The E-Myth Revisited Summary & More | Michael Gerber
Why Most Small Businesses Don’t Work and What to Do About It
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Introduction
Have you ever wondered why 80% of small businesses fail within the first five years? The E-Myth Revisited explains the mystery. It all starts with a myth – the Entrepreneurial Myth (E-Myth), which assumes that anyone who starts a business is an entrepreneur. But the reality is far from this.
The book walks you through the steps in the life of a business. It also shows you how to apply franchising lessons to any business. Michael Gerber draws a crucial line between working on your business and working in it. As you navigate through the book, you’ll learn how to overcome obstacles and achieve long-term success. Gerber offers invaluable tips on how to evade ordinary traps and scale your ventures.
Let’s review the key takeaways, insights, and strategies for a successful long-term business.
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About Michael Gerber
Michael Gerber is an American author and founder of Michael E. Gerber Companies. He runs a business skill training company based in Carlsbad, California. Inc. Magazine calls him “The World’s #1 Small Business Guru.”
Gerber started over 40 years ago, addressing a significant need in the small business market. His company has helped countless businesses become world-class businesses.
Gerber authored 28 coaching books and 19 E-Myth Vertical books with industry experts. His Dreaming Room is a place where future entrepreneurs come to discover how to make their dreams a reality.
StoryShot #1: Understanding One Business Doesn’t Mean You’ll Understand Similar Businesses
The E-Myth is the myth of the entrepreneur. The myth goes that if you know how a business does its technical work, you’ll understand any business that does it. This false assumption is the primary cause of several business failures. Gerber describes the ‘entrepreneurial seizure’ as when workers decide to become their own boss.
At this stage, entrepreneurs can get overwhelmed by excitement and idealism. They focus on technical skills, assuming it guarantees business success, underestimating its complexity.
Many entrepreneurs fall into the trap of working “in” their business rather than “on” their business. Often, they don’t have clear systems or processes in place, become consumed by day-to-day tasks, work long hours, and wear multiple hats. This micromanagement approach limits their ability to scale, grow, and achieve long-term success.
StoryShot #2: Business Owners Possess a Blend of Three Conflicting Personalities
Everybody who goes into business has a combination of three personalities: the entrepreneur, the manager, and the technician. Issues can arise with these three roles, as they are continually in conflict with each other.
- The Entrepreneur: This part is associated with being a visionary and creative personality. Entrepreneurs crave control.
- The Manager: Managers are pragmatic and hyper-focused on planning, order, and predictability. Your manager personality craves order.
- The Technician: The technician is characterized by doing and tinkering.
These personalities will not show up in equal proportions. So, sometimes certain personalities can dominate to the detriment of others. The typical small business owner is only 10 percent Entrepreneur, 20 percent Manager, and 70 percent technician.
Many small business owners start their ventures predominantly as technicians. Entrepreneurs start businesses based on their skills, like baking, plumbing, or graphic design. But, to build a successful business, entrepreneurs need to balance all three personalities. An entrepreneur needs to bring vision and innovation, a manager needs to be organized, and a technician needs to know what they’re doing. You can’t scale your business effectively if you neglect any of these personalities.
StoryShot #3: Do What Your Business Needs
Most businesses are run based on what the owner wants instead of what the business needs. Doing what you want rather than what your business needs will doom your business. This error is often associated with entering the technician personality phase.
A business has three phases of growth:
- infancy,
- adolescence,
- and maturity.
In the Infancy Stage, the business owner must be a master juggler. They are running all parts of the business. This stage ends as soon as the owner realizes the business must transition and evolve to survive. This transition is often extremely dangerous.
Every adolescent business reaches a point of pushing beyond its comfort zone. It’s a safe zone where employees feel in control. Preparing for growth is the key to becoming a mature business. This preparation requires educating yourself. When your business grows, your foundation and structure can handle the extra weight.
A Mature company differs from an Adolescent company in that it starts differently. It’s based on building something that works without relying solely on you. This means that mature companies actually start as mature companies. From the outset, they understand what is required to get where they want to be.
StoryShot #4: Ask For Help When You Need It
The business adolescence phase starts when you decide to get technical help. When you lack expertise in a specific area, you may need someone else’s expertise. In this phase, a business moves from chaos to structure, becoming scalable.
Entrepreneurs often wear many hats and do a lot of things themselves in the early stages. They handle all aspects of the business, from operations to marketing to finance. Yet, as the business grows, this approach becomes unsustainable and inhibits further expansion.
The most common issue associated with this stage is management by abdication. In this position, the owner delegates tasks to employees but neglects project oversight. Once overwhelmed, the owner must resume juggling tasks when employees struggle. The solution to this problem is to engage your manager’s personality.
StoryShot #5: Look For Solutions When Your Business Grows Past Your Capabilities
Your comfort zone is the boundary in which you feel secure in your abilities as your business owner. These boundaries can vary depending on your mix of the three personalities.
- If you are a technician, then your boundary relates to how much you can do yourself.
- If you are a manager, then your boundary relates to how many technicians you can effectively supervise.
- If you are an entrepreneur, your boundary relates to how many managers you can engage with to pursue your vision.
Once your business exceeds your workload control, three solutions emerge:
- Getting small again – Going back to being a business operated by a technician, i.e., business infancy.
- Going for broke – Growing the business until it eventually self-destructs from its own momentum.
- Adolescent survival – Adapting and changing to meet the growing needs of your company.
The most important approach as a business owner is to remain educated with a clear plan.
StoryShot #6: Achieve Stability and Control through Systematic Integration
In Gerber’s model, a mature business is one that has reached a stage of stability and control. It has established systems, processes, and clear goal-driven steps. During this stage, the business has a sense of purpose and direction, knowing how to move forward.
The key to navigating this stage is to have an entrepreneurial mindset. In this perspective, the customer comes first, not the business vision. It shifts focus from internal operations to market dynamics and customer demands.
A mature business is in control and knows the next step required to get where it wants to be. This stage of the business requires you to harness your entrepreneurial perspective. This does not involve starting with a picture of the business to be created. It’s more about the customer, for whom they’re creating the business. The entrepreneurial perspective sees the business as a network of integrated parts. These components combine to produce a pre-planned, desired result.
StoryShot #7: Sell the Business Model
Entrepreneurs must sell the business model, not just products or services. This involves selling products and services in addition to the business model itself. Merely having a good product/service doesn’t guarantee automatic success or customers. They often believe that if they have a good product or service, customers will automatically come, and the business will thrive. But, this is a flawed approach.
Rather than thinking like business owners, think like franchise developers. Potential franchisees can buy a replicable and scalable business model from franchise developers. The business models they use are attractive, predictable, and easy to replicate.
Business owners should approach their businesses with the same mindset. In the development of systems, processes, and procedures, they should document them and make sure that they can be replicated. Systems should cover marketing, sales, operations, customer service, and more.
Taking Ray Croc as an example, he was crucial to McDonald’s growth as a business. Ray realized the hamburger wasn’t his product, McDonald’s was. Instead of focusing on selling burgers, he leveraged that knowledge to sell franchises. This is why McDonald’s calls itself the most successful small business in the world. McDonald’s has created a model for small businesses to emulate.
StoryShot #8: Work On Your Business, Not In It
Many small business owners get trapped in excessive operational involvement. They get caught up in the day-to-day stuff, wearing multiple hats, and always putting out fires. Short-term productivity can hinder long-term success and sustainability efforts.
“Work on your business, not in it.” To build an efficient system, business owners need to step back from constant involvement. They have to standardize procedures, document tasks, and create guidelines.
Systems help business owners delegate tasks, empower employees, and ensure quality and consistency. It frees up the business owner’s time to do things he or she is passionate about, like strategic planning, marketing, and financial analysis.
This mantra means your business and personal life should be completely separate entities. Your purpose in life should be to serve your life rather than your business. The best way to adopt this approach is to imagine your business is merely a prototype of 5,000 more just like it. You don’t have to make your business your life by pretending it’s a franchise. Franchise-style thinking drives system development for employees, suppliers, lenders, and customers.
StoryShot #9: Develop Your Business Through Innovation, Quantification and Orchestration
Developing a successful business requires innovation, quantification, and orchestration. Business can become more efficient, adaptable, and customer-focused by following these principles.
Innovation
Innovating, measuring performance, and creating efficient systems will help business owners grow. Your business’ innovation does not need to be expensive or complicated. It must be an alternative and more effective approach. Innovative approaches prioritize the customer’s perspective. Ask yourself, ‘What is the best way to do this?’ Your changes should make things easier rather than more complicated for you. Business changes that complicate things are complications, not innovations.
Quantification
Quantification is necessary to measure innovation. Use quantification to determine if innovation is working or failing. For example, quantifying how many customers you have each day or how many people ask for prices. Thinking of your business in terms of numbers will let you know where you are and where you are going.
Orchestration
Orchestration involves removing the ability of employees to make independent decisions at the operational level of a business. This way, the company can maintain control over its operations and ensure that everything runs according to a predetermined plan or set of rules. This control and predictability can help to create a consistent experience for customers, which can be beneficial for building a successful franchise. The system must be designed to provide customers with what they want every time, which can help to build customer loyalty and increase revenue.
StoryShot #10: Develop Your Own Business Development Program
Your Business Development Program is the step-by-step process for converting your existing business. Specifically, converting into a perfectly organized model for thousands more just like it. Gerber offers seven distinct steps to establish this development program:
- Your primary aim
- Your strategic objective
- Your organizational strategy
- Your management strategy
- Your people strategy
- Your marketing strategy
- Your systems strategy
Define “The Primary Aim” of Your Business
It’s important to define the aim of your business as a fundamental step in building a successful enterprise. It’s what Gerber calls your “Primary Aim” and it guides your decisions, actions, and direction.
The Primary Aim of your business is to answer the following questions:
- What do I value most?
- What type of life do I want?
- Who do I want to become?
Identifying your primary aim is all about actively creating your life, rather than waiting to see where life takes you next. Understand your business’s aim and make strategic decisions aligned with yours. A business aligned with your primary purpose is the key to business success and sustainability.
StoryShot #11: The Standards of Your Strategic Objective Are Important
Your business should have a clear strategic goal. You can use a “strategic objective” as a roadmap to help you stay focused on what’s really important.
Your strategic objective is not a business plan. Instead, it is your business and should reflect your life plan. So, your strategic objective consists of standards.
- The first standard is money. Use metrics like revenue, profits, or other financial measures to set financial targets.
- The second standard is determining whether your idea is worth pursuing. Define the standard by considering your true product, not just your commodity. The commodity is the thing your customer walks out with in their hand. The product is what your customer feels as they walk out of your business.
Having a clear strategic aim helps you make informed decisions and focus on your efforts. It offers direction and purpose, guiding businesses towards lasting success. Refine your strategic objective by setting measurable goals aligned with your primary goal.
StoryShot #12: Prioritize Functions Rather Than Personalities
Building a solid structure is key to achieving efficiency, scalability, and consistency.
Your company’s organization structure is one of the most important systems. Develop your organization’s structure based on functions, not personalities. Despite this, most businesspeople prioritize personality, and the result is chaos. Develop an organization chart with the company’s needs and define the key roles. Try to remove the individual from the function/role. Use organization charts to fuel your prototyping process. Document and codify the important innovations for each role in an Operations Manual. This can include things like checklists for different tasks. Once the Operations Manual is complete, the business owner can run an advert for the job and attempt to fill the role.
Organization structure can help business owners establish clarity, efficiency, and consistency. It enables effective communication, accountability, and scalability. A sound organizational structure creates a solid foundation for business growth and success.
StoryShot #13: Know Your People, Marketing, and Systems Strategies
In the realm of business, three essential elements play a significant role in shaping success: people, marketing, and systems. Each of these components contributes to the overall framework of a thriving enterprise.
People
The work you do is a reflection of how you are. If you are sloppy with work, then you are being sloppy inside. Similarly, if you are late with your work, then you are late inside. So, when completing work, try to look inside yourself.
Some people perceive work as undesirable rather than an opportunity for self-discovery. Even typically undesirable work offers a reflection of your personal character. This also applies to recruitment. Find people willing to work within your system, not people who believe they have a better one.
The typical owner of a small business prefers highly skilled people because he believes they make his job easier. They prefer management by abdication rather than by delegation. This is not the approach that will bring success. Hire ordinary people who can achieve extraordinary results with the right system.
Marketing
Your marketing strategy should be all about your customers. What you want is unimportant; it is what your customer wants that matters. When marketing, consider promises no competitor would dare to make. Then, make these promises yourself and keep to them.
Demographics and psychographics are the two essential pillars supporting a successful marketing program. This is determining who your customer is and determining why they buy what they buy. There isn’t a function or position within the company that is free of asking marketing questions.
Systems
There are three main types of business systems:
- Hard systems: Includes physical assets like business space, hardware, your factories and machines.
- Soft systems: Includes ideas and business processes.
- Information systems: Information about how the two systems interact. Includes controlling inventory, forecasting cash flow, reporting sales, etc.
StoryShot #14: Running a Business Is Like Playing a Game
Developing and sustaining a business is somewhat like a game. Gerber uses the analogy of a game to explain the process of developing and sustaining a business. The game concept can help you understand business dynamics, challenges, and strategies.
Each player, or team member, must be reminded of the game constantly. It has to make sense, it must be fun from time to time and you can’t play the same game forever. You must also choose games with specific ways of winning without ending it. Don’t expect one single game to be self-sustaining for the entirety of your business career. Be willing to choose other games and make the instructions of this new game clear to your team members.
It’s important to understand and respond to competition in the marketplace. You need to know your competitors, differentiate yourself, and develop strategies to win. Like games, businesses face challenges that need to be overcome through creative problem-solving.
The E-Myth Revisited Final Summary and Review
The E-Myth Revisited is a practical guide for small business owners. It challenges common entrepreneurial myths. Throughout the book, you will learn how to distinguish between working on a business and working on it. The E-Myth is about entrepreneurs failing by prioritizing technical skills over essentials.
Taking a thorough analysis of “The E-Myth Revisited,” here are the key insights:
- Innovation, quantification, and orchestration are essential for business success. They focus on the customer, measure performance, and put in place effective systems.
- A business development program consists of seven steps that guide businesses in achieving their goals.
- Clear strategic objectives with measurable goals lead to informed decisions and focused efforts. They align businesses with their purpose and drive lasting success.
- Prioritizing functions over personalities in organizational structures ensures efficiency, scalability, and consistency.
- People, marketing, and systems are vital elements in shaping business success.
- Running a business requires adaptability, creative problem-solving, and constant awareness of challenges.
- Understanding one business does not guarantee understanding others. Entrepreneurs should work “on” their business, developing clear processes for long-term success.
- A mature business achieves stability and control through systematic integration. Selling the business model alongside products or services is key.
Have you gained any valuable insights from this summary of E-Myth Revisited? Share your top takeaways, favorite lessons, and quotes on the entrepreneurial mindset by tagging us on social media. Join us in the conversation and let’s learn from Gerber’s wisdom together!
Rating
We rate The E-Myth Revisited 4.1/5.
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