The E-Myth Revisited explains why 80% of small businesses fail, & how to ensure yours isn’t among those by building a company that’s based on systems & not on the work of a single individual.
“If your business depends on you, you don’t have 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
Originally published as “The E Myth” in 1986, Michael Gerber revised & updated the book in 1995. The E-Myth Revisited has long sold over a million copies.
You might know the common statistic that 80% of new businesses/startups fail & it’s exactly this phenomenon that Gerber digs into.
He explains how running a business & getting technical work done are two different things & shows you how you can set up a company that depends much more on systems, than on people, & can basically be handed over to anyone with the right instructions.
Here are 3 lessons that’ll help your business survive adolescence:
1 – Having great technical skills does not mean you know how to run a business.
2 – Imagine your business as a nationwide franchise from day one, then build the first store.
3 – The franchise approach makes sure you build a business based on systems, not people.
Lesson 1: Having great technical skills does not mean you know how to run a business.
4 out of 5 small businesses never make it past the 5-year mark, which is quite a depressing statistic. Why is that?
Gerber says it’s because of the entrepreneurial myth. People think being great at a technical skill also makes you great at running a business. This is just wrong.
Being a great mechanic, painter or writer, does not make you good at running a business in that industry. These are two entirely different things. Once you start a business, you’re not just the person doing the technical work, all of a sudden you’re also the CEO, CFO, CTO, CMO, & a whole bunch of other things.
You have to find your customers, track & manage finances, create advertising material, answer customer requests, set a strategy, &, &, &…
If all you know is how to make great coffee, then your first café is very likely to fail – after all you have no clue how to hire, outsource tasks, manage people & grow a business!
Lesson 2: Think of your business as a national franchise, then start with one store.
The solution to that problem, according to Gerber, lies in systems. Gerber references the story of McDonalds ‘the largest small business in the world’ & their franchise model. Businesses have relied on franchising to make handing over the keys easy & comfortable.
If you plan your business as a nationwide franchise from day one, you’ll end up systematising everything as soon as you get a handle on things, which will then allow you to remove & replace yourself from that particular job & sustainably grow the business.
So imagine you’re just building your first franchise store, what’s your unique value for the customers?
Maybe it’s serving the most delicious flavored lattes in town, which all come with free cookies. You as the business owner of course know how to make those, but in a franchise you must ensure that all of your employees can make them just as well.
Therefore, you should come up with incredibly detailed how-to manuals, which you can then use to train your first employee! Taking it a step further, you will eventually also have to write a manual on how to train employees, so potential franchise owners also know how to school their staff.
Your franchise prototype, combined with a set of detailed manuals for everything, will make sure that every customer has the same experience & make your business results reliable & predictable.
Lesson 3: Build a system of systems, so your business doesn’t rely on people’s skills.
If you continue to weave the idea of systems as a constant thread in your business, you’ll end up with a system of systems, which seamlessly work together.
That means you can then go & change individual parts of each system, as long as you consider the effects on the other systems. Three kinds of systems will make up your business.
Hard systems – inanimate objects like your coffee machine.
Soft systems – ideas & living things, like your free cookie policy or the work attitude of your employees.
Information systems – training materials & manuals, & the data you collect, for example how many customers order lattes vs. cappuccinos.
Buying a new coffee machine will of course affect the other parts, for example your employees might not like it as much as the old one & therefore make worse lattes, so customers end up ordering more cappuccinos.
Instead of doing all the work yourself, it now becomes your job to make sure the systems run smoothly together, which will also help you make sure your future franchisees are successful in running their own cafés!
The E-Myth Revisited Review
A very interesting book. The fact that it was first published in 1986 (revised & updated in 1995) doesn’t make it any less valuable. If anything, The E-Myth Revisited is even more relevant today, as more people than ever start their own businesses following the pandemic – & more than ever fail.
Gerber advocates doing a lot of thinking on the front end to prevent you from maneuvering yourself into a situation you can’t get out of.
Other key points for me…
- Why a business goes through the same stages a human being does
- Which questions you must ask yourself to find your entrepreneurial model & perspective before even starting
- Why you don’t just have one business personality & how your inner manager, entrepreneur & technician can work together
- How the turn-key revolution boasts a 75% business success rate
- What you can do to find your primary aim in business
- Why organizational charts are crucial, even though you might not like them
- How a great people-management-system works better than hiring great people
- Why you must focus on the customer & only the customer (& how it’ll replace your marketing)
- The 3 parts of your business development process & how they work together
Although this book was divisive for our book club, for me it’s always been one of my favourites. If you are looking to grow your business – franchise model or just plain simple growth – this is the book for you.
Onwards & upwards my friend,
P x
