Book notes: The E-Myth Revisited by Michael Gerber

The E-Myth Revisited by Michael E. Gerber

Synopsis: “In this first new and totally revised edition of the 150,000-copy underground bestseller, The E-Myth, Michael Gerber dispels the myths surrounding starting your own business and shows how commonplace assumptions can get in the way of running a business. He walks you through the steps in the life of a business from entrepreneurial infancy, through adolescent growing pains, to the mature entrepreneurial perspective, the guiding light of all businesses that succeed. He then shows how to apply the lessons of franchising to any business whether or not it is a franchise. Finally, Gerber draws the vital, often overlooked distinction between working on your business and working in your business. After you have read The E-Myth Revisited, you will truly be able to grow your business in a predictable and productive way.” -Amazon

Opening thoughts:

I believe I heard this book recommended on the Tim Ferriss Show podcast a couple times so it has been on my list for a while now. I just finished reading 40 Rules for Internet Business Success in January and thought this would be a great follow up. I am in the process of starting my own online business so this book seemed like a great book to add to this month’s queue.

Key notes/ideas:

• 4 profound ideas to create an extraordinarily exciting and personally rewarding small business
  1. The E myth says that small businesses are started by entrepreneurs risking capital to make a profit. Not true. The real reasons people start businesses have little to do with entrepreneurship
  2. There is a revolution going on today in American small business called the turnkey revolution
  3. The heart of the turnkey revolution is a dynamic process which they call the business development process. When it is systematized and applied purposefully by a small business owner, the business development process has the power to transform any small business into an incredibly effective organization
  4. The business development process can be systematically applied to any small business owner in a step-by-step method that incorporates the lessons of the turnkey revolution into the operation of that business
• If your business is to change continuously to thrive, which it must, you must continually change first
• Before becoming an entrepreneur, most people started off doing technical work, working for someone else
• The sudden idea of becoming your own boss is called the “entrepreneurial seizure”
• The fatal assumption is that if you understand the technical work of that business, you know the business that does that technical work
• The technician’s greatest asset as a new business owner is also his greatest liability
• The technician who has the entrepreneurial seizure takes the work he loved and turns it into a job. The work born out of love becomes a chore, among a bunch of other , less familiar and less pleasant chores. The work becomes trivialized, something to get through in order to get to everything else that must be done
• Chapter 2: The Entrepreneur, the Technician, and the Manager
  • The person goes into business with all 3 personalities, and while all want to be the boss, none want to have a boss
  • It is tough keeping commitments to ourselves because each of us is a whole set of different personalities (see Split) each with its own interests and way of doing things
  • The entrepreneur is the visionary, the dreamer, the energy behind every human activity. The imagination that sparks the fire of the future, a catalyst for change. Lives in the future, creative, strong need for control
  • The manager is pragmatic, responsible for planning and order, lives in the past and compulsively clings to the status quo
  • It is the tension between the entrepreneur’s vision and the manager’s pragmatism that creates the synthesis from which all great works are born
  • The technician is the doer, lives in the present. Interested not in ideas but how to do it. Ideas need to be reduced to methodology if they are to be of any value. He is a resolute individualist, standing his ground, producing today’s bread for tonight’s dinner
  • Most going into business are not balanced between the 3 personalities
    • Usually they are 10% entrepreneur, 20% manager, and 70% technician
• Infancy and Adolescence
  • 3 phases of growth: infancy, adolescence, and maturity
  • During infancy, you’re a master juggler trying to keep all the balls in the air
  • As a technician who owns a business, you see it form the bottom up instead of the top down. You see the business from a tactical view instead of a strategic one
  • If your business relies on you, then your customers are not buying your business’s ability to give them what they want, but your ability to give them what they want
    • If your business depends on you, you don’t own a business, you own a job
  • The purpose of going into business is to get free from a job so you can create jobs for other people. It is to expand 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 and stimulating life
  • When a technician owner abdicates his role of manager to someone else to handle things he does not know how to do himself, his desperation turns to false hope
  • One predictable response to a failing adolescent business is to shrink back into infancy, a technician-owned, one-man -show
    • The alternative is to keep growing until it self-destructs
  • The true question isn’t how small your business should be, but how big it can naturally become
    • The limitations on your business is not from the market or capital (though those play a part) but your own limitations as an owner (lack of skill, knowledge, and experience)
  • You can’t anticipate everything that will happen to your business, but you can anticipate most of it, such as the need to grow, additional responsibilities and skills, needing to hire and manage, and need for capital
    • Your job is to prepare yourself and your business for growth
• Maturity and the Entrepreneurial Perspective
  • Companies like FedEx, McDonald’s, and Disney didn’t end up as mature businesses, they started that way
    • A great company would have to act like a great company before it ever became one
  • Most people who go into business don’t have a model of a business that works, but of the work itself. They have a “technician’s perspective”
  • The entrepreneurial perspective asks how the business works and sees it as a system for producing outside results for the customer, resulting in profits
    • The technician’s perspective asks what work needs to be done and sees it as a place people work to produce inside results for the technicians, producing income
    • The entrepreneur’s perspective is an integrative view of the world. The technician’s is a fragmented view of the world
  • Entrepreneurial model: a model of the business that fulfills the perceived needs of a specific segment of customers in an innovative way. It looks at the business as if it were a product sitting on a shelf and competing for the customers’ attention against a whole shelf of competing products or businesses
    • Less to do with WHAT is done and more to do with HOW it’s done. The commodity isn’t important, the way it’s delivered is
• The Turnkey Revolution
  • Ray Kroc franchised the McDonald’s prepared food distribution system and created the most successful small business in the world
  • The business format franchise has revolutionized American business
    • It not only lends its name to the tradename franchise, but also provides the franchisee with an entire system of doing business
    • Ray created a systems-dependent business, not a people-dependent business. A business that could work without him
  • McDonald’s is successful because it keeps its commitment. It can do in its more than tens of thousands of stores what most of us can’t do in our one store.
    • Integrity is all about doing what you say you will do, and if you can’t, learning how. That is the measure of an incredible business
  • The only difference between a small business owner technician and an entrepreneur like Ray Kroc is the order of magnitude
• The Franchise Prototype
  • The systems run the business, the people run the system
  • The system guaranteed the customer her expectations would be fulfilled in the exact same way every single time
  • The franchise prototype is the model of a business that works. A balanced model that will satisfy the entrepreneur, the manager, and the technician all at once
  • Every great business in the world is a franchise. The question is, how do you build yours?
  • How do you build a business that works predictably, effortlessly, and profitably each and every day? One that works without you? How do you get free of your business to live a fuller life?
• Working On Your Business, Not In It
  • Your business is not your life, they are two totally separate things. At its best, your business is something apart from you with its own rules and its own purposes
    • It’s an organism that will live and die according to how well it performs its sole function: to find and keep customers
    • The primary purpose of your business is to serve your life, not the other way around
  • Pretend you business will serve as the prototype/model for 5000 more businesses just like it
  • Rules to follow to win 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 level of skill necessary
    3. The model will stand out as a place of impeccable order
    4. All work in the model will be documented in operations manuals
    5. The model will provide a uniformly predictable service to the customer
    6. The model will utilize a uniform color, dress, and facilities code
  • Value is what people perceive it to be, and nothing more
  • It is in the understanding of value as it impacts every person with whom your business comes into contact that every extraordinary business lives
    • Value is essential to your business and to the satisfaction you get from it as it grows
  • If your model depends on highly skilled people, it will be impossible to replicate
    • You don’t need to hire brilliant attorneys or physicians. You need to create the very best system through which good attorneys and good physicians can be leveraged to produce exquisite results
  • Ask: how can I get my customer the results she wants systematically rather than personally? How can I create a business whose results are systems-dependent rather than people-dependent?
    • How can I create an expert system than hire one?
  • A system and a way of doing things is essential to compensate for the disparity between the skills your people have and the skills your business needs if it is to produce consistent results
    • It is your job to develop the tools your people use to get the job done and teach your people how to use them. It’s your people’s job to use the tools and recommend improvements based on their experience with them
    • It is impossible to produce a consistent result in a business that depends upon extraordinary people
    • Ordinary people are a blessing, they force you to find a system that leverages your ordinary people to the point it can produce extraordinary results consistently
    • You’ll be forced to invent innovative solutions to people problems and do business development not as a replacement, but as a necessary correlate to people development
  • A business that looks orderly communicates to the customer that he can trust in the result delivered, and ensures your people they can trust in their future with you
  • Documentation tells your people how to get the job done in the most effective and efficient way. It communicates to new and old employees that there is a logic to the world where they chose to work. There is a technology by which results are produced
    • Documentation is an affirmation of order
  • Customers want and expect consistency in each experience with your business
    • Their first encounter will set an expectation
  • Burnt child syndrome: when a parent rewards and punishes a child for doing the same behavior. This has terrible effects on the child
  • Ask: How can I get my business work without me and get my people to work without my constant interference? How can I systematize my business so that it can be replicated thousands of times?
  • Your small business is like an art and a science. You need a process and a method by which to put the information to use in your business productively
• The Business Development Process
  • Building a prototype of your business is a continuous process
  • Foundation is 3 distinct and integrated activities:
    1. Innovation
       • Creativity thinks about new things, innovation does new things
       • Some of the biggest innovations don’t have to be expensive
       • To be meaningful, must always take the customer’s point of view
       • Simplifies your business to its critical essentials and make things easier for you and your people
       • In an innovative company, everyone grows
    2. Quantification
       • The numbers of your business is like the health chart, helping see the flow of your business
    3. Orchestration
       • You don’t own it until you orchestrate it
  • Each component of the business system is a means to differentiate the business from all other businesses in the mind of the consumer
    • How the business interacts with the consumer is more important than what it sells
  • The system must provide the vehicle to facilitate predictability for your business to be successful
    • Your customers needs predictability and consistency or else they will go somewhere else
  • The business development process is dynamic because the world is
    • This process will enable you to preempt changes, precede and predict them, and at the very least be flexible to them
  • The joy comes from learning the specific way to do things, the continuous experience of learning and improving, until you can do them automatically at a high level
    • There needs to be a set routine because without it, there would be nothing to improve upon. Without improvement, there would be no reason to be
  • The point is to create more life for everyone who comes into contact with the business, especially you the owner
  • 7 Steps of the Business Development Program:
    1. Primary aim
       • Ask: what do I value the most? What kind of life do I want? What do I want my life to look and feel like? Who do I wish to be?
       • Telling the guests at your funeral the story of your life, how you want the story to go is your primary aim
       • Great people create their lives actively, while everyone else is created by their lives passively waiting to see where life takes them next
         • Living intentionally vs. living by accident
       • A warrior sees everything as a challenge, an ordinary person sees everything as either a blessing or a curse
    2. Strategic objective
       • 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
       • Your business is a means rather than an end, a vehicle to enrich your life rather than one that drains it. It’s not a business plan but a product of your life plan
       • Question 1: How much money will I need to live the way I wish? Not income but assets. How much to be independent of work and completely free
       • Question 2: Does your business idea alleviate a frustration experienced by a large enough group of consumers to make it worth my while?
         • Define what kind of business you’re in and who your customer will be
         • Commodity is what your customer walks out of your business holding. Product is what your customer feels as he walks out of your business, what he feels about your business
    3. Organizational strategy
       • Standards create the energy by which the best companies and the most effective people produce results
       • Rather than see as partners, see as shareholders of a corporation, or employees
       • Position contract: a summary of results to be achieved by each position. The work the occupant of those positions are accountable for, and a list of standards by which results are evaluated
       • After COO/President, 3 VP positions: marketing, operations, and finance
       • Organizational chart helps the founders move from doing the tactical work (technicians), to doing the strategic work (managers) when they find others to do the tactical work
    4. Management strategy
    5. People strategy
    6. Marketing strategy
       • The customer’s unconscious mind makes the decisions
       • The customer’s expectations are a sum of all experiences and the basis for their personality
       • If the food from the conscious mind (sensory input) is compatible with the expectations of the unconscious mind, then the unconscious mind says yes
       • Once a decision is made, the mind looks for the rational armament to support the emotional commitment
       • You must know your customer’s demographics (who they are) and their psychographics (why they buy)
       • Find a perceived need and fill it
       • The challenge is to learn our customers’ language, and then to speak that language clearly and well so that your voice can be heard
         • Ask: what must our business be in the mind of our customers in order for them to choose us over everyone else
       • (Small business) Process: lead generation (marketing), lead conversion (sales), and client fulfillment (operations)
       • Getting them to come back for more is the primary aim of every business
         • The customer you’ve got is a lot less expensive to sell to than the one you don’t have
    7. Systems strategy
       • 3 types of systems: hard systems, soft systems, and information systems
         • Hard: inanimate objects
         • Soft: animate like people or ideas
         • Information: those that provide us with information about the interaction between the two
       • Will applied to any conflict creates energy. Conflict without will creates frustration. Conflict with will creates resolution
       • The purpose of a system is to free you to do the things that you want to do
       • Power point selling scripts/benchmarks:
         1. The appointments presentation
         2. The needs analysis presentation
         3. The solutions presentation
       • Selling isn’t closing, it’s opening. It is opening the prospective customer to a deeper experience of his frustration and to the opportunities available to him by going through the questioning process with you
  • Comfort makes us cowards
  • The world’s chaos is a reflection of our won inner turmoil
  • If the world is to be changed, we must first change our lives
    • Unfortunately, we are accustomed to thinking in terms of “them” and “us”
  • A dojo is a miniature cosmos where we make contact with ourselves, our fears, anxieties, reactions, and habits. It is an arena of confined conflict where we confront an opponent who is not an opponent, but rather a partner engaged and helping us understand ourselves more fully. It is a place where we can learn a great deal in a short time about who we are and how we react in the world
  • The entrepreneurial revolution were millions of us going into business for ourselves as a flight from the world of chaos to a world of our own. A yearning for structure, form, and control
    • It’s a yearning for relationship with ourselves and the world in a way impossible to experience from a job
    • We tried to change the world out there by starting a small business, but we stayed the same. And so the small business that was started to give us a new world becomes instead the worst job in the world

Closing thoughts:

Hands down this book is in my new Top 10 books, my top books I would recommend to myself if I were to go back in time. The bulk of it is basically how you want to create a business that relies on a system so that it can duplicate and run without you. Thinking with the end in mind, as Stephen Covey says, you want to plan your business to run independent of you. It is a product of your life plan, the means and not the end. Definitely a great supplement to books like The Four Hour Workweek, Ready Fire Aim, and 40 Rules for Internet Business Success.

Nutshell: Why many small businesses fail and the power of systematizing your business

Rating: 4.5/5