PDF Summary:The E-Myth Revisited, by Michael E. Gerber

Many people dream of quitting a job and becoming their own boss by starting a business. A million new businesses are started each year, but 40 percent fail within the first year and 80 percent fail within five years. Underlying the high failure rate are persistent romantic notions about how businesses are born and what it takes to succeed.

In The E-Myth Revisited, Michael E. Gerber explains how focusing solely on the product undermines new businesses and just trying to work harder undermines new businesses. The right approach is to view your business like a franchise—to systematize operations so that it no longer relies on you. This thirty-year-old classic is a part-practical and part-philosophical guide to conceptualizing and starting a business.

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The Franchise Movement

However, there’s a more effective and less painful route. The franchise movement, which started in the 1950s, has provided a “turn-key” model for successful business development that independent business owners can emulate.

The movement began when a milkshake machine salesman, Ray Kroc, visited a hamburger restaurant owned by two brothers named MacDonald in San Bernardino, California. At the restaurant, he found high school students producing identical burgers systematically and efficiently under the supervision of the owners. Kroc saw that this process could be replicated to continually make money and he persuaded the brothers to let him franchise it. He created McDonald’s, which became the world’s largest prepared food delivery system.

Franchising wasn’t a new idea — Kroc’s innovation was his “business format franchise,” a a new-business template that’s been widely adopted by other companies. Under business format franchising, the franchisor teaches the business format (marketing, selling, inventory, finance, personnel procedures) to the franchisee.

Kroc’s model format can be applied to small business development in any field.

Building a Business

In applying business format franchise principles, an owner must first think of his business in a new way — as though it were the prototype for thousands of others like it. He should imagine he’s going to franchise it, then create a model in which the parts — purpose, organization, management strategy, production systems and processes — can be replicated. In other words, he should create a model for a business that runs without him.

A business development program is the means for organizing or reorganizing a business into such a model or structure. There are seven components that you as an owner must work through:

1. Personal objective: Determine your primary goal in life. Your business’s purpose should dovetail with your personal goal.
2. Business objective: State what you want your business to look like and to accomplish. How much money does it need to make? How is it serving the need of your customers?
3. Organizational plan: Create an organization chart reflecting what your organization will look like when the business is fully evolved. What specific functions does your business need? Create an operations manual for each position before hiring for it.
4. Management plan: Create an operating philosophy that reflects why and how you do what you do. All your actions and your employees’ actions communicate this philosophy to your customers.
5. People plan: Create an environment in your business where doing what needs to be done is important and gratifying to the people tasked to do it. Make each person’s expectations clear, and recognize them when they’ve achieved them.
6. Marketing plan: Determine who your prime customers are, what they buy, and how to reach them. Research your customers through market data or customer surveys.
7. Systems plan: Every part of your business is a system. Integrate the systems so they strengthen each other. Your hard systems (like office design and computers) should support your soft systems (people, documentation) and information systems (reports, forecasts), and vice versa.

Ongoing Development

Once a business is organized and on track, development is an ongoing process that involves three activities: innovation, measurement of results, and execution. Here’s how they work:

• Innovation: Most business owners think innovation means coming up with new products to increase sales. However, the franchise movement increases sales by applying innovation to the process — how a business does (or sells) things — rather than to what it produces. For example, changing the way your employee greets new customers from “Do you need help?” to “Have you been here before?” can open up conversations and increase sales.
• Measurement: Measuring the results or quantifying everything you do is the only way to know what’s working and what’s not.
• Execution: Once you innovate (find better ways to do things) and measure how you’re doing, you need to execute changes systematically, so that people know what to do and how to do it rather than acting on their own discretion

Implementing a systematic business development process transforms both owner and business. Her personal and business goals function in harmony, and she achieves the American small business dream that eludes so many others.