Building a Small Business That Works

"The E-Myth" is a classic business book, originally written in 1986 by Michael Gerber. This book is about why most small businesses don't work and what to do about it. The author updated this book in 2004 as "The E-Myth Revisited". I read this book few years ago when I felt frustrated at work due to balancing my role as entrepreneur, manager, and technician. This book helped me figure out that frustration is common among business owners and how to overcome it.

My team at Suitmedia Jakarta

This blog post is my collection of favourite paragraphs from Michael Gerber's "The E-Myth" as my personal reminder. I will also add some other videos – not from The E-Myth – but still relevant to this concept.

The Entrepreneurial Myth
The myth that most people who start small businesses are entrepreneurs, while there is a fatal assumption that an individual who understands the technical work of a business can successfully run a business that does that technical work. The fact is that most small business are run by Technicians and that technical work of a business and a business that does that technical work are two totally different things.

The Entrepreneur, the Manager, and the Technician
Everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and The Technician.
  1. The Entrepreneur is our creative personality—always at its best dealing with the unknown, prodding the future, creating probabilities out of possibilities, engineering chaos into harmony.
  2. The managerial personality is pragmatic. Without The Manager there would be no planning, no order, no predictability.
  3. The Technician is the doer. “If you want it done right, do it yourself” is The Technician’s credo.

Three phases of a business growth: Infancy, Adolescence, Maturity
  1. In Infancy, the owner and the business are one and the same thing. If you removed the owner from an Infancy business, there would be no business left. 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.
  2. Adolescence begins at the point in the life of your business when you decide to get some help. The Technician’s boundary is determined by how much he can do himself. The Manager’s is defined by how many technicians he can supervise effectively. The Entrepreneur’s boundary is a function of how many managers he can engage in pursuit of his vision.
  3. A Mature company is founded on an entrepreneurial perspective, about building a business that works not because of you but without you. Entrepreneurial Perspective says it’s not the commodity or the work itself that is important. What’s important is the business: how it looks, how it acts, how it does what it is intended to do. The Entrepreneurial Perspective asks the question: “How must the business work?” and sees the business as a system for producing outside results—for the customer—resulting in profits. 

To the Entrepreneur, the business is the product.
The business-as-a-product would only sell if it worked. And the only way to make certain it would work in the hands of a franchisee anywhere in the world would be to build it out of perfectly predictable components that could be tested in a prototype long before ever going into mass production. It is the Business Format Franchise that has accounted for growth, because the Business Format Franchise is built on the belief that the true product of a business is not what it sells but how it sells it. The true product of a business is the business itself.

Work on your business, not in it.
Ask yourself, “How can I get my business to work, but without me?" and pretend that the business you own is the prototype for 5,000 more just like it.
  1. The model will provide consistent value to your customers, employees, suppliers, and lenders, beyond what they expect. Value is what people perceive it to be.
  2. The model will be operated by people with the lowest possible level of skill. Great businesses are not built by extraordinary people but by ordinary people doing extraordinary things.
  3. The model will stand out as a place of impeccable order. Build a business that says to your customer that your people know what they’re doing, says to your people that you know what you’re doing, and says that while the world may not work, some things can.
  4. All work in the model will be documented in Operations Manuals. Documentation provides your people with the structure they need and with a written account of how to “get the job done” in the most efficient and effective way.
  5. The model will provide a uniformly predictable service to the customer. Business must do things in a predictable, uniform way. What you do in your model is not nearly as important as doing what you do the same way, each and every time.
  6. The model will utilize a uniform color, dress, and facilities code. The shape of your sign, your logo, the type style used on your business cards will have a significant impact on sales whether you care to think about it or not.

Three activities in business development process: innovation, quantification, orchestration
  1. Creativity thinks up new things. Innovation does new things. Where the business is the product, how the business interacts with the consumer is more important than what it sells. For the Innovation to be meaningful it must always take the customer’s point of view. At the same time, Innovation simplifies your business to its critical essentials. It should make things easier for you and your people in the operation of your business; otherwise it’s not Innovation but complication.
  2. To be at all effective, all Innovations need to be quantified. Quantification is about the numbers related to the impact an Innovation makes. Begin by quantifying everything related to how you do business. Because without the numbers you can’t possibly know where you are, let alone where you’re going. With the numbers, your business will take on a totally new meaning.
  3. Once you innovate a process and quantify its impact on your business, it’s time to orchestrate the whole thing. If you’re doing everything differently each time you do it, you’re creating chaos. The system must provide the vehicle to facilitate predictability to give your customer what he wants every single time. Because unless your customer gets everything he wants every single time, he’ll go someplace else to get it.

Business development program as franchise prototype
Your Business Development Program is the step-by-step process through which you convert your existing business into a perfectly organized model for thousands more just like it. It is composed of seven distinct steps:
  1. Primary Aim
    Great people have a vision of their lives that they practice emulating each and every day. They know how they got where they are, and what they need to do to get where they’re going. Before starting business, ask yourself: "What do I wish my life to look like?" Your Primary Aim is the vision necessary to bring your business to life and your life to your business. It provides you with a purpose, energy, and grist for your day-to-day mill.
  2. Strategic Objective
    It 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 will be your business. It is a list of standards: how much money you target as revenues and profits, who are your customers (demographics & psychographics), when is your Prototype going to be completed, where are you going to be in business, how are you going to be in business, etc. Note: Nobody's interested in the commodity. People buy feelings. The commodity is the thing your customer actually walks out with in his hand. The product is what your customer feels as he walks out of your business. What he feels about your business, not what he feels about the commodity.
  3. Organizational Strategy
    Company needs organization chart and position contract which is a summary of the results to be achieved by each position in the company. Organization chart should be ideal for the future rather than the way it is now. Intially business owner put his name in all the positions, create very detailed position contract for each, and later replace yourself with a system. Organization development is the process which you think through your business as best as you're able and then structure the way it is to work.
  4. Management Strategy
    The System will become your management strategy, designed into your Prototype to produce a marketing result. The more automatic that System is, the more effective your Franchise Prototype will be. Its purpose is to create an effective Prototype that finds and keeps customers profitably better than any other. The System should have Operations Manual which is a series of checklists to do everything. Each checklist itemizes the specific steps each employee must take to do his/her job.
  5. People Strategy
    You can't get your people to do anything. If you want it done, you have to create an environment in which ‘doing it’ is more important to your people than not doing it. Where ‘doing it’ well becomes a way of life for them. Make sure your people understand the idea behind the work they're being asked to do that was more important than the work itself. People Strategy is the way you communicate the idea you have about the world. If everyone cares, the pies will take care of themselves.
  6. Marketing Strategy
    When it comes to marketing, what you want is unimportant. It’s what your customer wants that matters. And what your customer wants is probably significantly different from what you think he wants. Demographics and psychographics are the two essential pillars supporting a successful marketing program. If you know who your customer is you can then determine why he buys. Ask yourself, "What must our business be in the mind of our customers in order for them to choose us over everyone else?"
  7. Systems Strategy
    The purpose of a system is to free you to do the things you want to do. There are three kinds of systems in your business: Hard Systems, Soft Systems, and Information Systems. Hard Systems are unliving things we need in business. Soft Systems are actions and ideas. Information Systems are those that provide us with information about the interaction between the other two.

Your business is nothing more than a distinct reflection of who you are.
If your thinking is sloppy, your business will be sloppy. If you are disorganized, your business will be disorganized. If you are greedy, your employees will be greedy, giving you less and less of themselves and always asking for more. If your information about what needs to be done in your business is limited, your business will reflect that limitation. So if your business is to change—as it must continuously to thrive—you must change first. If you are unwilling to change, your business will never be capable of giving you what you want.

[Update!] Examples of Operations Manual

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