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Book Notes: “The E-Myth Revisited” by Michael E. Gerber

Summary

The E-Myth Revisited: Why Most Businesses Don’t Work and What to Do About It by Michael E. Gerber (2005) is on my shortlist of essential books for entrepreneurs and small business owners. I’ve read many business books over the course of my career, but The “E-Myth Revisited” the best at capturing the mindset needed to start, run and succeed at business. (Note: I consider it a valuable companion alongside Carole Dweck’s “Mindset” which is the classic when it comes to success-oriented thinking.)

The titular “E-myth” is the idea that passion and expertise are sufficient conditions for launching a successful business. The reality, according to Gerber is much different. “The problem is that everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and the Technician.” Many of us are predisposed to performing the role of the “Technician” but are ill-equipped and ignorant to the realities of addressing the roles of “Entrepreneur” and “Manager.”

Fortunately for the reader, Gerber addresses these deficiencies of the would-be business owner in his book. The good news is that these skills can be learned. The bad news (which really isn’t all that bad) is that it requires a great deal of effort, insight and change on the part of the business owner to acquire these new skills.

One solution offered by Gerber is the “Franchise Model.” Gerber advocates approaching your current business as a prototype for hundreds more just like it. (whether or not you opt to franchise the model is not important—the Gerber urges business owners to pretend they are franchising the business and develop the business accordingly). This idea forces the business owner to systematize, test and document operational processes (down to the most minute detail). In doing so, it allows business owners to create a successful and repeatable, “turn-key” framework for employees which in turn will deliver maximum value and predictable results to customers.

The book is well written and well organized. Gerber takes care to define his concepts and provide the requisite real-world illustrations. Readers may take issue with some of his ideas. For instance, the notion of “plug-and-play” employees may sound like he’s advocating for workplace automatons. I don’t think this is what he’s getting at and it’s important to remember that he’s advocating a framework for a successful small business not the next Google or Amazon. Like many books: approach this book with an open mind and willingness to learn you will be well-rewarded.

Pros: One of the best overviews of the mindset behind successful business thinking.

Cons: Gerber uses a lot of proprietary terminology in his book. He does a good job of defining his terms, but you may find yourself flipping between pages to recall what a specific term means if you haven’t taken diligent notes.

Verdict: 9/10


Notes & Highlights

Forward

  • Question asked of the author: “What do the owners of extraordinary businesses know that the rest don’t?”
  • Great businesspeople have “a genuine fascination for the truly astonishing impact little things done exactly right can have on the world.”
  • Anthony Greenbank quote: “To live through an impossible situation, you don’t need the reflexes of a Grand Prix driver, the muscles of a Hercules, the mind of an Einstein. You simply need to know what to do.”

Introduction

  • Your business is a reflection of who you are: “If your thinking is sloppy, your business will be sloppy. If you are disorganized, your business will be disorganized.”
  • “If your business is to change—as it must to continuously thrive—you must change first. If you are unwilling to change, your business will never be capable of giving you what you want.”

Part I: The E-Myth and American Small Business

Chapter 1. The Entrepreneurial Myth

  • “The E-Myth is the myth of the entrepreneur. It runs deep in this country and rings of the heroic.”
  • The Fatal Assumption: “If you understand the technical work of a business, you understand a business that does that technical work.” Per the author, this assumption is simply not true (and is the root cause for many business failures).
  • “The Entrepreneurial Seizure”: The moment when a worker decides to become his/her own boss and start their own business.

Chapter 2. The Entrepreneur, the Manager, and the Technician

  • “The problem is that everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and the Technician.”
  • These 3 roles end up in conflict with one another.
  • The Entrepreneur: “Turns the most trivial condition into an exceptional opportunity.” This is the visionary and creative personality in us. “The entrepreneurial worldview: a world made up of both an overabundance of opportunities and dragging feet.” This personality craves control.
  • The Manager: This is our pragmatic personality: planning, order, predictability. The manager cleans up the mess the entrepreneur creates. This personality craves order.
  • The Technician: This is the “doer.” “The Technician loves to tinker. Things are to be taken apart and put back together again.”
  • While these 3 personalities are in each businessperson, they are not always present in equal proportions. One personality might dominate to the detriment of the others.

Chapter 3. Infancy: The Technician’s Phase

  • “Most businesses are operated according to what the owner wants as opposed to what the business needs.”
  • “What the Technician who runs the company wants is not growth or change but exactly the opposite. He wants a place to go to work, free to do what he wants, when he wants, free from the constraints of work.” According to he author this will doom the business before it even begins.
  • A business has 3 phases of growth: Infancy, Adolescence, and Maturity.
  • During the Infancy stage, the business owner must be a “Master Juggler” keeping many balls in the air. “The owner and the business are one and the same thing.”
  • “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 will have to change.” This transition is where many businesses fail.
  • Technician-led businesses see the world from bottom up rather than top down. It is a tactical view rather than a strategic view.
  • “To be a great Technician is simply insufficient to the task of building a great small business. Being consumed by the tactical work of the business…leads to only one thing: a complicated, frustrating, and, eventually, demeaning job.”
  • “If your business depends on you, you don’t own a business—you have a job. And it’s the worst job in the world because you’re working for a lunatic!”
  • “The purpose of going into business is to get free of a job so you can create jobs for other people.”

Chapter 4. Adolescence: Getting Some Help

  • Business adolescence begins when you, the owner, decide to get technical help. Technical help includes: others with experience or skills that you don’t have or don’t want to do.
  • “Management by abdication” is a common condition where business owners hand off tasks to employees and then neglect those tasks (both in terms of process and oversight) until the tasks overwhelm the help. Once the employees are in too deep, the owner takes over as the Master Juggler again.
  • The solution to this problem is for the Technician-oriented owner to engage their Manager (and Entrepreneurial) personalities.

Chapter 5. Beyond the Comfort Zone

  • “The Comfort Zone:” the boundary in which the owner feels secure in his/her abilities.
The Technician’s boundary is determined by how much he can do himself.
The Manager’s is defined by how many technicians he can supervise effectively…”
The Entrepreneur’s boundary is a function of how many managers he can engage in pursuit of his vision.
  • “As a business grows, it invariably exceeds its owner’s ability to control it…and to inspect its progress personally as every technician needs to do.”
  • There are three courses of action for dealing with a business’s adolescent phase.
  • Solution 1—Getting Small Again: Go back to a business run by a Technician (i.e. business infancy).
  • Solution 2 —Going for Broke: Keep growing until the business self-destructs from its own momentum.
  • Solution 3—Adolescent Survival: The business owner must adapt and change in order to meet the growing needs of the company.
  • The business owner’s job is “to prepare yourself and your business for growth. To educate yourself sufficiently so that, as your business grows, the business’s foundation and structure can carry the additional weight.”
  • Even while you’re guessing, the key is to plan, envision, and articulate what you see in the future both for yourself and for your employees. Because if you don’t articulate it—I mean, write it down, clearly, so others can understand it—you don’t own it.”
  • Only a few business owners bother to have a concrete plan of any kind at all. Author states that “any plan is better than no plan.”

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.”
  • This stage of the business requires an “Entrepreneurial Perspective.”
  • “The Entrepreneurial Perspective adopts a wider, more expansive scale. It views the business as a network of seamlessly integrated components, each contributing to some larger pattern that comes together in such a way as to produce a specifically planned result, a systematic way of doing business.”
  • Contrast with the “Technician’s Perspective” which is focused on the present work to be done and sees no connection with today’s reality and the future picture of where the business is going.
  • “The Entrepreneurial Model does not start with a picture of the business to be created but of the customer for whom the business is to be created.”
  • A business cannot succeed without a clear picture of the customer it serves.
  • “To the Entrepreneur, the business is the product. To the Technician, the product is what he delivers to the customer.”

Part II: The Turn-Key Revolution: A New View of Business

Chapter 7. The Turn-Key Revolution

  • “The Business Format Franchise is built on the belief that the true product of a business is not what it sells but how it sells it
  • “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.” He used that knowledge to sell the business model (i.e. business franchises) instead of directly selling burgers.
  • Ray Kroc saw the franchisee as his most important customer.
  • “Ray Kroc’s most important concern then became how to make certain his business would work better than any other. If McDonald’s was to fulfill the dream he had for it, the franchisee would have to be willing to buy it.”
  • The result is that Kroc developed a product that would be a predictable success no matter who owned it: “a foolproof, predictable business.” (Aka a part of the “Turn-Key Revolution”)

Chapter 8. The Franchise Prototype

  • “Business Format Franchises have reported a success rate of 95 percent in contrast to the 50-plus-percent failure rate of new independently owned businesses…80 percent of all businesses fail int he first five years, 75 percent of all Business Format Franchises succeed.”
  • The Franchise Prototype is the working model for the business and an incubator for ideas and innovation.
  • The Franchisor develops a working, repeatable system. “If the franchisor has designed the business well, every problem has been thought through. All that’s left for the franchisee to do is learn how to manage the system.”
  • The Franchise Prototype allows the owner to provide the customer what he wants and maintain control of the business. Moreover, the Franchise Prototype allows the 3 personalities—Entrepreneur, Manager, Technician—to work in harmony.
  • A Business Format Franchise “is a proprietary way of doing business that successfully and preferentially differentiates every extraordinary business from every one of its competitors.”

Chapter 9. Working On Your Business, Not In It

  • “Your business is not your life. Your business and your life are two totally separate things.”
  • “The purpose of your life is not to serve your business, the primary purpose of your business is to serve your life…work on your business, rather than in it…”
  • Approach your current business as a prototype for 5,000 more just like it. Whether or not you opt to franchise the model, the author urges business owners to pretend they are franchising the business.
  • The reason for using this “franchise” mindset is that it forces the owner to develop systems and processes for the business’s employees, suppliers, lenders, customers, etc.
  • Create a system-dependent business rather than a people-dependent (or expert-dependent) business.
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 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?

Part III: Building a Small Business That Works!

Chapter 10. The Business Development Process

  • Building a Prototype of your business is a continuous process.
  • The process involves three activities: (1) Innovation, (2) Quantification, and (3) Orchestration.
  • Theodore Levitt: “Creativity thinks up new things. Innovation does new things.”
  • “Where the business is the product, how the business interacts with the consumer is more important than what it sells.”
  • The innovation doesn’t need to be expensive or complicated. Author describe the example of how most sales people ask customers “May I help you?” Most shoppers respond with “No, thanks.” Sales people know the response but fail to change their approach. An innovative approach might ask as a different question: “Hi, have you been in here before?” After the customer responds you can say “Great, we’ve created a special new program for people like you, let me tell you about it.” This line of questioning will create new, unexpected responses and opportunities.
  • “For the innovation to be meaningful, it must always take the customer’s point of view.”
  • “Innovation simplifies your business to its critical essentials. It should make things easier for you…otherwise it’s not Innovation but complication.”
  • The question “What is the best way to do this?” Is central to creating innovative solutions.
  • Quantification is necessary to measure innovation. Use quantification to determine if an innovation is working or failing.
  • Begin by quantifying everything related to how you do business. Examples: How many customers do you see each day? In the morning? Afternoon? How many phone calls do you receive? How many people ask for prices? Which day is busiest? Etc.
  • “Think of your entire business in terms of the numbers…without the numbers you can’t possibly know where you are, let alone where you’re going.”
  • “Orchestration is the elimination of discretion, or choice, at the operating level of your business.”
  • Theodore Levitt: “Discretion is the enemy of order, standardization, and quality.”
  • “If you haven’t orchestrated it, you don’t own it. And if you don’t own it, you can’t depend on it. And if you can’t depend on it, you haven’t got a franchise.”
  • “The definition of a franchise is simply your unique way of doing business.”

Chapter 11. Your Business Development Program

  • “Your Business Development Program is the step-by-step process through which you convert your existing business into a perfectly organized model for thousands more just like it.”
  • “The Program is composed of seven distinct steps:”
1. Your Primary Aim2. Your Strategic Objective3. Your Organizational Strategy4. Your Management Strategy5. Your People Strategy6. Your Marketing Strategy7. Your Systems Strategy

Chapter 12. Your Primary Aim

  • Your Primary Aim is the answer to questions such as: What do I value most? What kind of life do I want? Who do I want to become?
  • “Great people create their lives actively, while everyone else is created by their lives, passively waiting to see where life takes them next.”
  • Quote from Don Juan in Carlos Castaneda’s A Separate Peace: “The difference between a warrior and an ordinary man is that a warrior sees everything as a challenge, while an ordinary man sees everything as either a blessing or a curse.”
  • Some questions you can ask to zero in on your primary aim:
– 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, my friends, my business associates, my customers, my employees, my 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?

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.”
  • The Strategic Objective is NOT a business plan. It is your business and should reflect your Life Plan.
  • “Unless your Business Strategy and Plan can be reduced to a set of simple and clearly stated standards, it will do more to confuse you than to help.”
  • The Strategic Objective IS the list of standards.
  • The First Standard is money. Setup some target metrics to guide the size of your vision. It can be any financial dimension: gross revenues, gross profits, some financial measure. The target also helps you determine if your business is an “Opportunity Worth Pursuing.”
  • The Second Standard is determining if your idea is an opportunity worth pursuing.
  • Define your business not by the commodity you sell but by your true product. [me: think Clayton Christensen’s “Jobs to be done”]
  • The commodity is the thing your customer walks out with in his hand.
  • The product is what your customer feels as he walks out of your business.
  • Example from Charles Revson, founder of Revlon: “In the factory Revlon manufactures cosmetics, but in the store Revlon sells hope.”
  • “What’s your product? What feeling will your customer walk away with? Peace of mind? Order? Power? Love? What is he really buying when he buys from you? The truth is, nobody’s interested in the commodity. People buy feelings.”
  • “Every business has a Central Demographic Model. That is, a most probable customer.” This customer has a set of characteristics you can define: age, sex, income, family status, education, profession, etc.
  • To determine if you have an “Opportunity Worth Pursuing” you need to determine if you can satisfy your target customer with your product.

Chapter 14. Your Organizational Strategy

  • Many early stage companies resist organizational structure, but author contends that this is one of the most important systems to implement in a small company.
  • “Most 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.”
  • Business owner(s) need to establish themselves first and foremost as shareholders in the company. This is the role outside of the business.
  • Inside the business, the owner needs to consider himself/herself an employee.
  • Develop an organization chart based on the company’s needs and define the key roles.
  • The key is to decouple the individual from the function/role.
  • The organization chart is then used as part of the prototyping process. The first employees (e.g. the owners in the initial phase) start from the bottom of the organizational chart and prototype the positions in the organizational chart.
  • Treat each position as a Franchise Prototype of its own. Develop the systems and processes that will make that position work best. Ask key questions like “What would best serve our customer here? How can I maximize profits for the company and server our customers? How can I make this role satisfying for the employee?”
  • Document and codify the important innovations (that have been quantified) for each role in an Operations Manual. This can include things like checklists for different tasks.
  • Once the Operations Manual is complete, the business owner can run an ad for the job and attempt to fill the role. Ideally you want to look for a movie that is willing to learn how to do the job right (as you’ve defined it).

Chapter 15. Your Management Strategy

  • Choose a Management System over hiring expensive/well-credentialed managers (the latter will “be the bane of your existence.”)
  • Management System: “a system designed into your Prototype to produce a marketing result.”
  • Management Development: “the process through which you create your Management System, and teach your up-and-coming managers to use it.” Important: this isn’t a management tool BUT a marketing tool.
  • If the role has been well tested and documented via the prototyping process, training and measuring the results of new managers will be foolproof, consistent and turn-key.

Chapter 16. Your People Strategy

  • From the story about the hotel manager and his boss. The hotel manager recounts what his boss told him on his first day:
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. The most menial work can be a piece of art when done by an artist. So the job here is not outside of ourselves, but inside of ourselves. How we 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 who look upon their work as a punishment…rather than as an opportunity to see themselves as they really are.”
  • Can you create an environment where the idea behind the work is more important than the work itself?
  • The story of the hotel manager recounts the Boss explaining the “idea” behind work in 3-parts:
The first says that the customer is not always right, but whether he is or not, it is our job to make him feel that way.
The second says that everyone who works here is expected to work toward being the best he can possibly be at the tasks he’s accountable for…
The third says that the business is a place where everything we know how to do is tested by what we don’t know how to do, and that the conflict between the two is what creates growth, what creates meaning.
  • Find people willing to work within YOUR system, not people who believe they have a better one.

Chapter 17. Your Marketing Strategy

  • “When it comes to marketing, what you want is unimportant. It’s what your customer wants that matters.”
  • “The customer you’ve got is one hell of a lot less expensive to sell to than the customer you don’t have yet.”
  • Marketing is “keeping a promise no competitor would dare to make.”

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.”
  • Three types of business systems: Hard Systems, Soft Systems and Information Systems.
  • Hard Systems: Inanimate things including physical space and hardware. Facilities and factories are hard systems.
  • Soft Systems: Animate/living things and ideas. Business processes are systems.
  • Information Systems: Provide information about the interaction between Hard and Soft Systems. Inventory control, cash flow forecasting, and sales reports are all Information Systems.

Chapter 19. A Letter to Sarah

  • Rollo May quote: “Freedom is not just the matter of saying ‘Yes’ or ‘No’ to a specific decision: it is the power to mold and create ourselves. Freedom is the capacity, to use Nietzche’s phrase, ‘to become what we truly are.’”
  • Beware of staying in your comfort zone. “Comfort makes cowards of us all.”
  • Rollo May quote: “Freedom does not come automatically; it is achieved. And it is not gained in a single bound; it must be achieved each day.”


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