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The E-Myth Revisited

The E-Myth Revisited

Why Most Small Businesses Don't Work and What to Do About It

Michael E. Gerber

Commentary

While The E-Myth Revisited was first published in 1986 (the author talks about franchises instead of startups), its concepts on starting and growing a business still stay very relevant in today's business world.

Before starting any business, understand that you have three roles: The Entrepreneur, The Manager, and The Technician. Next, create systems around finance, marketing, management, and operations to serve your customers with the experience they want and need.

My Highlights

Don Juan said in Tales of Power, that “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.”

The problem with most failing businesses I’ve encountered is not that their owners don’t know enough about finance, marketing, management, and operations—they don’t, but those things are easy enough to learn—but that they spend their time and energy defending what they think they know. The greatest businesspeople I’ve met are determined to get it right no matter what the cost.

What makes people work is an idea worth working for, along with a clear understanding of what needs to be done.

That Fatal Assumption is: if you understand the technical work of a business, you understand a business that does that technical work.

Everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and The Technician. And the problem is compounded by the fact that while each of these personalities wants to be the boss, none of them wants to have a boss.

Entrepreneur is the visionary in us. The dreamer. The energy behind every human activity. The imagination that sparks the fire of the future. The catalyst for change.

The managerial personality is pragmatic. Without The Manager there would be no planning, no order, no predictability.

The Technician is the doer. “If you want it done right, do it yourself” is The Technician’s credo. The Technician loves to tinker. Things are to be taken apart and put back together again. Things aren’t supposed to be dreamed about, they’re supposed to be done.

Most businesses are operated according to what the owner wants as opposed to what the business needs.

It’s easy to spot a business in Infancy—the owner and the business are one and the same thing. If you removed the owner from an Infancy business, there would be no business left. It would disappear! In Infancy, you are the business.

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. The purpose of going into business is also to expand beyond your existing horizons. So you can invent something that satisfies a need in the marketplace that has never been satisfied before. So you can live an expanded, stimulating new life.

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 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.

The true question is not how small a business should be but how big. How big can your business naturally become, with the operative word being naturally? Because, whatever that size is, any limitation you place on its growth is unnatural, shaped not by the market or by your lack of capital (even though that may play a part) but by your own personal limitations. Your lack of skill, knowledge, and experience, and, most of all, passion, for growing a healthy, functionally dynamic, extraordinary 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 growth in a balanced, healthy, proactive way.

In short, businesses that ‘get small again’ die. They literally implode upon themselves. Not right away, necessarily. But over time they die. Atrophy and die. They can’t do anything else.

Entrepreneurial Perspective vs Technician 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.

“How will my business look to the customer?” The Entrepreneur asks. “How will my business stand out from all the rest?” Thus, 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. It understands that without a clear picture of that customer, no business can succeed.

Build a systems-dependent business, not a people-dependent business. A business that could work without you, the owner.

Your business is not your life. Your business and your life are two totally separate things. At its best, your business is something apart from you, rather than a part of you, with its own rules and its own purposes. An organism, you might say, that will live or die according to how well it performs its sole function: to find and keep customers.

It’s your job—more accurately, the job of your business—to develop those tools and to teach your people how to use them. It’s your people’s job to use the tools you’ve developed and to recommend improvements based on their experience with them.

Documentation provides your people with the structure they need and with a written account of how to “get the job done” in the most efficient and effective way. It communicates to the new employees, as well as to the old, that there is a logic to the world in which they have chosen to work, that there is a technology by which results are produced. Documentation is an affirmation of order.

Tolerance for failure is a very specific part of the excellent company culture—and that lesson comes directly from the top. Champions have to make lots of tries and consequently suffer some failures or the organization won’t learn.

Innovation is the heart of every exceptional business. Innovation continually poses the question: What is standing in the way of my customer getting what he wants from my business?

For the innovation to be meaningful it must always take the customer’s point of view. At the same time, innovation simplifies your business to its critical essentials. It should make things easier for you and your people in the operation of your business; otherwise it’s not Innovation but complication.

On its own, innovation leads nowhere. To be at all effective, all Innovations need to be quantified. Without quantification, how would you know whether the innovation worked? By quantification, I’m talking about the numbers related to the impact an innovation makes. Begin by quantifying everything related to how you do business.

Your strategic objective is a very clear statement of what your business has to ultimately do for you to achieve your primary aim. In this context, 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 strategic objective is not a business plan. It is a product of your life plan, as well as your business strategy and plan. Your life plan shapes your life, and the business that is to serve it. 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 to anyone you must communicate to 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.

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’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.

Most companies organize around personalities rather than around functions. That is, around people rather than accountabilities or responsibilities. The result is almost always chaos.

Think about the business as a corporation, rather than as a partnership.

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.

The degree to which your people “do what you want” is the degree to which they buy into your game. And the degree to which they buy into your game doesn’t depend on them but on how well you communicate the game to them—at the outset of your relationship, not after it’s begun. Your people strategy is the way you communicate this idea.

You need people who want to play your game. Not people who believe they have a better one.

Your marketing strategy starts, ends, lives, and dies with your customer. In the development of your marketing strategy, it is absolutely imperative that you forget about your dreams, forget about your visions, forget about your interests, forget about what you want—forget about everything but your customer!

When it comes to marketing, what you want is unimportant. It’s what your customer wants that matters. And what your customer wants is probably significantly different from what you think he wants.

The famous dictum that says, “Find a need and fill it,” is inaccurate. It should say, “Find a perceived need and fill it.” Because if your customer doesn’t perceive he needs something, he doesn’t, even if he actually does.

The owner of the business must start out by asking marketing questions. The COO must continue to ask marketing questions. The VP/Marketing is absolutely accountable for asking marketing questions. In fact, there isn’t a function or position within the company that is free of asking marketing questions, if by marketing we mean, "What must our business be in the mind of our customers in order for them to choose us over everyone else?"

There are three kinds of systems in your business: Hard Systems, Soft Systems, and Information Systems. Hard Systems are inanimate, unliving things. My computer is a Hard System, as are the colors in this office’s reception area. Soft Systems are either animate—living—or ideas. You are a Soft System; so is the script for Hamlet. Information Systems are those that provide us with information about the interaction between the other two. Inventory control, cash flow forecasting, and sales activity summary reports are all Information Systems.

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