The E Myth Summary: How to Create a Business That Won’t Fail (Immediately)
When Michael E. Gerber gives you advice for starting a business you listen to it.
With a career spanning over 40 years and working with hundreds of thousands of companies worldwide, Gerber’s expertise is invaluable to anyone looking to start their own venture. Lucky for us, he’s written several books on the topic, the most famous of which I’ll be summarizing in this post.
(I myself owe a debt of gratitude to Michael Gerber for helping write my book. This is one of the fundamentals in building your business other wise you just have a glorious job-jme)
This E Myth summary will take the core business tips from Gerber’s work and condense them into a single post.
It’s all of the value, proven with examples from companies like Facebook and Zenefits, and doesn’t need you to spend 40 years to learn it.
In particular, I’ll be covering:
Balancing your business personalities
Creating a business, not a job
Working on your business, not in it
Why your business needs systems
The idea of your business being your product
Motivating employees with the idea behind their work
Make topics human to make them interesting
Let’s get started.
Balance your business personalities
Setting up a business isn’t all about entrepreneurial spirit and vision. In fact, that’s just one of three personas you need to learn to balance in order to see any success.
The Entrepreneur provides your vision and future goals, the Manager organizes everything and establishes a status quo, and the Technician does the work. Each has flaws but together they create a healthy attitude toward creating and growing a small business.
Vision tends to come most easily to those setting up their own business. The real challenge comes with balancing that vision and the ideas you get with creating systems and managing your business while focusing on the work that actually matters.
Take Richard Branson for example.
His first business (at age 15) sprouted out of a desire to voice opinions which were considered too “revolutionary” for his school’s existing magazine, aptly named The Stoic. Student magazine allowed Branson to do just that.
The Entrepreneur saw a vision of a magazine where they could speak without censorship. The Manager set up a way for contributors to collaborate and formed the business model. The Technician buckled down, wrote what he wanted to talk about, reached out to different schools for collaborators, arranged distribution and enough advertising to give the magazine away for free.
“Jonny Gems and I wanted to set up an alternative magazine with a fresh attitude. We wanted to campaign against corporal punishment, compulsory chapel, games and Latin.” – Richard Branson, A Student with a Plan
Create a business, not a job
An easy trap when setting up a business is to do so because you think “I’d like to do X all day” or “I should be doing that – I’d be better than them”.
That’s not an idea for a business. That’s a job leading straight to a dead end.
“If your business depends on you, you don’t own a business – you have a job. And it’s the worst job in the world because you’re working for a lunatic!” – Michael E. Gerber, The E Myth Revisited, p. 40
If all you want to do is climb the ladder or earn money, follow that idea while working for others. Prove that you can perform better than others and reap the rewards but without the headache of managing the business behind each role.
If you want to create a business, take a step back and first think about what kind of lifestyle you want to have. This dictates the kind of business you’ll need to create, which will give your Entrepreneur some rough parameters and a direction to go with when thinking of ideas. The Technician can then get to making it work.
Just look at lifestyle businesses – these are entirely set up to support the founder in a given lifestyle. Figures like Tim Ferris have championed this idea with The 4-Hour Work Week, although it’s admittedly hard to pin down a specific example of this advice from Gerber in action.
Gerber is mainly focused on traditional physical businesses, such as the bakery which he uses as a running context through the book. Not only that, he’s also only really concerned with businesses which want to grow and become more widespread or profitable.
In other words, there isn’t a specific example to prove this point because every successful small business does this. Or, at least, the businesses Gerber is talking about (small businesses looking to grow and potentially be sold further down the line).
A small business created as a job for its owner won’t grow because the owner is too busy doing all the grunt work they’ve made for themselves.
Work on your business, not in it
Following up on the previous point, Gerber doggedly reinforces the idea that you need to be working on your business rather than in it.
You’re the founder, not a single-role employee.
Many startup owners know the pain of learning what, how, and when to delegate work. It’s impossible to keep doing the same things day-to-day as the business grows if you want to maintain the business’ health but it’s equally hard to let go of the jobs you’ve been doing relentlessly (and perhaps love to do).
Yet, if you don’t, either you or your business will collapse.
You can hire people to do things like write blog posts, cook food, make toys or whatever else the business is designed to do. You need to work on your business directly, be it by managing your processes, analyzing where you can go next or how to grow, and so on.
Don’t believe me? Just take a look at Mark Zuckerberg.
Zuckerberg has spoken a couple of times about wanting to code all the time, and how he misses it. However, Facebook is too large a company for its CEO to spend time working on the product. It’s his job to work on Facebook at a high level – he physically doesn’t have time to go in and work on background bugs.
“There is an elegance to writing code that I miss… The code always does what you want – and people don’t.” – Mark Zuckerberg, Mark Zuckerberg Admits He Misses His Coding Days.
It’s not like he wanted to stop coding. However, if he hadn’t, Facebook wouldn’t be such a massive success with a valuation of over $100 billion.
If you need a little help with this step, check out our other posts (and an episode of the Business Systems Explored podcast) on the topic of delegation:
How to Delegate Tasks Successfully Without Wasting Time – Vinay Patankar and Tony Brown
If You Don’t Delegate Tasks, You’ll Ruin Your Business – Wendy Tadokoro
Create systems for your business
To be successful, your business needs to have some sort of continuous improvement. It needs to get better, whether that means increasing efficiency, profit margin, decreasing waste, increasing your audience, and so on.
To do that you need to be able to perform consistently.
To do that, you need Hard, Soft, and Information Systems.
These are the names Gerber gives to account for various aspects of your business which need recording in some way.
Hard Systems are anything that isn’t malleable or alive (the color of your office, business appearance), Soft Systems are ideas and living things (what to do and how to do it, including business processes) and Information Systems include tracking and managing data (such as checklist records).
Combined, these three create a system and record for everything which can be referred to to instruct, analyze and improve every aspect of the business.
Unfortunately, these systems are a little too vital to how businesses are run to give you a set example. However, that doesn’t mean we can’t hypothesize from what we know.
Let’s look at HMV – a British retail store focused on music which is successful enough to give Amazon a run for its money.
HMV’s Hard Systems include the brand’s icon (a dog in front of a gramophone), colors (black and pink), lettering, interior design, and so on. These are decided to give the brand a consistent feel and allow customers to recognize the shop at a glance.
The Soft Systems include things like their selling process, policy on customer interaction, returns process, store opening and closing, and so on. These tell employees how to act and perform their tasks consistently to make sure that everything is done quickly and effectively every time.
These systems also dictate how customer interactions should be operated, meaning that HMV can tailor the customer experience and make it as consistent as possible to provide their brand some authenticity and reliability. For example, employees might be instructed to ask customers if they need help only if they’ve been browsing for 10 or more minutes to avoid being too intrusive while still providing value and help where needed.
Finally, their Information Systems would likely be made up of things such as sales records, employee timesheets, customer survey responses, and so on. These allow the teams and their higher-ups to assess how business is going and improve based on that.
For example, if they notice that a particular band is picking up in popularity they could either order a larger stock of their items or consider running a promotion on something which isn’t selling too well to avoid holding excess stock.
Know that your business is your product
It might sound counter-intuitive but you’re selling people on your business, not your product.
Think of your audience as three separate groups – customers, employees, and those buying your business directly. Each of these interacts with you in a different way but all three are buying into your business as an idea, not just your product.
When products are similar, customers make their choice based on the business selling them through things like brand recognition and affinity. Employees need to understand the value of the business and believe in what they’re doing to give it their all (more on that later). Investors, potential buyers, and franchisees literally buy into what they see as the value behind your business.
To demonstrate this, let’s take a look at Marlboro.
Originally posed as a cigarette for women, Marlboro decided to target the “small niche” of men worried about the health problems associated with smoking. To do so, they posed the brand to be as masculine as possible – no small feat considering that filter cigarettes were seen as feminine at the time.
Selling customers on the product alone wasn’t enough when that same product wasn’t seen in the way they needed. Instead, Marlboro built up a brand image of masculinity which they intrinsically linked to their cigarettes.
The Marlboro cowboy is one of the greatest marketing campaigns to have existed, as noted by David Ogilvy himself (the father of modern advertising – see Ogilvy on Advertising, p.15). This rugged portrayal, combined with the harsh, habit-creating flip-top of the cigarette pack and design evoking the wearing of a medal all helped Marlboro break through the stigma associated with their product and secure a solid business practice.
They didn’t do it by selling the product – their cigarettes tasted almost the same as most other available brands. They won by selling the idea of their business as a masculine one.
Motivate employees with the idea behind their work
If your employees don’t believe in their work they won’t be giving it their all. This ties into the idea of treating your business as your product – you need to sell your team on the business if you want them to treat your systems with respect and uphold your standards.
If your whole team isn’t working in line with your value statement and mission statement, disaster is bound to strike. Just look at Zenefits – their bad processes and practices destroyed a previously solid reputation due to employees (including former CEO Parker Conrad) cutting corners so badly that they broke insurance laws.
Team building activities are good but they’re not enough. Employees need to believe in their peers and the service they’re providing in order to present a united front.
It’s also vital that your employees all believe in the same idea of your business which fits with your brand position and target audience. A legal firm would seem unprofessional if one of their teams acted too casual, whereas a cafe would likely be seen as more welcoming with a little casual conversation between servers and customers.
Customer service is a great example of this idea in practice.