The E-Myth by Michael Gerber

Short Summary

The E-Myth, or entrepreneurial myth, is the myth that most people who start small businesses are entrepreneurs. It is the fatal assumption that an individual who understands the technical work of a business can successfully run a business that does technical work. If your business depends on you, then you don’t have a business — you have a job.

Favorite Quote

“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!”

―Michael E. Gerber

Book Notes

Most small businesses fail because they make a fatal assumption: if you understand the technical work of a business, you understand a business that does technical work. But the technical work of a business and a business that does technical work are two different things.

The technician struck with the “entrepreneurial seizure” to start their own business fails to realize that they must learn to make the business work instead of only working in the business.

The Entrepreneur, The Manager, And The Technician

The problem is that everybody who goes into business is three-people-in-one: the Entrepreneur, the Manager, and the Technician. While each of these personalities wants to be the boss, none of them want to have a boss. It’s a three-way battle that no one can win.

The Entrepreneur is the visionary in us that only lives in the future. He is happiest when left to ponder “what-if” and “if-when” questions. It is also our creative personality that has an extraordinary need for control of people and events. Given his need for change, the Entrepreneur creates havoc around him, which is unsettling for the people he enlists in his projects.

The Manager is pragmatic, craving order, and predictability. The Manager lives in the past while clinging to the status quo. He is the one who runs after the Entrepreneur to clean up his mess. Without the Entrepreneur, there would be no mess to clean up, but without the Manager, there would be no business.

The Technician is the doer. He is the tinker that lives in the present. The Technician is happy as long as he is working, but only on one thing at a time. As a result, the Technician mistrusts those he works for since they are always trying to get more work done than is either possible or necessary.

If we were able to balance all three personalities equally, we would be incredibly competent. The Entrepreneur would be free to forge ahead into new areas of interest. The Manager would be solidifying the base operations. The Technician would be doing technical work. Unfortunately, very few people that go into business for themselves can maintain this balance.

The Three Phases of Growth

The Infancy Phase is the beginning phase of each business. During infancy, you not only do the work you know how to do, but also the work you don’t know how to do. A business in its infancy is easy to spot because the owner and the business are the same things — you are the business.

The infancy phase ends when the owner realizes that the business cannot continue to run the way it has been. It will have to change to survive. Most business failures occur at this phase.

If your business depends on you, you don’t own a business — you have a job. The purpose of getting into business is to get free of a job so you can create jobs for other people. Once you let your Technician go, you make room for the rest of you to flourish. The game of building a small business that works can become rewarding.

The Adolescence Phase is the next phase, and it begins when you decide to get some help. Every small business owner who survives seeks help. You hire someone with experience in your kind of business to do the technical work that isn’t getting done — usually the work you don’t want to do.

Hiring someone allows you to step away from the role of Technician so you can become the Manager. But instead of managing by delegation, it’s easy to fall into the trap of giving up your responsibility. Eventually, the multiple balls you are trying to juggle not only become too much for you to handle but too much for the people you hired as well.

Every adolescent business reaches a point where it pushes beyond its owners’ comfort zone of feeling secure about controlling his environment. The business is now bigger than him. At this point, the owner has three courses of action to take. He can return the business to the infancy phase, he can go for broke, or he can hang on for dear life.

But each course of action leads to relinquishing control or being overcome by chaos. Letting your business “get small” again is going back to your comfort zone of having a job. Businesses that “get small” again self implode. Going for broke or hanging on for dear life is only extending the runway until you can no longer keep up with the demands of your business.

The third phase of a company’s growth is the Maturity Phase. A mature business is not an inevitable result of going through the phases of infancy and adolescence. Successful companies didn’t end up as mature businesses; they start that way. Mature businesses must also go through infancy and adolescence, but they go through them in an entirely different way. It’s the perspective that makes the difference.

The Entrepreneurial Perspective starts with a picture of a well-defined future, then comes back to the present to change it to match the vision. It has less to do with what’s done in a business and more to do with how it’s done. What is sold isn’t important — the way it’s delivered is.

The Turn-Key Revolution (Franchise Prototype)

For a business model to work, it must be balanced so that the Entrepreneur, the Manager, and the Technician all find their natural place within it. The Turn-Key Revolution provides a balanced model of a business that works.

The model 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 is the business itself. The business-as-a-product spawns the Franchise Prototype.

The Franchise Prototype is a systems-dependent business, not a people-dependent business. It is a place where all assumptions are put to the test to see how well they work before becoming operational in the business. The system runs the business. The people run the system.

The Prototype is the medium through which the Entrepreneur’s vision takes form in the real world. To the Manager, the Prototype provides order and predictability, and to the Technician, the Prototype is a place to do the word he loves — technical work. The Franchise Prototype helped companies like McDonald’s, FedEx, and Dominos Pizza become billion-dollar corporate giants.

Working on Your Business

The purpose of your life is not to serve your business; the primary purpose of your business is to serve your life. Once you recognize this, you can then go to work on your business, rather than in it.

Follow these Franchise Model rules to ensure your business can succeed without you:

Provide consistent value to your customers, employees, suppliers, and lenders beyond their expectations
Let it be operated by people with the lowest possible level of skill
Be a place of impeccable order
Have all work documented in an Operations Manual
Provide a uniformly predictable service to customers
Utilize a uniform color, dress, and facilities code

Business Development Process

The foundation of your Franchise Prototype is built on three distinct activities: Innovation, Quantification, and Orchestration.

Innovation is doing new things until you have found the “Best Way” of doing something. It is the skill developed within your business when you continuously ask, “What is the best way to do this?” It is the heart of every exceptional business.

Quantification is measuring the impact of your innovations through numbers. You should be quantifying everything related to how you do business. 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. Your system must provide the vehicle to facilitate predictability in your business. To give your customer what he wants every single time.

Innovation, Quantification, and Orchestration are the backbone of every successful business. They are the essence of your Business Development Process.

Business Development Program

The Business Development Program is the step-by-step process through which you convert your business into a Franchise Prototype that you can replicate thousands of times. It consists of seven steps:

Primary Aim
Strategic Objective
Organization Strategy
Management Strategy
People Strategy
Marketing Strategy
Systems Strategy

Your Primary Aim is the answer to three questions:

What do you value most?
What kind of life do you want?
What do you want your life to look like, to feel like?

The answers become the vision necessary to bring your business to life and your life to your business. It provides you with a purpose.

Your Strategic Objective is a clear statement of what your business has to do to achieve your Primary Aim. A tool for measuring your progress toward a specific end. It’s also a list of standards to follow.

The first standard is your gross revenue, or how big you want your company to grow. Will it be a $200,000 company? A million-dollar company? How much money do you need to be independent of work?

The second standard is determining if it is an opportunity worth pursuing. You have an opportunity worth pursuing when you can determine how many potential customers you have and how successfully you can satisfy their emotional or perceived needs.

The remaining standards are determined by the questions you answer about how to serve your customer best.

Your Organizational Strategy is put into place by creating an Organization Chart to organize people by positions and creating a clear tree of who reports to who. Create accountability and commitment from your employees by having them sign off on a position contract or a summary of the work and expectations of their role.

Your Management Strategy is a system for orchestrating the process by which management decisions are made while eliminating the need for decisions to be made by your employees. The more automatic your system is, the more effectively your Franchise Prototype will be.

A key part of your Management Strategy is how you teach up-and-upcoming managers to use your system. Your management development isn’t just a management tool – it’s a marketing tool.

Your People Strategy is creating an environment where employees can test themselves and be tested. It’s creating a game where doing work is more important than not doing it. Make sure your people understand the idea behind the work they are doing, as this is more important than the work itself.

The “People Game” has rules that must be honored if you are to become any good at it. The rules are:

Never figure out what you want your people to do then try to create a game out of it. The game comes first; what your people do, second
Never create a game for your people you wouldn’t play yourself
Make sure there are ways of winning the game without ending it
Change the game from time to time
Never expect the game to be self-sustaining. Remind your people of it constantly
The game has to make sense
The game needs to be fun from time to time
If you can’t come up with your own game, steal one

Your Marketing Strategy is knowing what your customer wants is all that matters. The problem is your customer doesn’t always know what he wants. But you can get to know your customers better than they know themselves by knowing their demographics and psychographics. Knowing who your customer is (demographics) will help you determine why he buys (psychographics).

Your Systems Strategy understands the three kinds of systems in your business: Hard Systems, Soft Systems, and Information Systems. Hard Systems are the inanimate things in your business that help you operate (computers, machines, etc.) Soft Systems are your ideas and strategies like your selling system. Information Systems provides information that interacts with the other two systems. It tracks your business activity to inform you when and why you need to make changes.

The E-Myth Revisited by Michael Gerber