Book Full Title: The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It.
Book page on Goodreads: The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It.
Book in A Paragraph
The main two ideas in the book for me are: 1) Having a business is not only about the technical work that produces the business product. The “technician” inside us should be accompanied with a manager and an entrepreneur for the business to grow and succeed. 2) The importance of systematizing the business, of making the business systems-dependent rather than expert-dependent. In that case, you need employees who follow great detailed systems to offer the same quality of service every time.
The book opened my eyes on two great ideas mentioned above. However, I think the book could use more organization of its contents. And I’d like to see a similar book about software business and startups specifically.
Entrepreneurial Seizure: Inside your mind it sounded something like this: “What am I doing this for? Why am I working for this guy? Hell, I know as much about this business as he does. If it weren’t for me, he wouldn’t have a business. Any dummy can run a business. I’m working for one.” Here lies a fatal assumption: if you understand the technical work of a business, you understand a business that does that technical work. And the reason it’s fatal is that it just isn’t true. In fact, it’s the root cause of most small business failures!
The Entrepreneur, the Manager, and the Technician
We all have an Entrepreneur, Manager, and Technician inside us. And if they were equally balanced, we’d be describing an incredibly competent individual. The Entrepreneur would be free to forge ahead into new areas of interest; The Manager would be solidifying the base of operations; and The Technician would be doing the technical work.
An entrepreneurial business, without a Manager to give it order and without a Technician to put it to work, is doomed to suffer an early, and probably very dramatic, death. A Manager-driven business, without an Entrepreneur or a Technician to play their absolutely critical roles, will put things into little gray boxes over and over again, only to realize too late that there’s no reason for the things or the boxes she put them into! Such a business will die very neatly. A Technician-driven business, without The Entrepreneur to lead her and The Manager to supervise her, The Technician will work until she drops, only to wake up the next morning to go to work even harder, and the next, and the next. Only to discover, long after it’s too late, that while she was working someone moved a freeway through the store!
Business Infancy and Adolescence
Infancy of a business ends when the owner realizes that the business cannot continue to run the way it has been; that, in order for it to survive, it will have to change.
It’s only a problem when The Technician consumes all the other personalities. When The Technician fills your day with work. When The Technician avoids the challenge of learning how to grow a business. When The Technician shrinks from the entrepreneurial role so necessary to the lifeblood, the momentum, of a truly extraordinary small business, and from the managerial role so critical to the operational balance or grounding of a small business on a day-to-day basis.
You might say: “But I can’t even imagine what my business would be like without me doing the work. It has always depended on me. If it weren’t for me, my customers would go someplace else.” If your business depends on you, you don’t own a business—you have a job. And it’s the worst job in the world because you’re working for a lunatic! You might then say: “But what if I want to do the technical work in my business? What if I don’t want to do anything else but that?” Then for God’s sake, get rid of your business! And get rid of it as quickly as you can. Because you can’t have it both ways. You can’t ignore the financial accountabilities, the marketing accountabilities, the sales and administrative accountabilities. You can’t ignore your future employees’ need for leadership, for purpose, for responsible management, for effective communication, for something more than just a job in which their sole purpose is to support you doing your job.
Once your Technician begins to let go, once you make room for the rest of you to flourish, the game becomes more rewarding than you can possibly imagine at this point in your business’s life.
A dolescence begins at the point in the life of your business when you decide to get some help.
Every Adolescent business reaches a point where it pushes beyond its owner’s Comfort Zone—the boundary within which he feels secure in his ability to control his environment, and outside of which he begins to lose that control.
And as the business grows beyond the owner’s Comfort Zone, there are only three courses of action to be taken, only three ways the business can turn. It can return to Infancy. It can go for broke. Or it can hang on for dear life.
One of the most consistent and predictable reactions of The Technician-turned-business-owner to Adolescent chaos is the decision to “get small” again. According to the Small Business Administration, more than 400,000 such businesses close their doors in the United States every year.
The Adolescent business has another alternative that is certainly less painful and decidedly more dramatic than “getting small.” It can just keep growing faster and faster until it self-destructs of its own momentum.
The Turn-Key Revolution
At the heart of the Turn-Key Revolution is a way of doing business that has the power to dramatically transform any small business from a condition of chaos and dis ease to a condition of order, excitement, and continuous growth. It is the Turn-Key Revolution that provides us with that illusive key to the development of an extraordinary business: the ultimately balanced model of a business that works.
…But the genius of McDonald’s isn’t franchising itself. The franchise has been around for more than a hundred years. The true genius of Ray Kroc’s McDonald’s is the Business Format Franchise.
According to studies conducted by the U.S. Commerce Department from 1971 to 1987, less than 5 percent of franchises have been terminated on an annual basis, or 25 percent in five years. Compare that statistic to the more than 80-percent failure rate of independently owned businesses, and you can immediately understand the power of the Turn-Key Revolution in our economy, and the contribution that the Business Format Franchise has made to it and the future success of your business. The Business Format Franchise is built on the belief that the true product of a business is not what it sells but how it sells it. The true product of a business is the business itself. You should build a systems-dependent business, not a people-dependent business. A business that could work without you.
The Franchise Prototype
The reason for the success of Business Format Franchises is the Franchise Prototype. To the franchisor, the Prototype becomes the working model of the dream; it is the dream in microcosm. Once having completed his Prototype, the franchisor then turns to the franchisee and says, “Let me show you how it works.” And work it does. The system runs the business. The people run the system.
In the Franchise Prototype, the system becomes the solution to the problems that have beset all businesses and all human organizations since time immemorial. The system integrates all the elements required to make a business work.
At Ray Kroc’s McDonald’s, every possible detail of the business system was first tested in the Prototype, and then controlled to a degree never before possible in a people-intensive business. The french fries were left in the warming bin for no more than seven minutes to prevent sogginess. Hamburgers were removed from the hot trays in no more than ten minutes to retain the proper moisture…
Unlike the trade name franchise before it, Ray Kroc’s system left the franchisee with as little operating discretion as possible. This was accomplished by sending him through a rigorous training program before ever being allowed to operate the franchise. If the franchisor has designed the business well, every problem has been thought through. All that’s left for the franchisee to do is learn how to manage the system.
The Franchise Prototype is the answer to the perpetual question: “How do I give my customer what he wants while maintaining control of the business that’s giving it to him?”
The Franchise Prototype is the model of a business that works. The balanced model that will satisfy The Entrepreneur, The Manager, and The Technician all at once. And it’s been there all the time! It’s been there at McDonald’s. And at Federal Express. And at Disney World. And at Mrs. Field’s Cookies. It’s been there at Subway Sandwiches and Domino’s Pizza and Kentucky Fried Chicken and Pizza Hut. It’s been there at Taco Bell and UPS and Universal Studios.
Working on Your Business, Not in It
Pretend that the business you own—or want to own—is the prototype, or will be the prototype, for 5,000 more just like it. That your business is going to serve as the model for 5,000 more just like it.
You should assume that the model will be operated by people with the lowest possible level of skill. Because if your model depends on highly skilled people, it’s going to be impossible to replicate. Such people are at a premium in the marketplace. They’re also expensive. You should ask: How can I create a business whose results are systems-dependent rather than people-dependent? Systems-dependent rather than expert-dependent.
All work in the model should be documented in Operations Manuals.
The model should utilize a uniform color, dress, and facilities code.
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?
Building a Small Business That Works!
Your Business Development Program
Your Business Development Program is the step-by-step process through which you convert your existing business—or the one you’re about to create—into a perfectly organized model for thousands more just like it. The Program is composed of seven distinct steps:
- Your Primary Aim
- Your Strategic Objective
- Your Organizational Strategy
- Your Management Strategy
- Your People Strategy
- Your Marketing Strategy
- Your Systems Strategy
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. 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.
The first standard of your Strategic Objective is money. Gross revenues. How big is your vision? How big will your company be when it’s finally done? Will it be a $300,000 company? A million-dollar company? A $500-million company? If you don’t know the answer, how can you possibly know whether your business can help you realize your Primary Aim?
Your Organizational Strategy
The organizational development reflected in the Organization Chart can have a more profound impact on a small company than any other single Business Development step.
If everybody’s doing everything, then who’s accountable for anything?
Without an Organization Chart, everything hinges on luck and good feelings, on the personalities of the people and the goodwill they share.
An example Organization Chart might require the following positions:
- President and Chief Operating Officer (COO), accountable for the overall achievement of the Strategic Objective and reporting to the shareholders.
- Vice-President/Marketing, accountable for finding customers and finding new ways to provide customers with satisfaction, at lower cost, and with greater ease, and reporting to the COO.
- Vice-President/Operations, accountable for keeping customers by delivering to them what is promised by Marketing, and for discovering new ways of producing the business products, at lower cost, and with greater efficiency so as to provide the customer with better service, reporting to the COO.
- Vice-President/Finance, accountable for supporting both Marketing and Operations in the fulfillment of their accountabilities by achieving the company’s profitability standards, and by securing capital whenever it’s needed, and at the best rates, also reporting to the COO.
- Reporting to the Vice-President/Marketing are two positions: Sales Manager and Advertising/Research Manager.
- Reporting to the Vice-President/Operations are three positions: Production Manager, Service Manager, and Facilities Manager.
- Reporting to the Vice-President/Finance are two positions: Accounts Receivable Manager and Accounts Payable Manager.
Names should fill all the boxes in the Organization Chart even if the business consists of two people only; these two persons will be the shareholders and the employees. The next job is writing a Position Contract for each position on the Organization Chart. A Position Contract is a summary of the results to be achieved by each position in the company, the work the occupant of that position is accountable for, a list of standards by which the results are to be evaluated, and a line for the signature of the person who agrees to fulfill those accountabilities.
Example Organizational Chart:
Your Management Strategy
You may think that the successful implementation of a management strategy is dependent on finding amazingly competent managers—people with finely honed “people skills,” with degrees from management schools, with highly sophisticated techniques for dealing with and developing their people. It isn’t. You don’t need such people. Nor can you afford them. What you need, instead, is a Management System. Create your Management System, and teach your up-and-coming managers to use it.
Your People Strategy
People do not simply want to work for exciting people. They want to work for people who have created a clearly defined structure for acting in the world. A structure through which they can test themselves and be tested.
Your Marketing Strategy
In the development of your Marketing Strategy, it is absolutely imperative that you forget about your dreams, forget about your visions, forget about your interests, forget about what you want— forget about everything but your customer!
There is a famous dictum that says, “Find a need and fill it.” It’s inaccurate. It should say, “Find a perceived need and fill it.” Because if your customer doesn’t perceive he needs something, he doesn’t, even if he actually does. Get it? Those perceptions are at the heart of your customer’s decision-making process. And if you know his demographics, you can understand what those perceptions are, and then figure out what you must do to satisfy them and the expectations they produce.
Each demographic model has a specific set of perceptions that are identifiable in advance. Women of a certain age, with a certain amount of education, with a certain size family, living in a certain geography, buy for very specific psychographic reasons. Those unconsciously held reasons will be different from another group of women, of a different age and marital status, with a different educational background, living in a different part of the country.
…An age in which your customer is deluged by so many products and promises that he becomes swamped in confusion and indecision. The challenge of our age is to learn our customer’s language. And then to speak that language clearly and well so that your voice can be heard above the din.
“Who are my customers, specifically? What is their Demographic Profile?” How do you answer these questions? You ask them! You ask each and every one of them, by having them complete a questionnaire in return for a free gift! The free gift is the price you pay for that information. The answers you get will prove to be a bonanza! But, while you’re at it, you might as well get the psychographic data you need, as well as the geographic data you need. How do you do that? You find out on your questionnaire what colors they prefer, what shapes, what words. You find out the brands of perfume they buy, automobiles, clothes, jewelry, food. You match those brands to the ads and commercials that sell them…
…How do you find them, those people you have not yet met? You buy a list of those who fit your Central Demographic Model in what you’ve now determined to be your Trading Zone! What’s your Trading Zone? It’s the geographic perimeter within which your current customers mainly live. You take their addresses from your questionnaire…
Your Systems Strategy
What is a selling system? It’s a fully orchestrated interaction between you and your customer that follows six primary steps:
- Identification of the specific Benchmarks—or consumer decision points—in your selling process.
- The literal scripting of the words that will get you to each one successfully (yes, written down like the script for a play!).
- The creation of the various materials to be used with each script.
- The memorization of each Benchmark’s script.
- The delivery of each script by your salespeople in identical fashion.
- Leaving your people to communicate more effectively, by articulating, watching, listening, hearing, acknowledging, understanding, and engaging each and every prospect as fully as he needs to be.
At E-Myth Worldwide, we call it the Power Point Selling System. A career development company we worked with put it in the hands of people with no experience, and revenues increased 300 percent in one year.
Let’s look more specifically at the most important component of the Power Point Selling System, the Power Point Selling Process. It consists of: 1) The Appointment Presentation 2) The Needs Analysis Presentation 3) The Solutions Presentation.
The purpose of an Appointment Presentation is one thing and one thing only: to make an appointment. It is a series of words, delivered on the telephone or in person, that engage the prospect’s unconscious by speaking primarily about the product you have to sell rather than the commodity. For example: “Hi, Mr. Jackson. I’m Johnny Jones with Walter Mitty Company. Have you seen the remarkable new things that are being done to control money these days?” “What new things?” “Well, that’s exactly why I called. May I have a moment of your time?”
The Needs Analysis Presentation: The first thing you do in a Needs Analysis Presentation is repeat what you said in the Appointment Presentation to reestablish the emotional commitment: “Remember, Mr. Jackson, when we first talked I mentioned that some remarkable new things were going on in the world to control money?” The second thing you do is tell the prospect how you would like to proceed to fulfill your promise to him: “Well, what I’d like to do is to tell you about those things. At the same time, I’d like to show you some incredibly effective ways my firm, Walter Mitty Company, has developed to help you to control money here in your business Okay?” The third thing you do is to establish your credibility in the prospect’s mind by communicating two things. First, your company’s expertise is such matters: “We are Money-Controlling Specialists”. And second, your personal willingness to do whatever is necessary to utilize that expertise on his behalf: “Let me tell you why we created our company, Mr. Jackson. We’ve found that people like yourself are continually frustrated by not being able to get the most out of their money. Frustrated by paying higher interest rates than they have to. By working with financial experts who don’t seem to know what they’re doing. By banking with a bank that doesn’t seem to have their best interest at heart” And so on. “Do these things ever frustrate you. Mr Jackson? Of course they do And that’s why Walter Mitty Company has created a Money-Controlling System that makes it possible for you to get the most preferential treatment in the financial arena while paying the least for it. Now I know that sounds too good to be true. But let me explain how we propose to go about doing that for you…. “ The fourth thing you do in a Needs Analysis Presentation is describe the Walter Mitty Company’s Money-Controlling System and why it works so well. Not what it does but the impact it will have on the prospect: “…In order to do that we’ve created what we call at Walter Mitty Company a Money Management Questionnaire… So let’s review the Questionnaire together, and when we’re done I’ll provide you with a summary of some of the remarkable new things that are happening in the world to control money. And then I’ll take your information back so we can prepare your Financial Report…” The fifth thing Johnny Jones does in the Needs Analysis Presentation is complete the Money Management Questionnaire. The sixth thing Johnny Jones does is provide the prospective customer with the information he promised and show him how relevant it is to the Financial Report he will be preparing for him. The seventh thing Johnny Jones does in the Needs Analysis Presentation is make an appointment with the prospective customer to return with the Financial Report, reminding him that Johnny Jones will have some valuable solutions for him—at no cost!
The Solutions Presentation simply provides the rational armament for the emotional commitment. Here Johnny Jones brings the prospect up-to-date by reviewing everything he said and did during the Needs Analysis Presentation. The prospect has forgotten all those psychographically compelling things by now. But he won’t for long— they’re a part of him. Then Johnny Jones reviews in great, patient, and earnest detail every last word, comma, and number in his prospective customer’s Financial Report! He asks questions to make certain that the prospect feels that this is his Financial Report, not Walter Mitty Company’s. And when Johnny Jones is done, when he’s reviewed all of the components of the Financial Report prepared just for his prospect, Mr. asks him this question: “Of the options we’ve suggested here, Mr. Jackson, which do you feel would best serve you right now?” And then waits for the answer! Because the next person who speaks is going to make a purchase. If that’s Johnny Jones, he’s going to buy a “no sale.”
Beautiful quote from the book unrelated to the main topic of the book: “I’m a little girl again. When I still had my hiding places. Before I lost my spirit. It’s summer, and I’m lying in bed looking up at the ceiling in my room, feeling the cool summer breeze floating through the open window. There’s nothing I have to do; there’s no place I have to be. It’s the most wonderful feeling of my life, lying here like this, opening my eyes, closing them, dreaming, smelling the wonderful summer smells, the smell of cut grass, the smell of the water sprinkling on the lawn, the fullness of it.”