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

by Michael E. Gerber

The problem is that everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and The Technician.

Given his need for change, The Entrepreneur creates a great deal of havoc around him, which is predictably unsettling for those he enlists in his projects. As a result, he often finds himself rapidly outdistancing the others. The farther ahead he is, the greater the effort required to pull his cohorts along.

To The Entrepreneur, most people are problems that get in the way of the dream.

Where The Entrepreneur craves control, The Manager craves order.

The Manager builds a house and then lives in it, forever. The Entrepreneur builds a house and the instant it’s done begins planning the next one. The Manager creates neat, orderly rows of things. The Entrepreneur creates the things The Manager puts in rows.

The fact of the matter is that 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. Each would derive satisfaction from the work he does best, serving the whole in the most productive way.

the typical small business owner is only 10 percent Entrepreneur, 20 percent Manager, and 70 percent Technician.

most businesses are not run according to this principle. Instead most businesses are operated according to what the owner wants as opposed to what the business needs.

“The purpose of going into business is to get free of a job so you can create jobs for other people. “The purpose of going into business is to expand beyond your existing horizons. So you can invent something that satisfies a need in the marketplace that has never been satisfied before. So you can live an expanded, stimulating new life.”

The Boss always interferes. Harry could have told you that the work will never be done to The Boss’s satisfaction. And the reason is that The Boss always changes his mind about what needs to be done, and how.

The Technician’s boundary is determined by how much he can do himself. The Manager’s is defined by how many technicians he can supervise effectively or how many subordinate managers he can organize into a productive effort. The Entrepreneur’s boundary is a function of how many managers he can engage in pursuit of his vision.

“Simply put, your job is to prepare yourself and your business for growth. “To educate yourself sufficiently so that, as your business grows, the business’s foundation and structure can carry the additional weight.

by understanding the key processes that need to be performed, the key objectives that need to be achieved, the key position you are aiming your business to hold in the marketplace.

“By asking the right questions, such as: Where do I wish to be? When do I wish to be there? How much capital will that take? How many people, doing what work, and how? What technology will be required? How large a space will be needed, at Benchmark One, at Benchmark Two, at Benchmark Three?

once I had a picture of how IBM would look when the dream was in place and how such a company would have to act, I then realized that, unless we began to act that way from the very beginning, we would never get there.

I realized that for IBM to become a great company it would have to act like a great company long before it ever became one.

From the very outset, IBM was fashioned after the template of my vision. And each and every day we attempted to model the company after that template. At the end of each day, we asked ourselves how well we did, discovered the disparity between where we were and where we had committed ourselves to be, and, at the start of the following day, set out to make up for the difference. Every day at IBM was a day devoted to business development, not doing business. We didn’t do business at IBM, we built one

When The Entrepreneur creates the model, he surveys the world and asks: “Where is the opportunity?”

To The Entrepreneur, the business is the product. To The Technician, the product is what he delivers to the customer.

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.

What Ray Kroc understood at McDonald’s was that the hamburger wasn’t his product. McDonald’s was.

Forced to create a business that worked in order to sell it, he also created a business that would work once it was sold, no matter who bought it.

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

How can I create a business whose results are systems-dependent rather than people-dependent? Systems-dependent rather than expert-dependent. How can I create an expert system rather than hire one?

It’s your job—more accurately, the job of your business—to develop those tools and to teach your people how to use them. It’s your people’s job to use the tools you’ve developed and to recommend improvements based on their experience with them.

You will be forced to find a system that leverages your ordinary people to the point where they can produce extraordinary results over and over again.

All Work in the Model Will Be Documented in Operations Manuals

Innovation is often thought of as creativity. But as Harvard Professor Theodore Levitt points out, the difference between creativity and Innovation is the difference between thinking about getting things done in the world and getting things done. Says Professor Levitt, “Creativity thinks up new things. Innovation does new things.”

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. If the answer is yes, you can say, “Great. We’ve created a special new program for people who have shopped here before. Let me take just a minute to tell you about it.” If the answer is no, you can say, “Great, we’ve created a special new program for people who haven’t shopped here before. Let me take just a minute to tell you about it.” Of course, you’ll have to have created a special new program to talk about in either case. But that’s the easy part. Just think. A few simple words. Nothing fancy. But the result is guaranteed to put money in your pocket. How much? That depends on how enthusiastically you do 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! Can you believe it? A few simple words and sales instantly go up. Not by just a little bit, mind you, but by a considerable amount!

Innovation simplifies your business to its critical essentials. It should make things easier for you and your people in the operation of your business; otherwise it’s not Innovation but complication.

Begin by quantifying everything related to how you do business. I mean everything. How many customers do you see in person each day? How many in the morning? In the afternoon? How many people call your business each day? How many call to ask for a price? How many want to purchase something? How many of product X are sold each day? At what time of the day are they sold? How many are sold each week? Which days are busiest? How busy? And so forth. You can’t ask too many questions about the numbers. Eventually, you and your people will think of your entire business in terms of the numbers. You’ll quantify everything. You’ll be able to read your business’s health chart by the flow of the numbers. You’ll know which numbers are critical and which are not.

“if the Business Development Process were only about Orchestration, I would agree with you—it would be deadly. Absent a higher purpose, all habits are. Because that’s all that Orchestration really is, Sarah: a habit. A way of doing something habitually.

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.

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. Understanding the difference between the two is what creating a great business is all about.

Charles Revson, 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.”

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?

All organizations are hierarchical. At each level people serve under those above them. An organization is therefore a structured institution. If it is not structured, it is a mob. Mobs do not get things done, they destroy things. Theodore Levitt Management for Business Growth

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

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. Having both worked in partnerships with other people—and failed—Jack and Murray know that there’s nothing more disastrous than a partnership gone bad, as so many do.

Murray agrees to do the necessary research concerning the Central Demographic Model they have tentatively chosen. How many potential buyers are there in the territory in which they’ve decided to do business? Is the population growing? What is the competition? How are widgets priced and how are they selling? Is there a future for widgets in the territory? What is the anticipated growth of the territory? Any zoning changes expected?

Murray also agrees to create a questionnaire and mail it to a sample of their Central Demographic Model consumers to find out how they feel they’re treated by other widget companies. At the same time, Murray is to personally call 150 of those consumers. He’ll conduct a Needs Analysis to get a better understanding of how they think and feel about widgets. What do widgets mean to them? How have widgets changed their lives? If they could have any kind of widget at all, what would it look like? How would it feel to use it? What do they want a good widget to do for them?

Jack and Murray agree that their Organization Chart will require the following positions: • President and Chief Operating Officer (COO), accountable for the overall achievement of the Strategic Objective and reporting to the SHAREHOLDERS who include, on an equal basis, Jack and Murray. • Vice-President/Marketing, accountable for finding customers and finding new ways to provide customers with the satisfactions they derive from widgets, 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 assembling widgets, 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. Jack and Murray sit back and look at the completed Organization Chart of Wid...

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. The Organization Chart is the means through which that critical transition can be made.

Only when the Sales Operations Manual is complete does Murray run an ad for a salesperson. But not for someone with sales experience. Not a Master Technician. But a novice. A beginner. An Apprentice. Someone eager to learn how to do it right. Someone willing to learn what Murray has spent so much time and energy discovering. Someone for whom questions haven’t become answers. Someone who is open to the possibility of learning skills he hasn’t developed yet, skills he wants to learn.

And as Murray interviews the candidates, he shows them the Sales Operations Manual and Widget Makers’ Strategic Objective, and explains how they were created and why. He tells them the story of Widget Makers, the dream he and Jack conceived, to enable them to make a personal difference in the market in which they have chosen to become leaders. He shows them the Organization Chart, where the position of Salesperson is, to which position it reports, and who in Widget Makers is currently accountable for that position. He talks to them about their Primary Aim to determine who among them has a vision that coincides with Widget Makers’ view of the world. 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.

your Organization Chart flows down from your Strategic Objective, which in turn flows down from your Primary Aim. That each is the cause of the one preceding it, and each, therefore, plays a part in the fulfillment of the one before it.

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.

“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. Each package of checklists is used for one of the eight rooms the Room Support Person is accountable

“On the back of each checklist is a drawing of the specific room that identifies each task to be completed, and the order in which it has to be done. The drawing takes the RSP through the routine, and, as they complete each task, they check off the corresponding part of the drawing to show that it was done.