The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It

by Michael E. Gerber

“…for many people, a job is crucial psychologically, over and above the paycheck. By making clear demands on their time and energy, it provides an element of structure around which the rest of their lives can be organized.”

The Operations Manual—the repository of the documentation—is therefore best described as a company’s How-to-Do-It Guide.

Carson's deal structure as the beginnings of a how-to guide.

There was absolutely no consistency to the experience. The expectations created at the first meeting were violated at each subsequent visit. I wasn’t sure what to expect. And something in me wanted to be sure. I wanted an experience I could repeat by making the choice to return. The unpredictability said nothing about the barber, other than that he was constantly—and arbitrarily—changing my experience for me. He was in control of my experience, not I. And he demonstrated little sensitivity to the impact of his behavior on me. He was running the business for him, not for me. And by doing so, he was depriving me of the experience of making a decision to patronize his business for my own reasons, whatever they might have been.

Consumers want consistency, even if all experiences with the company are excellent.

What you do in your model is not nearly as important as doing what you do the same way, each and every time.

Go to work on your business rather than in it. Go to work on your business as if it were the pre-production prototype of a mass-produceable product. 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?

“May I help you?” Have you ever heard that one before? And how does the customer invariably respond? He says, “No thanks, just looking.” Have you ever said that one before? Of course you have! In fact, it’s a universal phenomenon. Now why do you suppose the salesperson asks that question when he knows that the customer will respond the way he does? Because the customer responds the way he does, that’s why! If the customer is just looking, the salesperson doesn’t have to go to work! Can you imagine what those few words are costing retailers in this country in lost sales? Here’s a perfect opportunity to try a simple and inexpensive Innovation. THE INNOVATION Instead of asking, “Hi, may I help you?” try “Hi, have you been in here before?” The customer will respond with either a “yes” or a “no.” In either case, you are then free to pursue the conversation.

it. The experience of our retail clients tells us that by doing this one thing alone, sales will increase between 10 and 16 percent almost immediately!

The result will be dramatic: sales will go up during the second three-week period! Why? Because, as our clients have consistently discovered, blue suits outsell brown suits! And it doesn’t matter who’s in them.

A-B testing blue vs brown suits

How would you know that wearing a blue suit had a specific monetary impact on your business unless you quantified that impact and had a specific control against which to measure it? The answer is obvious; you wouldn’t. And as I’ve said, few small business owners do quantify these things, even those who believe in Quantification. Because few small business owners believe that such apparently insignificant Innovations are really that important!

My marketing firm A-B testing ads

Because without the numbers you can’t possibly know where you are, let alone where you’re going. With the numbers, your business will take on a totally new meaning.

Without Orchestration, nothing could be planned, and nothing anticipated—by you or your customer. If you’re doing everything differently each time you do it, if everyone in your company is doing it by their own discretion, their own choice, rather than creating order, you’re creating chaos.

Because every founder of every great Business Format Franchise company, whether it is franchised or not, knows one thing to be true: if you haven’t orchestrated it, you don’t own it! And if you don’t own it, you can’t depend on it. And if you can’t depend on it, you haven’t got a franchise. And without a franchise no business can hope to succeed. If, by a franchise, you understand that I’m talking about a proprietary way of doing business that differentiates your business from everyone else’s. In short, the definition of a franchise is simply your unique way of doing business.

Then the system must provide the vehicle to facilitate predictability.

In short, Innovation, Quantification, and Orchestration are the backbone of every extraordinary business. They are the essence of your Business Development Process.

Checklists: bureaucratic overhead vs effeciency. People push back agaisnt checklists for emtional reasons--inefficiency, demeaning, pride and control. Carson on Japenese train conductors.

while going to work on the business, people begin to realize that it is a powerful metaphor for going to work on their lives. “And that, I believe, is the heart of the process: not efficiency, not effectiveness, not more money, not to ‘downsize’ or ‘get lean,’ but to simply and finally create more life for everyone who comes into contact with the business, but most of all, for you, the person who owns it.

Now you understand the task ahead: to think of your business as though it were the prototype for 5,000 more just like it. To imagine that someone will walk through your door with the intention of buying your business—but only if it works. And only if it works without a lot of work and without you to work it.

Imagine yourself taking the potential buyer through your business, explaining each component and how it works with every other component. How you’ve innovated systems solutions to people problems, how you’ve quantified the results of those innovations, and how you’ve orchestrated the innovations so that they produce the same results every single time. Imagine yourself introducing the potential buyer of your business to your people, and standing by while they proudly explain their accountabilities to the fascinated stranger.

As with Mature companies, I believe great people to be those who know how they got where they are, and what they need to do to get where they’re going. Great people have a vision of their lives that they practice emulating each and every day. They go to work on their lives, not just in their lives. Their lives are spent living out the vision they have of their future, in the present. They compare what they’ve done with what they intended to do. And where there’s a disparity between the two, they don’t wait very long to make up the difference. They go to work on their lives, not just in their lives. I believe it’s true that the difference between great people and everyone else is that great people create their lives actively, while everyone else is created by their lives, passively waiting to see where life takes them next. The difference between the two is the difference between living fully and just existing. The difference between the two is living intentionally and living by accident.

“It was then that he realized with a suddenness that made him giddy that, while he didn’t understand their business, neither did they! And in that one shuddering instant of truth our hero was reborn. He discovered an entirely new life.

Nash says this quite a bit.

That the world was nothing like he had believed it to be. That no one knew what he had believed they knew. That everything was just like he had thought it was, a mystery, but that he wasn’t the only one who didn’t know what was going on. What he learned in Silicon Valley is that no one knew what was going on!

“And that’s the point, Sarah. “It’s not your business you have to fear losing. It’s something much bigger than that. It’s your Self. “And that’s what this whole thing is about.

This is BS

your business is a means rather than an end, a vehicle to enrich your life rather than one that drains the life you have.

In fact, there is ultimately only one reason to create a business of your own, and that is to sell it! To do it, to finish it, and then to get paid for it! Just like Ray Kroc did, to create your Franchise Prototype, to turn-key your business, to create a business that really works, and then sell it. How much do you want for it? Ten times earnings? Twenty times earnings? When do you want it? Three years from now? Five years? Why would anyone buy it? Because it works!

The purpose of creating a business is to sell it.

What Kind of Business Am I In? Ask anyone what kind of business they’re in and they’ll instinctively respond with the name of the commodity they sell. “We’re in the computer business.” Or, “We’re in the hot tub business.” Always the commodity, never the product. What’s the difference? The commodity is the thing your customer actually walks out with in his hand. The product is what your customer feels as he walks out of your business. What he feels about your business, not what he feels about the commodity.

The HBR question.

company: “In the factory Revlon manufactures cosmetics, but in the store Revlon sells hope.”

Suddenly, the message: “Share the Fantasy. Chanel.” Not a word about perfume. That’s the commodity. The commercial is selling the product—fantasy. The commercial is saying, “Buy Chanel and this fantasy can be yours.” What’s your product? What feeling will your customer walk away with? Peace of mind? Order? Power? Love? What is he really buying when he buys from you? The truth is, nobody’s interested in the commodity. People buy feelings.

I sell convenience and peace of mind to sellers. I sell opportunity to buyers.

It is important for me to tell you how much I appreciate what you’ve given me. But, having said that, I realized, from almost the moment you left last week, that I would never allow myself again to be consumed by the work of my business. It became obvious to me, with a clarity that’s almost impossible to describe, how big a price I have been paying for being so obsessed with my work. And, once I realized it, I swear, it was like I was suddenly and forever free of it. Something truly freeing happened to me that night.

Everyone wants to “get organized.” But when you suggest that they start by creating an Organization Chart, all you get is doubtful—and sometimes hostile—stares. “Don’t be ridiculous,” a client once retorted. “We’re just a small company. We don’t need an Organization Chart. We need better people!”

I knew that 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.

This is apparently very important.

Most companies organize around personalities rather than around functions. That is, around people rather than accountabilities or responsibilities. The result is almost always chaos.

Organize around functions rather than personalities

The first thing they decide to do is to think about the business as a corporation, rather than as a partnership. Rather than thinking of themselves as partners, they now think of themselves as shareholders.

Jack and Murray already know that family businesses are even worse than partnerships. But a partnership that’s also a family business? No. Jack and Murray decide to do it a different way.

But what they have effectively done is describe all the work that’s going to be done in Widget Makers, Inc., when its full potential is realized. More importantly, they have described the work that has to be done right away!

The next job jack and Murray take on is writing a Position Contract for each position on their Organization Chart. A Position Contract (as we call it at E-Myth Worldwide) 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. Jack and Murray know that a Position Contract is not a job description. It is a contract, rather than just a description, between the company and an employee, a summary of the rules of the company’s game. It provides each person in an organization with a sense of commitment and accountability.

Make my own employee diagram

Not a bit of work had been performed on the job, and yet the two of them were able to conceive of the company, the work that needs to be done, the standards by which they would hold each position accountable, and which position is accountable to which position and specifically for what.

In creating their Organization Chart, Jack and Murray had also generated the blueprint for their Franchise Prototype.

Having created a picture of the business as it will look when it’s finally done, Jack and Murray start the prototyping process. But at the bottom of the organization, not at the top. They start working on the business where they start working in the business.

But as employees, at the very bottom of the organization. Doing Tactical Work, not Strategic Work. Tactical Work is the work all technicians do. Strategic Work is the work their managers do. If Jack and Murray’s business is going to thrive, they have to find other people to do the Tactical Work so as to free Jack and Murray to do the Strategic Work.

Jack and Murray go to work in their business. But now with a difference. They are no longer interested in working in their business. They are now focused on developing a business that works. To do that they begin to work in an entirely different way.

Murray begins to test the clothing he wears as a Salesperson to see what colors and styles produce the greatest positive impact on the customers. He starts testing different words. He begins to think about how Widget Makers, Inc., interacts with its customers, and how each component of this interaction could be modified to increase its effectiveness. And as he quantifies the impact of his innovations on sales, he takes the most productive of them and writes them down in the Widget Makers Sales Operations Manual.

The Operations Manual will continuously be updated with best practices

And when he finds the right person, Murray hires him, hands him the Sales Operations Manual, has him memorize the words in it, dress to code, learn the systems, and finally, go to work. Using the Sales System, Murray innovated, quantified, and orchestrated. At that moment, at that exact instant, Murray moves up to the position of Sales Manager and begins the process of Business Development all over again. Because at that moment, Murray has taken the most important step in freeing himself from the Tactical Work of his business. Murray has replaced himself with a system that works in the hands of a person who wants to work it. And now Murray’s job becomes managing the system rather than doing the work.

“What you’re saying is that I need to create an Organization Chart for All About Pies as it will look when it’s done, seven years from now, rather than the way it is now?” “Yes,” I responded. “And that once I’ve created that Organization Chart, I need to put my name in all the positions I currently fill?” “Right again,” I answered. “And that I need to create very detailed descriptions of each one of those positions, and then sign the Position Contracts for each, as though I were an employee taking responsibility for each job? Do you mean I actually need to sign each Position Contract, exactly as though I were that employee?” “Yes,” I said, “exactly as though you were that employee. Because if your business is going to work, you are each one of those employees! Until you replace yourself with someone else, that is.” She continued to press forward, her eyes shining like diamonds, intense, awake, engaged. “And the reason for that is,” Sarah said, “that unless I act as I expect my employees to act, unless I work in my business exactly as I wish them to, I will never be able to create a system for doing it exactly the way I expect them to do it.

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. In fact, they will be the bane of your existence. What you need, instead, is a Management System.

The System will become your management strategy, the means through which your Franchise Prototype produces the results you want.

by orchestrating the process by which management decisions are made while eliminating the need for such decisions wherever and whenever possible.

it—isn’t a management tool as many people believe. It’s a marketing tool. Its purpose is not just to create an efficient Prototype but an effective one. And an effective Prototype is a business that finds and keeps customers—profitably—better than any other.

I believe this means that management should focus on building a system that produces better results, rather than something else.

“What we do here is simple. Anyone can do it.” He opened the binder to the table of contents. “This is our Operations Manual. As you can see, it’s nothing but a series of checklists. This one is a checklist for setting up a room.” He opened the book to a yellow page. “This group of pages is yellow. Everything in the Manual is color coded. Yellow has to do with Room Setup. Blue, with Guest Support Services. For instance, when we light your fire at night, put the mints on your pillow, and so on. “Each checklist itemizes the specific steps each Room Support Person must take to do his or her job. There are eight packages of checklists for each Room Support Person waiting in their mailbox when they come in every day.

“He said, ‘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 inside.’”