The E-Myth by Michael Gerber


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A special report about the E-Myth of Michael Gerber.

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  • Source:Gerber, M. (2007). The e-myth revisited: Why most small businesses don’t work and what to do about it. HarperCollins e-books
  • I divided my report into 5 parts and these are what I am going to discuss.
  • Michael Gerber is considered a legend of entrepreneurship. He was declared by a magazine as the “World’s #1 Small Business Guru” and for over 40 years he has been helping small business owners who have technical skills but no idea about how to run a business. He introduced the term E-Myth and has about 14 books all with the word “E-Myth” in the title.
  • So what exactly is e-myth? According to Gerber, E-Myth or Entrepreneurial Myth is the belief that “small businesses are started by entrepreneurs risking capital to make profit”. Like all myths, it is not true but sad to say, many people believe it and that is the reason why many small businesses fail according to him. People who believe in the e-myth make the Fatal Assumption which states that “if you understand the technical work of a business, you understand a business that does that technical work.” To explain in more concrete terms, let me tell you a story entitled “The Sad E-Story”.
  • Imagine this is you, The Employee. You are good at your job and you know it but one day you suddenly felt that you are not growing, not being appreciated by your boss and he even had the gall to correct you one time. You felt so unsatisfied with him that you were suddenly struck with an Entrepreneurial Seizure. You thought “Why am I working for this guy? I’m good at what I do. I will start my own business and be the boss!” So you became The Owner. You know the technical work but you don’t know how to run the other parts of the business. You became what you tried to change about you, The Employee who was a slave to work and the work became the boss. Here you are now with a big question mark. You don’t know what to do. You are lost.
  • According to Michael Gerber, each business owner has 3 personalities: The Entrepreneur, The Manager, and The Technician. We met The Technician in the Story. He does the technical part of the business. He is happy when he is working on one thing at a time. He lives in the now and is only interested in “How to do it” and not on thinking unless it is related to what he is doing at the moment. The Technician is different from The Entrepreneur because the latter likes to dream. He is a visionary and what he wants is to be innovative and creative. He likes to be in control of things and people so that his plan will turn into reality. If The Technician likes to tinker and The Entrepreneur likes to dream, The Manager likes to plan and organize. He does not like the abstract or the imagination because he wants to stick to status quo and have order around him.
  • In some people, it could be The Entrepreneur personality or The Manager that dominates. For a business owner to be successful, he should be able to balance these three personalities. Gerber said that a balance among these personalities results in an incredibly competent individual because he can do the technical work and solidify the base of operations while continuously trying to find new ways to improve the business. I made this a white space to illustrate the presence of all three personalities just like the color white is the presence of all colors. This white space is where you can feed all three personalities and Gerber calls it the Franchise Prototype.
  • We all have an idea what a franchise is. When you franchise a business, you not only get to use the name but the entire system of the business too. If you are looking to franchise a business, you will probably consider which has the highest probability of success and the reason why you will choose to franchise Jollibee over Carl’s Jr. for example is because the Jollibee system seems to work so much better even if we just base it on the number of stores. Gerber said that if you are going to start a business, try to imagine that your business will be a prototype for 2 or more just like it, perfect replicas or clones. Your product is your business and your aim is to produce a system that is so perfect someone will want to franchise it; that in a long list of possible franchise businesses, yours will stand out and someone will want to buy it. A franchise prototype is the working model of the franchisor’s dream. It is where all assumptions and ideas of the franchisor are tested to see if they work and can be used in the business. This explains how the Franchise Prototype can feed all three personalities. For The Entrepreneur, the prototype is where he can put his visions and dreams to the test, and keep on innovating. For The Technician, the prototype is where he can do the technical work and continue to have something to tinker because the Entrepreneur keeps on innovating. For The Manager, the prototype provides the system that is so important to him, and he can continue to plan and organize because The Entrepreneur keeps on changing things and The Technician keeps on tinkering. So how does one create a franchise prototype? Gerber said that building the prototype of your business is a continuous process and it is called the Business Development Process.
  • The Business Development Process rests on three foundations: Innovation, Quantification, and Orchestration. We already know innovation, it is doing new things. When we innovate we ask “What is the Best Way?” Quantification is putting numbers related to the impact an innovation makes. If you do not quantify, you will not know whether your innovation works or not. For example, if you decide to introduce a new product you have to set a target of how many you should be able to sell in a month to be able to determine whether your product is successful or not. Orchestration is creating order. It is a way of doing things habitually as long as it works. It could be as simple as saying “Good morning welcome to Jollibee!” to every single customer that enters the store or as difficult as making sure that all your marketing tools are able to send only one marketing message.We said that Business Development is a continuous process; a cycle. It means that you innovate, quantify, and orchestrate again and again to create and/or improve your prototype. Just like Jollibee who invests so much in Research and Development to continuously improve its product line and system to stay ahead of McDonalds.
  • The Business Development Process has 7 steps. It starts with Your Primary Aim and ends with Your Systems Strategy. As you can see, each step is integrated and interdependent with all the other steps. This means that a change in one step will affect all the others.
  • Let’s start with Your Primary Aim. YourPrimary Aim is the vision necessary to bring your business to life and your life to your business. It provides you with a purpose and energy for your day-to-day mill. It answers questions like ‘what do I value most? What kind of life do I want? What do I want my life to look or feel like? ‘Who do I wish to be?’
  • The next step is establishing Your Strategic Objective. It is a very clear statement of what your business has to do to make your Primary Aim a reality. It is a tool, a standard, for measuring your progress toward a specific end. One of the standards Berger gave is Money. How big should your company be when it’s finally done in terms of i.e. gross profit, pre-tax income, or net sales? If Your Primary Aim is to retire at age 40 and live the rest of your life sitting on a beach sipping a martini you will set your standard to millions in net income every year until you reach the age 40. You can set other standards depending on the type of business you have and who your customers are.
  • After setting Your Primary Aim and Strategic Objective, you may now start thinking about making strategies beginning with Your Organizational Strategy. In creating Your Organizational Strategy you need to have two things: Organizational Chart and Operation Manual. An Organizational Chart is not just an illustration. It shows the responsibility, accountability, and commitment of the person assigned to each of the position. If you are just starting a business, your organizational chart should show all work or functions when the business has reached its full potential because you may only be a one-person business right now but we know that someday when your business grows, you will need more hands.An Operation Manual contains the ‘how to’ of the different functions in the organizational chart. This is important because this will help you, the Business Owner, orchestrate your people so that what they do and what they say will be aligned with Your Primary Aim.
  • The next step is creating Your Management Strategy. This strategy requires the creation of a Management System. Gerber said that you do not need highly competent managers to make your business work. When you have the perfect Management System, your ordinary employees or staff can produce the results that you want.
  • The fifth step is Your People Strategy. This is the way you communicate your business to the employees and it begins at the Hiring Process. It is the way you the business owner act. Your people strategy is important because although the system produces the results, it is your people that manage the system. If you fail to communicate Your Primary Aim and Strategic Objectives to your people with what you say and how you act, your people will not manage your system well.
  • Next is Your Marketing Strategy. At this step, forget about what you want. This strategy is all about your customer. Your Marketing Strategy should satisfy your customer’s Unconscious Mind which contains her expectations which are the results of her life. Before you can create Your Marketing Strategy you have to establish the 2 pillars: demographics and psychographics. Demographics is “Who buys my products?” Psychographics is “Why does this demographic buy my product and the other demographic buy my competitor’s products?” Market research is very important in creating a marketing strategy and the job does not lie alone on the marketing department. All levels, from the janitor to the CEO of the company should be doing market research which is, in simple terms, “What does my customer want?”
  • The last step is Your Systems Strategy. We discussed in class what a system is: A system is a set of things, actions, ideas, and information that interact with each other, and in so doing, alter other systems. According to Berger, a business has 3 kinds of systems: hard, soft, and information systems. The Hard Systems are the inanimate, nonliving things; all the visual elements of your business and the way they all fit together. For example, your computer, sign on the shop, look and color of your building, and employee uniforms.  Soft Systems are the animate, living things or ideas; every written or verbal communication with anyone who comes in contact with your business. Examples are you, your employee, selling system, the How To in the Operation Manual. The Information Systems provide information about the interaction between Hard Systems and Soft Systems. It is the glue that keeps your System Strategy together. It is your ability to extract from the day-to-day operations of your business how many items you sold, how many customers bought take out, etc. Examples of information system are cash flow reports and sales activity report.
  • Example:If your salesman (soft system) wears a blueuniform (hard system) to work, is he able to bring in more sales (information system) than if he wore brown? Your Systems Strategy should ensure that all the other systems in your Business Development Program are integrated since an approach in one system (i.e. Management System) affects the other systems (i.e. People System). The success of your Business Development Program depends on your appreciation of the integration because the integration of the various systems is your Franchise Prototype.
  • To summarize, for a small business to succeed, you have to be an entrepreneur (have a vision and keep on innovating), a manager (plan and organize), and a technician (the worker). When you put up a business, create a system for your business that works so perfectly other people wants one just like it. Create it in such a way that when you sell it, it will provide you with the life you want. Remember that your business’ purpose is to enrich your life and not the other way around.
  • The E-Myth by Michael Gerber

    1. 1. THE E-MYTH BYMICHAEL GERBER A Special Report by Mariko Franca
    2. 2. Table of ContentsI. About Michael Gerber and the E-MythII. 3 PersonalitiesIII. Franchise PrototypeIV. Business Development ProcessV. Summary
    3. 3. Michael Gerber & the E-Myth Part 1
    4. 4. About Michael Gerber  A legend of entrepreneurship  “World’s #1 Small Business Guru” by INC. Magazine  Started 40 years ago to help business people who has technical skills but few business skills  Author of 14 E-Myth books i.e. ThePhoto from http://www.michaelegerber E-Myth Revisited, The Optometrist, The E-Myth Architect
    5. 5. What is E-Myth? ENTREPRENEURIAL MYTH “Small businesses are started by entrepreneurs risking capital to make profit.” Belief in this leads to small business failure Fatal Assumption “If you understand the technical work of a business, you understand a business that does that technical work.”
    6. 6. The Sad E-StoryThe Employee The Owner ??? Good at  Knows technical technical work work Has problem with  Does not know work (i.e. Boss) how to do other Entrepreneurial parts of the Seizure business  Fatal Assumption
    7. 7. 3 Personalities Part 2
    8. 8. The 3 ENTREPRENEURPersonalities - Visionary - Lives in the future - Innovator - Creative personality - Craves control MANAGER TECHNICIAN - Pragmatic - Tinkers - Lives in the past - Lives in the present - Planner & - Happy to be organizer working on one - Clings to status thing at a time quo - “How to do it” - Craves order
    9. 9. Goal for the 3 Personalities: Forge ahead into new areas BALANCE of interest Results in an incredibly competent individual Can be found in the Franchise Prototype Solidify Do base of technical operations work
    10. 10. Franchise Prototype Part 3
    11. 11. Franchise Prototype• The secret behind the success of the Business Franchise Format o Franchisor lends its name and an entire system to the franchisee• The working model of the franchisor’s dream• Where all assumptions and ideas of the franchisor is tested to see if it can be used in the business• Produces the system that makes a business successful• Follows the Business Development Process
    12. 12. Business Development Process Part 4
    13. 13. Business Development Process• A continuous process involved in building the Prototype of a business• Has 3 distinct yet integrated foundation: BDP Innovation * Quantification * Orchestration
    14. 14. Systems Strategy Marketing Strategy7 Steps in Your Business People Strategy Development Management Program Strategy Organizational Strategy Strategic Objective Primary Aim
    15. 15. 1. Your Primary Aim• Vision• Provides you with purpose & energy• Answers the ff. questions: What do I value most? What kind of life do I want? What do I want my life to look or feel like? Who do I wish to be?
    16. 16. 2. Your Strategic Objective• What your business has to ultimately do for you to achieve your Primary Aim• Your list of standards to measure progress o Money – i.e. gross profit, pre-tax income o Others
    17. 17. 3. Your Organizational Strategy• Organizational Chart COO o Should show all work/functions when the business has reached its VP Fin VP Opns VP Mktg full potential o Shows accountability A/R Mgr Prod Mgr Sales Mgr• Operation Manual o Contains the how to of A/P Mgr Svc Mgr Ads Mgr the different functions in the org chart Faci Mgr
    18. 18. 4. Your Management Strategy• Requires creation of the Management System o Your management strategy o Does not depend on highly competent managers o The solution to the problems you encounter from your people o The more automatic, the more effective your Franchise Prototype will be because your ordinary employees can produce the results you want
    19. 19. 5. Your People Strategy• The way you communicate your business to the employees• Forming a relationship with your employees starting at the Hiring Process• The way you as the business owner acts• Important because “The system produces the results; your people manage the system.”
    20. 20. 6. Your Marketing Strategy• All about your customer• Should satisfy your customer’s Unconscious Customer B Mind Customer Customer• Two pillars: A C o Demographics o Psychographics Mrkt• Market research is vital & Strategy to be done by all levels in the org chart
    21. 21. 7. Your Systems Strategy• 3 Kinds of Systems: Hard Soft Systems Information Systems • Animate, Systems • Inanimate, living things • Provide info nonliving • Ideas about the things interaction between HSs & SSs
    22. 22. 7. Your Systems Strategy• Example: If your salesman (soft system) wears a blue uniform (hard system) to work, is he able to bring in more sales (information system) than if he wore brown?• Should ensure that all other the others systems are integrated• The success of the Franchise Prototype depends on this integration
    23. 23. Summary Part 5
    24. 24. For a small business to succeed…• Be an entrepreneur, a manager, and a technician.• Create a system for your business that works so perfectly other people wants one just like it.• Create it in such a way that when you sell it, it will provide you with the life you want.
    25. 25. The EndSource:Gerber, M. (2007). The e-myth revisited:Why most small businesses don’t work andwhat to do about it. HarperCollins e-books