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

by Michael E. Gerber

Book Cover

This is probably the best book I’ve read on creating a business. The other books I have read on the topic (The $100 startup, Lean Startup, Bootstrapping your business, The hard thing about hard things) seem to either give a business template or provide feedback on the endeavor.

E-Myth focuses more on the why, and provides a higher-level strategy centered on habit #1 to systematize the creation of the business. The franchise prototype analogy (i.e. productizing the business and then working on it rather than it it) really resonated to me.

Summary

What makes people work is an idea worth working for, along with a clear understanding of what needs to be done. It is only when such an idea becomes firmly integrated into the way you think and operate your business that “how to do it” becomes meaningful.

~ Gerber, Michael E.. The E-Myth Revisited

Most businesses are started not by entrepreneurs but by technical people who crave for independence. They become the business. They should work on the business rather than just working in the business.

See the business as a product, and develop that. Consider it as a franchise prototype, as if working on a template that would then be re-applied to 5000 franchises.

Systematize all operations into operations manuals, so that the business reflects the idea behind it: the thing that makes it unique and different from all businesses. Standardize everything so that order rules the business, from the innovation process to the management procedures. You need a delegation framework so that you manage the business by delegation (indicate what you want and how) rather than abdication (just leave people judge).

The problem isn’t your business; it never has been. The problem is you!

~ Gerber, Michael E.. The E-Myth Revisited

→ If you want your business to succeed, you have to change yourself first.

Detailed notes

Your business is nothing more than a distinct reflection of who you are.

~ Gerber, Michael E.. The E-Myth Revisited

  • There’s a myth that small businesses are built by entrepreneurs. It’s not true, small businesses are built by technical people who wanted independence and control
  • Technical people going into business confuse knowing the job and knowing the business, but they are two different things
  • There are three personas fighting in a business owner. An entrepreneur, a manager, and a technician.
    • The entrepreneur is in the future. He “wonders”
    • The manager is in the past
    • The technician is in the present
  • Entrepreneurs need to see business as something they need to define, not as a job
    • You don’t work in the business, you work on the business
  • See the business as a product
    • The franchise model applies a successful prototype to other businesses.
    • A way to focus on entrepreneurial thinking is to seek what would make the business a successful franchise prototype for 5000 other businesses
    • Detach yourself from the business, the business is a product, it’s not you.
    • By building a “turnkey” business you ensure the business is defined as an entity distinct from you, which is repeatable and sellable
  • Rules of the turnkey solution:
    • Focus on value: what brings value to the customer (important value is only perceived), how do I bring it systematically (rather than personally)
    • Develop procedures for ordinary workers. (lowest possible level of skill)
      • Business owners are looking for highly skilled workers to let them work in autonomy, i.e take the decisions. This is “delegation by abdication”.
      • Instead, focus on SOPs that can be repeated by employees
    • Maintain impeccable order
      • The world is a messy place. People need order.
      • If the business is predictable and orderly, customers will want to renew their business to anchor, employees will want to stay.
    • Everything needs to be documented. This is how you make sure you control the business
    • Enforce repeatability: customers want a consistent experience
    • Innovate, qualify, orchestrate: try something new, measure impact, document and deploy innovation
    • Use codes, colors, uniforms - to identify.
  • You need to build a business development program
    • The primary aim
      • What is your personal primary aim ? Financial independence?
      • What is the business primary aim? Offer a unique value that no one else in the world is offering
      • The primary aim for your business is to achieve personal financial independence. Not in income, but in assets, i.e. How much you will sell the business
    • Define 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.
      • How much money will the business make? Impossible to predict, but a good target is the price it will be sold that, and working backwards to a function of its revenue (therefore targeting a revenue)
      • Potential buyers? Growth? Population ? Etc
      • How your vision will transpire in the system
        • How will you care when doing any of the actions
    • Organization strategy: What, are the roles that need to be filled in?
      • As employees
      • As shareholders
      • Fill the role for some timeframe, it’s the only way to know what you expect from it, and how to build the operation manual
      • The goal is to replace yourself with a system.
    • Management strategy
      • You want unskilled managers because they will need to learn to manage your way, i.e. the way you defined in the operations manual
      • Instead you want a system
      • The system needs to be predictable
      • Define the entirety of how the business needs to be handled - once again by defining what is done to communicate the vision
      • All operations need to be defined in operations manuals.
    • People strategy
      • Inspire people with your dream
      • The most important is that they believe in the same dream as you
      • Define the game: how do we delight customers? How do we offer comfort? How do we offer stability and order?
      • Play the game: it must be fun, it needs to have a cadence
      • You can win the game, but you can’t end it.
    • Marketing strategy
      • People don’t make rational decisions, they decide in split seconds unconsciously and then rationalize their decisions
      • You must appeal to the unconscious so that it decides in your favor
      • Then you must provide the arguments for the rational mind to support the unconscious decision
      • To do so you need to know your customer’s demographics and psychographics
      • Demographics is who they are
      • Psycho graphics is what appeals to them - colors, shapes, emotions
      • A way to do so is to ask people who already come
        • See what brands they buy and how these brands advertise
        • Where they live, to target their zone when advertising
      • Have a systematized way to support that process
      • Most of the activities of the company are related to how to differentiate the business → most of the activities are in fact marketing activities
    • Systems strategy :
      • The systems strategy glues the rest together
      • Hard systems: equipment you get to facilitate the operations
      • information system, communication system, etc - everything that takes care of the business for you to stay focused on strategy rather than tactics
      • Soft systems: how you execute - sales process, business rythm, etc → to support all of the strategies ; e.g. have the sales process made to support the marketing strategy.
  • The world is a messy place reigned by chaos and stupidity
    • Because we are like so
    • Change cannot come from the outside. The world doesn’t have to change. We have to change
    • Starting a business is done to create order and change. Therefore we must start by changing ourselves
    • Treat the business like a dojo, where the outside chaos is channeled, and order reigns.

About Reading Notes

This is only my take on this book. See other reading notes. Most of the time I stop taking notes on books I don't enjoy, and these end up not being in the list. This is why ratings tend to be high.