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The E-Myth Revisited by Michael E. Gerber
Why Most Small Businesses Don’t Work and What to Do About It
My Thoughts
This is a good book if you are a business owner, entrepreneur, or work in a management position where you have input in how the company operates. It includes a lot of advice for developing systems and processes in your business.
One of my favorite lessons is understanding the difference between working in your business and on your business.
My Favorite Quotes
- What makes people work is an idea worth working for.
- If your thinking is sloppy, your business will be sloppy.
- It is literally impossible to create a consistent result in a business that depends on extraordinary people.
- The model will be operated by people with the lowest possible level of skill necessary.
- If your model depends on highly skilled people, it will be impossible to replicate. Such people are at a premium in the marketplace.
- Great business are not built by extraordinary people, but by ordinary people doing extraordinary things.
- Great people have a vision of their lives that they practice emulating every day.
- A man of knowledge lives by acting, not by thinking about acting.
Key Questions
- How big can your business naturally become?
- Where do I wish to be?
- When do I wish to be there?
- How much capital will that take?
- How many people, doing what work, and how?
- What technology will be required?
- How large a space will be needed? At benchmark 1, 2, and 3.
- How must the business work?
- 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?
- How can I give my customers the results they want systematically rather than personally? How can I create a business whose results are systems dependent rather than people dependent?
- What is the best way to do this?
- Without quantification, how would you know whether the innovation worked?
- 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?
- 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, friends, business associates, customers, employees, 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?
- What is your product?
- What feeling will your customer walk away with?
- What is he really buying when he buys from you?
Introduction
The “E-Myth” says that small businesses are started by entrepreneurs risking capital to make a profit. This is not so, most businesses are started by technicians.
What makes people work is an idea worth working for. Along with a clear understanding of what needs to be done.
Your business is a reflection of you. If your thinking is sloppy, your business will be sloppy. If you are disorganized, your business will be disorganized. If your information about what needs to be done in your business is limited, your business will reflect that limitation.
Part 1: The E-Myth and American Small Business
Chapter 1: The Entrepreneurial Myth
The Fatal Assumption made by all technicians who go into business for themselves: if you understand the technical work of a business, you understand a business that does that technical work.
The technical work of a business, and a business that does that technical work are two totally different things.
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.
A technician who starts a business often experiences an entrepreneurial seizure, which leads to the following feelings:
- Exhilaration
- Terror
- Exhaustion
- Despair
Chapter 2: The Entrepreneur, the Manager, and the Technician
Everybody who goes into business is three-people-in-one:
- The Entrepreneur (Dreams)
- The Manager (Frets)
- The Technician (Ruminates)
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”. In business, the Entrepreneur is the innovator, grand strategist, creator of new methods.
The Entrepreneur’s worldview is a world made up of both an overabundance of opportunities and dragging feet.
The Manager
The Manager craves order, compulsively clings to the status quo. While entrepreneur sees opportunities, manager sees the problems.
The Manager creates neat orderly rows of things. The Entrepreneur creates the things that the manager puts in rows.
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
Technician is the doer : “if you want something done right, do it yourself”.
To The Technician, thinking is unproductive unless it’s thinking about the work that needs to be done.
If the three were equally balanced in one person, we’d be describing an incredibly competent individual.
The Entrepreneur would be free to forge ahead into new areas of interest.
The Manager would be solidifying the base of operations.
The Technician would be doing the technical work.
Chapter 3: Infancy: The Technician Phase
Three phases of a business’s growth:
- Infancy
- Adolescence
- Maturity
As long as you view your business from the technician’s perspective, you are doomed to continue in a complicated and frustrating job.
If your business depends on you, you don’t own a business, you have a job.
The purpose of going into business is to get free of a job so you can create jobs for other people.
Infancy ends when the owner realizes that the business cannot continue to run the way it has been. That in order for it to survive, it has to change.
Chapter 4: Adolescence: Getting Some Help
The big error most technicians make when they hire the first employee is management by abdication rather than delegation.
Chapter 5: Beyond the Comfort Zone
Every adolescent business reaches a point where it pushes beyond it’s owner’s comfort zone (or boundary).
- The technician’s boundary is determined by how much he can do himself.
- The manager’s boundary is determined by how how many technicians he can supervise effectively, or how many subordinate managers he can organize into a productive effort.
- The entrepreneur’s boundary is a function of how many managers he can engage in pursuit of his vision.
How big can your business naturally become?
Whatever that size is, any limitation you place on its growth is unnatural, shaped not by the market or your lack of capital, but by your own personal limitations. Your lack of skill, knowledge, experience, and most of all passion for growing a healthy, functionally dynamic business.
A business that “gets small again” is a business reduced to the level of its owner’s personal resistance to change – its owner’s comfort zone. The owner works and waits for something positive to happen.
Your job is to prepare yourself and your business for growth. To educate yourself sufficiently so that, as your business grows, the foundation and structure can carry the additional weight.
It’s up to you to dictate your business’s rate of growth by understanding the key processes that need to be performed, the key objectives that need to be achieved, the key position you’re aiming for in the marketplace.
You do this by asking the right questions:
- Where do I wish to be?
- When do I wish to be there?
- How much capital will that take?
- How many people, doing what work, and how?
- What technology will be required?
- How large a space will be needed? At benchmark 1, 2, and 3.
You must plan, envision, and articulate what you see in the future for your business and employees. Unless you write it down, clearly, so others can understand it, you don’t own it!
Any plan is better than no plan. In the process of defining the future, the plan begins to shape itself to reality.
Chapter 6: Maturity and the Entrepreneurial Perspective
IBM is what it is today for three special reasons:
- At the very beginning it had a clear picture of what the company would look like when it was finally done.
- Once he had the picture, he asked himself how a company that looked like that would have to act. He created a picture of how IBM would act when it was done.
- Once he had a picture of how IBM would look, and how it would have to act. He realized that unless they acted that way from the very beginning, they would never get there.
In order for IBM to become a great company, it would have to act like a great company long before it ever became one.
Every day at IBM was a day devoted to business development, not doing business. We didn’t do business at IBM, we built one.
This section has a great comparison of the entrepreneurial perspective and the technician’s perspective.
The entrepreneurial perspective asks “How must the business work?” The technician’s perspective asks “What work has to be done?”
There are several more comparisons given which I didn’t take notes on.
Part 2: The Turn-Key Revolution: A New View of Business
Chapter 7: The Turn-Key Revolution
What Ray Kroc understood at McDonald’s was the the hamburger wasn’t his product, McDonald’s was.
Chapter 8: The Franchise Prototype
A systems-dependent business, not a people-dependent business.
The system runs the business, the people run the system.
From a certain viewpoint, every great business in the world is a franchise.
Chapter 9: Working on Your Business, Not in It
Your business is not your life.
Pretend that your business is the prototype for 5,000 more just like it. Pretend that you are going to franchise your business.
Rules to follow to win the franchise game:
- The model will provide consistent value to your customers, employees, suppliers, and lenders beyond what they expect.
- The model will be operated by people with the lowest possible level of skill necessary.
- The model will stand out as a place of impeccable order.
- All work in the model will be documented in operations manuals.
- The model will provide a uniformly predictable service to the customer.
- The model will utilize a uniform color, dress, and facilities code.
It is literally impossible to create a consistent result in a business that depends on extraordinary people.
One: The model will provide consistent value to your customers, employees, suppliers, and lenders beyond what they expect.
What could your prototype do that would not only provide consistent value to your customers, employees, suppliers and lenders, but would provide it beyond their wildest expectations?
Two: The model will be operated by people with the lowest possible level of skill necessary.
If your model depends on highly skilled people, it will be impossible to replicate. Such people are at a premium in the marketplace.
The question you need to keep asking is: How can I give my customers the results they want systematically rather than personally? How can I create a business whose results are systems dependent rather than people dependent?
How can I create an expert system rather than hire one?
Great business are not built by extraordinary people, but by ordinary people doing extraordinary things.
People who are systems oriented (as all your people must be) learn how to more effectively make things work for your customers and for your business by learning how to improve the systems.
It is your job to develop systems and tools and teach your people how to use them.
It is your people’s job is to use the tools you’ve developed and recommend improvements based on their experience with them.
It is literally impossible to create a consistent result in a business that depends on extraordinary people.
When you intentionally build your business around the skills of ordinary people, you will be forced to ask the difficult questions about how to produce a result without the extraordinary ones.
You will be forced to find a system that leverages your ordinary people to the point where they can produce extraordinary results over and over again.
You will be forced to invent innovative system solutions to the people problems that plague businesses. You will be forced to build a business that works.
Three: The model will stand out as a place of impeccable order.
At the core of rule three is the fact that in a world of chaos, most people crave order.
Four: All work in the model will be documented in operations manuals.
Documentation says, “This is how we do it here.”
Without documentation, all routinized work turns into exceptions.
Documentation designates the purpose of the work, specifies the steps needed to be taken while doing that work, and summarizes the standards associated with both the process and result.
Six: The model will utilize a uniform color, dress, and facilities code.
All consumers are moved to act by the colors and shapes they find in the marketplace. The colors and shapes of your model could make or break your business.
In summary of the chapter.
Go to work on your business rather than in it, and ask yourself the following questions:
- How can I get my business to work without me?
- How can I get my people to work without my interference?
- How can I systematize my business so it could be replicated thousands of times?
- 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?
Part 3: Building a Small Business That Works!
Chapter 10: The Business Development Process
Tolerance for failure is a very specific part of the excellent company culture. Champions have to make lots of tries and consequently suffer some failures, or the organization won’t learn. -Thomas J. Peters and Robert H. Waterman Jr, In Search of Excellence.
The foundation of your business development process is three distinct, yet thoroughly integrated, activities:
- Innovation
- Quantification
- Orchestration
Innovation
The difference between creativity and innovation is the difference between thinking about getting things done in the world and getting things done.
How the business interacts with the consumer is more important than what it sells.
Innovation continually poses the question: What is standing in the way of my customer getting what he wants from my business?
Innovation is the skill developed within your business and your people that is constantly asking, “What is the best way to do this?”
Knowing, even as the question is asked, that we’ll never discover the best way, but by asking we will surely discover a better way.
Quantification
Without quantification, how would you know whether the innovation worked?
The sad fact is that quantification is not being done in most businesses, and it’s costing them a fortune.
You must quantify everything related to how you do business.
Without the numbers, you can’t possibly know where you are, let alone where you are going.
Eventually, you and your people will think of your entire business in terms of the numbers. Read your business’ health chart by the flow of the numbers. Know which numbers are critical and which are not.
Become as familiar with your business’ numbers as a doctor is with blood pressure.
With the numbers, your business will take on totally new meaning.
Orchestration
Orchestration is the elimination of discretion or choice at the operating level of your business.
Without orchestration, nothing could be planned or anticipated by you or your customer.
Discretion is the enemy of order, standardization, and quality.
The need for orchestration is based on the certainty that people will do only one thing predictably, and that is to be unpredictable.
If you haven’t orchestrated it, you don’t own it. If you don’t own it, you can’t depend on it.
With continuous investigation into the way of work, the work itself becomes key to our own personal transformation.
- The position we fill.
- Then the function it fills.
- Then the business within which the function fulfills both itself and the business.
- Then the world, within which the business fulfills its purpose.
The business development process is not static, it’s not something you do and then are done with, it’s something you do all the time.
The purpose is to create more life for everyone who comes into contact with the business.
Innovation, quantification, and orchestration are the backbone of a business. This is the Business Development Process
Chapter 11: Your Business Development Program
Your business development 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
Chapter 12: Your Primary Aim
Your business is not the first order of business on the agenda, you are.
You must ask yourself these questions to determine what role your business will have in your life:
- 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?
Your primary aim is the answer to all of these questions.
If your business is going to become a significant component of your primary aim, you have to let your business know what that aim is. How can you expect to do that if you don’t know what your primary aim is?
Great people have a vision of their lives that they practice emulating every day. They go to work on their lives, not just in their lives.
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.
Before you start your business, or before you return to it, ask yourself these 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, friends, business associates, customers, employees, 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?
Begin living your life as if it were important. Take it seriously. Create it intentionally.
Chapter 13: 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 strategy and plan provide the structure within which your business is intended to operate over time to fulfill your life plan. Your business strategy and plan are a way of communicating the direction your business is going, how it intends to get there, and the specific benchmarks it will need to hit in order for the strategy and plan to work.
Unless your business strategy and plan can be reduced to a set of simple and clearly stated standards, it will do more to confuse than to help.
Your strategic object is just such a list of standards.
The first question you need to ask when creating standards for your strategic objective is: What will serve my primary aim?
Some of the standards that need to be included in your strategic objective:
- Money (Financial Standards)
- An opportunity worth pursuing
Standard One: Money
Gross revenues. How big is your vision? How big will your company be when it’s finally done? You have to know what your gross revenues will be, your pre-tax profits, and your after-tax profits.
The first question how money: How much money do I need in order to live the way I wish?
Not in income, but in assets. How much money do you need in order to be independent of work?
Standard Two: An Opportunity Worth Pursuing
Determine whether your business is an opportunity worth pursuing.
An opportunity worth pursuing is a business that can fulfill the financial standards you’ve created for your primary aim and your strategic objective.
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?
You must understand the difference between your commodity and your product. 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. What he feels about the experience doing business with you.
Ask yourself:
- What is your product?
- What feeling will your customer walk away with?
- What is he really buying when he buys from you?
Nobody is interested in the commodity. People buy feelings. [Read more about this in my Bluefishing Summary, chapter 13. Steve Sims talks about prestige brands and how they sell an experience.]
Who is my customer?
Every business has a most probable customer and a set of characteristics through which you can define them.
Standards create the energy by which the best companies, and the most effective people, produce results.
Chapter 14: Your Organizational Strategy
The organizational development reflected in the organizational chart can have a more profound impact on a small company than any other single business development step.
More companies organize around personalities rather than around functions. Around people rather than accountability or responsibilities. The result is almost always chaos.
If everybody is doing everything, then who is accountable for anything?
Without an organizational chart, everything hinges on luck and good feelings.
The author recommends using a “position contract” instead of a job description. The position contract is a summary of the results to be achieved by each position in the company, the work the occupant of that position is accountable for, a list of standards by which results are to be evaluated, and a line for the signature of the person who agrees to fulfill those accountabilities.
Write a position contract for every position in the company.
The prototyping process starts at the bottom with prototyping each position. Each position is a franchise prototype of its own.
Tactical work is the work all technicians do.
Strategic work is the work their managers do.
You must hire technicians to do the tactical work so that you can be free to do the strategic work.
When you work in a position, you should also work on the position, implementing the business development process of innovation, quantification, and orchestration.
Ask: What would best serve the customers in this position?
Chapter 15: Your Management Strategy
The system is the solution. -AT&T
Your system should not depend on highly skilled people. They will become the bane of your existence. What you need instead is a management system.
The system will become your management strategy, the means through which your franchise prototype produces the results you want.
The system will become your solution to the problems that beset you.
What is a management system? It is a system designed into your prototype to produce a marketing result. The more automatic that system is, the more effective your franchise prototype will be.
Management development: the process through which you create your management system, and teach your up-and-upcoming managers to use it, isn’t a management tool, it is a marketing tool.
An effective prototype is a business that finds and keeps customers profitably better than any other
Chapter 16: Your People Strategy
“How do I get my people to do what I want?” This is the question the author gets most often from small business owners.
You can’t get people to do anything.
If you want it done, create an environment where doing it is more important to them than not doing it. Where doing it well becomes a way of life.
The work we do is a reflection of who we are. If we’re sloppy at it, it’s because we’re sloppy inside. If we’re late at it, it’s because we’re late inside. If we’re bored by it, it’s because we’re bored inside. We’re bored with ourselves, not with the work.
The most menial work can be a piece of art when done by an artist.
The job is not outside of ourselves, but inside of ourselves.
How do do our work becomes a mirror of how we are inside.
There is no such thing as undesirable work, there are only people who see certain kinds of work as undesirable. People like that don’t bring life to the idea of the work they do, they bring death to it.
There needs to be an idea behind the work that is more important than the work itself. Make sure people understand the idea behind the work they are being asked to do.
Three parts of the idea:
- The customer is not always right, but whether he is or not, it is our job to make him feel that way.
- Everyone who works here is expected to work towards being the best he can possibly be at the tasks he’s accountable for. When he can’t do that, he should act like he is until he gets around to it. If he is unwilling to act like it, he should leave.
- Everything we know how to do is tested by what we don’t know how to do. The conflict between the two is what creates growth, what creates meaning.
A business is like a martial arts practice hall, a dojo, a place you go to practice being the best you can be. The true combat in a marital arts hall is between the people within ourselves.
People do not simply want to work for exciting people. They want to work for people who have created a clearly defined structure for acting in the world. A structure through which they can test themselves and be tested. Such a structure is called a game.
The degree to which people buy into your game doesn’t depend on them but on how well you communicate the game to them, at the outset of the relationship, not after it’s begun.
Your people strategy is the way you communicate this idea.
The rules of the game. These rules must be honored if you are going to be any good at the game:
- Never figure out what you want your people to do and then try to create a game out of it. The game has got to come first, what your people do comes second.
- Never create a game for your people that you are unwilling to play yourself.
- Make sure there are specific ways of winning the game without ending it. The game can never end, but unless there are victories in the process, your people will grow weary.
- Change the game from time to time. The tactics, not the strategy. To know when change is called for, watch your people. Their results will tell you when the game is all but over. The trick is to anticipate the end before anyone else does, and to change it by executive action.
- Never expect the game to be self-sustaining. People need to be reminded of it constantly. At least once a week create a special meeting about the game. Once a day, make some kind of issue about an exception to the way the game has been played, and make certain everyone knows about it.
- 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.
Most people today are not getting what they want. Something is missing. Part of what is missing is purpose, values, worthwhile standards, a game worth playing, a sense of relationship.
The hiring process is the first and most essential medium for communicating the boss’ idea.
Components of the hiring process:
- A scripted presentation communicating the boss’ idea in a group meeting to all the applicants at the same time. Describe the idea, business’ history and successful experience implementing the idea, and attributes required of the successful candidate for the position.
- Meeting with each applicant individually to discuss his reactions to and feelings about the idea, as well as his background and experience. Ask each applicant why they are superbly appropriate for the role the position is to play in implementing the boss’ idea.
- Notification of the successful candidate by phone. (a scripted presentation)
- Notification of the unsuccessful applicants, thanking each for their interest. A standard letter signed by the reviewer.
- First day of training to include the following activities for both the boss and the new employee…
First day of training:
- Reviewing the boss’ idea.
- Summarizing the system through which the entire business brings that idea into reality.
- Take the new employee on a tour of the facilities, highlighting people at work, systems at work, to demonstrate the interdependence of systems on people and people on systems.
- Answering clearly and fully all of the employee’s questions.
- Issue uniform and operations manual.
- Review the operations manual, strategic objective, organizational strategy, and the position contract.
- Completing the employment papers.
If you hire experienced managers, they will manage by standards they learned somewhere else. Don’t hire experienced managers, train them yourself.
If you don’t know how to manage, how are you going to chose managers and how are you going to manage them? You can’t.
All managers and future-managers are expected to produce results.
Your managers manage the system by which your business achieves its objectives. The system produces the results, your people manage the systems.
The hierarchy of systems in your business:
- 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.
How do you express caring in everything you do?
Chapter 17: Your Marketing Strategy
Your marketing strategy, starts, ends, lives, and dies with your customer. Forget about what you want. Forget about everything but your customer.
What your customer wants is probably significantly different from what you thinks he wants.
You can’t know what your customer wants unless you know more about him than he does about himself.
You must know the demographics and psycho-graphics about your customers. Demographics and psycho-graphics are the two essential pillars supporting a successful marketing program.
Demographics = who your customer is.
Psycho-graphics = why your customer buys.
Find a perceived need and fill it. If your customer doesn’t perceive he needs something, he doesn’t, even if he actually does.
How do you learn about your customers? You ask them. Have them complete a questionnaire in return for a gift. Ask what colors they like, shapes, words, brands, food, clothing, etc.
Become interested in what messages are being sent to your customers by other companies who are successfully selling to them.
Buy a list of demographically correct people living in the immediate area around your business. Then market to them.
You have to be interested in the science of the art of marketing. You have to be interested in everything your business needs. You have to become a student of the art of business as well as the science of business.
Chapter 18: Your Systems Strategy
A system is a set of things, actions, ideas, and information that interact with each other and in so doing, alter other systems. In short, everything is a system.
Three systems in your business:
- Hard Systems
- Soft Systems
- Information Systems
Any conflict creates energy. Conflict with will creates resolution.
The rest of this chapter talks primarily about developing a Selling System. It is covered at surface level and I did not take many notes. I suggest Fanatical Prospecting and The 1-Page Marketing Plan for a deeper dive on sales and marketing.
A man of knowledge lives by acting, not by thinking about acting.
Related Book Summaries
Hope you enjoyed this and got value from my notes.
This is the 42nd book read in my 2020 reading list.
Here is a list of my book summaries.
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