One sentence summary: Any business that is not a reproducible unit will most certainly fail. Successful enterprises are system-dependent, not people-dependent
One paragraph summary: If you are a business owner or an aspiring entrepreneur The E-Myth Revisited by Michael E.Gerber is a must-read. Gerber offers great insight on how to avoid the most common business outcome — failure. Successful businesses are reproducible units and have managed to separate their entrepreneurial, managerial, and technical aspects. The E-Myth Revisited will guide you on how to achieve this delicate balance.
“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 E-Myth Revisited is one of the best business books out there. With its excellent narration and storytelling format, you will have a hard time putting it down — I certainly did. Gerber explains the basic nature of a business, pinpoints what the issues are, and offers solutions. He says that any business needs a manager to run things, an entrepreneur to forecast the future, and a technician to do the job. In a sole proprietorship, the owner has to be all of these things, which’s a problem.
Did you know that according to the Bureau of Labour Statistics, 20% of all small businesses fail within the first year? And that by the end of the fifth year, about 80% of them will have fallen? Given these grim statistics, every entrepreneur has a reason to listen to what Gerber has been advising since he first published the book in 1987.
Gerber is the founder of the Michael E. Gerber Companies, a consultancy that has helped over 25,000 small businesses avoid the terrible fate of closing down. Gerber’s mission is to “Transform the state of small business worldwide.” He believes that the key to creating a successful business is to make it reproducible in the same way that every Macdonalds is indistinguishable from any other.
A business that can run on its own frees the entrepreneur’s creative powers, gives the manager a stable and predictable job, and establishes a technician’s workplace.
You might be wondering, what’s all this talk about entrepreneurs, managers, and technicians? Gerber says that each of us has three personalities. Let me break them down for you:
The Entrepreneur: The entrepreneur is the visionary in each one of us. He/she lives in the future, never in the past, and you will rarely find them thinking about the present. Entrepreneurs are constantly planning and scheming better things.
The Manager: The manager is the pragmatist. They are concerned with order and execution. The manager struggles to maintain the status quo against the wild dreams of the entrepreneur.
The Technician: The technician is the personality that gets the work done. They have the skills that the manager seeks to control, and that the entrepreneur wants to enterprise. The technician hates the manager because he interferes with his work and is suspicious of the entrepreneur’s ideas and aspirations. To him, all that the entrepreneur does is to think, and thinking is not work.
Small businesses face the following situation: The entrepreneur creates a future that scares the hell out of the manager, whose only focus is on the now, while the technician sees both the manager and the entrepreneur as interfering with his job, which is to get things done. With such levels of conflict, no wonder few small businesses survive.
There are a lot of things to learn from the E-myth Revisited, but the following lessons stood out for me:
The myth of the heroic entrepreneur
The three phases of a business
The Turn-Key revolution changed how we do business
Work on your business, not in it
How to create your business development plan
“I think that maybe inside any business, there is someone slowly going crazy.” — Joseph Heller
The myth of the heroic entrepreneur is the widespread albeit false belief that entrepreneurs are having a blast. They aren't. As Gerber points out, most business owners are spent out, depressed, and on the verge of quitting. You may think that starting a business is a dream come true, but more often than not, it is a nightmare
The myth of the heroic entrepreneur is a dangerous tragedy for America because millions of people will stake everything to start a business, only to fail. It leads to many losses, crushed dreams, and a terrible wastage of human potential. Even more saddening are the years of life spent working on something that will not pan out in the end. Going by how Gerber describes it, no one would want to live their life that way.
Technicians start most businesses because of what Gerber calls the fatal assumption or the belief that if you understand the technical aspects of a business, you understand the business that does the technical work.
If it helps, think of a new business as a child who has to grow and even learn to take care of themselves someday. That’s the dream, really, but most businesses don't make it that far. Reason? They don’t move through the stages.
Gerber says that all businesses go through three stages: infancy, adolescence, and maturity.
At the ‘infancy phase,’ the business is run by the technician, usually the owner. They spend lots of time working on it to make sure it grows. With each growth cycle comes more responsibility. Most small business owners become overwhelmed by this spurt of growth and eventually quit.
A business transitions to the adolescence phase when the owner agrees they need help. That’s when they bring other people and delegate some of their duties to them. Giving control to others requires keeping track of the roles and responsibilities. Otherwise, the business risks slipping back to the infancy stage.
An important thing to do at the adolescence stage is to document everything. Gerber advises that you write everything about how the business works, the operating procedures and create a vision for the future.
A mature business is a business that can operate without the owner. It has a vision, mission, and everything else in place. More importantly, it is reproducible because it doesn’t rely on what the owner thinks and does. Rules and systems guide it.
Ever heard of the Turn-Key revolution? Me neither, until I read The E-Myth Revisited. To understand the Turn-Key revolution, we have to go back to 1952 when an assuming salesman walked to a hamburger stand in San Bernardino, California. His name was Ray Kroc. He was immediately taken aback by what he saw and realized right there and then that he could replicate the small hamburger and milkshake stand across America, and that’s how the Mcdonald’s chain of hotels was born.
Even today, decades later, Mcdonalds still refers to itself as the most successful small business in the world. That’s the power of the Turk-Key revolution — the ability to take a small business and franchise it. When you buy a franchise, you are essentially receiving the keys to an already established business.
The Franchise business model is one of the most successful business models in the world. Gerber reports that according to studies conducted by the US Commerce Department, less than 25% of franchise businesses went out of business in five years compared to 80% of small businesses.
The reason for the incredible success of the franchising business model is that it is a systems-dependent business and not a people-dependent business. A franchise will work no matter who buys it.
Scott Cook, the founder of Inuit of the largest tax firms in the US, also employed a similar approach. He started by calling random people and asking them how they did their tax returns to test his hunch that computers could simply the tax return process. He was right and set out to build his service.
Gerber asks small business owners to create a franchise prototype of their business that way, and they will have solved the entrepreneur’s problems, the manager, and those of the technician.
Here is a quote from the man:
“To The Entrepreneur, the Franchise Prototype is the medium through which his vision takes form in the real world. To The Manager, the Franchise Prototype provides the order, the predictability, the system so important to his life. To The Technician, the Prototype is a place in which he is free to do the things he loves to do—technical work”
Your life and your business are two very separate things, and you should not confuse one with the other. Gerber says a business exists to serve you and not the other way around. This reminds me of something I read from The Millionaire Fastlane about money trees. All my life, I’ve been told that money doesn’t grow on trees but guess what? A system-dependent business is as good a money tree as can get.
What does system-dependent mean? It means that the business has rules, procedures, a code of ethics, a vision, and a plan.
Gerber says how a business operates is more important than what it sells. Innovation is key here, but only if it is quantified; otherwise, there is no way to know if the innovation has any impact. As a business owner, you should continually look for ways to innovate.
From the very beginning, know what you want at the end of the line. The goal should be to create a lasting brand that can outlive you. If you are starting out and don’t have such a vision, chances are you won't make it.
In his book, Find Your Why, Simon Simek says that great businesses such as Apple have a convincing reason why they exist. The same situation should apply to your business. Gerber says that where the business is the product, how it interacts with the customer is more important than what it sells.
All this seems to fly in the face of anyone who starts a business to do what they love but that's the point. A business is never what you love to do, that's called a job. A business is a service to other people. It is about process not the product, so your goal should be to innovate on the process.
A way to do this is to create a business development plan by thinking of your business as a prototype for 5000 others. Ask yourself: “How would it look like?” Also, imagine someone looking to buy it, but only if it works without your input. When you figure out what needs doing, get a pen and paper and lay out an elaborate plan to get there.
The program should have seven distinct steps:
Your Primary Aim
Your Strategic Objective
Your Organizational Strategy
Your Management Strategy
Your People Strategy
Your Marketing Strategy
Your Systems Strategy
With time and much like The Richest Man in Babylon, The E-Myth Revisited will become a classic and a must-read by every entrepreneur. The book’s ideas will never grow old, and as long as some souls are willing to stake everything and start a business, they can always count on its wisdom. I rate it among the top 3 best business books ever written.
The main stand-out idea is that a business is all about balance. When you start, you’ve got to be equal parts the manager, entrepreneur, and technician. As the business grows, you can start bringing the right people to help you out as you take on more management roles. As the business matures, you should document everything and make it systems-dependent as opposed to people-dependent.
Gerber also cautions people against starting a business for the wrong reasons. A business is not the place you go to work; otherwise, that’s a job and the worst kind of job possible. A business is supposed to set you free, not enslave you.
I think everyone should read the E-myth Revisited and not just aspiring entrepreneurs. It has lessons that transcend the business world. It asks us to find a balance between the entrepreneur, the manager, and the technician in all of us. It emphasizes the need to strategize, plan, and document everything, and it does all of that in a humorous fun way.GET THE BOOK ON AMAZON
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