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

If you own a bakery, you don’t want to bake the best cakes in town. You want to create a system that bakes the best cakes in town. You want your cake baking system to enable the ordinary people you hire to produce extraordinary results.

“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…” – Michael Gerber

To prevent your business from turning into a personal prison you must replace yourself (and all your unique talents) with a unique system. The entrepreneurial perspective is about “building a business that works not because of you but without you.” – Michael Gerber

How do you build such a system?

Here’s how…

Recommendation

Business owners typically learn about corporate pitfalls the hard way. After falling into a professional pit, entrepreneurs are forced to yank themselves up by their fraying bootstraps. Fortunately, Michael E. Gerber provides a well-written tutorial about business plans, strategic growth and employee management. He delivers an elegant dose of reality with strategic examples, concrete numbers and marketing insights. At times, some of the examples and scenarios are a bit sappy and repetitive, but the book scores points for delivering difficult lessons in bite-sized portions. We recommend this book to entrepreneurs and other dreamers.

Take-Aways

• Many entrepreneurs mistakenly confuse the technical craft of a business with the strategic requirements of a company.
• Entrepreneurs typically face four stages: excitement, fear, fatigue and depression.
• Every new business owner wears three hats: “The Entrepreneur” (the visionary), “The Technician” (the technical expert), and “The Manager” (the pragmatic).
• Start-up businesses suffer when technical concerns overshadow visionary and pragmatic plans.
• During a company’s infancy, the entrepreneur becomes synonymous with his or her emerging business.
• If your business runs your life, you do not have a company, but rather you have the worst type of job.
• In a mature company, the business owner has a strategic plan for growth.
• An excellent operating system is more important than the company’s product.
• McDonald’s is the world’s “most successful small business.”
• Discipline, standards and procedures are the calling cards of a successful company.

Imagine you want to hire a Salesperson for your business. You start by considering how you want your company to interact with its customers. You test different wording for your sales calls and modify your sales script to increase its effectiveness. You write down everything you learn in your company’s Sales Operation Manual.

“Before long, the Sales Operations Manual contains the exact scripts for handling incoming calls, outgoing calls, meeting the customer at the door. The exact responses to customer inquiries, complaints, concerns. The system by which an order is entered, returns are transacted, new product requests are acted upon, inventory is secured.” – Michael Gerber

When building your operations manual, ask yourself:

“What would best serve our customer here? How could I most easily give the customer what he wants while also maximizing profits for the company? And at the same time, how could I give the person responsible for that work the best possible experience?” – Michael Gerber

When your Sales Operation Manual is complete (and you’ve followed your procedures exactly as you’ve written them to get results you desire), it’s time to run an ad for a salesperson.

“But not for someone with sales experience. Not a Master Technician. But a novice. A beginner. An Apprentice. Someone eager to learn how to do it right. Someone willing to learn what (you’ve) spent so much time and energy discovering. Someone for whom questions haven’t become answers. Someone who is open to the possibility of learning skills he hasn’t developed yet, skills he wants to learn.

“The Rule of Ordinary People—that says the blessing of ordinary people is that they make your job more difficult. The typical owner of a small business prefers highly skilled people because he believes they make his job easier—he can simply leave the work to them. That is, the typical small business owner prefers Management by Abdication to Management by Delegation.

“Unfortunately, the inevitable result of this kind of thinking is that the business also grows to depend on the whims and moods of its people. If they’re in the mood, the job gets done. If they’re not, it doesn’t. In this kind of business, a business that relies on discretion, ‘How do I motivate my people?’ becomes the constant question. ‘How do I keep them in the mood?’ It is literally impossible to produce a consistent result in a business that depends on extraordinary people. No business can do it for long. And no extraordinary business tries to!” – Michael Gerber

After hiring an ‘ordinary’ person to be your salesperson, hand them the manual and walk them through it. In a few weeks you’ll have your replacement performing the job just as good as you did. Now that you’ve freed yourself from the sales position, you can develop systems for other areas of your business.

“The system becomes the tools your people use to increase their productivity, to get the job done in the way it needs to get done in order for your business to successfully differentiate itself from your competition.” – Michael Gerber

Make it your mission to work ON the business (building systems) instead of IN the business. Aim to be non‐essential to any system that produces your company’s product or service.

“What most people need, then, is a place of community that has purpose, order, and meaning. A place in which being human is a prerequisite, but acting human is essential. A place where the generally disorganized thinking that pervades our culture becomes organized and clearly focused on a specific worthwhile result. A place where discipline and will become prized for what they are: the backbone of enterprise and action, of being what you are intentionally instead of accidentally. A place that replaces the home most of us have lost. That’s what a business can do; it can create a Game Worth Playing.” – Michael Gerber

Summary

False Bill of Goods

A false system is cheating small business owners. Quite frankly, the owners of small corporations spin their wheels performing the wrong type of work. Basically, the returns they earn from their businesses fall dramatically short in relation to their investment of time and energy. The numbers don’t lie: Each year, more than a million people launch new businesses in the United States. Unfortunately, within 12 months, 40% of those start-ups close. And after five years, more than 80% (roughly 800,000) no longer exist. Most entrepreneurs are victims of their own fictions, fantasies and lack of knowledge. They govern themselves according to four concepts:

1. The Myth of the Entrepreneur – This false idea, the “E-Myth,” states that people launch start-up companies because of the entrepreneurial spirit – the desire to create profits from investment capital. In fact, people start businesses for many reasons, but entrepreneurship doesn’t have that much impact.
2. “Turn-Key Revolution” – The franchise movement generated this wave of change, enabling an entrepreneur who buys a license to become the local outlet for a nationwide product. Franchising is dramatically altering the global approach to business.
3. Development of Business Procedures – Innovative strategies, processes and systems are changing the way companies develop and manage business. Entrepreneurs who fail to understand the importance of systems create businesses that don’t work, because they are based mostly on “management by luck.” Those who properly use the “business development process” can thrive.
4. Universal Application of Turn-Key Principals – When a franchisee buys a turn-key format, he or she gets “an entire system of doing business.” Most franchise entrepreneurs think they are selling a product; in fact, they are selling the well-known name on their marquees. In other words, “the true product of the business is the business itself.”

Entrepreneurs and Fiction

Corporate history is filled with fictional, heroic tales about entrepreneurs. The legend says: In a difficult environment, a brave woman or man defies all odds and scores profits, fame and headlines. Such tales are rarely true. Here’s the real story: The initial spark of entrepreneurial spirit dissolves into terror, exhaustion and misunderstanding. Most businesses are not started by visionary entrepreneurs, but by bookkeepers, barbers, plumbers, salespeople and secretaries, who are tired of working for someone else. Due to a life-changing event, a milestone moment or a bad day at the office, these “technicians” suddenly get hit by an entrepreneurial spirit and begin to develop their own companies.

“The people who own small businesses…work far more than they should for the return they’re getting.”

But a deadly assumption flaws their business development efforts: a misplaced faith in technical talent. Here’s how it works: A successful interior designer will attempt to open her own home design store or an excellent graphic artist may falsely believe that his creative talent will translate into the skills needed to manage an advertising business. Both rookie business owners fail to understand that mastery of a business involves far more than mastering a craft. When the number-crunching realities of business set in, the novice owner wakes up to a corporate nightmare.

Three Hats – One Head

Most small business owners face a fierce inner tug-of-war. That’s because owners of start-up companies typically wear three hats: the techie’s cap, the manager’s fedora and the entrepreneur’s visionary crown. Those functions compete for the beleaguered small start-up owner’s limited time and energy. Imagine trying to follow the worst diet you ever tried with a personal trainer, a dietician and a binge-eater all residing in your head.

“Great businesses are not built by extraordinary people but by ordinary people doing extraordinary things.”

Here’s a short rundown of each role:

1. “The Entrepreneur” – This is your inner dreamer. With grand visions of corporate development, the entrepreneur marries the future. In this role, the business owner constantly pushes the envelope, but hates the nitty-gritty details involved in actually licking the envelope. Your inner entrepreneur gives the firm its creative spark.
2. “The Manager” – This is your practical side. The office chief operates in the past, and knows how many envelopes were purchased and licked last year. The manager buys supplies and organizes workstations, order forms and other nuts-and-bolts details. Without your inner manager, your business will lack structure.
3. “The Technician” – This is your inner office grunt. The techie does the work, and produces the goods and services. The techie licks the envelopes that the entrepreneur pushes and the manager purchases. Your inner techie lives in the moment. Without the techie you have no product; but when the techie takes over, your company lacks business development and strategic procedures.

Baby Steps: The Technician’s Domain

For the technician, the ideal workplace offers freedom from change, oversight and other managerial constraints. Unfortunately, a change-free company is doomed because business survival depends on growth and the ability to navigate through the three stages of corporate life: toddler, teen or corporate “adolescent,” and adulthood. A company’s owner needs to understand each phase and develop a strategy for managing growth.

“Luck and speed and brilliant technology have never been enough because somebody is always luckier, faster and technologically brighter.”

The signs of corporate “infancy” are clear. In the early years of a business, the owner works as many as 14 hours daily, including weekends. This stage is the playground for the techie, who takes on the new business as an occupation and a preoccupation. During this phase, the business owner resembles a juggler with several objects in the air. What’s more, without the owner, the infant company does not exist. But a crisis develops when the exhausted owner confronts more work than he or she can personally handle.

Corporate Teen Years: Reaching Out for Help

This infant stage ends when the entrepreneur realizes that the company cannot survive as a solo performance. Like a bad case of acne, the onset of a corporate crisis usually signals the beginning of adolescence in a company’s life span. To cope with the growth pains, the stressed owner reaches out for technical support. At this critical juncture, the owner hires the company’s first worker, and delegates jobs and functions. Liberated, the owner abdicates authority and control. The arrangement works fine until the new employee feels overworked and resigns, or underperforms and gets fired. Faced with complaints and operational gaps, the technician must develop a managerial operational plan and a strategic vision. To build management skills and entrepreneurial vision, the business owner is forced to stretch past his or her “comfort zone.”

Maturation: Finding a Balance

Federal Express, Disney and McDonald’s are excellent models of mature businesses, companies that have reached the third, adult stage of corporate development. A mature company operates with a clear destination and a well-designed map. Business owners who endure corporate infancy and adolescence acquire an “entrepreneurial perspective,” that is, a balanced business strategy. Given this hard-won perspective, an entrepreneur can examine how the company should work, while the techie focuses only on the type of work the company should complete. The entrepreneur creates an ideal corporate model for the future and labors to make the current environment match that vision. The techie remains fixed in the present. While the balanced entrepreneur understands the importance of well-constructed systems and business models, the techie focuses on product.

The Franchise Model of Success and Systems

The development of McDonald’s represents an important milestone in corporate history. Without exaggeration, McDonald’s can be billed as “The Most Successful Small Business in the World.” The chain was launched in 1952 when salesman Ray Kroc convinced two brothers who owned a successful hamburger restaurant to let him operate a franchise using their surname, and their systematic process for selling burgers and fries. The founding brothers used efficiency and speed to produce inexpensive food. The company’s success validated Kroc’s recognition of their genius, as the McDonald’s system became the world’s largest restaurant chain, with $40 billion in annual sales. It represents more than just a model of franchise success; it illustrates the beauty of well-executed systems and formats.

Your Business and Your Life

Many small business owners merge their personal lives into their business careers. Ultimately, that creates a very hostile takeover. Use these discussion points to regain control of your life:

• How will I make myself replaceable in my business?
• What’s the best way to delegate my duties and responsibilities?
• What procedures should I implement to make the business replicate itself?
• How should I design systems that will let me focus on the tasks I enjoy?

“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.”

Fortunately, you can follow a few clear rules to prevent your business from overrunning your life. For example, adhering to a business model and a definitive set of procedures will restore and maintain order.

Here are the rules:

1. Create a business model based on the company’s central values.
2. Build a system that workers with the “lowest-possible skills” within their given positions or ranks can use. This process creates a business that depends on systems rather than experts or talented individuals.
3. Make your system a model of flawless order.
4. Document procedures in employee manuals.
5. Provide your customers with uniform services and products.
6. Establish a dress code; implement a standard of design for stores and office sites.

Procedures for Developing Business

Building a business depends on three functions: “innovation,” “quantification” and “orchestration.” Innovation yields new ways to deliver service and products. Successful business owners constantly seek different ways to provide clients with excellence. Even a new, but intriguing way of greeting customers could be a significant innovation. Quantification is the process of measuring results and processes with numbers and benchmarks. Without quantification, an owner is clueless. Finally, “orchestration” means executing your systems and procedures; it is the blueprint for your operation.

How to Create Your Own Prototype

Your assignment: Review your business as if your operation is the model for 5,000 identical units. Imagine that you are designing the operations manual for other franchise owners in your corporation.

“Begin living your life as if it were important.”

Build your program based on the following considerations:

1. Name your primary goal – How would you like to be remembered? What are your long- and short-term goals? What are your material and spiritual goals?
2. State your strategic aim – What are your standards? How do you define your business? Who are your customers?
3. Outline your organizational strategy – What does your organizational chart look like? What are the key functions of each job? How can you replace yourself?
4. Discuss your management plan – How do you train your managers? Does your operating manual match your marketing and customer service objectives?
5. Clarify your personnel strategy – How do you train your staff? What is your system for rewarding and punishing your team members? How do you keep employees motivated and sharp?
6. Fine-tune your marketing program – What do customers expect? What are the unspoken needs of the marketplace? How does your customer make purchasing decisions?

“Your business is not your life.”

Discuss your systems plan – Examine your equipment, décor, sales plans and presentations. How effective are those systems? Quantify the number of sales calls, appointments and customer surveys that your staff members undertake. How do your systems reflect your personality, goals and talents?

About the author

Michael E. Gerber, chairman, CEO and founder of E-Myth Worldwide, is the author of The E-Myth. Gerber has re-engineered operating strategies for more than 25,000 small businesses and entrepreneurs.

Review

Book Overview:

“The E-Myth Revisited” is a business self-help book that provides insights and strategies for small business owners to overcome common challenges and achieve success. The book is written by Michael E. Gerber, a well-known author and small business expert. It was first published in 1985 and has since become a classic in the business literature. The book is divided into three parts, each of which explores a different aspect of small business ownership and management.

The book is divided into three parts, each of which focuses on a critical aspect of small business ownership:

Part I: The Common Pitfalls of Small Business Ownership

In this part, Gerber identifies and explores the most common mistakes that small business owners make. These include:

• Myth #1: The Myth of the Entrepreneurial Personality
• Myth #2: The Myth of the Business Plan
• Myth #3: The Myth of the Business Itself
• Myth #4: The Myth of the Owner-Manager
• Myth #5: The Myth of the Expertise

Part II: The Five Essential Ingredients of a Successful Business

In this section, Gerber outlines the five essential ingredients that he believes are necessary for a small business to succeed. These include:

• The Entrepreneurial Mindset
• The Turnkey System
• The Innovator’s Mindset
• The Strategic Mindset
• The Financial Mindset

Part III: The Four Stages of a Successful Business

In the final part of the book, Gerber explains the four stages of a successful business journey:

• The Marketplace Stage
• The Organizational Stage
• The Managerial Stage
• The Enterprise Stage

Key Takeaways:

• The E-Myth: The book introduces the concept of the “E-Myth,” which stands for the Entrepreneurial Myth. This is the idea that most small business owners are not entrepreneurs at all, but rather technicians or managers who have been miscast in the role of entrepreneur. The E-Myth is the belief that success in business is based on individual skills and talents, rather than on a well-designed business system.
• The Three Myths: Gerber identifies three main myths that hold small business owners back from success. These myths are:
  • The Technician Myth: The belief that success in business is based on technical skills and expertise.
  • The Manager Myth: The belief that success in business is based on management skills and the ability to oversee a team.
  • The Entrepreneur Myth: The belief that success in business is based on individual entrepreneurial skills and talents.
• The Solution: Gerber argues that the key to success in small business is to focus on designing a well-structured business system, rather than relying on individual skills and talents. He provides a step-by-step process for creating such a system, which includes identifying the business’s “sweet spot” (the unique value proposition that sets the business apart from competitors), defining the business’s “dream 100” (the ideal customers who are most likely to buy the business’s products or services), and creating a “world-class” (i.e., highly efficient and effective) business system.
  • The Three Stages of Business: Gerber identifies three stages of business development: the Survival Stage, the Success Stage, and the Scaling Stage. He argues that most small businesses get stuck in the Survival Stage and never advance to the Success Stage or the Scaling Stage.
  • The Role of the Business Owner: Gerber emphasizes the importance of the business owner’s mindset and the need for them to let go of their technical and managerial roles in order to focus on the bigger picture and the long-term success of the business. He argues that the business owner’s primary role is to create a vision for the business and to ensure that the business is well-designed and well-executed.

Strengths:

• Practical advice: The book provides practical advice and strategies for small business owners to overcome common challenges and achieve success.
• Well-structured: The book is well-structured and easy to follow, with each chapter building on the previous one to provide a comprehensive overview of the topics covered.
• Insightful: The book offers insightful observations about the challenges of small business ownership and the reasons why most small businesses fail.

Weaknesses:

• Limited scope: The book focuses primarily on small businesses and may not be applicable to larger organizations or enterprises.
• Outdated: Some of the concepts and strategies presented in the book may be outdated or no longer relevant in today’s fast-changing business environment.
• Lacks depth: Some readers may find that the book lacks depth in certain areas, such as financial management or marketing strategy.

Criticism and Limitations:

While “The E-Myth Revisited” is an excellent book that offers valuable insights into the challenges of small business ownership, some critics have raised the following points:

• The book can be repetitive and dry at times, which may make it challenging for some readers to stay engaged.
• Gerber’s advice may be too broad and not tailored to the specific needs of individual businesses.
• The book does not provide enough practical examples or case studies to illustrate its points.
• Some readers may find the book’s emphasis on the entrepreneurial mindset to be overly simplistic or unrealistic.

Overall, “The E-Myth Revisited” is an essential read for small business owners and aspiring entrepreneurs. It challenges conventional wisdom and provides a roadmap for building a successful business. By addressing the common pitfalls that small business owners face and offering practical strategies for overcoming them, Gerber equips readers with the tools and mindset necessary to create a thriving enterprise. Whether you are just starting out or have been in business for years, this book offers invaluable insights and guidance for achieving long-term success.