BagerBach

The E-Myth Revisited

by Michael E. Gerber

Amazon

|

Rating: 7 / 10

Thoughts

The main ideas of this book are very insightful. I am going to adopt (most of) the principles myself. There are a few things in this book that I do not agree with — as with any book, really — but besides those, I rather enjoyed the book. If you are building a business (or want to learn something about it), I recommend this book.


💡 Top 3-5 Ideas, Concepts, or Quotes

  • Approach your business from a systems-standpoint. Make it such that your exact business could be replicated 5000 times and still work just as well.

  • The most important thing is that you don't just work in your business. You have to work on your business.

    • This means you have to build systems and procedures that allow the business to function perfectly without you.
    • Your business should be scaleable: it should be able to be copied 5000 times and still work perfectly.
  • Your continuous growth is necessary if you want to grow your business.

✍️ Summary & Notes

Foreword

The basic difference between an ordinary man and a warrior is that a warrior takes everything as a challenge while an ordinary man takes everything either as a blessing or a curse
— Don Juan (Tales of Power)

  • What do owners of extraordinary businesses know that the rest don't?

    • It's not so much what they know. It's that they have an insatiable need to know more.
  • "Yes, the simple truth about the greatest businesspeople I have known is that they have a genuine fascination for the truly astonishing impact little things done exactly right can have on the world."

  • The development of an extraordinary business is "a never-ending inquiry, an ongoing investigation, an active engagement with a world of forces, within us and without, that continually amaze and confound the true seekers among us with awesome variety, unending surprises, and untold complexity."

    • Every mountain you climb is the base of the next mountain.

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.
— Anthony Greenbank (The Book of Survival)

Introduction

This book presents 4 primary ideas. The ideas will be expanded upon as we go.

  • Idea #1 — The E-Myth

    • People think that small businesses are "started by entrepreneurs risking capital to make a profit."
    • (This is not the case.)
  • Idea #2 The Turn-Key Revolution

    • This is changing the way we do business.
  • Idea #3 Business Development Process can transform any small business

    • This can transform any small business into an incredibly effective organization.
  • Idea #4 The Business Development Process can be applied by any small business owner

    • It can be applied in a step-by-step method that uses the Turn-Key Revolution.

Your business is a distinct reflection of who you are.

"If your thinking is sloppy, your business will be sloppy."

So if your business is to change—as it must continuously 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 I The E-Myth and American Small Business

1. The Entrepreneurial Myth

This myth is the myth of the entrepreneur.

Who starts a business? It's not the entrepreneur type you imagine in your head. It's the technician who gets an entrepreneurial seizure. They think "I know how this works. Any dumb person could run this business. Heck, I work for one. I'll do it myself - work for myself."

Little does the technician know, there is much more to building a business than merely the technical work. Knowing the technical work of a business is not the same as knowing how a technical business works.

They end up knowing one part of their new job well - the technical part - but the remaining, many parts, they don't know at all.

So they start hating it all.

2. The Entrepreneur, The Manager, and The Technician

Anyone who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and The Technician.

Each of these personalities wants to be the boss — but none of them wants to have one. So they start a business together to get rid of the boss. That's where the trouble begins.

The Entrepreneur is the visionary. The dreamer. The catalyst for change.

The Manager is the planner. The one who brings order.

The Technician is the doer. The tinkerer.

We all have them inside us. And if they were all in balance, we're describing an incredibly competent individual.

But very few of us have that balance. The typical small business owner is only 10% Entrepreneur, 20% Manager, and 70% Technician.

3. Infancy: The Technician's Phase

This phase is when the Technician is the boss. There is little to no Entrepreneur or Manager in lead.

But this is no good. So this phase ends when the owner realizes that the business cannot keep running this way. This is also where most business failures occur. And it's when the Technicians lock their doors behind them and walk away.

The rest goes on to Adolescence.

If you want to work in a business, then work for someone else. If you own a business, you need to work on the business. It's the strategic work, the entrepreneurial work, that will lead your business forward.

To build a small business that actually works, your Entrepreneur needs to be at work, and so does your Manager. Not only your Technician.

4. Adolescence: Getting Some Help

This phase begins when you decide to get some help.

Chapter Summary

Once you've hired your first employee, it's fine for a while. You start taking longer breaks and so in. But the balls you had been juggling (that your employees are now juggling) starts to fall. So you take over again. You start working overtime - just like before.

You need the entrepreneur and the manager.

5. Beyond The Comfort Zone

At some point, you'll go beyond your comfort zone.

For some, this results in them "going small" again.

This happens when you are scared of the growth.

In order to grow, you need to continually learn and develop yourself. It's a continual learning process. You need to acquire new skills, new understandings, new knowledge... and so on.

Don't ever "get small again."

The key is to plan, envision, and articulate what you see in the future both for yourself and for your employees. If you don't write it down — clearly, so others can understand it — you don't own it.

6. Maturity and The Entrepreneurial Perspective

They see the pattern, understand the order, experience the vision.
— Peter Drucker (The New Society)

"A mature business knows how it got to be where it is, and what it must do to get where it wants to go."

So it's the phases are not exactly linear, although their names might imply as much.

The Entrepreneurial Perspective

It's not the commodity or the work itself that is important. What's important is the business: how it looks, how it acts, and it does what it is intended to do.

How the Entrepreneurial Perspective differs from the Technician's Perspective

  • "The Entrepreneurial Perspective asks the question: 'How must the business work?' The Technician’s Perspective asks: 'What work has to be done?'"
  • "The Entrepreneurial Perspective sees the business as a system for producing outside results—for the customer—resulting in profits. The Technician’s Perspective sees the business as a place in which people work to produce inside results—for The Technician—producing income."
  • "The Entrepreneurial Perspective starts with a picture of a well-defined future, and then comes back to the present with the intention of changing it to match the vision. The Technician’s Perspective starts with the present, and then looks forward to an uncertain future with the hope of keeping it much like the present."
  • "The Entrepreneurial Perspective envisions the business in its entirety, from which is derived its parts. The Technician’s Perspective envisions the business in parts, from which is constructed the whole."
  • "The Entrepreneurial Perspective is an integrated vision of the world. The Technician’s Perspective is a fragmented vision of the world."
  • "To The Entrepreneur, the present-day world is modeled after his vision. To The Technician, the future is modeled after the present-day world."

In other words, the Entrepreneur sees the system — not the parts. He sees the forest for the trees.

"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."

The Entrepreneurial Model

This is the model of a business that fulfills the perceived needs of a specific segment of customers in an innovative way.

Without a clear picture of the customer, no business can succeed.

An entrepreneur starts with the customer and creates a business to solve their problems. Not the other way around.

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

7. The Turn-Key Revolution

It's all about the franchise. More specifically, the Business Format Franchise.

The Business Format Franchise

"The business Format Franchise not only lends its name to the smaller enterprise but it also provides the franchisee with an entire system of doing business."

This is where the significance of the Turn-Key Revolution lies.

It's about creating a business that would work no matter who owned it.

So you make a systems-dependent business, rather than a people-dependent business.

A business that can work without you.

8. The Franchise Prototype

To make a 'business-as-a-product', you need to make sure your components are well-tested before they go into mass production.

That's what you use the Franchise Prototype for.

It's a place to conceive and perfect the system. To find out what works — because you've tested it.

9. Working On Your Business, Not In It

The primary purpose of your business is to serve your life. Not the other way around.

That's why you work on your business, rather than in it.

The goal is to make a business that will be the prototype for 5.000 more like it. Not that you have to build that many, but it has to work. It has to be scaleable. It has to work without you.

The Rules of the Franchise Game

  1. "The model will provide consistent value to your customers, employees, suppliers, and lenders, beyond what they expect."

  2. "The model will be operated by people with the lowest possible level of skill."

    1. Your business needs to be able to operate without the best of the best employees. That's not a scalable solution. So you create an expert system rather than hire one.
    2. The system becomes the tools your people use to increase their productivity, to get the job done.
    3. It's your job — or, the job of the business — to create the tools and teach your people how to use them.
    4. And it's your people's job to use the tools and to recommend improvements based on their experiences.
  3. "The model will stand out as a place of impeccable order."

  4. "All work in the model will be documented in Operations Manuals."

    1. Documentation is "This is how we do it here."
    2. Without it, all routinized work turns into exceptions.
    3. So you need a clear How-to-Do-It Guide.
    4. It should specify the steps needed to be taken while doing the work, and it should summarize the standards associated with both the process and the result.
  5. "The model will provide a uniformly predictable service to the customer."

  6. "The model will utilize a uniform color, dress, and facilities code.

Questions for working on your business

  • "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?"

You need to know the answers to these questions.

Part III Building a Small Business That Works

10. The Business Development Process

Building the Prototype of your business is a continuous process (a Business Development Process).

Its foundation is three distinct — yet integrated — activities through which your business can pursue its natural evolution.

Innovation

Creativity thinks up new things. Innovation does new things.
— Theodore Levitt

Here are a few examples of innovations:

  • Instead of asking "can I help you", ask "have you been here before". That leads to conversation which leads to sales.
  • Wear blue suits instead of brown suits. Blue suits outsell brown suits.
  • Touching someone on the arm as you ask them to do something and they'll respond more positively than when you don't.

Quantification

You need numbers.

Quantify everything related to how you do business.

You really do need to quantify everything. You'll be able to read your business's health chart by the flow of the numbers. You need to know which numbers are critical and which are not.

Without the numbers, you don't know where you are — nor where you are going.

Orchestration

"Orchestration is the elimination of discretion, or choice, at the operating level of your business."

It's about producing a consistent, predictable result.

"If you haven't orchestrated it, you don't own it. And if you don't own it, you can depend on it. And if you can't depend on it, you haven't got a franchise. And without a franchise, no business can hope to succeed."

Unless your customer gets everything he wants every single time, he'll go someplace else to get it.

When things don't work any longer, change them. Remember, the Business Development Process is continuous.

11. Your Business Development Program

"Your business development program is the vehicle through which you can create your Franchise Prototype."

It has 7 steps.

  1. Your Primary Aim
  2. Your Strategic Objective
  3. Your Organizational Strategy
  4. Your Management Strategy
  5. Your People Strategy
  6. Your Marketing Strategy
  7. Your Systems Strategy

12. Your Primary Aim

This is the answer to questions like "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?"

You are just like a company. A mature company knows how it got to where it is, and what they need to do to get where they're going. The same goes for a great person.

You need a vision that you're practice emulating each and every day.

You need to go to work on your life, not just in your life.

Questions to ask yourself to find 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?"

These are just some of the questions you might ask yourself.

13. Your Strategic Objective

This is a clear statement of what your business has to do for you to achieve your Primary Aim.

"It is the vision of the finished product that is and will be your business."

It is not a business plan.

The First Standard: Money

How big will your company be when it's finally done? How much (exactly) will it be worth?

If you don't know this, how can you possibly know if it will help you realize your Primary Aim?

You always ask "What will serve my Primary Aim?" when creating standards for your Strategic Objective.

First question: "How much money do I need to live the way I wish? 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?"

There is only one reason to create a business: to sell it. To do it, to finish it, and then get paid for it.

The Second Standard: 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 Strategic Objective."

If your business cannot fulfill those standards, walk away from it. It is not worth pursuing — no matter how exciting it is.

How do you know if you have an Opportunity Worth Pursuing?

By asking 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?"

What's your product?

It's important to realize that nobody is interested in the commodity. People buy feelings.

Who Is My Customer?

"Every business has a Central Demographic Model. That is, a most probable customer. And that customer has a whole set of characteristics through which you can define him — age, sex, income, family status, education, profession, and so forth."

14. Your Organizational Strategy

Make an organizational chart that involves all the roles in your fully realized business (when it has reached its potential). Now you have the roles and their work cut out.

Today, maybe, you are in all of those roles. But the work won't change. The one who has the role can, though.

You work on each role as you do the business. You develop procedures and systems for the role itself. You document it.

That is done to get the \<Role> Operations Manual.

And this is all done so you can begin outsourcing the technical work to someone else — so you can get back to working on the business - the systems.

15. Your Management Strategy

You don't need amazingly competent managers. You need systems. They will become your management strategy.

What Is a Management System?

"It is a System designed into your Prototype to produce a marketing result."

16. Your People Strategy

Make sure your people understand the idea behind the work they're being asked to do.

17. Your Marketing Strategy

"Your Marketing Strategy starts, ends, lives, and dies with your customer."

What you want is unimportant. It's all about what your customer wants.

If your customer says "I want to think about it," don't believe him. He's not going to. He either wants what you're selling or not. When a customer says this, they're one of two things: "he is either emotionally incapable of saying no for fear of how you might react if he told you the truth, or you haven't provided him with the 'food' his Unconscious mind craves."

"If you know who your customer is — demographics — you can then determine why he buys — psychographics."

Then you can begin to construct a Prototype to satisfy his needs.

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 Kinds of Systems

  • Hard Systems

    • Inanimate, unliving things
  • Soft Systems

    • Animate (living) things or ideas
  • Information Systems

    • Provides us with information about the interactivity between the other two

19. A Letter to Sarah

Freedom does not come automatically; it is achieved. And it is not gained in a single bound; it must be achieved each day.
— Rollo May (Man's Search for Himself)

Join the newsletter