The E-Myth Revisited Why Most Small Businesses Don’t Work and What to Do About It MICHAEL E. GERBER To My Father, I wish he were here. CONTENTS Acknowledgments Foreword Introduction Part I: The E-Myth and American Small Business Chapter 1. The Entrepreneurial Myth Chapter 2. The Entrepreneur the Manager, and the Technician Chapter 3. Infancy: The Technician’s Phase Chapter 4. Adolescence: Getting Some Help Chapter 5. Beyond the Comfort Zone Chapter 6. Maturity and the Entrepreneurial Perspective Part II: The Turn-Key Revolution: A New View of Business Chapter 7. The Turn-Key Revolution Chapter 8. The Franchise Prototype Chapter 9. Working On Your Business, Not In It Part III: Building a Small Business That Works! Chapter 10. The Business Development Process Chapter 11. Your Business Development Program Chapter 12. Your Primary Aim Chapter 13. Your Strategic Objective Chapter 14. Your Organizational Strategy Chapter 15. Your Management Strategy Chapter 16. Your People Strategy Chapter 17. Your Marketing Strategy Chapter 18. Your Systems Strategy Chapter 19. A Letter to Sarah Epilogue: Bringing the Dream Back to American Small Business Afterword: Taking the First Step About the Author Other Books by Michael E. Gerber Copyright About the Publisher ACKNOWLEDGMENTS I would like to express my deepest gratitude to the many people with whom I’ve worked to produce the ideas that are presented in this book, as well as for the support needed to complete it. To Ilene Gerber, my wife, partner, and editor, without whose intensity of purpose, dedication to the truth, and love for the work, both in our business and in the rest of the life we share together, neither this book, our business, nor our marriage would have been possible. To Shana, Kim, Hillary, Sam, and Alex Olivia, my children, who have given to me more than they have received, in ways only a father can truly know. To all my associates at E-Myth Worldwide, present and past, whose commitment to the ideas in this book, as well as to each other and our clients, have given meaning to the words by living them, even when it was impossible and when there seemed to be no good reason for doing so. To all our thousands of clients over the years who have put their trust in our integrity, and, in the process, caught us at least as much as we taught them about what it means to transcend scarcity with excellence. To Nancy and Bob Dreyfus, my sister-in-law and brother-in-law, whose wisdom, love, and generous spirits have touched me more than they can possibly know. To Virginia Smith at HarperBusiness, whose caring, intelligent friendship has seen me through the most dismal moments of writing with a gentle, open, and willing nature that enabled me to be myself in the moments I least wanted to be, without apology or explanation. And, finally, to all my readers who continue to support my work so enthusiastically. Thank you all. FOREWORD I t has been fifteen years since The E-Myth was first published. In my case, fifteen full years. A lot has happened in the interim—with my family, my business, my life. Many wonderful things, many good things, many painful things. And, if it’s true what Don Juan said in Tales of Power, that “The basic difference between an ordinary man and a warrior is that a warrior takes everything as a challenge while an ordinary man takes everything either as a blessing or a curse,” then I am as guilty of being an ordinary man as the next guy, and, on occasion, have ascended to the warrior state when God saw fit to provide me with the power. In these fifteen years, I have experienced near financial and business disaster as well as incredible victories; have built a 16-year marriage into an exquisite partnership with my wife, Ilene; have become the father of two extraordinary children, Sam and Alex Olivia (the total is now five, ages nine years to thirty-eight years); have entered the anointed state of grandfatherhood thanks to my daughter Kim and my son-in-law John, who have blessed us with Sarah, Elijah, Noah, Hannah, and Isaiah; have traveled throughout the world speaking to hundreds of thousands of small business owners in Australia, Canada, Spain, New Zealand, Japan, Puerto Rico, Mexico, Indonesia, and, of course, in almost every major city in the United States. And, through it all, I have been the grateful recipient of unrestrained support and caring from many of those whose lives I have in some way managed to touch and whose paths I have crossed. In short, the years have been exhilarating, challenging, frustrating, exhausting, debilitating, boring, enlightening, rewarding, and, after all is said and done, a handful for anyone, especially for a guy my age with a penchant for going to the wall without concern for the damage I do to the leading parts of my body. This book, then, is a product of the last fifteen years, as well as a product of the fifteen years that preceded them. It was almost exactly eight years before The E-Myth was published that I founded our company, E-Myth Worldwide, which has provided the fuel and experience for the point of view I have shared with those of you who have read The E-Myth, and with those of you who are about to read this book. In the years since The E-Myth was published, many of my readers—as well as many of our small business clients—have asked me to clarify specific aspects of The E- Myth point of view so they could better apply it to their businesses. This book answers many questions that The E-Myth has raised over the years, offering both new and previous readers the opportunity to approach their businesses with renewed vigor and a sharpened mindset through an expanded experience of The E-Myth principles. Toward that end, I have attempted to answer the most important questions I have been asked about the principles covered in each chapter by means of a running dialogue with a wonderful woman named Sarah (not her real name) with whom I’ve spent quite a bit of time over the past year. Sarah’s experience in business, her patience, intelligence, and passion have helped me to address the challenging issues of our small business clients in the reorganization of their minds as well as their businesses. It is in response to Sarah’s frustrations, and her very personal inquiry, that I have endeavored to clarify for the reader the E-Myth Point of View. I hope that Sarah and her questions are as engaging to you as they have been to me. But, before I introduce you to Sarah, I’d like to share with you some thoughts about small businesses and the people who own them. The question has often been asked of me, “What do the owners of extraordinary businesses know that the rest don’t?” Contrary to popular belief, my experience has shown me that the people who are exceptionally good in business aren’t so because of what they know but because of their insatiable need to know more. The problem with most failing businesses I’ve encountered is not that their owners don’t know enough about finance, marketing, management, and operations—they don’t, but those things are easy enough to learn—but that they spend their time and energy defending what they think they know. The greatest businesspeople I’ve met are determined to get it right no matter what the cost. And by getting it right, I’m not just talking about the business. I mean that there is something uplifting, some vision, some higher end in sight that “getting it right” would serve. An ethical certainty, a moral principle, a universal truth. Which is not to say that those I’m inclined to think of as extraordinary would necessarily communicate it that way. Many can’t. Even if they had the inclination, they simply don’t have the words for it. But it’s still there all the same. You can see it in their eyes, feel it radiating from their bodies, hear it in the timbre of their voices. On the other hand, notwithstanding the search for “something higher,” the best of the best I have known are extraordinarily grounded people; they are compulsive about detail, pragmatic, down-to-earth, in touch with the seamy reality of ordinary life. They know that a business doesn’t miss the mark by failing to achieve greatness in some lofty, principled way, but in the stuff that goes on in every nook and cranny of the business—on the telephone, between the customer and a salesperson, on the shipping dock, at the cash register. And so the great ones I have known seem to possess an intuitive understanding that the only way to reach something higher is to focus their attention on the multitude of seemingly insignificant, unimportant, and boring things that make up every business. (And that make up every life, for that matter!) Those mundane and tedious little things that, when done exactly right, with the right kind of attention and intention, form in their aggregate a distinctive essence, an evanescent quality that distinguishes every great business you’ve ever done business with from its more mediocre counterparts whose owners are satisfied to simply get through the day. Yes, the simple truth about the greatest businesspeople I have known is that they have a genuine fascination for the truly astonishing impact little things done exactly right can have on the world. It is to that fascination that this book is dedicated. This book is a guide for those who see the development of an extraordinary business as a never-ending inquiry, an ongoing investigation, an active engagement with a world of forces, within us and without, that continually amaze and confound the true seekers among us with awesome variety, unending surprises, and untold complexity. While it may seem obvious, this fascination with the development of an extraordinary business is not the same as a fascination with success. Certainly not the success we normally think of. Some end point which, having reached it, enables one to say, “1 did it!” Because my experience has taught me only too well that end points in the development of an extraordinary business are instantly replaced by beginning points. So, this book is not about endings, but about beginnings, about the never-ending game, the delightful and exhilarating process, the continuous evolution of our senses, of our consciousness—of our humanness—which only comes from being present in the moment, from being attentive to what’s going on. I believe that our business can provide us with a mirror to see ourselves as we are, to see what we truly know and what we don’t know, to see ourselves honestly, directly, and immediately. I believe that our business can become an exciting metaphor for “The Way.” A wise person once said, “Know thyself.” To that honorable dictum I can only add for the businessperson on the path of discovery, good traveling and good luck. I might also add a few instructive words from another wise man, Anthony Greenbank, who said in The Book of Survival, “To live through an impossible situation, you don’t need the reflexes of a Grand Prix driver, the muscles of a Hercules, the mind of an Einstein. You simply need to know what to do.” Good reading. Michael E. Gerber Santa Rosa, California June, 2001 INTRODUCTION I think that maybe inside any business, there is someone slowly going crazy. Joseph Heller Something Happened I f you own a small business, or if you want to own a small business, this book was written for you. It represents many thousands of hours of work we have done at E-Myth Worldwide over the past twenty-four years. It illustrates a belief, created and supported by the experiences we have had with the thousands of small business owners with whom we’ve worked. It is a belief that says small businesses in the United States simply do not work; the people who own them do. And what we have also discovered is that the people who own small businesses in this country work fax more than they should for the return they’re getting. Indeed, the problem is not that the owners of small businesses in this country don’t work; the problem is that they’re doing the wrong work. As a result, most of their businesses end up in chaos—unmanageable, unpredictable, and unrewarding. Just look at the numbers. Businesses start and fail in the United States at an increasingly staggering rate. Every year, over a million people in this country start a business of some sort. Statistics tell us that by the end of the first year at least 40 percent of them will be out of business.1 Within five years, more than 80 percent of them—800,000—will have failed. And the rest of the bad news is, if you own a small business that has managed to survive for five years or more, don’t breathe a sigh of relief. Because more than 80 percent of the small businesses that survive the first five years fail in the second five. Why is this? Why do so many people go into business, only to fail? What lesson aren’t they learning? Why is it that with all the information available today on how to be successful in small business, so few people really are? This book answers those questions. It’s about four profound ideas, which, if you understand and take them to heart, will give you the power to create an extraordinarily exciting, and personally rewarding, small business. Ignore them, and you will likely join the hundreds of thousands of people every year who pour their energy and capital—and life—into starting a small business and fail, or the many others who struggle along for years simply trying to survive. IDEA #1 There is a myth in this country—I call it the E-Myth—which says that small businesses are started by entrepreneurs risking capital to make a profit. This is simply not so. The real reasons people start businesses have little to do with entrepreneurship. In fact, this belief in the Entrepreneurial Myth is the most important factor in the devastating rate of small business failure today. Understanding the E-Myth, and applying that understanding to the creation and development of a small business, can be the secret to any business’s success. IDEA #2 There’s a revolution going on today in American small business. I call it the Turn-Key Revolution. Not only is it changing the way we do business in this country and throughout the world but it is changing who goes into business, how they do it, and the likelihood of their survival. IDEA #3 At the heart of the Turn-Key Revolution is a dynamic process we at E- Myth Worldwide call the Business Development Process. When it is systematized and applied purposely by a small business owner, the Business Development Process has the power to transform any small business into an incredibly effective organization. Our experience has shown us that when a small business incorporates this process into its every activity and uses it to control its destiny, that company stays young and thrives. When a small business ignores this process—as most unfortunately do—it commits itself to Management by Luck, stagnation, and, ultimately, failure. The consequences are inevitable. IDEA #4 The Business Development Process can be systematically applied by any small business owner in a step-by-step method that incorporates the lessons of the Turn- Key Devolution into the operation of that business. This process then becomes a predictable way to produce results and vitality in any small business whose owner is willing to give it the time and attention it requires to flourish. Since the founding of E-Myth Worldwide in 1977, we have assisted over 25,000 small business owners with the implementation of our Business Development Process through their enrollment in our unique E-Myth Mastery ProgramTM, and I have seen it succeed thousands of times. I would venture to guess that no organization has had more direct experience applying the lessons of the Turn-Key Revolution and the Business Development Process to the development of a small business than we have had at E-Myth Worldwide. And, while the process is no “magic bullet” and does require hard work, it is always gratifying work and the only work I know that will give you the level of control you need to get what you want from your small business. Indeed, it will change your business and it will change your life. This book, then, is about producing results—not simply “how to do it.” Because both of us know that books like that don’t work. People do. And what makes people work is an idea worth working for, along with a clear understanding of what needs to be done. 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. 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 are disorganized, your business will be disorganized.