imagine all of the positions that your company will need when it’s complete. All of the accompanying responsibilities. Then fill in each position with the employees that you have – even if that means you must take on more than one job title.
• Your org chart is the first blueprint of your Franchise Prototype.
• Build your business from the bottom up. Starting with the tactical work. The work that a technician does. Look at each position as if it were a Franchise Prototype of its own. Go to work on the position. Create the operations manual for that position. Then find someone willing to learn how to do it the way you created it to be.

Your Management Strategy

• A Management System is designed into your Prototype to produce a marketing result.
• You want it to be as automatic as possible.
• It must be effective at finding and keeping customers.
• An operations manual is a series of checklists.

Your People Strategy

• The work we do is a reflection of who we are.
• There is no such thing as undesirable work. There are only some people who look upon their work as a punishment for who they are and where they stand in the world, rather than as an opportunity to see themselves as they really are.
• Make sure people understand the idea behind the work that they’re being asked to do.
• The customer is not always right, but it is our job to make them feel that way.
• Everyone who works here is expected to work toward being the best she can possibly be at the tasks she’s accountable for.
• The business is a place where everything we know how to do is tested by what we don’t know how to do, and the conflict between the two is what creates growth.
• A business is like a dojo, a place you go to practice being the best you can be.
• The true combat in a martial arts practice hall is between the people within ourselves.
• Your people will always look to you as an example of how to act.
• In a world without purpose, without meaningful values, most of us scramble about hungrily seeking distraction, in music, in television, in people, in drugs. We seek things to fill the emptiness.
• We’ve fast become a world of things. And most people are being buried in the profusion.
• That’s what a business can do; it can create a Game Worth Playing. A place of community.
• In order to get people to do what you want, you’ll first have to create an environment that makes it possible.
• Delegating your accountabilities is abdication.
• Managers don’t simply manage people; your managers manage the System by which your business achieves its objectives.

Rules of the Game

• Never figure out what you want your people to do and then try to create 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 tactics, 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.

The Hierarchy of Systems

• How we do it here
• How we recruit, hire and train people to do it here
• How we manage it here
• How we change it here

Your Marketing Strategy

• What your customer wants is all that matters. And what your customer wants is probably significantly different from what you think he wants.
• 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.
• You must ask your customers about who they are. Send out surveys and questionnaires. Reward them for completion.
• You must be sensitive to the science of marketing art. You have to be interested in it.
• There isn’t a function or position within the company that is free of asking marketing questions if by marketing we mean, “What must our business be in the mind of our customers in order for them to choose us over everyone else?”

Your Systems Strategy

• You can build systems for hard systems, soft systems, and information systems.
• Hard systems might be the colors, letterhead, and tools that everyone uses.
• Soft systems include the way you do things and how you communicate.
• Information systems are the data that is recorded, organized, and used for decision making.

Epilogue

• If the world is to be changed, we must first change our lives.

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