The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It.
The Book Summary
First published in 1986, The E-Myth Revisited walks you through the steps in the life of a business from entrepreneurial infancy, through adolescent growing pains, to the mature entrepreneurial perspective – the guiding light of all businesses that succeed.
Gerber also demonstrates how you can apply the lessons of franchising to your business – whether you’re a franchise or not. Finally, The E-Myth examines the vital distinction between working ON your business and working IN it.
The E-Myth shows you how to grow your business in a predictable and productive way. But it’s not easy. You’ll have to get rid of a lot of baggage, a lot of mythology and a lot of failed assumptions along the way.
About the Author
Michael E. Gerber is a legend of entrepreneurship. INC. magazine called him “the World’s #1 Small Business Guru”. He is the Co-Founder and Chairman of Michael E. Gerber Companies, a company that transforms the way small business owners grow their companies and which has evolved into an empire over its history of nearly three decades.
Gerber is a passionate believer in possibility for all who would pursue the entrepreneurial call. For this reason, everything that he does in business, and every book he writes is aimed at awakening the entrepreneur within the countless millions of people worldwide who are inspired by the possibility of creating world class companies – companies that fulfill that deep abiding vision in each of us to transform our world.
The Main Idea
The Entrepreneurial Myth – E-Myth for short – says that most new businesses are not started by entrepreneurs whose intentions are to build a strong business. They are, according to Michael Gerber, started by technicians who enjoy hands-on work. The result is that most business owners work IN their businesses now ON it. It’s this struggle that causes so many businesses to fail.
Gerber does, however, identify a simple and effective way you can offset the E-Myth.
He believes that by adopting a franchise mind-set, business owners can not only act as the technician, but also as a manager (putting systems in place) and as an entrepreneur with a vision for where they want the business to go.
According to Gerber, a business that has been built and managed by someone with all three of these traits has a far greater chance of growth and success. It’s this that The E-Myth Revisited looks at it in more detail, and explores how business owners can adopt each of these mind-sets.
Fact: Most Small Business Fail
They don’t fail because customers don’t ‘get’ what they do. They don’t fail because of the economy. And they don’t fail because of sheer bad luck. Gerber talks about the one fatal assumption that plagues many entrepreneurs: “If you understand the technical work of a business, you understand the business.”
Not only is this false, it’s this assumption that is, according to The E-Myth, the main cause of most business failures. There are four key principles that form the foundations for The E-Myth, according to Gerber. These are:
IDEA #1: Most new businesses are started by technicians – people who are skilled at what they do, and decide they would rather work for themselves than for someone else.
The biggest myth surrounding all new businesses is that people start their own company to make the world a better place. This, according to Gerber, is completely untrue.
Gerber argues that, in the majority of cases, businesses are started by someone who is very good at doing something technical – whether it’s accounting or copywriting, hairdressing or plumbing – and enjoys doing this work.
He says that one day they have an “entrepreneurial flash of inspiration”. It’s at this point they decide that instead of working for someone else, they want to work for themselves and decide to start their own business.
IDEA #2: Almost all new business owners assume that, because they understand the technical work of the business, they understand how a technical business works. In reality, these are two completely different issues, and blurring the two is a fatal error.
New business owners that spend their time doing the technical work – working IN their businesses, not ON them – are more of a liability than an asset, according to Gerber. He cites three reasons for this:
Business building or managerial skills are far more important that the technical skills and mere output for any new business.
The technician will soon find themselves resenting the work they once loved as it becomes a chore that needs to be ‘squeezed in’.
Sooner or later, business owners realise the technical work can be done by someone else. The business building tasks that replace the technical work they once enjoyed is then found to be challenging and less interesting.
As a result, Gerber argues that many new business owners become disillusioned and discouraged.
To illustrate his point, Gerber shared the example of a lady – Sarah – who owned a pie shop. Sarah loved baking pies and dreamed of owning her own pie shop. Three years later though, running her business wasn’t about baking pies. She found the work she used to love, was now the work she hated. Sarah said:
“I get to the bakery at 3 am and bake pies, open the shop, take care of customers, clean up, close up, take the money to the bank, have dinner and get the pies ready to bake for the next morning so I can start another long day. And this goes on 6 days a week, year-round.”
This is a scenario that will be all too familiar for many business owners. Many business owners will have found that, at some point along their journey as an entrepreneur, that they no longer loved the technical work they had once enjoyed so much. At some point, the daily running of a business will come almost impossible to those who remain solely focused on technical work.
IDEA #3: To build a business successfully, you need three personality traits and skill-sets – the entrepreneur, the manager and the technician.
These are the three personas or skill-sets that Gerber identifies as being necessary in order for business growth success. There is one fundamental flaw though. Gerber argues that, while all three of these personas want to BE the boss, none of them want to HAVE a boss. However, for a new business to succeed, all three skill-sets are ultimately required.
Gerber goes on to identify their traits possessed by each of these personas.
The entrepreneur turns everything into a huge commercial opportunity. There are the dreamers and focus on the future.
Managers are pragmatic and concerned with systems and processes. They focus on the past and cling to the status quo.
Technicians like doing the work. They’re hands-on, live in the present and like to get stuff done and done on time.
Gerber argues that typically business owners are 10% entrepreneur, 20% manager and 70% technician. However, he believes that the best personality profile for a business owner is 33% entrepreneur, 33% manager, 33% technician.
IDEA #4: Most businesses go through three phases of growth – infancy (when the technician is in their element), expansion (when management skills are required) and maturity (when you need an entrepreneurial perspective).
In The E-Myth, Gerber argues that most problems arise when a business is run according to what the owner wants as opposed to what the business needs. He also discusses that, as you may expect, the needs of a business vary at different stages of its development.
At each phase of its growth, there are a number of challenges you need to overcome and a number of important steps that need to be taken in order for the business to continue to grow and move forward successfully.
Gerber identifies these stages as infancy, expansion and maturity, and those needs as he sees them are:
Stage 1 – Infancy
When a business is in its infancy, Gerber argues that if you remove the technician the business would disappear. The Technician needs to do everything themselves in those early stages, and the business’s success is riding on them.
Gerber believed that infancy in business ends when the technician gets sick of juggling everything themselves, and realised change is needed if the business is to grow and move forwards – much like Sarah in the earlier pie shop example.
It’s then the business enters the ‘expansion’ or ‘adolescent’ stage.
Stage 2 – Expansion
Every business owner – and each individual persona for that matter – has a comfort zone. Gerber states that, once a business grows beyond those comfort zones, there are four possible responses and four possible outcomes:
Get small again: effectively taking the business back to the infancy stage where things were comfortable and easier.
Go for broke: try and grow the business fast enough to generate the resources needed to manage itself.
Hang in there: hoping for the best that order will emerge from the chaos and things will just ‘sort themselves out’.
Move to maturity: if the business owner is willing to learn and grow new skills, they can move their business to the next stage.
Stage 3 – Maturity
According to Gerber, a business reaches the third stage, maturity, when the owner has a realistic sense of how it got to where it is and an accurate understanding of what must be done to move it forwards. A business reaches maturity when the customer takes centre stage, rather than the product or the service.
Using a Turn-Key or Franchise Perspective
Gerber believes that by applying the principles of franchising to any business you can increase your productivity and chances of success. The challenge then is to maximise the amount of time you spend working on your business rather than in it.
Gerber identifies six key rules which business owners must follow if they want to take on this mentality and build a successful franchise around their business:
Your business model must deliver value that consistently exceeds the expectations of your customers, staff, suppliers etc. in order for there to be any long-term business success.
The model must have systems in place that mean people with lower skill levels can operate the business successfully. In short, your model needs to be systems-based rather than expert-dependant.
A business structure must be in place around which everything else can be added and expanded.
All systems, processes and work steps should be clearly articulated in a written Operations Manual.
You must deliver a service that is uniform and predictable. Doing the same things in the same way is a hallmark of success in business. Customers like consistency.
The branding of the model must be consistent as great businesses pay attention to the finer details like colours and dress code.
Gerber argues that by focusing your efforts to work ON your business rather than IN it, you will be able to see it steadily and consistently grow. The mind-set helps you to identify and overcome many of the day-to-day business challenges – such as how can the business work productively when you’re not there in person.
He also believes that treating your business as the model for a future franchise system forces you to focus on the right issues, instead of the more common ones. ANd in doing so, Gerber says that this will increase your chances of success – whether you end up franchising your business or not.
Final Thoughts
If you’re struggling to move your business forwards, get your mind-set right, or deal with challenges in the day-to-day running of your business. The E-Myth will certainly help give you clarity and transform your thinking.
Michael Gerber’s no-nonsense approach to business is refreshing and will certainly leave you bursting with inspiration, insights and useful nuggets to take your business to the next level. With plenty of advice and real-world examples to illustrate his points, Gerber really will challenge and change what you thought you knew about running a business.
Whether your business is in its infancy or not, The E-Myth Revisited will certainly get you thinking about how you can apply these principles to your Children’s Activity Business.