If you are a small business owner or are interested in investing in your business you have probably heard of the book “The E-Myth” by Michael E. Gerber.
In his book Gerber describes why most small businesses fail and what to do about it. He offers great knowledge and insights about the reality of running a small business. When you start a business you put so much on the line, work harder than ever and often invest your life savings. It’s a huge commitment and you need to make it work. I think this book is an excellent read to help you make your business survive and thrive. Here I share my key takeaways.
- Most small businesses are not started by entrepreneurs, risking capital to make a profit. Most small businesses are started by technicians who see in business a way to free themselves from a boss. For example, a lawyer starts a law firm, a hairdresser starts a hairdressing business, etc.
- Understanding the technical work does not mean that you understand a business that does technical work.
- Inside each of us there are three people: the entrepreneur, the manager and the technician. The entrepreneur is the visionary, the dreamer. The manager is pragmatic, likes planning. The technician is the doer. Those personalities are always conflicting with each other.
- This causes small business owners to wear many hats without a proper system and burn out. They are overworked, and don’t see their businesses moving forward.
- The author describes different stages of businesses:
The infancy stage – The technician is finally free from a job, but he is constantly working. He starts to work more and more and dropping some balls. The business is the new boss. Then they realise that the business needs to change in order to survive.
Adolescence – The owner decides to hire someone with experience, and this person slowly begins to do take on a number of tasks. Most owners end up practising management by abdication rather than by delegation. The owner becomes more absent and doesn’t know everything that is going on with the business. Until this doesn’t work anymore – either the business begins to decline its performance or the staff member resigns and the business owner is left feeling lost. When that happens some businesses become small again, until eventually the business owner loses interest. Some might keep growing fast until it’s unsustainable. Or they might keep going and burn out.
Maturity – This is not a consequence of the first two phases. A business can be launched as a mature company. This is a business created with the entrepreneurial perspective in mind and systems in place, following the entrepreneurial method. This model looks at a business as if it were a product – what will it look like to the customer? How will it stand out? And it needs a clear picture of the customer. The entrepreneur looks outwardly, while the technician looks inwardly. To the entrepreneur the business is the product.
- The turn-key revolution is changing the way we do business. The author talks about Ray Krok and McDonalds. The product is not hamburgers but franchises. He developed a system that works regardless of who is running it. All systems are in place, and nothing can be changed. Small business owners need to think of their businesses as franchise prototypes, even if they don’t want to franchise. This includes systems in place for every aspect of the business.
- You must work on your business, not in it. Pretend your business is a prototype for 5000 more, just like it. Create systems so that your business will work without you. All work should be documented in Operations Manuals, so that they can be carried out by different people and produce the same results, be predictable. Customers come back to predictable businesses.
- When the business is the product, how the business interacts with the customer is more important than what it sells. Innovation is important and can happen in simple things, such as the way you approach a customer. For example instead of saying “may I help you”, you can say “Hi, have you been here before” and actually get an answer from your customer. This is innovation.
- As you innovate it is important to quantify and analyse results. Eliminate discretion and choice.
- Create your Business Development Program thinking about:
1. Your primary aim – what do you value? What do you want your life to be like?
2. Your strategic objective – a very clear statement of what your business has to ultimately do for you to achieve your primary aim. This is the vision of your finished product, and not a business plan.
3. Your organizational strategy – complete strategic objective, then create organizational chart – what positions are needed? What are the responsibilities for each position? Have clear jobs, that becomes clear to any new staff members. Replace yourself with a system.
4. Your management strategy – develop a management system. This is a system designed into your prototype to produce a marketing result.
5. Your people strategy – people want to work for people who have created a clearly defined structure for acting in the world. This structure is called a game. You must communicate this game well to them, linking your primary aim, strategic objective, organizational strategy and the operations manuals. The game has to be genuine, and a game that you would play yourself.
6. Your marketing strategy – forget about everything but your customer and feed your customer’s personality. The food (sensory input) has to be compatible with the unconscious mind. Consider 2 pillars: demographics and psychographics. This is who your customer is and why he buys.
7. Your systems strategy – including hard systems (unliving things), soft systems (animate, can be people, and ideas), information systems (information about the interaction between the other two – like cash flow, forecasting, etc). All those pasts are important, and it’s very important to have a selling system (which is a soft system).
- The author gives examples such as what they call the powerpoint selling system, a system composed of two parts: structure and substance. Structure is what you do and substance is how you do it. It is important to quantify and analyse the results of this system (information system and soft system together).
- Every communication with your business is a soft system. Your business is unique in the story it is telling, the words it is using. The author, at the start of the book, talks about his journey and how everything changed in his life when “the curtain was finally up”. Remember to “keep the curtain up” – the curtain is your comfort zone.
I hope you enjoyed reading my key takeaways. Investing in a business is a huge decision and you want to make sure you are well prepared to make it work. This book certainly helps and gives valuable ideas of how you can run your business like a company.
Do you have your own business? What do you think about Gerber’s ideas? Let me know in the comments below 🙂