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

The E-Myth Revisited

Why Most Small Businesses Don't Work and What to Do About It

by Michael E. Gerber

I didn't read all the way through The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It by Michael E. Gerber. I stopped reading at about page 100.

"E-myth" stands for "entrepreneurial myth." It has nothing to do with e-commerce or online businesses. Gerber makes the accurate point that just because a person understands the technical work behind a business doesn't imply that the person understands that kind of business. People who understand the technical work don't necessarily understand how to operate the business. They are technicians, not entrepreneurs.

Gerber contends that most small business owners run into difficulty because they think and work like technicians. They try to do the work of the business, rather than learning how to run the business. Gerber writes, "If your business depends on you, you don't own a business-you have a job." "What if you don't want to be there?" The work grinds small business owners down, and they become disillusioned with their businesses.

This is probably true for many, new small business people. Many people aren't cut out to operate a business. Running a business is hard work. But, rather than acknowledge that reality, the goal, according to Gerber, is to create a business which doesn't need you, to create a "systems dependent business" and not a "people dependent business."

Gerber uses McDonald's as his prototypical model of operation. Gerber says McDonald's is an example of a turn-key business. You just put the key in the lock and the business works. A prototype franchise that can be easily replicated is Gerber's holy grail of business.

Gerber writes: "Given the failure rate of most small businesses, he [Ray Kroc, the founder of McDonald's] must have realized a crucial fact: for McDonald's to be a predictable success, the business would have to work, because the franchisee, if left to his own devices, most assuredly wouldn't!...Once he understood this, Ray Kroc's problem became his opportunity... Forced to create a business that worked in order to sell it, he also created a business that would work once it was sold, no matter who bought it... a foolproof, predictable business.... A systems-dependent business, not a people-dependent business."

I disagree with this analysis. Difficulty of management is a fundamental problem with any delocalized business, one with many locations spread throughout a large area. A dedicated manager is needed on each site. One manager can't oversee all the business locations. The franchise concept is one way to place devoted managers at each location. Each franchisee is not only carefully selected (in a good franchise) and carefully trained, but each franchisee has paid money to own the franchise. So, each manager becomes an owner. And, owners care more about the success of their business than anyone else. They are willing to work harder than anyone else to see the business succeed, as Gerber acknowledges. Their own money is at stake.

Ask owners of successful franchises if they sit around not working. If an employee doesn't show up, who fills in? In fact, many franchise owners will tell you that buying a franchise is very much like buying a job! The fundamental premise that a McDonald's franchise can function with just anyone not working at the helm, while the operation just sort of self-manages, is incorrect.

Buying into the best-established franchises is expensive (I heard that a McDonald's franchise costs about $500,000). I have a pet theory that if instead of investing in a franchise, you invest the equivalent money in quality stocks and, then, you took a reasonably high-paying job, the overall financial return would be comparable to buying the franchise and operating it.

It's true the best franchises don't tend to fail, but they don't generate huge returns for the franchisee either. I'm not criticizing the franchise concept. My goal is just to show that few businesses are purely "systems dependent."

As long as we have diverted into the topic of franchises, we should also note that many franchises are outright rip-offs. Perform detailed due diligence before purchasing a franchise.

Gerber isn't suggesting you become a franchisee. He's suggesting you try to create a template business operation that works of its own accord so that it can be replicated in a cookie cutter approach. Easier said than done!

Where do you get the basis for this template, or as Gerber calls it, "Franchise prototype" ? Gerber says the "franchise prototype" is part of your entrepreneurial vision. You dream about what your business will look like in the future. In practice, most successful franchises are based upon many years of operating history and industry experience. And, many knowledgeable business owners, who fully understand the franchise concept, have failed dismally when trying to franchise operations.

Gerber writes about "Business Format Franchises" or an entire system of doing business. A business format franchise is "...a proprietary way of doing business that successfully and preferentially differentiates every extraordinary business from every one of its competitors."

This is to contrast it from a trade franchise where you are buying the strength behind a trade name. Of course, McDonald's and other established franchises have spent billions of dollars to create brand awareness for the franchise. So, they are properly both business format franchises and also brand-name franchises. This awareness is crucial, because your new format franchise won't have brand awareness. You will need to build it. Building brand awareness is marketing, and no marketing plan is ever assured to work. There won't be a cookie cutter marketing plan to toss in with the cookie-cutter operation.

When Gerber starts describing his ideal business-franchise model, he suggests: "The model will be operated by people with the lowest possible level of skill." Gerber claims that a great system can extract great work from less than great employees. He uses attorneys as his example. At this point in the book, I just couldn't continue reading The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It.

The E-Myth Revisited is also a bit dated. Gerber writes, "A soggy French fry is not a McDonald's French fry." That has not been my recent experience. So much for flawless systems.

I did catch a glimpse of the last pages where Gerber offers a free "Turn-Key AnalysisTM" of your business. He writes, "Conducted over the phone in no more than an hour, our Turn-Key AnalysisTM will determine exactly what needs to be done in your business to give you everything you want from it: what essential building blocks are missing and need to be added; what processes and systems are absent or, if present, are inadequate to achieve the results you want to produce."

That's a pretty impressive offer! In under an hour, over the phone, he'll tell me exactly what's wrong with my business! I think I'll pass on that. But, do consider contacting SCORE (Service Corps of Retired Executives), your local small business development center, or business graduate school. Each of these might be able to provide small business counseling. Be sure to specify that you want a complete turn-key operation with no work and no management. Showing up for business optional.

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

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