In this post, I’ll be reviewing The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About it by Michael E. Gerber. Originally written in 1995, it still contains relevant and actionable guidance of building and growing a business.
It was suggested by more than one person whose advice a respect as a good read for a business owner and, after reading it, I understand why.
Each of the chapters blends principles with practice application.
Specific to his practical application, Gerber introduces us to “Sarah” whose journey we will follow through the book. He suggests that she is representative of a friend or consulting client, but it is through her experiences and viewpoint that we see an example of his ideas in use.
For the purposes of his avatar, she learned to bake pies from her Aunt and, as an adult, took that love for the skill into starting her own bakery. When we meet her, “Sarah” is experiencing the typical feelings of frustration and burnout that many owner-operators go through as they struggle to handle the different parts of their business. She based the bakery on her skills and love for pie making, but struggles with the operational side.
Prior to his involvement, Sarah & her bakery were on track to be one of the unfortunate statistics of independently-owned business startups.
On average, there is a 50% failure rate in their 1st year and 80% failure rate within their 1st 5 years.
Gerber’s goal is sharing a process and system for building a business that defies those odds.
Note: If you’d like a copy of the book, the Amazon affiliate link is provided for your convenience. I’d definitely recommend it as it’s a great read!
Chapter 1
Gerber starts off the book defining what he labels the Entrepreneurial Seizure.
The moment when a person (usually an employee) in a business assumes that because they can do work in the business that they can run it!
He starts with some entertaining thought processes to which each of us ultimately fall victim. As becomes evident as he builds his thesis, many business failures manifest out of this presumption.
During the following chapters, we learn the difference between work in a business as differentiated from work of your business and how that must further evolve to work on your business.
As he suggests and builds throughout, he highlights the difference between being skilled in the business and being able to run the business!
Michael shares that for many owners, the business of the business takes the place of (and the joy out of) the actions of the business.
Chapter 2
In this chapter, Michael highlights the dichotomy and conflict within each of us. As an example, he uses the idea whereby dieters have at least two personas constantly in battle during their weight loss regime. These are the “Fat Guy” and the “Skinny Guy”.
- Both make promises that the other one has to keep.
- Neither keeps the other’s promises.
- Therefore, both hate and are jealous of each other!
As much of our content and services target attorneys, Gerber wrote a companion book specifically targeting the legal profession and law firms. Be sure to check out both as you build and/or grow your practice. >>>
If there are aspects of your client attraction, retention, and referrals where our team can support your firm, check out our Services page or reach out directly from via Contact Us.
In the context of business, Gerber identifies three unique personalities that owners take on.
- Technician – The “doer” persona. This was usually the principal role that the now owner was performing when they experienced their “Entrepreneurial Seizure”! This is often the hardest persona to silence because it is our most comfortable and where we see our strongest skill.
- Manager – This is the “planner” persona. This is where the owner usually reluctantly dabbles when required and they are not performing the “technical” activities.
- Entrepreneur – Our “visionary” persona who focuses on #WhatIf questions. For long-term growth and success, this is the skill that we have to develop, but it is also the one that we are quickest to set aside due to Technical (day-to-day activities) or Managerial (operational activities) issues.
We each have these three personas, but they are to varying degrees and some are stronger than others.
Dangerously in the early phases of a business, owners focus in their comfort zone as Technician which, as naturally an individualist just wanting to “do the work”, having “no boss” is great!
Most business fail in that first year (or shortly after) because, with the Technican in charge, there is neither Manager to handle day-to-day operations nor Entrepreneur setting the vision.
Chapter 3 - Infancy Phase
Most businesses start here. The Technician (being naturally individualistic) wanted to “Be Their Own Boss”.
At this point, the owner and the business are functionally indistinguishable. For “Sarah”, the bakery was known for her pies. They were the foundation of the business and representative of her.
This quickly leads to a host of negative challenges in the business.
- Business started to “get rid of the Boss” are ultimately an outgrowth of what the owner wants, not what this (or any) business needs!
- Since the business is indistinguishable from the owner, nothing about the business is scalable without the owner doing or controlling it.
- Training or coaching of employees is perpetually a secondary concern because the expert is accountable for day-to-day delivery.
In the Technician’s drive to fire their “Boss”, their business becomes a job and it is an even more inhumane, unreasonable, and unyielding “Boss” than the one they fired!
It is at this point that most start-ups fail and is the core reason that owners lose their invested capital (as well as their time).
A business indistinguishable from the owner that is “a job” has no value whatsoever to anyone else. Lacking marketable value, owners typically simply quit and the venture is a loss.
The alternative to quitting and loss is the business moves to Adolescence.
Chapter 4 - Adolescence Phase
Adolescence is where the overworked Technician-owner hires help.
Unfortunately, since it is usually a Technician persona hiring, they typically hire another Technician to do something that the owner dislikes or is not good at.
The classic example is hiring an Accountant or Bookkeeper. The owner (still focused on their Technician persona) hires and hands off “the paperwork” so “they can do the work”.
Adolescence breaks down because this represents abdication; not delegation. Hires “managed” by a Technician (especially one who dislikes the activity and just wants it “handled”) is a breeding ground for conflict.
As these conflicts rise and people leave (or become even more unproductive), the task list for the owner perpetually grows.
This is the classic example of the owner who “makes the donuts” during the day only to “keep the books” at night.
At this point, businesses either contract to a size within the owner’s Comfort Zone or begin it’s evolution to Maturity.
Chapter 5 - Comfort Zone
- Gerber defines the Comfort Zone.
Boundary within which the owner feels secure in their ability to control their environment and outside which they begin to lose control.
Every Adolescent business reaches a point that pushes beyond its owner’s Comfort Zone.
- A Technician’s point is measured by how much she can do herself.
- A Manager’s point is how many Technicians he can supervise (or Managers he can organize).
- An Entrepreneur’s point is how many Managers she can engage in pursuit of their vision.
At the point that the business grows beyond the owner’s Comfort Zone, one of three responses occur.
- Contraction -> Reverting to Technician persona with a smaller footprint. (This just leads to owner being overworked again and becomes a perpetual cycle of growth & retraction.)
- Going For Broke -> Business continues growing at an unsustainable pace until it implodes of its on momentum or grows beyond its capability to fail. (Couple of notes: This is often a pattern of high-tech companies because the Technicians who start them respond to being outside their Comfort Zone by focusing on product growth instead of their business. It can work, but it is largely betting more on luck than skill!)
- Adolescent Survival -> Owner and business do not evolve or grow, but muscle through the challenges on the basis of sheer will. Businesses in this category are often owned by someone who “can’t afford” to fail and they expend the effort required to keep it afloat at what is reasonably an unsustainable pace. (Gerber compared this situation to a 12 cylinder race car running on 1 cylinder. It can be done (for a while), but the costs and damage done eventually lead to breakdown and exhaustion.)
Chapter 6 - Maturity
A mature business knows how it got to where it is and what it must do to get to where it wants to go.
He argues that Maturity is not a result of progression from Infancy and Adolescence, but of a business started (or adapted) in a mature fashion. While all business might go through those phases, he suggests going through them with an Entrepreneurial mindset (not one of a Technician).
Tom Watson, Sr. of IBM shared his reasons for their success.
- Clear picture of what the company would look like when finally done (from the very beginning).
- Once they had that vision of the company end-state, they asked “How a company which looked like that would act?” (This created an image of how they would act when it was done.)
- With the picture of how it would look and image of how it would have to act to look that way, they began acting that way from the very beginning.
Here Michael begins highlighting what he labels the Entrepreneurial Perspective. In that mindset, it is not the commodity or the work itself that matters, but how the business looks, acts, and does what it is built to do.
Gerber points out organizational differences between businesses with a Technician’s desire versus an Entrepreneur’s vision.
Technician's Desire
For a Technician focused on the activities of the business, the main question being asked is “What work has to be done?”
As a result, the Technician-driven business starts with the work trying to find people to pay for it.
Entrepreneur's Vision
Alternatively, an Entrepreneur creating a vision asks “How should the business work?”
This model starts with a customer and asks how best their needs can be satisfied?
The vision leads to creation of a business model that meets customer objectives as opposed to the business existing as a place for the owner to do work.
Chapter 7 - Turn-Key Revolution
This is a major transition point for the book. Instead of talking about the different personas or roles that owners must fill, Gerber begins laying out his process for creation of a mature business. As mentioned earlier, his perspective is that Maturity has less to do with the age of the business and is more a function of how it is designed and constructed.
His premise about business modelling is based on a few principles.
- Design of a system-driven (not people-driven) business. (This immediately highlights his opposition to a Technician-based business model.)
- Successfully done, the business works – regardless of who runs it.
- It delivers exactly what we come to expect of it every single time.
- Having these attributes, the true product of the business is the business itself.
Chapter 8 - The Franchise Prototype
- Remembering the earlier statistics of business failures:
- 50% failure rate 1st year
- 80% failure rate 1st 5 years
The remainder of the book lays out Gerber’s model for a Franchise Prototype. He defines it as such.
A place where all assumptions are tested to see how well they work before becoming operational in the business.
He looks to develop a system that runs the business; allowing people to run the system!
Comparable to the above general business statistics, he reports that shares that failure rates for these Business Format Franchise models as well.
- 5% failure rate 1st year
- 25% failure rate 1st 5 years
His excitement for franchising as a model is clear. He shares multiple examples of businesses that are built on a systemic process-based model. It is the systems that Gerber highlights as a main factor in their consistent success rate.
The remainder of the book shares his process for creating your own system.
Chapter 9
This chapter sets a goal and lays the ground rules for your Franchise Prototype.
The goal is a business that is not your life.
These are his rules for building the model for the business which enables the owner to work on it (not in it).
- Model will provide constant value to customers, employees, suppliers, and vendors (beyond what they expect).
- It will be operated by people with the lowest possible level of skill.
- The business will stand out as a place of impeccable order.
- All work in the model will be documented in operations manuals.
- It will deliver uniformly predictable service to customers.
- The business will use uniform color, dress, and facilities
These rules are based on simple ideas. Gerber seeks to deliver results to customers systematically (not personally). In developing the system, the business is neither people nor expert dependent. His ideal is to create an expert system in which average people can deliver consistent results (as opposed to being dependent upon hiring and keeping extraordinary people).
Gerber highlights consistency of experience as a primary objective of any business. We must meet expectations. Both those held in advance and those developed over previous encounters.
To begin our thought process in developing our Franchise Prototype, Gerber introduces these questions from the owner’s point of view.
- How can I design the business to work, but without me?
- How can I get people to work, but without my constant interference?
- How can I systematize my business in a way that it could be replicated 5000 times (and the 5000th incarnation would run as smoothly as the 1st)?
- How can I own my business, but still be free from it?
- How can I spend time doing the work I love instead of the work that I have to do?
These questions serve as the basis for his Business Development Process which is laid out in subsequent chapters.
Chapter 10 - Business Development Process
In his Business Development Process, Gerber seeks to design a business that continuously innovates in an iterative fashion. He begins with the question:
What is standing in the way of my customer getting what he/she wants from my business?
To answer this question, the owner has to take their customer’s point of view. Too often, businesses view the obstacles to a sale from their own vantage point which leads to wasted effort that fails to meet the customer needs.
While answering from the customer’s point of view, it should make things easier for you and your people in the operation of your business.
Our objective is innovation (improvement of the customer’s experience); not complexity.
Even if we never find the “best” way to do something, our ongoing search is for better ways of doing it.
We accomplish this via Quantification and Orchestration.
- Quantification represents the numbers related to impact that an innovation makes.
- Orchestration involves elimination of discretion (choice) at the operating leve of our business.
Chapter 11 - Business Development Program
His Business Development Process is implemented via his Business Development Program in seven steps.
- Your Primary Aim
- Your Strategic Objective
- Your Organizational Strategy
- Your Management Strategy
- Your People Strategy
- Your Marketing Strategy
- Your Systems Strategy
In following his idea of designing a business from the top-down, he starts with the vision that the owner has for her business. Once laid out, that forms the structures that will makeup the different strategies that make up the business plan.
Chapter 12 - Your Primary Aim
Starting with the end in mind, he introduces this question focused on the owner’s view of himself.
What would you like to say about your life after it’s too late to do anything about it?
Some might label this as the “What do you want said at your funeral?” exercise.
Supporting that exercise, he highlights other questions that one might ask.
- What do I value most?
- What kind of life do I want?
- What do I want my life to look like? What do I want my life to feel like?
- Who do I wish to be?
The answers to these questions define how the owner sees themselves. A congruent design of the business manifests itself as an embodiment of that self-portrait.
While admittedly aspirational, it must truly be a representation of the owner. Platitudes lacking follow-through and commitment disrupt all of the design processes to follow.
Chapter 13 - Your Strategic Objective
A business’ Strategic Objective is a very clear statement of what your business has to ultimately do for you to achieve your primary aim.
He suggests setting standards (measurables compared against goals) for things like gross revenues, gross profits, pre-tax profits, after-tax profits, etc.)
Similarly, he suggests setting objectives for things like your exit strategy. When might you look to sell it? For how much would you?
Each of these standards are keyed to answering if the business (once designed and operating) is an opportunity worth pursuing.
Unlike the Technician looking for a place to do work without “the Boss”, this model enables the Entrepreneur to determine if this business can meet her standards as an embodiment of her vision. This difference is striking!
In laying out the Strategic Objective, Gerber recommends focus on your product (how the customer feels about your business) as opposed to its commodity (what the customer gets from your business). As he highlights, no one is interested in commodities because people buy feelings.
A component of this process becomes the business’ Central Demographic Model. It represents the “most probable customer” with demographics as a measure of marketplace reality.
Another is the Central Psychographic Model. This addresses the motivations that propel customers in either direction (buying or not). Different from demographics, Gerber identifies psychographics as a measure of perceived marketplace reality.
He shares this set of questions.
- When is the Franchise Prototype going to be completed?
- Where will the business be?
- How will you do business (retail, wholesale, online, other)?
- What standards will you insist on? (Note: These can include reporting, clothing, process, management, hiring, firing, training, etc.)
Chapter 14 - Your Organizational Strategy
The main goal for the Organizational Strategy is to free the owner from working in the business! Depending upon the owner’s end goal, this could take form where the owner works on the business or the owner is completely freed from the business.
In either case, the owner seeks to replace himself with a system that works in the hands of the person working it. At that point, the owner manages the system (not the work).
This is accomplished in two steps.
First, creation of an organizational chart that clearly displays all of the roles that need to be filled for the business’ objectives to be met. Once the roles are identified, put the name/names of whomever will be doing that role in the box.
Note:
In the beginning, it can look silly to have an entire page of boxes each with the same name or names in them. However, this exercise is about the view of the business once achieved; not a current depiction. It also specifically calls out all of the activities that must be done for the business to succeed.
This also serves as a visible clue to our Technician persona of all of the work not being done when we are comfortably working in the business!
Gerber suggests the following roles as a template, but you can adjust them as appropriate for your Organizational Strategy.
- Shareholders
- Chief Operating Officer (COO)
- VP Marketing (VPM)
- Sales Manager
- Advertising / Research Manager
- VP Operations (VPO)
- Production Manager
- Service Manager
- Facilities Manager
- VP Finance (VPF)
- A/R Manager
- A/P Manager
- VP Marketing (VPM)
- Chief Operating Officer (COO)
Next, he recommends creating a Position Contract for each of the roles. The document includes things like this.
- Summary of results to be achieved by each position
- Work for which the occupant of that position is accountable
- List of standards by which the results will be evaluated
- Line for signature of person who agrees to fulfill those objectives
Again, this is an intentional exercise that should not be overlooked or taken lightly. Building a scalable business is a challenging undertaking. This exercise, more than many, can serve as pause to a Technician suffering from an Entrepreneurial Seizure after an especially tough day on the job!
Chapter 15 - Your Management Strategy
Our Management Strategy is the system that enables direction and oversight as we execute on our Strategic Objective and Organizational Strategy.
Ultimately, we need to develop a good management system more so than trying to hire and retain great managers.
At its core, these management systems are simply one designed into a prototype to produce a marketing result. As a prototype, it can be developed, measured, and iterated to continually improve.
The goal of an effective prototype is a business that finds and keeps customers – profitably – better than any other.
He shares the basic hierarchy of a Management System.
- How we do it here.
- How we recruit, hire, and train people to do it here.
- How we manage it here.
- How we change it here.
In the next chapter, Gerber shares what “it” is.
Chapter 16 - Your People Strategy
People need to see your business as more than “a business”. They need to see it as an expression of you and your beliefs. It becomes a symbol that makes the idea/intent behind the work more important than the work.
To create that environment, Gerber laid out these principles.
- The customer is not always right, but our job is to make them feel that they are.
- Everyone is expected to work to being the best they can be at the tasks for which they are accountable.
- If she can’t do it, act like she can until she can.
- If he’s unwilling to act like it, leave.
- Business is a place where what we know how to do is tested by what we don’t know how to do.
- That conflict creates growth which creates meaning.
He argues that the very best businesses represent the people who create them. They become a game to be played in which the rules themselves symbolize the idea the owner has about the world.
While all businesses construct their own rules, this is his framework for creating yours.
- The game and the rules come 1st! What people do is an outcome of it. (Do not try to figure out what you want people to do and then try to create a game out of it!)
- Never create a game for your people that you are unwilling to play yourself!
- Ensure that there are specific ways to win the game without ending it. (Have achievements and celebration points to highlight and build upcoming growth.)
- Change the game and rules from time to time – the tactics; not the strategy.
- Do not expect the game to be self-sustaining. People need to be reminded of it constantly.
- The game has to make sense.
- The game needs to be fun from time-to-time.
- If you can’t think of a good game for your business, steal one!
Note: If you are looking to steal a game or rules to a game as a starting point for your business, look for one where their people act in a manner that you would want your to behave. Watch their interactions and patterns for a while. If you get a chance to meet the owner, offer to buy them a cup of coffee if they’ll sit down for an interview. Use that time to identify elements of their game that you’d like to mimic or adapt.
Chapter 17 - Your Marketing Strategy
Our conscious mind makes very few decisions. Most decisions are made with our unconscious mind without us even realizing it.
The conscious mind processes all of the sensory input that we encounter.
The unconscious mind is made up of our reactions, perceptions, attitudes, associations, beliefs, opinions, inferences and conclusions. It is an accumulation of all our experiences since birth until now.
We mistakenly think that we make conscious decisions as a result of logic. Actually, our unconscious mind tends to communicate its emotional response to the conscious mind to process a rational justification in support of the already-made decision.
In a sales situation, if a prospect will not commit, it is because:
- They are emotionally incapable of saying ‘No’ for fear of your response if told the truth
- You haven’t persuaded her with the needed stimuli for her unconscious mind to emotionally commit.
To address that, we need to know who the customer is (demographics), then we can determine why he buys (psychographics). Knowing both, we can construct our prototype to satisfy his unconscious needs.
As mentioned earlier, demographics is the science of market reality. It identifies who the buyer is. Psychographics is the science of perceived market reality. It answers why certain demographics buy. If your prospect doesn’t perceive her need for your product or service, she doesn’t need it (even if she does)!
Gerber shares two fundamental realities of marketing.
- Challenge of our age is to learn our customer’s language and speak that language clearly and consistently so it is heard above the din.
- The client you have got is easier to sell than the prospect you do not yet have.
Specific to the first, the fact that he said this in 1995 highlights that this is not a new challenge. Our platforms and message vehicles have changed over time, but getting our message to the right prospects via those platforms has been the primary challenge for as long as there has been buyers and sellers. To the second, nurturing and taking a farmer’s perspective of your client base is a model that too many businesses ignore (to their own detriment).
Your communication with prospects fall into 3 categories.
- Lead Generation – This is the promise you make to attract a prospect to your door. In your business, this is Marketing.
- Lead Conversion – This is the sale you make once they get in your door. Here are your Sales.
- Client Fulfillment – This ends with delivery of the promise before they leave your door. We label this Operations.
Chapter 18 - Your Systems Strategy
Gerber identifies three types of systems.
- Hard Systems (inanimate, non-living things)
- Soft Systems (living things or ideas)
- Information Systems (things that communicate details or measurements about the other two)
As the book is primarily focused on helping owners develop strategies to govern their businesses, Gerber mainly focuses on Soft Systems. E-Myth Revisited serves as a guide in the development of the Soft Systems to govern the other two.
For a Selling System, here are its components.
- Identification of specific benchmarks (customer decision points) in your selling process.
- Scripting of the words that get you to each one successfully.
- Creation of various materials to be used with each script.
- Memorization of each benchmark script.
- Delivery of the script by sales people in identical fashion.
- Leading people to communicate effectively by engaging every prospect as fully as she needs.
Objections to this model are grounded in opposition to it’s scripted design. This is actually by design as Gerber seeks to create a model that can be learned, repeated, and managed by most anyone as opposed to building a model dependent upon extraordinary performers. He seeks an expert system that can guide non-expert people.
He also lays out his “Power Point Selling System” identifying both its Structure (What you do) and Substance (How you do it).
Appointment Presentation
The primary objective of this activity is to make an appointment.
We engage the prospect’s unconscious speaking about the product (outcome), not the commodity we are selling.
Assuming our Lead Generation is properly attracting our prospects, we are talking to someone who is experiencing a problem or need that our business is designed to solve. That capability to solve their problem is the promised outcome we intended to deliver.
Assessment Presentation
This is where the “work” of the sale is really made.
We repeat and remind the prospect of the outcomes from the Appointment Presentation. Primarily, we are sharing with the prospect how we would like to proceed to fulfill the promised outcome.
Establish credibility by
- Communicating the business’ expertise in solving their problem. These can be case studies, metrics-based results , or other evidence that highlights the business’ capability to deliver.
- Communicating the sales professional’s personal willingness to use the business’ capability to deliver the prospect’s result.
Note: See again Gerber’s model establishing the credibility of the business and its system as the driver for the prospect’s result. The sales professional (or account manager or client success manager) will be using that model on the then-client’s behalf.
Describe the system that will be used and why it works so well. Again, prospects are less interested in what the system does or how it work (i.e. commodity). They are most interested in the impact and result that it will have for them and their problem.
Complete the Prospect Questionnaire. This is our opportunity to gather the relevant specifics of the client’s situation and their underlying problem.
Provide the prospect with information that was promised and show him how relevant it is to the report that you will be preparing for him. These initial recommendations serve as the primer for the more-targeted details to come.
Make an appointment with the prospect to return with the report providing a targeted solution with actionable steps. You will be sharing those recommendations with the prospect at no cost whether he decides to implement them or not.
Solution Presentation
In this appointment, we share the report with the prospect that identifies the solution to their problem and identifies how you can help them solve it.
At this point, you ask for the sale. (If the first two presentations were done well, the sale is already made.)
Conclusion
Gerber finishes up the book with a number of quotes. I’m sharing two of them that were especially thought-provoking for me.
I really liked this proverb and thought it appropriate to add as I am now working through Gerber’s Business Development Process. I will be sharing progress and experiences along the journey.
I really liked this quote and thought it was timely for our current environment. There were a number of other similar ones that he shared, but I most closely identified with this one.
Too often, we’re focusing on large problems outside our ability to influence while smaller, more-solvable situations go unaddressed.
I do hope you’ve enjoyed this book review. Leave a comment below if something stood out or if there’s another book that you’d like to see.
