E-Myth

What is the E-Myth?

The E-Myth is the myth of the “typical” entrepreneur that all people imagine.  Most picture a brave, noble, all-knowing leader that stands alone and turns to no one.  However, this is usually not the case.  Michael Gerber goes into depth in the book, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, about the main characteristics of the everyday entrepreneur and how to overcome the struggles of starting and creating a lasting small business.

The average entrepreneur starts their business with the strong desire to be their own boss, because after all, if you know how to do the technical work of a company, why can’t you start your own business doing the work you have always done?  This, Gerber says, is the Fatal Assumption that most people make that ruins their small business from the start.  Usually the entrepreneur is doing technical work for a company and one day they experience an Entrepreneurial Seizure, and realize they are tired of constantly having to answer to someone and decide they want to be their own boss.  However, being able to do the technical work of a business doesn’t mean you have the innovation, managing skills, and communication skills needed to start your own business.  This means, every business needs the owner to be three different people: The Entrepreneur, The Manager, and The Technician.

The Entrepreneur, The Manager, and The Technician

Every business needs the entrepreneur to encompass three different roles in a business.  Unless all three roles are sought after by the new entrepreneur, the business will most likely not survive after the first few years.

The Entrepreneur

The Entrepreneur is known to be the daydreaming visionary.  This is the imaginative, forward looking, and strategic creative backbone of the business.  The Entrepreneur loves to change and alter ideas until his ideal business is created.

The Manager

The Manager, on the other hand, is the predictable and very orderly leader that is constantly trying to systematically produce what The Entrepreneur has thrown together.  He uses the past as the basis for decision making to produce a business that will avoid havoc and problems.

The Technician

The Technician is what most new entrepreneurs are.  They are the ones that know how to do the technical work of a business but are not sure on how to go about managing or innovating new ideas for a new business.  The Technician is the hands on worker that likes to get things done and lives in the present.  Instead of dreaming up or talking about an idea, he likes to see it that it gets done and likes to be the one doing the work.

Since most new entrepreneurs come from an existing job of doing technical work for a company, this presents a predominant problem in small business.  Most entrepreneurs only have one of the three necessary components needed to produce a lasting business. Most have the characteristics of The Technician; however, The Technician is the one who does the work, not the one successfully owning the business.  An entrepreneur must have characteristics of all three of the different roles in order to successfully produce and grasp all the business’ necessary components.

Small Business Lifecycles

Gerber touches on the different lifecycles that every small business experiences and how to make a small business survive through them all, without giving up and closing down.  Gerber believes that understanding each stage, what the entrepreneur experiences and feels during each of the stages, can help a new entrepreneur’s business withstand the hardships faced during each.  The stages include: Infancy, Adolescence, and Maturity.

Infancy

The first stage in any small business’ lifecycle is Infancy.  During Infancy, the new entrepreneur is taking on every task of the new business.  He is doing what he already knew how to do, the technical work, but it also taking on new work that he is not really sure on how to do, like sales and the books.  During this stage, the entrepreneur has to juggle all of the jobs in the small business and still having to try to innovate and grow the business.  Usually in Infancy, it starts out strong.  The company is growing and reaching the public and the entrepreneur is feeling overwhelmed, yet accomplished.

During Infancy, the entrepreneur does not separate the business from himself.  He is the business and he takes on all parts of the business.  This becomes a problem when there is more work than the owner can get done.  And when you are the business then you never step away from the work, causing you to become overwhelmed by the work that needs to get done and not having enough time in each day to get it all completed, or at least in the same quality that your customers once expected and received.  The main issue in Infancy is The Technician in all of us needing to complete every task and not letting The Manager or The Entrepreneur grow and expand the business.  The Technician needs to have his hands on every part of the business and refused to pass on the technical part to someone else.

Adolescence

Adolescence does not occur in the business until the owner decides he needs help to get everything done.  The entrepreneur finally admits that he cannot get everything done alone and must trust and turn to someone else.  Depending on the strengths of the owner, each owner decides to get help in the area he does not excel in.  The owner may not be good at accounting so he or she may get bookkeeping help.  He or she may lack sales skills and make hire a sales person.  It all depends on what job the owner does not want to take on any longer and he or she will hand it over to someone else.

However, the problem most new entrepreneurs face is having the ability to push more and more work on the hired help.  Instead of the accountant doing only the bookkeeping, you start having him helping out with sales.  Then, sooner or later, he will be opening or closing the store.  He gradually goes from being the help in one division, to being the co-owner of the business.  The entrepreneur ends up putting too much trust in the new hire, and he starts making decisions for the business, and not only the best decisions at that.  Sooner or later, you lack the control and vision of your business, which can lead to closing down.

Gerber says that once this Comfort Zone, the point where the owner no longer feels in control of his company and its environment, the owner must decide if he will fire his employees and become small again, go broke from continuous and damaging growth, or just hope for survival.

Maturity

Maturity is not a definite ending to every small business that goes through Infancy and Adolescence.  It is the result of smart decision making, the ability to learn and grow the business, and being able to start your business as a mature company and just expand it.

The Entrepreneurial Perspective

The Entrepreneurial Perspective says that it is the business model that determines the viability of any company.  The way the company acts, looks, and makes decisions is the ultimate driver of the success of a business.  Having the right product is important, but to make a flourishing business an entrepreneur must set their main focus on the most effective business model that can reach The Entrepreneur, The Manager, and the Technician so that all of the business aspects are met.

The Entrepreneurial Model

The ability to look at a business as the product itself is the idea behind Gerber’s Entrepreneurial Model.   The Entrepreneurial Model focuses on how the business goes about doing the work, not what work is being produced by the business.  It looks at the customer needs and determines the business strategies based on those needs.

To determine this effective model, Gerber discusses what he calls, The Turn-Key Revolution.

The Turn-Key Revolution

The Turn-Key Revolution is the process of creating a business like a franchise, even if that is not the ultimate goal of the entrepreneur.  When doing this, it becomes easy to systematically turn certain parts of the business over to someone else and gradually become merely an owner.

Business Format Franchise

For years, franchises have been a predominant way of doing business.  However, going further, some enterprises not only handed over the name of the business, but also an entire systematic way of doing the business.  This adds to the belief that the success of a business is not the product that it sells, but the way the company sells the product.  The customer service and the system of how the company does business is what set it apart from the competitors, keeping the business alive.  A success rate of 95% was reported for Business Format Franchises. After the first five years 75% of these franchises succeed compared to the 80% failure rate of all business (91).

The true product of the business is the business itself (83).


Franchise Prototype

The Franchise Prototype is used as a test to see if the business can work.  It takes the assumptions and puts them into action in the real world.  Then the system can be implemented with any franchisor and it will work because the system works on its own.  It is the solution to the problems small businesses face.  It causes the business to become a self-run machine that can survive no matter who runs it.  It fulfills the needs of The Entrepreneur, The Manager, and The Technician because it is visionary, predictable, and full of technical work that can be done (95).

Once you have understood the importance of the Turn-Key Revolution and that you are ready to build your Franchise Prototype, you need to go through the Business Development Process.

The Business Development Process (BDP)

The BDP is made of three activities: Innovation, Quantification, and Orchestration. Understanding and applying all of these tasks will help you build a better business, attract and keep more customers, keep track of the growth of your business, avoid chaos, organize the whole, and make sure that all things that work successfully are repeated consistently.

Innovation

Like previously stated, the entrepreneur must understand one thing: The product he sells is his business not his commodity. Therefore, when you think of innovation in the BDP, you should always try to improve the way you interact with your customers.  It does not have to be hard or costly to implement. When trying to think of a way to increase your sales through your sales force, you may consider thinking about innovating the way you approach customers or even about the way your sales force dresses. This innovation requires more knowledge of your most probable customers (or Central Demographic Model) through a customers’ analysis (for example short questionnaires). You will be amazed to see how much more attractive blue navy suits are in comparison with brown or orange ones in producing more sales. Or how touching your customers or your employees arm softly while speaking to them can produce positive reactions.

It is important to consider, while focusing on innovation, the customer’s point of view. Looking for constant innovation makes your business get closer to the “best” way to do things. It brings motivation, satisfaction, and energy to all your stakeholders and more importantly, it helps your business identify itself in the mind of your customer. Innovation is a major key for growth.

Quantification

Innovation is one thing. But how could you know it is working without any kind of numbers showing progress, increase, or growth? That is what quantification is all about. Quantification means keeping track and “quantifying” everything about your business. It is the only way to have insight on how your business is doing. It shows you the parts of your business you should improve, the ones that stagnate, and the ones that are doing incredibly well. It helps you decide whether you should keep going with an idea or to return back to innovation.

Some examples may be: How many customers entered my shop today? How many bought that item? How much time do they spend in your store? What are the most frequently asked questions? What are the busiest days?

Without quantification it would be difficult to assess what your business needs to do and how much growth you’ve experienced.  Having number comparisons also brings possibilities and clears the path to progress.

Orchestration

Once you have innovated and quantified parts of your business, you should make sure that the elements of your system that are working successfully (a new recipe, the way your sales force talk with your customers, etc.) are constantly repeated. Orchestration is “the elimination of discretion, or choice at the operating level of your business.”  Your employees should always recite a similar script, should always wear the same suit, because as earlier addressed in the text, what creates value to your customer is the predictability of the experience they are having while doing business with you.  If there is any discretion, there will be uncertainty on the quality of your service or product, uncertainty of future problems with your business, and so on.  What differentiates your business from competitors is your unique way of doing business.  You should satisfy your customer’s needs every single time and therefore, to be predictable, your employees should also be consistent.

Now this does not mean you have to take it to the extreme, but everyone should recognize that there are ways of doing things that work and that these ways are what makes your business different and successful. The point is that without order, with only discretion and lack of structure, no one will be able to see what your business stands for; nobody will be able to identify what your business bring to them. And that creates failure.

The Business Development Program, or BDP as it is called, is a process. It should not be understood as something static. You should repeat these steps continuously in order to better anticipate any changes in the external environment that you are dealing with or at least be flexible with them.

Your Business Development Program

Now that the three main points of a successful BDP program have been explained, let’s take a look at the steps that are needed to transform your small business into a perfect business model. These are going to help you think of your business as the perfect Franchise Prototype for 5,000 more like it. The rest of this text takes a closer look at each of these points:

  1. Your Primary Aim
  2. Your Strategic Objective
  3. Your Organizational Strategy
  4. Your Management Strategy
  5. Your People Strategy
  6. Your Marketing Strategy
  7. Your Systems Strategy

Your Primary Aim

There is one thing that you should do before starting anything, one important thing that you should figure out. This is: your life. What do you want from your life? What do you want it to look like on a day-to-day basis? What do you want your friends, family, and employers to remember about you? What accomplishments do you want to reach? Answering these questions is very important when deciding if your business will be a major part of your life.   You need to have a very clear picture of what your business’ vision is. Have an idea to hold onto, an idea that represents you.

Having a Primary Aim allows you to know where you are in your life and what is left to be done. It allows you to see if you have progressed in your effort to accomplish your goals. And most importantly, it helps you get started; it gives you that critical energy that gives you the intention of going through the BDP and moving on in creating your vision.

Your Strategic Objective

“Your Strategic Objective is a very clear statement of what your business has to ultimately do for you to achieve your Primary Aim. It is the vision of the finished product that is and will be your business” (149). Moreover, it helps you set goals and have a clearer idea on what you should invest your time on.

In order to complete this objective, you must keep in mind a few clear and simple standards. Each of these standards should help you find an easier way to reach your Primary Aim.

 

Money

A standard on how much money your business will be worth needs to be set, both gross revenues and after-tax profits. The problem is that most of the time you have no idea how much your idea is worth. Nevertheless, standards, even not very accurate, are necessary and much more useful than no standards at all.

You also must determine how much money you want from your business. How much do you need to have your freedom or your goals realized? What return on investment do you want? You also need to decide in what time frame you want to achieve these in. Once you have those financial standards, you should make sure these amounts are attainable.

Is the Opportunity Worth Pursuing?

What is the likelihood that your business idea will work? First, you need to know what product you want to sell to your customers and also figure out who your target market is.

  • Your Business: It is important to understand that the word product does not mean commodity. The product is the feeling your business leaves your customers with, the emotion behind the experience. Do you sell dream, passion, fun, lifestyle, etc.? Your customers do not only care about the commodity they are receiving, but also the feeling they get when visiting your business.
  • Your Customers: Who is your central demographic market? To know this you need to understand the demographics and psychographics of your surroundings. Doing this will help you figure out the number of business opportunities present (demographics) and how you can satisfy the needs there (psychographics).

Other standards may apply in your Strategic Objective, but mainly you must address: the time frame, the geographic limits of your business, what distribution channel you are going to use, and what standards you plan on applying.

 

Your Organizational Strategy

The first thing you have to do when you are planning your Organizational Strategy is to create an Organization Chart.  The size of your business does not matter. What you first must do is make a chart of all the positions your business is going to contain, from the Chief Organizational Officer to the sales employee. This will provide you with a clear picture of how your business is going to look like once it is working at its full potential. The next step is to write all the tasks each position requires.  Then, write the name of the person presently occupying that position and make him or her sign the certification, saying that he or she understands their accountability to this position. That step is called a Position Contract, it explains the employee’s role and gives him or her a sense of commitment to the business. The most important part, by doing this, you create a blueprint for your Franchise Prototype.

When you start the prototyping process, you begin to occupy the lowest positions on the Organizational Chart. But the difference is that you are not just working as the Technician (the employee), you also work on that position as the Manager or VP. You work on the 3 building blocks of the BDP by creating the best possible system for that position and writing everything they must do in your Operation Manual.  This is done so that one day you are able to hire an employee and teach them everything about your business and that position specifically to be assured that the position can work perfectly without you.  This leaves you time to move up to the next position and do the same thing until you are at the top of the chart and are no longer needed to do the technical work of the business.

The Organizational Strategy, therefore, allows you to have every piece of your business interrelated and to have it run the way you envisioned it would. This will prevent your business from suffering from confusion and discord and will cause it to be fully integrated and balanced, progressing as a whole.

 

Your Management Strategy

Most companies falsely believe that the key to success is excellent people.  Instead, what you need is a Management System.  This System that you, as a manager, come up with will essentially be your management strategy.  It will mold your business into a system that will function smoothly and motivate employees using the franchise prototype model.

Gerber defines the management system as “a system designed into your Prototype to produce a marketing result” (Gerber 188).  As such, everything in your business should be systematized.  From sales to operations, as discussed, an Operations Manual should be available to teach employees how to perform every function of the business.

 

Your People Strategy

A big question that any entrepreneur or business owner must ask himself is how do I get my employees to perform the way that I want them to?  Gerber lists several action steps.

  • First, take people seriously.  You show employees how much you care about the business by showing them how much you care about those who run the business. But it’s not enough just to take them seriously, Gerber says it has to be a special kind of serious – the kind that says that your business is more than just a business to you, and that if the employee wants to take the business seriously they have to take you seriously as well.
  • Second, you must make it known to the employee that what is being done in the business is much more important than work, it’s a reflection of who they really are.  Sloppy work shows a sloppy mentality; late work shows that we are late inside.
  • Thirdly, Gerber says that it is of utmost importance to make sure employee’s “understand the idea behind the work they’re being asked to do” (Gerber 201).  Antione de Saint-Exupery said, “If you want to build a ship, don’t summon the people to buy wood, prepare tools, distribute jobs, and organize the work; rather, teach the people the wide, boundless yearning for the ocean.” This idea behind the job can be broken down into three parts as stated on page 201:
  1. The customer is not always right but whether he is or not, it is our job to make him feel that way.
  2. Everyone who works here is expected to work toward being the best he can possibly be at the tasks he’s accountable for. When he can’t do that, he should act like he is until he gets around to it. And if he’s unwilling to act like it, he should leave.
  3. The business is a place where everything we know how to do is tested by what we don’t know how to do, and that the conflict between the two is what creates growth, what creates meaning.

  • Fourth, the employee needs structure, a place where he is set up to succeed inside of the system that is created for him. This is similar to rules for a game.

The Rules (Gerber 205)

  1. Never figure out what you want your people to do and then try to create a game out of it. The game must come first
  2. Never create a game for your people your unwilling to play yourself.  They’ll figure you out.
  3. Make sure there are specific ways of winning the game without ending it.
  4. Change the game from time to time-the tactics, not the strategy.
  5. Never expect the game to be self-sustaining. People need to be reminded of it constantly.
  6. The game has to make since.
  7. The game need to be fun from time to time.
  8. If you can’t think of a good game, steal one.

The Logic of the Game

The logic behind the game can be summed up by saying that most of us aren’t getting what we want out of life, that we each have this huge God sized hole in our chest that we seek to fill with things.  With drugs, people, television – whatever.  We need purpose meaning value and we need relationships because we suffer in isolation.  So what we need is small business.  To fill that hole and to provide “community that has purpose, order and meaning” (Gerber 207)

Playing the Game (Gerber 209)

Playing the game starts with the hiring process which is comprised of several distinct components:

  1. A scripted presentation communicating the Boss’s idea in a group meeting to all of the applicants at the same time.
  2. Meeting with each applicant individually to discuss his reactions to and feelings about the idea, as well as his background and experience.
  3. Notification of the successful candidate by the telephone.
  4. Notification of the unsuccessful applicants, thanking each for his interest. A standard letter, signed by the interviewer.
  5. First day of training to include the following activities for both the boss and the new employee:
  • Reviewing the Boss’s idea
  • Summarizing the system through which the entire business brings the idea into reality
  • Taking the new employee on a tour of the facilities, highlighting people at work and systems at work to demonstrate the interdependence of the systems on people and the people on systems
  • Answering clearly and fully all of the employee’s questions
  • Issuing the employee his uniform and his Operations Manual, including the Strategic Objective, the Organizational Strategy, and the Position Contract of the employee’s position (as discussed earlier)
  • Completing the employment papers

This is only the beginning of a relationship that will dictate how the game is forever played within your company.

Your Marketing Strategy

The key to being a successful marketer is to focus on the customer.  You must forget about what you want or even what you think the customer wants, instead, it is your job to figure out exactly what your customer actually needs.

The Irrational Decision Maker

The customer uses both his conscious mind and his unconscious mind to make decisions.  The conscious mind takes in censor data, colors, smells, sights, surroundings, the look on your face, the neatness of your desk, etc.  The conscious mind feeds the unconscious mind, where the actual decision is made, and we are told its decision as soon as the unconscious mind gets fed the sensory information. It either accepts or rejects the sale, based on history and personality.  This leaves little up to the marketer.  So what is he or she to do?

The Two Pillars of a Successful Marketing Strategy

The Two Pillars of a Successful Marketing Strategy consists of knowing who your customer is and then determining why he or she buys, demographics and psychographics, respectively.  The marketer must ask these questions. Who are my customers, specifically? What is their demographic profile? You can answer these questions by simply asking them. One way to do so is to conduct surveys and give participants a free service in return.  This will not only give you feedback, but it will also get people into your store.  And then, once you know who your customer is, it is your job to find out why he or she buys.  What colors does he or she like, what shapes catch their attention, what do they need.  Once you begin to raise these questions, you are well on your way to a successful marketing strategy.

Marketing is the whole process.  From start to finish, knowing how to structure your system in such a way that your customer will approve of his or her experience and come back wanting more is the ultimate goal.  However, it is a continuous process.  The marketer is always thinking of ways to retain current customers and attract new ones.

Your Systems Strategy

Gerber defines systems as everything. “A system is a set of things, actions, ideas, and information that interact with each other, and in so doing, alter other systems” (Gerber 234).  Everything that we know is a system.  The globe, the Pacific Ocean, your brain, the chair you’re sitting in, and your relationship with your best friend – all of these are systems.  Some we can define and others are too complex.  The ones that matter for your business we can define as hard systems, soft systems and information systems.

The Three Kinds of Systems

Hard Systems are inanimate objects like a desk or the color of your walls.  Hard systems are important to your business.  McDonald’s color scheme and brilliant golden arches are an example of an extremely successful and innovative hard system.

Soft Systems are either ideas or living and animate objects.  An example could be yourself.  You are a soft system just as the Constitution of the United States is a soft system. Soft systems become extremely important when you consider that your sales depend on people and that both sales and people are soft systems. What is a sales system and why is it important? A sales system is “a fully orchestrated interaction between you and your customer that follows six primary steps” (Gerber 238).

  1. Identification of the specific Benchmarks – or consumer decision points – in your selling process.
  2. The literal script of the words that you will get your employees to recite to each customer (yes, written down like the script for a play).
  3. The creation of the various materials to be used with each script.
  4. The memorization of each Benchmark’s script.
  5. The delivery of each script by your salespeople in identical fashion.
  6. Leaving your people to communicate more effectively, by articulating, watching, listening, hearing, acknowledging, understanding, and engaging each and every prospect as fully as he needs to be.

Doing sales this way is important if you are to avoid the old axiom: 80 percent of your sales are produced by 20 percent of our people.  At E-Myth Worldwide, this Power Point Selling System has caused revenues to increase 300 percent in a year for a career development company, 500 percent in two years for an advertising agency, and 40 percent in two months for a health spa.  All of these examples deal with employees with little to no experience in their respective fields.

The Power Point Selling Process

The Power Point Selling Process consists of three scripts that define the interaction between the seller and the potential customer.  The three scripts (or Benchmarks) are:

1. The Appointment Presentation is simply a scripted appointment designed to move the potential customer toward the Needs Analysis Presentation.  “It is a series of words, delivered on the telephone or in person, that engage the prospect’s unconscious by speaking primarily about the product you have to sell rather than the commodity” (Gerber 241).

2. The Needs Analysis Presentation. The first step in the Needs Analysis Presentation is to reestablish the emotional commitment made in the Appointment Presentation. The second step is to now tell the prospect how you are going to fulfill your promise to him or her.  The third step is to gain credibility by:

A.     Letting them know that you are an expert in your field and

B.     Sell your willingness to meet whatever need they might have.

The fourth thing you must do is to describe the impact that your company will have on the potential customer.  The fifth step is to complete the Money Management Questionnaire. The sixth thing that must be done is providing him or her with the information he or she was promised and prove to him or her how relevant it is for their benefit. And lastly you must prove your willingness to use your solution to meet their needs.

3. The Solution Presentation “simply provides the rational armament for the emotional commitment” (Gerber 246).

Information Systems provide us with information about how hard systems and soft systems interact.  Examples of information systems include inventory control, cash flow forecasting, and sales activity summary reports.

Gerber’s E-Myth

Now you know Gerber’s key steps and components in creating a lasting and successful small business.  Not only does this book in the E-Myth series provide the reader with the key components for a value-creating small business, but it also can give him or her real world examples of success stories seen throughout the country.  Beat the odds and create a business that will not only last, but will be added to these success stories for people to look up to and learn from for years to come.

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