I read the book by Michael Gerber a few years back and it changed the way that I think about how to grow a small business. When I saw this summary it accurately encapsulated everything that I learned from the book and have therefore reprinted it wholesale. Thanks to Joe Mosed for this insightful summary of this excellent book
“75% of small businesses fail in the first 10 years and 50% fail in the first 5 years. These are horrible stats that can be mitigated with the right strategy. E-Myth Revisited explains how to do this and why most businesses fail in the first place. Franchise businesses succeed 75% of the time over the same 10 year period. We will contrast the differences in this summary.
Why is this important to me? Michael argues that three personalities are required to run a business and they all have different agendas. They consist of the technician, the manager and the entrepreneur. The tech wants to just do the work, the manager wants to organize the work and keep order and the entrepreneur wants to strategize about the vision and the future. The problem arises because most people who start the businesses are technicians only. They have to do everything themselves and end up buying a job and working triple time to get everything done. The personalities are required for a business to be successful but when there is only one person i.e. the plumber, hair stylist, dentist etc. who start the business then these personality types conflict.
E-Myth is packed with great information. For the sake of time, I will cover three key points.
1. Infancy, Adolescence and Maturity – These are growth stages in any business and if they are not handled correctly, then bankruptcy is the conclusion. Infancy consists of starting the business with you doing all the work. Adolescence is when you hire your first employees. Typically what happens is that the employees are thrown into the job with no training and they become your right hand. Maturity happens when the business finds its legs and is able to scale growth.
2. Why do franchises succeed and small businesses fail? The number one reason is that the franchise is a crafted system and the small business is started on a whim with no real experience. The franchise model is strong because it gives all the necessary training, steps and systems to succeed. McDonald’s is the greatest franchise to prove this. They can hire low skilled workers to run the system successfully. This is important because everything is covered and checklists are required. The system is the business. The small business does not have this luxury and usually dies because of it.
3. Systems and Scalability – We can learn a lot from franchise businesses. They are always honing and creating better systems so the business can run by itself. I can personally attest to the power of this. My business is in enterprise software. When the business was first starting, 80 hour work weeks were standard. We did everything without a roadmap just to keep the business going.
When I stepped back and asked for help, it allowed me to work on the business instead of in it. We now have systems in place that allow us to control quality, deliver on time and keep happy customers. This is not easy to do. System thinking is detailed oriented and is a culture change with the people. I can tell you that if you have a small business and want to stop trading HOURS for DOLLARS then start scripting and creating systems so the business can run without you.
The goal of creating a business that can run without you is lofty but definitely attainable. The best example of this is Warren Buffett. He owns excellent businesses and does not run them at all. He has the right people in the right places and it frees him up to do what he does best which is capital allocation.
I hope you have found this short summary useful. The key to any new idea is to work it into your daily routine until it becomes habit. Habits form in as little as 21 days. One thing you can take away from this book is the importance of systems in your business.
Work on creating business systems so you can have more time to either grow your business or spend time with your family. Working a 100 hours per week and having the business stress for a simple pay check is not the way to a happy life style. Creating systems is the way to true income independence and freedom.”
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