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The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael E. Gerber
Marketing | Business
“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. The difference between the two is living fully and just existing.”
“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!”
“Most businesses are operated according to what the owner wants as opposed to what the business needs.”
“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, with ourselves, not with the work.
“Most salespeople think that selling is “closing.” It isn’t. Selling is opening.”
“Creativity thinks up new things. Innovation does new things.”
This book is written for people who own or want to own a small business. The “E-myth” says that small businesses are started by entrepreneurs risking capital to make a profit. This is not so. The real reasons people start a business have little to do with entrepreneurship.
Your business is nothing more than a distinct reflection of who you are. If your thinking is sloppy, your business will be messy. If you are disorganized, your business will be chaotic. If you are greedy, your employees will be greedy, giving you less and less of themselves and always asking for more.
So if your business is to change–as it must continue to thrive- you must change first. If you are unwilling to change, your business will never be capable of giving you what you want.
Part 1: The E-Myth and American Small Business
Chapter 1: The Entrepreneurial Myth
When you think of a typical entrepreneur, Herculean pictures come to mind. While there are such people, they are rare. Where was the entrepreneur who had started the business? The answer is simple: the entrepreneur had only existed for a moment. And then it was gone. In most cases, forever.
E-Myth is a romantic belief that small businesses are started by entrepreneurs when, in fact, most are not.
The entrepreneurial seizure is a moment the technician/entrepreneur decides it would be a great idea to start his or her own business.
See the carpenter or the electrician, or the plumber become a contractor. See the barber open up a barbershop. The technical writer starts a technical writing business. AII of them believe that by understanding the company’s technical work, they are immediately and eminently qualified to run a business that does that kind of work. Not true.
The Fatal Assumption is: if you understand the technical work, you understand a business that does that technical work. This is the root cause of most small business failures. But The technician fails to see this.
The technical work of a business and a business that does that technical work are two 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 learn more.
Every technician suffering from an Entrepreneurial Seizure experience precisely the same thing:
Chapter 2: The Entrepreneur, the Manager, and the Technician
No. The technician isn’t only the problem. Everybody who goes into business is three-people-in-one:
- The Entrepreneur – the visionary in us. The dreamer. The imagination that sparks the fire of the future. The catalyst for change.
- The Manager – pragmatic personality.
- The Technician – the doer. Loves to tinker.
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.”
The Entrepreneur is our creative personality—always at its best dealing with the unknown, prodding the future, creating probabilities out of possibilities, engineering chaos into harmony.
The Manager lives in the past, craves order, compulsively clings to the status quo. Where The Entrepreneur invariably sees the opportunity in events, the Manager always sees the problems.
Without the manager, there could be no business, no society. Without The Entrepreneur, there would be no innovation. The tension between The Entrepreneur’s vision and The Manager’s pragmatism creates the synth from which all great works are born.
Technician’s credo: “if you want something done right, do it yourself.”
If The Entrepreneur lives in the future and The Manager lives in the past, The Technician lives in the present. He loves the reel of things and the fact that things can get done.
The Technician knows that if it weren’t for him, the world would be in more trouble than it already is. Nothing would get done, but lots of people would be thinking about it.
Put another way, while The Entrepreneur dreams, The Manager frets, and The Technician ruminates.
Unfortunately, our experience shows us that few people who go into business are blessed with such a balance. Instead, the typical small business owner is only 10 percent Entrepreneur, 20 percent Manager, and 70 percent Technician.
Chapter 3: Infancy: The Technician Phase
Three phases of a business’s growth: Infancy, Adolescence, Maturity
Most businesses are operated according to what the owner wants as opposed to what the business needs. And what The Technician who runs the company wants is not growth or change but precisely the opposite. He wants a place to go to work, free to do what he wants, when he wants (ree from the constraints of working for the Boss.
As long as you have this kind of thinking, you are doomed in your business before it even begins.
It’s easy to spot a business in Infancy—the owner and the businesses are the same things.
In Infancy, you are the business. It’s even named after you “JOES PLACE!M” TOMMY’s JOINT.” “MARY’S FINE FOODS”- so the customer won’t forget you’re the Boss.
If your business depends on you, you don’t own a business; you have a job.
You just can’t ay the role of the Technician and ignore the roles of The Entrepreneur and The Manager simply because you’re unprepared to play them.
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
What kind of help do you, the overloaded Technician, go out to get? Technical help. Someone with experience in your type of business.
Most technicians make the significant error 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 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.
The technician’s boundary is determined by how much he can do himself. The manager’s limit is determined by how many technicians he can supervise effectively or how many subordinate managers can organize into a productive effort. The entrepreneur’s boundary is how many managers he can engage in the pursuit of his vision.
As the business grows beyond the owner’s comfort zone, there are only three courses of action to be taken:
- It can return to infancy – Go back to how it used to be when you did everything yourself when you didn’t have people to worry about, or too many customers, or too many unpayable payables and unreceivable receivables.
- It can go for broke
- It can hang on for dear life. – You’re consumed by the business and the possibility of losing it. And so you put everything you have into it. Night after night, you go home to unwind, only to wind up even tighter in anticipation of tomorrow. Finally, your business doesn’t explode- you do!
How big can your business naturally become, naturally become with the operative word being naturally?
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 regulations. Your lack of skill, knowledge, experience, and most of all passion for growing a healthy, functionally dynamic business.
‘Getting small’ is, rather than an intentional act, a reaction to the pain and fear induced by uncontrolled and uncontrollable growth, both of which could have been anticipated provided the owner had been prepared to facilitate the change in a balanced, healthy, proactive way.
Your job is to prepare yourself and your growing business. To educate yourself sufficiently so that, as your business grows, the foundation and structure can carry the additional weight. And as tremendous a responsibility as that may seem to you; you have no other choice if your business is to thrive, that is.
It’s up to you to dictate your business’s growth rate by understanding the fundamental processes that need to be performed, the key objectives that need to be achieved, and the key position you’re aiming for in the marketplace.
Ask 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 works, and how?
- What technology will be required?
- How large space will be needed? At benchmark One? Two? Three?
The key is to 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 a future, the plan begins to shape itself to reality, both the reality of the world out there and the reality you are able to create here.
And as those two realities merge, they form a new reality-call it your reality, call it the unique invention that is uniquely yours, the reality of your mind and your heart uniting with all the elements of your business, and your business the world, shaping, designing collaborating, to form something that never existed before in exactly that way. And that is the sign of a mature company.
A Mature company is founded on a broader perspective, an entrepreneurial perspective, a more intelligent point of view, about building a business that works not because of you but without you.
Chapter 6: Maturity and the Entrepreneurial Perspective
A Mature business knows how it got to be where it is and what it must do to get where it wants to go.
The person who launches his business as a Mature company must also go through Infancy and Adolescence. It’s his perspective that makes the difference.
IBM is what it is today for three special reasons, according to Tom Watson, its founder:
- 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.
What’s important is the business: how it looks, how it acts, how it does what it is intended to do.
This section has a great comparison of the entrepreneurial perspective and the technician’s perspective.
The Entrepreneurial Perspective adopts a wider, more expansive scale. In the Technician’s Perspective, however, the scale is narrower, more inhibited, confined principally to work being done.
The Entrepreneurial Model has less to with what’s done in a business and more to do with how it’s done. The commodity isn’t what important-the way it’s delivered is.
Part 2: The Turn-Key Revolution: A New View of Business
Chapter 7: The Turn-Key Revolution
The true product of a business is the business itself.
What Ray Kroc understood at McDonald’s was that the hamburger wasn’t his product. McDonald’s was.
The franchise became the vehicle for Ray Kroc to realize his dream.
It is in the Franchise Prototype that every successful franchisor builds his future. In the Franchise Prototype, every extraordinary franchisor ants the seeds of his fortune, And it is in the Franchise Prototype that you can find the model you need to make your business work.
Chapter 8: The Franchise Prototype
The Prototype acts as a buffer between the hypothesis is and action. Putting ideas to the test in the real world rather than the world o( competing ideas. The only criterion of value becomes the answer to the ultimate question: “Does it work?”
Once having completed his Prototype, the (franchisor then turns to the (franchisee and says, ” Let me show you how it works. ” And work it does. The system runs the business. The people run the system.
From a certain viewpoint, every great business in the world is a franchise.
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, a Prototype is a place in which he is free to do the things he loves to do-technical work.
The Franchise Prototype is the model of a business that works. The balanced model that will satisfy The Entrepreneur, The Manager, and The Technician all at once.
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 serve as the model for 5,000 more just like it. Not almost like it, but just like it. In other words, pretend that you are going to franchise your business.
Rules to follow if you are 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.
Go to work on your business rather than in it.
Go to work on your business as if it were the pre-production prototype of a mass-producible product.
Think of your business as something apart from yourself, as a world of its own, as a product of your efforts, as a machine designed to fulfill a very specific need, as a mechanism for giving you more life, as a system of interconnecting parts, as a package of cereal, as a can of beans, as something created to satisfy your consumers’ deeply held perceived needs, as a place that acts distinctly different from all other places as a solution to somebody else’s problem.
Go to work on your business rather than in it, and ask yourself the following questions:
- 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 that the 5000th 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 on 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
The foundation of your business development process is three distinct yet thoroughly integrated activities:
Innovation is the heart of every exceptional business. Innovation continually poses the question: What is standing in the way of customers getting what he wants from my business?
Innovation, then, is the mechanism through which your business identifies itself in your customer’s mind and establishes its individuality. It is the skill developed within your business and your people that are continually asking, “What is the best way to do this?”
Without quantification, how would you know whether the innovation worked?
Begin by quantifying everything related to how you do business.
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.
Because without the numbers, you can’t possibly know where you are, let alone where you’re going. With the numbers, your business will take on a totally new meaning. It will come alive with possibilities.
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.
If you haven’t orchestrated it, you don’t own it. If you don’t own it, you can’t depend on it. And if you can’t rely on it, you haven’t got a franchise.
Orchestration is the glue that holds you fast to your customers’ perceptions.
As Theodore Levitt says in his stunning book, Marketing for Business growth, “Discretion is the enemy of order, standardization, and quality.”
Innovation, quantification, and orchestration are the backbone of a business. They are the essence of your Business Development Process.
Chapter 11: Your Business Development Program
Your Business Development Program is the step-by-step process through which you convert your existing business— the one you’re about to create—into a perfectly organized model for thousands more just like it.
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.
Before you determine what the role of business can play in your life, you must ask these questions:
- 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?
AII you need to do is begin living your life as if it were necessary. AII you need to do is take your life seriously. To create it intentionally.
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!
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. They go to work on their lives, not only in their lives.
The difference between great people and everyone else is that great people create their lives actively, while everyone else is made by their lives, passively waiting to see where life takes them next—living fully vs just existing. Living intentionally vs. living by accident.
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 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 precisely 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?
The answers become the standards against which you can begin to measure your life’s progress. In the absence of such standards, your life will drift aimlessly, thout purpose, without meaning
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. It is the vision of the finished product that is and will be your business.
Your business is a means rather than an end, a vehicle to enrich your life rather than one that drains the life you have.
Your business strategy and plan provide the structure within which your business is intended to operate overtime to fulfill your life plan. Your business strategy and plan are a way of communicating your business’s direction, how it intends to get there, and the specific benchmarks it will need to hit in order for the strategy and plan to work.
Your Strategic Objective is just such a list of standards It is a tool for measuring your progress toward a specific end.
The First Standard: Money
Gross revenues. How big is your vision? How big will your company be when it’s finally done? Will it be a $300,000 company? A million-dollar company? A $5oo-million company? 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? Not in income but in assets. In other words, how much money do you need in order to be independent of work, to be free?
The Second Standard: An Opportunity Worth Pursuing
Determine whether your business is an opportunity worth pursuing. Ask yourself: Does the business I have in mind alleviate a frustration experienced by a large enough group of cοnsumers to make it worth my while?
An opportunity worth pursuing is a business that can fulfill the financial standards you’ve created for your primary aim and your strategic objective.
What kind of business am I in?
Know the difference between the commodity and 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.
Nobody is interested in the commodity. People buy feelings.
The commodity is cosmetics; the product, hope.
Who is my customer?
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. The result is almost always chaos.
Without an organization chart, everything hinges on luck and good feelings, on the personalities of the people and the goodwill they share.
Personalities, good feelings, goodwill, and luck aren’t the only ingredients of a successful organization; along, they are the recipe for chaos and disaster.
Gerber suggests a Position Contract (as we call it at E-Myth Worldwide). It 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 the results are to be evaluated, and a line for the signature of the person who agrees to fulfill those accountabilities.
The Position Contract is the document that identifies who’s to stand up and what they’re being counted on to produce.
The prototyping process starts at the bottom with prototyping each position. Each position is a franchise prototype of its own.
Chapter 15: Your Management Strategy
The system is the solution. -AT&T
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 because of the unpredictability of your people.
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.
Chapter 16: Your People Strategy
“How do I get my people to do what I want?” The answer is “You can’t! 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.
How we do our work becomes a mirror of how we are inside.
In the process, the work you do becomes you. And you become the force that breathes life into the idea behind the work “You become the creator of the impact on the world of the work you do.
There was an idea behind the work that was more important than the work itself. 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 martial 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.
If your idea is a positive one, your business will reflect that optimism. If your idea is a negative one, your business will reflect that as well.
Your people strategy is the way you communicate this idea.
The game your business will play can’t simply be captured on the written page. It must be seen if it is to work. It must be experienced. The game is a measure of you.
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.
- 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.
- Never expect the game to be self-sustaining. The game has to make sense.
- The game needs to be fun from time to time. Fun needs to be defined by your people. If it’s fun to them, it will work.
- If you can’t think of a good game, steal one. Anyone’s ideas are as good as your own.
The logic of the game. Most people today are not getting what they want. Not from their jobs, not from their families, not from their religion, not from their government, and, most important, not from themselves.
Part of what’s missing is purpose. Values. Worthwhile standards against which our lives can be measured. Part of what’s missing is a Game Worth Playing.
That’s what a business can do; it can create a Game Worth PIaying.
Playing the game. 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.
And the hiring process is just the beginning! AII of this simply to start a relationship!
The System produces the results; your people manage the system. And there is a Hierarchy of Systems in your business composed of four distinct components:
- 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.
Chapter 17: Your Marketing Strategy
Your marketing strategy starts, ends, lives, and dies with your customer. Forget about your dreams, forget about your visions, forget about your interests, forget about what you want. Forget about everything but your customer.
It’s what your customer wants that matters.
Two pillars of a successful marketing strategy: demographics and psychographics.
Demographics – who your customer is.
Psychographics – why your customer buys.
Find a perceived need and fill it. Those perceptions are at the heart of your customer’s decision-making process.
How do I do it? How do I determine my customer’s demographics and his psychographics? What colors to use? What shapes? What words? You ask them!
You do have to be sensitive to the science of the marketing art. You have to be interested in it. In fact, you have to be interested in everything your business needs. You have to become a student of the art of business and the science of business. And that’s the ‘what to do’ part of all this.
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. The universe, the world.
Some systems we can understand and some we can’t. We can understand the systems in your business.
Three systems in your business:
- Hard Systems – inanimate, unliving things. For example, computer
- Soft Systems – either animate-living-or ideas. For example, you, the script for Hamlet
- Information Systems – those that provide us with information about the interaction between the other two. For example, Inventory control, Cash flow forecasting
The Innovation, Quantification, Orchestration, and integration of these three kinds of systems in your business is what your Business Development Program is all about.
The “E-Myth Revisited is one of my favorite reads this year. I recommend this to all business owners, entrepreneurs, and managers. Read it.
It gives me a lot of advice for developing systems and processes in business. It teaches me not to own a job, but to own a business. Learn to work on your business, not just in them. It also challenge my perspective about technicians, managers and entrepreneurs.
About Michael Gerber
Michael E. Gerber is a true legend of entrepreneurship. Inc. Magazine called him “the World’s #1 Small Business Guru.” He started over 40-plus years ago addressing a significant need in the small business market: businesses owned primarily by people with technical skills but few business skills, and no place to go to get meaningful help.
Over the years, Michael E. Gerber’s companies have helped hundreds of thousands of small business owner-clients to successfully transform their businesses into world-class operations.