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Book Summary: The E-Myth Revisited

The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do

Part I

The first part sets up two three-sided frameworks with which to discuss the founder and the stages of the business. The first framework, which is used to discuss the founder, is comprised of

  • The Technician
  • The Manager
  • The Entrepreneur

These are the three identities you need to have if you are to run a successful business.

I think the book rightly focuses on the Technician and why founders who are technician-oriented don't build successful businesses. This is certainly the roadblock that I've run into when thinking about and working on my would-be businesses. I'm a technician at heart. I like to do the work. I think about a software company as a place where I can write software. The book argues that I should be thinking about a software company as a place that delivers software to a very specific set of customers who get value from the software.

if you watch long enough, you’ll begin to understand how devastating the tyranny of your strongest personality is to your life

The Manager persona is discussed less, I assume it will be picked up more later. (It actually doesn't.)

The Entrepreneur side of the persona is discussed as a foil for The Technician, and makes up the other major topic of the founder's personality in Part I. The Entrepreneur is the one with a vision. The Entrepreneur thinks at a high level and views the business as a product made up of parts that work together to deliver something of value to the customer.

The other framework introduced in this part is used to describe stages of companies, which are

  • Infancy
  • Adolescence
  • Maturity

Infancy is when it's just you running the business. You do all the work, from making the product to getting customers to handling customer support to closing the books to locking the door at night. There is no business without you. At this point, "you do not own a business -- you own a job." And this is not what you want. You want to be able to leave for a week and have the business still make sales and attract new customers and expand the team.

So eventually you grow to the next stage, which is Adolescence. You make your first hire and begin handing off work to this person. At first things are great, because you have more time on your hands. You are able to relax.

But then things start to fall through the cracks. Orders are dropped, customer service quality dips, your earliest employees start leaving. It's because you were Managing by Abdication, not Managing by Delegation. Basically you stopped taking responsibility for important parts of your business, and that state of affairs can't last very long.

At this point, the book says, a business can either go back to being small, or it can step up and move on to the next phase of a company, which is Maturity. Or it can hang out in this Adolescent state and flail around for a while but eventually those are the only two equilibria.

"Start all over again—but differently this time," I answered.
"It’s the only way out of the trap."
The Entrepreneurial Perspective asks the question: "How must the business work?"" The Technician’s Perspective asks: "What work has to be done?"

Part II

The second part of the book is all about The Franchise. Or, another term it uses: The Turn-Key Revolution. Basically the idea that the right way to think of a business is as a system. A system that is well-documented, can be operated by anyone by following the documentation, is predictable to customers, and is reproducible without you.

The main example given is McDonald's, which apparently pioneered this model of [[Business Format Franchise]]. The previous franchise model had been the "trade name" franchise. Where as a franchise owner you licensed the right to market products under a certain brand. But the business operating model was up to you.

The Business Format Franchise not only lends its name to the smaller enterprise but it also provides the franchisee with an entire system of doing business.

The Business Format Franchise model, on the other hand, completely prescribes day-to-day operating procedure down to the smallest detail. There is no room for speculation, or even independent decision by the operators. Everything has been thought out in order to maximize efficiency and ensure a consistent quality of the end product being sold to consumers.

This part starts in heavy on the systems-oriented jargon and focus. Phrases like "Learn to work on your business, not in it." This part of the book argues that to be successful, you need to separate your identity from that of the business. The business is not your life.

Part III

The final section of the book goes over the steps and components of building a business using this philosophy. It is broken down into 7 pieces:

  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 asks you to envision what you want out of life. Looking back from the end of your life, what would have made you happy? Achieving that is your primary aim, and the business is meant to serve that.

The Strategic Objective is the specific goals the business must obtain in order for it to contribute meaningfully to your primary aim. This is worth thinking about up front, before you start the business and before you decide what business to start because, if the business cannot help you get what you want out of life, it's probably not the right thing to be working on!

Your Organization Strategy is essentially your org chart. It is the breakdown of what jobs need to be done for the business to succeed, along with who is going to do those jobs. It's important to get these things settled right away, the book emphasizes, because many businesses fall apart when questions of ownership and responsibility come up too late.

This chapter lays out a framework for bootstrapping the business that kind of blew my mind. When you (and your co-founder(s)) are starting the business, you lay out the org chart from the top down. You start with positions like President and COO, and progress to Sales Manager and Salesperson. But when you actually start working on the business, you go the other way.

Everyone starts in the lowest possible job on the org chart, and develops a systematized, reproducible process for doing that job well. Then they find (hire) someone else to do that job, and they move up the chain and restart the process. The book refers to this as "Prototyping the Position".

Your Management Strategy is the set of rules that govern day-to-day operations of your business. It's a set of checklists and rules that, when followed, deliver an amazing result for the customer.

It's a set of rules that anyone who believes in the idea of your company should be able to learn and follow. It is not meant to be used by "professional managers" who have learned management elsewhere and intend to bring their styles or the styles of other companies to your company.

Your People Strategy is what gets people motivated to work at your company and to do their jobs well.

you’re going to 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.

There is a story in the book about why one hotel manager takes his job seriously and holds himself to a high standard. It has to do with how seriously his boss takes the job, and the standards that the boss holds himself to.

"And that was the second thing that surprised me when I came to work here,” the Manager continued. “How seriously the Boss took the operation of this hotel.

"I mean, it wasn’t just that he took it seriously—everyone I’ve ever worked for was serious about his business—it was the kind of seriousness he had.

"It was as though the hotel was more than just a hotel to him.

"It was like the hotel was an expression of who he was, a symbol of what he believed in.

"So if I hadn’t taken the hotel seriously, it would have looked like I wasn’t taking him seriously, as a man whose values I respected."

Your people strategy is essentially the game that you create for people to play at your company. "[Your people] do not simply want to work for exciting people," the book says, "They want to work for people who have created a clearly defined structure for acting in the world. A structure through which they can test themselves and be tested. Such a structure is called a game."

Your Marketing Strategy must focus on the customer to the exclusion of all else. "When it comes to marketing, what you want is unimortant." And yet the customer is irrational. All people are! Your customer does not make decisions using logical criteria. Your customer makes decisions based on emotions that they feel in the first few seconds of interacting with your brand. And the decisions they make are based on their entire life experience up until that moment.

And so you must strive to know your customer better than they know themselves. Your marketing strategy must revolve around the two concepts of demographics and psychographics.

Demographics is who your customer is. Where they live, how old they are, their hobbies, their income level, their gender. Psychographics is why your customer buys. Because of status symbols, because it's emotionally comforting, because it makes them feel smart, because it helps them save time.

Psychographics are identifiable by demographics, and so your marketing strategy must begin with demographics. Find out who your customer is, and you will be able to find out why they buy.

Your Systems Strategy is essentially that everything in your business needs to be run by a system. Your business is a system of systems. It's systems all the way down. Only the full integration of everything into a system will be able to realize the potential of your business and truly set you free.

It's a powerful idea. Maximum integration has a good track record in technology and business.

The book says there are three types of system:

  1. Soft Systems
  2. Hard Systems
  3. Information Systems

Soft systems are either animate or ideas. Checklists are soft systems. Scripted sales processes are soft systems.

Hard systems are inanimate. Privacy screens on laptops are hard systems, security badges are hard systems, and so are small trash bins under everybody's desk.

Information systems are those that provide you information about the interaction between hard and soft systems. Everything that tracks metrics is an informations system. An information system is there to tell you when and why you need to change.

I believe it’s true that the difference between great people and everyone else is that great people create their lives actively, while everyone else is created by their lives, passively waiting to see where life takes them next.