Episode 12: "The E Myth Revisited" by Michael E. Gerber, Why Most Small Businesses Don't Work and What to Do About It

Why do so many small businesses end up owning the owner rather than the other way around?

In this episode, I review The E-Myth Revisited by Michael E. Gerber, one of the most influential business books ever written. We explore Gerber's central idea that being good at your trade does not automatically make you good at running a business, and why so many business owners become trapped working in their business rather than on it.

We discuss the Entrepreneur, the Manager and the Technician, the importance of systems over people, building a business that can function without you, defining clear roles and responsibilities, creating a compelling vision for your life, and understanding what really drives customer decisions.

Whether you're a business owner, manager, entrepreneur, or simply interested in how successful businesses are built, this episode contains practical insights that can help you create a business that serves your life rather than consumes it.

Join me as we unpack the key lessons, strengths, and limitations of this classic business book.

Transcript

SPEAKER_00 0:00

Hi, my name is Yossi Goldberg. Welcome to the Business Book Club Podcast. I'm a business coach working with business owners to help them gain clarity, solve problems, and move the businesses forward. In this podcast, I take some of the most influential business and personal development books and explore the key ideas that can actually make a difference in real life and in real businesses. In each episode, we unpack the practical insights from each book and discuss how they apply to leadership, personal and business growth, and building better businesses. Enjoy. Welcome to episode 12 of the Business Book Club podcast. It really helps me if you subscribe, comment, and share the podcast with others, so I'd appreciate it. Now let's get to the episode. Today we're looking at the book The E Myth Revisited by Michael E. Gerber, who's often described as the world's number one small business guru. I have to say, there's a lot of good material in the book. Personally, though, I found it to be far worthier than it needed to be, and I didn't always connect with the way Gerber chose to communicate his ideas. But despite that, there is more than enough substance here to make it a worthwhile read, particularly if some of these concepts are new to you. Right at the beginning, in the foreword, he writes, Contrary to popular belief, my experience has shown me that people who are exceptionally good in business aren't so because of what they know, but because of the insatiable need to know more. I think that's a very powerful observation. What he seems to be saying is that success in business doesn't come from reaching a point where you've learned enough and can simply rely on what you already know. Rather, successful business owners always remain curious. They continuously learn, they continuously adapt, they keep refining what they already do, and they keep on challenging their assumptions. The people who build great businesses are often not the ones who started with the most knowledge. They're the ones who never stop looking for ways to improve. Before getting into the practical aspects of running a business, the author makes an important point about the difference between information and transformation. He argues that simply knowing what to do isn't enough. You know, we all know the business books that are full of advice and strategies and techniques of how to do. But none of them have any value unless they become part of the way that we actually think and operate. As he writes, it is only when such an idea becomes firmly integrated into the way you think and operate your business that how to do it becomes meaningful. In other words, the problem isn't a lack of information. A lot of business owners already know things that they should be doing or could be doing better. The challenge is turning these ideas into habits, into systems, and into new ways of operating. And he goes on to tell us what I consider to be one of the most insightful observations in the entire book. He writes, This book is about such an idea. An idea that says 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're disorganized, your business will be disorganized. If you're greedy, your employees will be greedy, giving you less and less of themselves and always asking for more. You know, I really connect to this idea because I think sometimes there's a tendency to look at business as a numbers game. It's all about sales, profit margins, marketing, cash flow, and of course these things matter. But my coaching, and from what I've learned, effective business development is to realize behind every business is a person, and the character, habits, strengths, weaknesses, and mindset of that person inevitably shapes the business that they're going about creating. So, in many ways, improving a business is often about improving the person running it. The central thesis of the book revolves around what he calls the e-myth, which is the entrepreneurial myth. The myth, he says, is the belief that because someone is good at doing the technical work of a business, they will naturally be good at running a business. You know, a baker opens a bakery because they're a great baker, a plumber starts a plumbing company because they're a great plumber, a teacher starts tutoring business because they're a great teacher. But the skills required to do the work and the skills required to build and run a business are different. So he introduces us to three personalities that exist within every business owner, particularly a small business owner. And they are the entrepreneur who dreams, creates, innovates, and imagines the future, the manager who seeks order, structure, systems, and predictability, and the technician who actually does the work. According to the author, the typical business owner is made up roughly 10% entrepreneur, 20% manager, and 70% technician. And that's where the problem lies. Because the technician is usually the loudest voice. The technician wants to get today's work done, right? Answer the email, serve the customers, fix the problems, put out the fires. And the business owner, therefore, if he's mostly a technician, is going to become trapped working in the business rather than on the business. So those glory days where he had a vision that drove him to business, that inspired him to start, has now started to fade. The initial excitement that he had when he went about creating his business is pretty much replaced by operational pressure. The freedom that was so attractive is now pretty much replaced by the awesome burden of responsibility. So, in short, the business that was supposed to improve your life slowly begins to consume it. That's his diagnosis, in short, of a lot of businesses. So he introduces us to what he calls the turnkey revolution, and this is probably one of the most important concepts in terms of how you look at business, which he writes. It begins by telling us the story of Ray Croc. He was the milkshake machine salesman who visited a small hamburger stand owned by the McDonald's brothers. This is in the days McDonald was one shop run by two brothers, two McDonald's brothers. And in that visit, on that day, when Ray went into the shop, he went in to try and sell them his machine. But when he observed the business, what struck Kroc was the system. Everything worked with remarkable consistency. There were ordinary young employees who were able to produce the same product in the same way, time after time. The operation of producing these hamburgers ran smoothly, efficiently, and predictably. In that moment, he realized that what the McDonald's brothers had was not just a very successful restaurant, but they had created a machine. It was a great system which was able to carbon copy hamburgers, essentially. The author of the book argues that the true genius of McDonald's was not that it franchised its business, the genius was that it built a business that was capable of being franchised. And Ray Kroc went on to convince them to allow him to open a franchise, and after 12 years and many millions of dollars later, actually bought over, bought them out, and today McDonald's as we know it is a huge, huge success. But this concept of franchise essentially leads us to his principle, which is build your business as though it was going to be franchised, even if you never intend to franchise it. In other words, create a systems-dependent business rather than a person-dependent business. Now, in order to get this right, he first begins with an interesting step one, and that is a business owner needs to realize that they cannot afford to spend all of their time working in the business, they have to spend more time working on the business. And he puts it this way your business is not your life, the purpose of your life is not to serve your business, but the purpose of your business is to serve your life. I think that's a really important distinction. Because business owners will start a business in search of freedom, and then they find themselves trapped by the very thing they created. So Gerber says, look, you want to create your business in the right way, you want to be able to work on your business, you need to think about your business as it would be a prototype for another 5,000 businesses just like it. So whatever you're building today should be capable of being duplicated thousands of times over. That's what the process looks like making a business into something that can be franchised. He sets out a number of rules that you have to commit to in order for this to be a success. The business has to consistently provide more value than customers, employees, suppliers, and lenders expect. In other words, you should be always over-delivering. Rule number two, it has to be able to be operated by people with the lowest possible level of skill. So what that does is it lowers the entry point for potential employees and allows your business to operate at lower cost. It should stand out as a place of impeccable order. Everything has to be organized, has a place, there's a system for it. Every important process should be documented in operation manuals. So not only is it just internal knowledge that people who work there for a long time pick up, there's our system and it's expressed and it's clear and everybody knows it. Customers should receive a predictable and consistent experience every time. So it shouldn't depend who's serving them or what mood they're in, but because everything is system-based, the customers will have the same positive experience every time. And finally, the business should maintain a consistent appearance, presentation, and identity. This goes to the colouring and the branding and the clothing that are worn within the business. It should all look the same. The more repeatable your business becomes, the less dependent it becomes on any one individual, including you. Okay, so look, everything he says, he breaks down into different concepts. He has his own wording to describe different elements of the framework. And look, there's going to be parts of his framework and terminology that don't particularly resonate with me, but there's one chapter which I think is exceptionally important, is chapter 12, and it's entitled Your Primary Aim. He challenges you, the business owner, to start from first principles not by asking yourself what type of business you want to build, what the product is, what the service is, but rather ask yourself in terms of your life, to ask yourself the bigger question. What kind of life do you actually want? What do you want your life to look like? What do you want it to feel like? Who do you want to become? He suggests imagining what people might say about you at your funeral. Right? To some people that might be a little bit a morbid idea. But it's about really trying to understand what type of life you want to live, what values you want to live by, what kind of person you want to be remembered by, because this will form your primary aim in life, your vision for your life. And this really fits in nicely to what we've been saying until now. You know, if a business depends on the business owner who's driving it from behind, if the business is there to serve your life, then you need to know what kind of life you want to live, what kind of life you're looking to create, in order to see how the business will serve it. You can build a larger business, you can make more money, you can hire more staff, you can work harder than ever. But if it's not helping you move towards the life you actually want, then you've missed the point entirely. So before asking what business you want to build, ask yourself what life do you want to build. And once that becomes clear, then the business can be the vehicle to help you achieve that. Okay. So having established the importance of the primary aim and having this clear vision as the background to your business, Gerber now turns to his favorite topic, which is organization. He quotes Theodore Levitt, who says, All organizations are hierarchical. At each level, people serve under those above them. An organization is therefore a structured institution. If it is not structured, it's a mob. Mobs do not get things done, they destroy things. You know, as we've already mentioned, many businesses organize themselves around personalities and people rather than systems and functions. So responsibilities become blurred, accountability becomes unclear, tasks get duplicated, and important jobs fall between the cracks or get overlooked. So the solution is: look, you've got to organize the business around particular functions and responsibilities rather than personalities. So, first of all, define the roles that are required, define the responsibilities attached to each role, define the standards by which success in that role will be measured. And once you've got that clear, then you should think about who is best suited to fill the role. Even when you're a tiny team, even when you're just a few founders together, or you're one person, but be clear about the roles that you're looking to fill. And that way, every responsibility will belong to a role. And whoever fills that role will take that responsibility. Every task should have an owner. No one should be left guessing. Within this context, he also makes a great observation, which I think is particularly valuable. If you want your employees to be organized and responsible, then you've got to be organized and responsible yourself. Because the business owner sets the tone. And as we've already mentioned, the business tends to become a reflection of the person who leads it. In chapter 16, Gerber turns his attention to people. He begins by saying that one of the most common questions he hears from small business owners is how do I get my people to do what I want? His answer is refreshingly honest. He says, You can't. I have to say, I agree with him. You can force people to do things, you can threaten them, you can pressure them, but that's not the same thing as creating genuine commitment, bringing people alongside so that they actually fulfill your requirements. End of the day, people will do what they want to do. So if you can't make people do what you want, then what's the alternative? And he says it's all about creating the environment in which doing it is more important to your people than not doing it. That means creating a business which has a purpose, and a business which has standards, and that the business becomes an expression of your values, the way you treat people, the standards you uphold, the seriousness with which you approach your work, all of these things create an atmosphere that filters down through the organization. It begins and ends with you. So, yes, perhaps overtly you can't just go ahead and get people to do what you want them to do so easily. But if you create an atmosphere where everyone takes everything so seriously because they're mirroring the seriousness which you take the business, they will likely want to do the right thing. In chapter 17, he turns to marketing, and in line with his philosophy, he says everything starts and ends with the customer. You know, we've said this type of thing in previous podcasts from other books, but Gerber has his own way of articulating this, which is that customers believe they are making decisions consciously and rationally, but in reality, they are heavily influenced by their perceptions, attitudes, associations, beliefs, and past experiences. In other words, people make decisions emotionally, subconsciously, and only afterwards they will make justify them rationally. There's great statistics, which he quotes, which shows that the sale is made within the first few seconds of an ad being shown on television, let's say, or first few minutes of a sales call. Before you've even got anywhere near the end of it, the person likely subconsciously has already made up his mind is he going for this or not. So if that's the case, then you need to understand who your customers are and why they are buying from you. So who they are is a case of demographics, and why they're buying from you, he calls it psychographics. So that means understanding what are your what's making your customers tick, what they're worried about, what they're hoping for, what frustrations have they got, what outcome do they want. You know, he says it's famous the phrase, find a need and fill it. But he says, no, find a perceived need and fill it, because perception is everything. Customers won't necessarily respond to the reality as you see it, they respond to the reality as they perceive it, and therefore, understanding your customer means understanding how they perceive your product, your service, your business, and your brand. So, in conclusion, I think this is a good book, and it has a number of very valuable ideas. If you're the type of person who likes very detailed frameworks and terminology and systems and sort of step-by-step structures where every phase has another name, then I suspect you'll enjoy this book a lot more. For me, the value isn't in the terminology or the detailed prescriptions, but it's the principles that sit underneath that all, and the idea that businesses often fail because good technicians are trying to become business owners without learning the art of building a business, which is what we began with. The idea that your business should work for you rather than you working NSD for your business, the importance of systems, of documentation, of clear roles, of understanding customers, of building something that can function consistently without your constant involvement. All of these are really valuable principles, and perhaps most importantly, the idea that before you build a business, you need to be clear about the life you're trying to build. All of these lessons are really powerful. So I think there's every business owner can take something useful away from this book. Thank you for listening. If you found this podcast valuable, please subscribe, share it with somebody else who might benefit, and let me know what books you'd like me to review in future episodes. Keep going.