The E-Myth and You

This book is a must-read for small business owners or anyone contemplating entrepreneurship. The author, who runs a small business consulting firm, gives a well known but still jarring statistic at the beginning of the book:

40% of small businesses fail in 1 year. Of those who survive 1 year, 80% fail in 5 years, and of those who survive 5 years, another 80% fail.

The book attempts to analyze the characteristics common among failed businesses, and the approach favored by the businesses who survive and thrive.

Three Roles

The most striking observation in the book is that most small businesses are started by “technicians”, that is people who are skilled at something and enjoy it enough to want to do it for a living. When these technicians start their own businesses, they tend to do the work they are skilled at, and ignore the overarching aspects of the business.

Without clear goals and quantifiable benchmarks, they soon find themselves overworked and broke. Worst of all, they may come to hate their work. Rather than owning a business, they own a job, and find themselves working for managers who are completely clueless about how to run a business – themselves.

The solution is to balance your business personalities. Business owners must simultaneously embrace three different “personalities” to succeed:

• The technician is a worker-bee, producing the product.
• The manager makes sure operations and finances run smoothly.
• The entrepreneur formulates goals, and steers the business in the direction needed to reach those goals.

Of these three personalities, the entrepreneur is key – without it, the technician will flounder. As the business grows, the owner will need to move away from technician work and manager work and delegate this work, not abandon it.

“E-Myth” Your Business

Look at franchises as your model. In comparison to the dismal survival rates for ordinary small-business start-ups, 75% of franchises succeed at 5 years. The reason for this is systemizing the operation of the business. A franchise provides a business model.

Imagine you wanted to franchise your business after a certain period of time. If so, what do you need to do to your business plan and your management?

Six Guidelines for Systematization

Franchises succeed because they deliver predictable good results. To achieve the same, consider six areas:

1. Consistent value delivered to your customers.
2. Low level of skill required by employees because of simple and effective systems to follow.
3. Impeccable order in your business.
4. Everything is documented in a Systems Manual that everyone uses.
5. Uniform, predictable delivery of the service.
6. Uniform colour of facilites, marketing and dress of uniforms

Seven Steps to Systematized Business

The business development process involves considering a number of different goals or areas of approach:

1. Your Primary Goal: What you want from life.
2. Your Strategic Objectives: What the business will do to serve your primary goal.
3. Your Organizational Strategy: Learn to appreciate the value of organizational structures.
4. Your Management Strategy: A successful management has as much to do with the system as it does with the people.
5. Your People Strategy: The approach you should take toward people, helping people appreciate the work they do by clearly explaining the idea behind each task.
6. Your Marketing Strategy: Setting aside your personal goals, focus on the customer’s needs.
7. Your Systems Strategy: There are three types of systems in your business
   1. The hard systems: all those in your business that are inanimate and have no life.
   2. The soft systems: all those that could be living or inanimate.
   3. Information systems are everything else in the business that provides you with data relating to how the other systems interact.