This contains notes from reading “The E Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It” by Michael E. Gerber. It was a recommendation from my sister when I asked for her favorite small business books.
Notes Summary
This follows the standard format for these types of book of giving some info then giving some relevant anecdotes.
The first part of the book hammers a lot on the idea of Technicians vs Managers vs Entrepreneurs. Specifically it assumes you’re a Technician (someone that does the work day to day, and you are probably excellent at it). You get tired of having a boss, and decide “I should just do this as a business”. The first part shows how this evolution inevitably fails because you go into business thinking that the result will be that you get to just do your technical work without someone looking over your shoulder. I like the phrasing of “You go into your business to work, instead of you go to work on your business.”
Then it talks about McDonalds (which initially is a bit confusing because it reads like this is a franchise establishment book). But the idea here is that McDonald’s Ray Kroc did a great job of assuming the position of “working on the business” not “working in the business”. Aka he spent all his time perfecting the idea of a McDonald’s as a business, and specifically a business that he could franchise. To do this, he needed to design the McDonald’s restaurant such that it’d work, exactly the same every time, without him and with only a bit of training to the franchisee. This is the main concept here - design your business as if you needed to subsequently create and then sell 5000 of the same business.
From here it moves on more to how to do this. There are a lot of good little tidbits and anecdotes in each of the business development process stages. They aren’t all summarized here (see notes below), but some of the things that stuck out are.
On the negative side, a few things seemed like they were contradicting. EG design the business so it can operate without you, but then the primary aim is all about how it can fulfill your life goals. These were all contradictory at first blush, but I think in all cases they were sufficiently elaborated on to make them all make sense together.
On the positive side, I liked the progression of Primary Aim –> Strategic Objective –> Org Chart and the People System a lot.
The concept of the primary aim is to figure out, first, what the heck you want out of life. Then the strategic objective defines a business that helps you achieve your primary aim while also having a reasonably financially viable business. This is nice because it makes sure the business is something that’s serving your goals instead of sapping your life away. It’s also just a nice forcing function to figure out what you want to do! I bet a decent number of people (maybe me?) do the primary aim portion and realize a business is not the answer.
And while the org chart section is a bit ceremonial, I like how it forces you to think forward and fully define what the business needs to look like structurally and resonsibility-wise. Sure it’s a bit silly to have your name on all the roles, and to sign paper. But it drives home the idea that you are designing the business as a whole, and that the intent is for you to design in it in a way that allows you to step outside of it if you want.
The people system section is nice because it does a decent job (and has a great anecdote) of how to solve the oft asked question “how do I get my employees to do what I want?”. And the answer is that you can’t, but you can setup an environment that gives them a world to exist in at work that they buy into, gives them satisfaction at a life/ideal level (aka: make it not just about the individual work they are doing, but about a bigger idea they are participating in), and that is genuine (on its own, and via you partaking in it just as seriously as anyone else).
This book strikes me as pretty close to the opposite of the standard Silicon Valley Startup operational ethos. Which, to be honest, is probably good for me. I’m very steeped in that world and so drastically different takes are good.
Introduction
- 4 Ideas to be expanded upon in the book
- Businesses are really reflections of their owners. If you’re greedy, your employees will be. If you won’t change, the business won’t change.
-
The Entrepreneurial Myth
- Opening quote: “They intoxicate themselves with work so they won’t see how they really are.” - Aldous Huxley
- Entrepreneual Myth
- Hero vision of business starting. Climbing an impossible mountain to be one of the few to start a successful business.
- Extra human effort, prodigious commitment
- Extraoirdinary vision. Larger than life mission.
- These people exist but are rare! Zest for the climb + vision need to be there. Most don’t have it (or it long ago went away).
- Who starts businesses?
- Often, technically excellent people that, for whatever reason, get tired of working for someone.
- Fatal Assumption: If you understand the technical work of a business, you understand a business that does technical work.
- Being technically excellent can be a huge liability! Because instead of learning how to form a business capable of getting that work done, technically excellent people can get by doing it themselves for a while. So they don’t actually learn the business side.
- Easy to ruin the love of the technical stuff you’re good at if you go in with this mentality!
-
The Entrepreneur, The Manager, and The Technician
- When you start a business, you’re 3 roles in 1: The Entrepreneur, The Manager, and The Technician
- This is a weird chapter. It tries to convince us that we’re all multiple distinct people inside and that those people fight over sole control of ourselves at any point.
- Me: This doesn’t work for me since it gets too close to “everything is binary, there is no continuum” which is a mindset I’ve been working on getting rid of for a long time!
- Entrepreneur –> Dreamer, Manager –> Organizer, system builder, Technician –> Doer of hands on work today
-
Infancy: The Technicians Phase
- First sentence says “it is self evident that businesses, like people, are supposed to grow;”
- Me: Where does this come from? I don’t quite understand where the notion of growth of a business (or economy) as measure of success came from.
- Should operate according to what the business needs, not what the owner wants
- This is the “do it alone, you are the business” phase. Technical people start off great here but then hit a wall where they can’t scale. They burn out on the way, and if they aren’t okay with changing when they hit the wall they’ll fail.
- There’s nothing wrong with being a technical person. Just, if you want to own a business you can’t just be a technical person. If you want that, you’ll have to work for someone who will do the rest of the business!
- You want it to be the business giving customers what they want, not you. This scales.
- Can’t have your cake and eat it too. If all you want to do is technical work, for god’s sake don’t start a business.
- First sentence says “it is self evident that businesses, like people, are supposed to grow;”
4.
- common mistake: management by abdication. Hire someone experienced, let them start taking everything. Ya can’t do this!
- No one cares about your business like you do
- To them, it’s a job. To you, your business.
- You cannot hire and ignore!
5.
- People hire experienced, abdicate management, then it blows up when they realize they replaced the “you don’t scale” with “the person you hired doesn’t scale”.
- Then, you can “get small again” but that leads back to where you were. TEchnician doing technician things.
- Another approach is “go for broke”. This happens a lot with technicians that focus on the commodity only.
-
You need to “plan, envision, and articulate what you see in the future for both yourself and your employees”
- You want to build a mature business. Build a business that works not because of you, but without you
6.
- Tom Watson and IBM as an example of a mature business with a vision and plan from the start. He know what the end result would look like, and then figured out how to build to that.
- Don’t start with a picture of your business, start with a picture of the customer for whom the business is to be created.
- Specifically not “these are my skills, how can I sell them”
- Customer and satisfying their need is the focus. Business exists to do that.
7.
- Chapter all about McDonalds and the Turn-Key Revolution.
- Use the franchise business model as an example for how to think about your business. To design a franchise business, you need to get it to the point where a franchisee can be given minimal training and exactly replicate the franchise output!
- The franchise business designer uses a franchise prototype to figure out the ideal model, then rolls proven ideas out to franchise isntances
- Franchise provides not just the brand, but *an entire way of doing business
- To do this, need a “system dependent business” not a “people dependent business”
8.
- McDonalds: “nowhere had a business ever paid so much attention to the little things, to the system that guaranteed the customer that her expectations would be fulfilled in exactly the same way every time”
9.
- The business is not your life
- Its sole function is to find and keep customers
- Pretend the business you own is a prototype for one you want to sell 5000 of
- Needs to provide consistent value to customers, employees, suppliers, lenders beyond what they’d expect
- operate with the lowest possible level of skill
- stand out as a place of impeccable order
- all work documented in operational manuals
- uniformly predictable service to the customer
- uniform color, dress, facilities code
-
The Business Development Process
- It’s all about: Innovate, Quantify, Orchestrate
- Innovate - Come up with improvements, put them into action in a prototype form
- Quantify - Have measurements for everything that affects the business. Use these measurements to decide to keep / modify / roll back the innovations
- Orchestration - For those prototyped changes that measure well, document + train them to remove all discretionary decision making in their execution. Until there’s no discretion involved, you don’t know what results you’ll actually get.
- It’s all about: Innovate, Quantify, Orchestrate
-
Your Business Development Program
- “Your Business Development Program is the step-by-step process through which you convert your existing business - or the one you’re about to create - into a perfectly organized model for thousands just like it.”
- Your Primary Aim
- Your Strategic Objective
- Your Organizational Strategy
- Your Management Strategy
- Your People Strategy
- Your Marketing Strategy
- Your Systems Strategy
- “Your Business Development Program is the step-by-step process through which you convert your existing business - or the one you’re about to create - into a perfectly organized model for thousands just like it.”
-
Your Primary Aim
- The whole point of this is to give you the life you want. So defining what that is is your first order of business, and is critical for the business to be successful.
- What do I value most? What kind of life do I want, to feel like? Who do I wish to be? Your primary aim is the answer to this.
- Use the “play a tape you recorded for your funeral attendees” perspective
- “Great people have a vision of their lives that they practice emulating each and every day. They go to work on their lives, not just in their lives. They compare what they’ve done with what they intended to do. And where there’s a dispartiy between the two, they don’t wait very long to make up the difference.
- Again, “The difference between a warrior and an ordinary man is that a warrior sees everything as a challenge, while an ordinary man sees everything as either a blessing or a curse.”
- Remove your life curtain. Aka your current comfort zone.
- The whole point of this is to give you the life you want. So defining what that is is your first order of business, and is critical for the business to be successful.
-
Your Strategic Objective
- “a very clear statement of what your business has to ultimately do for you to achieve your Primary Aim”
- The vision of the finished product
- This is hard to do, but unless you can reduce your business to a few clearly stated standards, it will be hard and confusing to attempt to execute it.
- An opportunity worth pursuing
- Given best initial info you can gather, is it reasonable to assume the business can fulfill the financial standards needed to support itself and your personal financial standard. If it isn’t, you need to ditch it.
- The product is what your customer feels when they walk out of your business. Not the commodity or service they have in their hand.
-
Your Organizational Strategy
- All organizations are hierarchical
- If no structure, it’s a mob. “Mobs do not get things done, mobs destroy things”
- Most companies organize around personalities rather than around functions. This is a mistake.
- You should organize around responsibilities and accountabilities
- You should come up with the structure of the company (to manager level) before setting out! What structure is needed to meet your strategic objective?
- Even at the start, assign each role to an individual. Have them take it seriously. Even if it’s just you.
- Each role should have a clear list of responsibilities and duties. And metrics for accountability.
- Position Contract - a summary of the results to be achieved by each position in the company, the work the occupant of that position is accountable for, a list of standards by which they are to be evaluated, and a line for the signature of the person who agrees to fulfill those accountabilities.
- As the business owner, you might start with all of these! But then your job is to work on developing the position while acting in the position. Do both roles (one as the manager of the position, the other as the technician in it). This way you’re developing a system to replace yourself!
- As you go to work in the position of sales person, you also go to work on the position of sales person as the vp of sales.
- Primary Aim –> Strategic Objective –> Org Chart
- “Unless I act the same way I expect my employees to act, the system I create will indulge my preferences, rather than what the business really needs to make it possible for everyone other than me to be as productive and happy as possible”
- If rules don’t apply to you, the leader, why should you expect anyone to follow you?
- All organizations are hierarchical
-
Your Management Strategy
- If you hire formally trained managers, they’ll come in with their own system! This is dangerous.
- The whole point is that you’re designing systems to let anyone do the roles (developing from bottom up) at your business in the way that’s exactly needed for your business. You need to make sure everyone that comes in buys into this.
- Marketing/Product - people don’t really remember the big things. They are always struck by the small attention to detail (hotel anecdote)
-
Your People Strategy
- You can’t get people to do what you want. You need to setup a system that makes sure doing “it” is more important to them than not.
- Make a game that genuinely captures something meaningful, explain it to people before hiring, and make sure people buy in.
- Treat all of your people seriously
- People need to respect you and believe the game
- The most menial work can be a piece of art if done by an artist
- Bad: “People who look upon their work as a punishment for who they are and where they stand in the world, rather than as an opportunity to see themselves as they really are”
- You need to make sure there’s an idea behind the work that is more important than the work itself
- You need to communicate the game at the outset! They must buy in before.
- The game can’t be an artificial/cynical device. It must be genuine, and you must live and breathe it.
- The game needs specific ways of winning without the game ending. Because the game will never end.
- People forget fast, build this in. They need constant reminding of the game. don’t expect people to be somethign they aren’t.
- An easy part of a successful game: Our world makes closeness and sense of relationship hard. We suffer in isolation. Make your game solve some of this!
- You need people that want to play your game, not people that think they have a better one wrt formally trained managers.
-
Your Marketing Strategy
- Starts, ends, lives, and dies with your customer
- When thinking about this, ignore all previous stages (primary aim, strategic objective, etc) and just think of the customer
- Buyers are irrational. They make gut decisions fast then try to rationalize
- Perceived Need vs actual need. You want to fill a perceived need (ignore actual needs if it isn’t perceived!)
- “What must our business be in the minds of our customers in order for them to choose us over everyone else”
-
System Strategy
- Hard systems – inanimate, unliving things
- Soft systems – animate (alive) or ideas
- Information systems – provide info about interactions between hard and soft systems
- Business Development is: Innovate, Quantize, Orchestrate, and integrate hard+soft+information systems
19.
- “Man’s Search For Himself” by Rollo May sounds like an interesting book to read!