The E-Myth Revisited

BY: MICHAEL GERBER

In one line: Far & away, my number one recommendation for Entrepreneurs looking to better understand scaling solutions and better define the meaning and purpose in their business.

In one more line: The system is the solution, this applies to life and business.

1. Key Notes:
2. 3 Phases of Business:
3. E-Myths (Entrepreneurial Myths)
4. The Turn-Key Revolution
5. Working On Your Business, Not In It
6. The Business Development Process:
7. Your Primary Aim:
8. Your Strategic Objectives:
9. About the Product & the Customer:
10. Standards & Strategic Objectives:
11. Your Management Strategy:
12. The Client Experience:
13. Your People Strategy:
14. Sample Rules of the Game:
15. Hierarchy of Systems For Your Business:
16. Marketing Strategy:
17. Your Systems Strategy:
18. Other Potential Action Items:

Key Notes:

⁃ End points in the progress of extraordinary businesses are instantly replaced with beginning points

⁃ The problem is the person who goes into business is the entrepreneur, and they end up being the manager and the technician on top of running the business

⁃ “It is evident that business, like people, grow and with growth requires change. Unfortunately, most businesses are not run according to this principle. Instead, most businesses are run according to what the owner wants vs what the business needs.”

Tweet

⁃ If the business depends on you, you don’t own a business, you have a job. And that’s the worst job in the world because you’re working for a lunatic!

⁃ The purpose of going into business is to get free of a job so you can create jobs for other people

⁃ Abdication — learn it…renouncing the throne

3 Phases of Business:

1. Infancy — you are the business — remove the owner and the business disappears
2. Adolescence — the point when you go out and get some help, become free from doing tasks, and start to operate more entrepreneurial. Then you realize no one you hire will care about your business the way you do and balls will be dropped. 3 routes: getting small again, going for broke, adolescent survival mode
3. Maturity — “they see the pattern, understand the order, experience the vision” – Peter Drucker

E-Myths (Entrepreneurial Myths)

1. Small businesses are started by entrepreneurs risking capital to make a profit
2. The turn-key revolution – the act of setting up your business so you have systems and processes set up for a consistent, effective, and orderly way of doing business. The business should be systems dependent, not people dependent.
3. The business development process — when small businesses commit themselves to this they stay young and thrive
4. The business development process is implemented in a step by step manner to consistently produce results and vitality

The Turn-Key Revolution

⁃ Systems theory — looks at the world in terms of the interrelatedness of all phenomena, and in this framework an integrated whole whose properties cannot be reduced to its parts is a system.

⁃ Trade name franchises vs. business format franchise

⁃ “The true product of a business is the business itself.”

⁃ The blueprint for how to do business

⁃ Systems-dependent business vs people-dependent business

⁃ Working on the business rather than in it

⁃ Have a purpose which is clear, undiluted, and sure

⁃ Once the system is learned, you have the keys to run the business, hence the term “turn-key”

⁃ Discipline, standardization, and order are the watchwords

⁃ The system runs the business. The people run the system.

Working On Your Business, Not In It

“Your business is not your life. The purpose of your life is not to serve your business but for your business to serve you.”

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 possible level of skill.
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

⁃ If your model is operated by highly skilled people it will be impossible to replicate and the workforce is too competitive and expensive.

⁃ You need to create the best system through which “good” people can produce exquisite results

⁃ How can I give my clients results which are system dependent rather than expert or people dependent?

⁃ It’s your people’s jobs to recommend improvements on the systems based on their experience with them

⁃ “This is how we do it here” — everything should be documented in operations manuals (aka the “HOW TO.GUIDES”)

⁃ The experience must be consistent and repeatable

“What you do in your model is not nearly as important as doing what you do the same way every single time.”

“Think of your business as something apart from yourself, as a world of its own, as a product of your efforts, as a machine designed to fulfill a very specific need, as a mechanism for giving you more life, as a system of interconnecting parts, as a package of cereal, as a can of beans, as something created to satisfy your consumers’ deeply held perceived needs, as a place that acts distinctly different from all other places, as a solution to somebody else’s problem. Think of your business as anything but a job! Go to work on your business rather than in it, and ask yourself the following questions:

• How can I get my business to work, but without me?
• How can I get my people to work, but without my constant interference?
• How can I systematize my business in such a way that it could be replicated 5,000 times, so the 5,000th unit would run as smoothly as the first?
• How can I own my business, and still be free of it?
• How can I spend my time doing the work I love to do rather than the work I have to do?

The Business Development Process:

“Building the prototype of your business is a continuous process.”

Three stages:

1. Innovation

⁃ The words — how you say things

⁃ The look — how you dress

⁃ The touch — how it feels, the special sauce

For innovation to be meaningful, it must always take the point of view of your customers. It should make things easier for you and your operations, otherwise it’s not innovation but complication.

2. Quantification

⁃ Must have metrics to measure innovations for success or failure

⁃ Quantify everything related to doing business

⁃ You can’t know where you are or where you’re going without quantifying everything

3. Orchestration

⁃ Orchestration is the elimination of discretion, or choice at the operating level of your business.

⁃ Discretion is the enemy of order, standardization and quality

⁃ Unless your unique way of doing business every time, you don’t own it

⁃ A way of doing something habitually

Your Primary Aim:

“But before you can determine what that role will be, you must ask yourself these questions: What do I value most? What kind of life do I want? What do I want my life to look like, to feel like? Who do I wish to be? Your Primary Aim is the answer to all these questions.”

⁃ Great people have a vision of their lives that they practice emulating every day.

⁃ Ask yourself and answer the primary aim questions on page 139 as an exercise

Your Strategic Objectives:

– ‘Your arrows do not carry,’ observed the Master, ‘because they do not reach far enough spiritually.’ Eugen Herrigel, Zen and the Art of Archery

– Realize that what you and I really want is to have the room, the openness, to expand, to grow, to be more of ourselves, whatever that means, and to find out what that means is what’s most important to us. Once you see that, you can then turn to the business that’s going to help you get there; you can then turn to the development of your 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. It is the vision of the finished product that is and will be your business. In this context, your business is a means rather than an end, a vehicle to enrich your life rather than one that drains the life you have. Your Strategic Objective is not a business plan. It is a product of your Life Plan, as well as your Business Strategy and Plan. Your Life Plan shapes your life, and the business that is to serve it. Your Business Strategy and Plan provide the structure within which your business is intended to operate over time to fulfill your Life Plan. Your Business Strategy and Plan are a way of communicating to anyone you must communicate to the direction your business is going, how it intends to get there, and the specific benchmarks it will need to hit in order for the Strategy and Plan to work.”

“But unless your Business Strategy and Plan can be reduced to a set of simple and clearly stated standards, it will do more to confuse you than to help.”

“Indeed, the first question you must always ask when creating standards for your Strategic Objective is: What will serve my Primary Aim? The first question about money then becomes: How much money do I need to live the way I wish? Not in income but in assets. In other words, how much money do you need in order to be independent of work, to be free?

About the Product & the Customer:

“Charles Revlon, the Founder of Revlon and an extraordinarily successful entrepreneur, once said about his company: “In the factory Revlon manufactures cosmetics, but in the store Revlon sells hope.” The commodity is cosmetics; the product, hope.

What’s your product? What feeling will your customer walk away with? Peace of mind? Order? Power? Love? What are they really buying when they buy from you? The truth is, nobody’s interested in the commodity. People buy feelings. And as the world becomes more and more complex, and the commodities more varied, the feelings we want become more urgent, less rational, more unconscious. How your business anticipates those feelings and satisfies them is your product. And the demographics and psychographics associated with your customer will predetermine how you do that.”

“Psychographics is the science of perceived marketplace reality. It tells you why your customer buys.”

Standards & Strategic Objectives:

“There is no specific number of standards in your Strategic Objective. There are only specific questions that need to be answered.

• When is your Prototype going to be completed? In two years? Three? Ten?

• Where are you going to be in business? Locally? Regionally? Nationally? Internationally?

• How are you going to be in business? Retail? Wholesale? A combination of the two?

• What standards are you going to insist upon regarding reporting, cleanliness, clothing, management, hiring, firing, training, and so forth?

“As we saw earlier, standards create the energy by which the best companies, and the most effective people, produce results.”

Tweet

“That’s how you need to think of your spirit, Sarah, like a wild horse. Part of it is there to serve you, and another part to serve itself. The thing you need to learn is which part is which. If you put it behind a fence, you will kill it. But if you leave it to come and go as it pleases, you will never understand

“And finding themselves alone as children with their dreams that they dared not share again. How, without even realizing it, our parents and our teachers take our “spirit” away

“Before I can open my second shop, I realize I’ve got to get this one operating without me. And so, one of the first things I’m going to do—and I’ve already begun to do this since we met last week—is to document all of the things I really know how to do today. For example, I know how to bake a great pie. And I know that I can document how I do that, so that’s one of the first places I’m going to begin. But I’m getting ahead of myself. Let me tell you what my business will look like when it’s done, so you can really get a feel for it

Your Management Strategy:

“The system is the solution.”

⁃ You must have an operations manual that details everything that is being done for each client

⁃ It should be color coded, use pictures and other strategies to make it very simple and easy to follow

⁃ It should include a checklist for each thing that needs to happen so it always gets done and signed off on

⁃ There should be repercussions when these things are not followed and a system in place to prevent oversights

⁃ Look for areas where the experience can be automated (think the automatic changing of brightness of light as it gets darker on the path)

The Client Experience:

“…It’s not the big things they talk about, it’s always the little things.”

⁃ Ask about their preferences

⁃ Have a way for tracking those preferences

⁃ Surprise them by doing different things which show you remember and know those preferences

⁃ Implement a system for using this to enhance the client experience

⁃ It should always be the same no matter what and no matter who is running the system

Your People Strategy:

⁃ To get your people to do their jobs, you have to create an environment where doing it becomes more important than not doing it, it becomes a way of life

“Take your people serious and treat them with respect: take the operation serious, like “it’s a symbol of what we believe in.”

⁃ The work we do is a reflection of who we are. If we’re sloppy at it, it’s because we’re sloppy inside. If we’re late at it, it’s because we’re late inside. If we’re bored by it, it’s because we’re bored inside, with ourselves, not with the work. The most menial work can be a piece of art when done by an artist. So the job here is not outside of ourselves, but inside of ourselves. How we do our work becomes a mirror of how we are

⁃ I guess that’s what excited me most about taking this job,” said the Manager. “It’s the very first place I’ve ever gone to work where there was an idea behind the work that was more important than the work itself.

⁃ The first says that the customer is not always right, but whether he is or not, it is our job to make him feel that way

⁃ The second says that everyone who works here is expected to work toward being the best they can possibly be at the tasks they’re accountable for. When they can’t do that, they should act like they can until they get around to it. And if they’re unwilling to act like it, they should leave.

⁃ The third says that the business is a place where everything we know how to do is tested by what we don’t know how to do, and that the conflict between the two is what creates growth, what creates meaning.

⁃ The idea the Boss has about the business comes down to one essential notion. That a business is like a martial arts practice hall, a dojo, a place you go to practice being the best you can be. But the true combat in a dojo is not between one person and another as most people believe it to be. The true combat in a martial arts practice hall is between the people within ourselves

⁃ What was important was how serious I took playing the game we created here

Sample Rules of the Game:

1. never figure out what you want your people to do and then try to create a game out of it
2. Never make them play a game you’re unwilling to play yourself
3. Make sure there are ways of winning with out ending the game along the way.
4. Change the game from time to time — the tactics, not the strategy
5. Don’t expect the game to be self-sustaining — your people need to be reminded of it.
6. The game has to make sense
7. The game needs to be fun from time to time
8. If you can’t think of a good game, steal one.

Hierarchy of Systems For Your Business:

1. How we do it here
2. How we recruit, hire and train people to do it here
3. How we manage it here
4. How we change it here

• “It” being the purpose of your business

Marketing Strategy:

⁃ Define your demographics (who) and psychographics (what is the perceived need you are trying to fill?)

⁃ Buying decisions are made unconsciously and irrationally in the first few instances of interactions

⁃ Learn your customers language and how to speak it clearly and simply.

⁃ Gather feedback from your clients to understand their preferences and brands thy attract to and then study/observe those brands so you can extract similarities and apply to marketing strategy

⁃ Your strategy should be based on data / evidence rather than emotions, opinions and feelings about what you think people want

Your Systems Strategy:

⁃ A system is a set of things, actions, information or ideas that interact with another and in doing so, alter other systems

Hard systems (inanimate unloving things like your computer, colors in reception area):

⁃ What we want vs what we have, which are the two components for conflict and a recipe for innovation

Soft systems (animate living things like you, your scripts, etc):

⁃ In the 80-20 example, the 20% is using systems, the 80 isn’t

⁃ See example of “selling system” in this chapter

⁃ The structure of the system is all of the predetermined elements of the process, the sales material, etc

⁃ The substance of the process is what you bring to the process — where you say and how you say it

⁃ In order for the process to work for you, you have to be willing to do the exact same way every time; by doing this you don’t have to rely on people but on systems

⁃ A completely predictably solution for producing formerly unpredictable results

Information systems (provides info about how all your systems interact with one another — cash flows, revenues, ops manuals, etc.):

⁃ These tell you the things you need to know

⁃ Tells you when and why you need to change

Your systems should represent the idea behind your business

Other Potential Action Items:

⁃ Check out E-Myth Mastery Program

⁃ Chapter 6 – revisit regularly – critically important — “the entrepreneurial model”

⁃ What does your franchise prototype look like?