Digest: E-Myth Revisted

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

Digest The E-Myth Revisted

Note: This is the second version of the book, per the “revisited” suffix.

This concept is probably the most powerful takeaway I had from the book and is often referred to as “The struggle of the Technician”. I’ll describe this below.

The author breaks down the positions in a business into three main roles, each of which has their own “boundary”:

The Entrepreneur is focused on defining the business and steering the ship to where they want it to be. They have a boundary defined by how many managers he can engage in pursuit of his vision.

The manager is focused on herding people and systems. They have a boundary defined by how many technicians he can supervise effectively or how many subordinate manages he can organize into a productive effort.

The Technician is focused on doing the actual work. They have a boundary determined by how much he can do himself.

This idea describes the fallacy that Technicians may find themselves in. It can be summarized by

Being able to do the technical work a business provides is not the only prerequisite for running a business.

What the author describes is something I feel like most Technicians will find themselves thinking about during their career, especially during days where they feel bogged down by decisions made by Managers or Entrepreneurs. The fallacy here is that the technician work is only one of the three roles a business must have fulfilled.

The example in the book is a pie baker decides to set off on her own, starting a business. She becomes so focused on crafting the perfect pie, that she neglects the responsibilities of the Manager and Entrepreneur. The book walks thorugh all the responsibilities that are left behind, in focus of just the day-to-day technical work. The author argues that wanting to focus on just the technician part of work is not an issue, and can be accomplished by having a regular 9-5 job.

The book breaks up a startup’s life cycle into three sections, mirroring that of human development. Each stage’s boundary is defined by what you, the business owner, experience day-to-day while operating the business.

At this point, you the business owner, are working as the Technician and work towards building momentum. Once you’re in a position to look for help outside help, you’ll have graduated to the next stage.

This stage is where you begin to hire staff to take over some of the tasks the business has. You may begin to find here that the employees will never work as hard, care as much or pour themselves into the business as much as you. To them it is a job, but to you, its your child. You may even find yourself being pushed back into the role of the Technician, in order to “do things the right way”.

At this stage, the business owner can approach their business with a vision, measure where they are today and help direct their business to where they want to be.

The author spends a lot of time discussing what he calls “The Franchise Prototype” and specifically uses the Franchise Business Model as model to talk about all businesses, not just franchises. The author puts the franchise business model on a pedestal, for the fact that the franchise must provide a playbook for all parts of the business to the franchise owners.

He proposes that all businesses, even non franchises, should operate under the assumption that some day they will franchise. The reason for this is then they will be in the mindset of documenting and having procedures for all aspects of the business.

McDonalds is used as the poster child for the “Franchise Prototype”. Pointing out how anyone in the world can be pulled in off the streets and be trained to do any part of the job, as there’s a procedure. To paraphrase:

Every McDonalds burger will be cooked at XYZ°F for Q minutes, on each side

This takes the chance and randomness out of how everything is done. What you’re left with is reproducible results.

In this section of the book, the author mentions that each role and process should be defined for “the lowest possible level of skill”. This allows people to follow your system and replicate your results. Additionally, the author calls for “documenting all work” in a Operations manual. This will allow purpose, steps, standards for the process and results.

The simplest way to explain these two concepts is Strategic Work is working on your business, while tactical work is working in your business. The tasks that you do every day to generate income, and continue to keep the lights on are considered tactical, while plotting the future of the company, steering the ship and focusing on growth would be considered strategic work.

Having these two types of work in mind can be important, especially when evaluating how much of each type of work you’re taking on your plate each day.

The other divides the business' systems into three classifications. A hard system is pretty easy to identify, they are inanimate objects like computers, the color of the rug, the lighting in the room. The soft systems are things that are alive, your brand, employees or your onboarding experience. The informational systems are the most traditional in the sense, they are things like your payroll software, inventory books and shipping and receiving reports.

Its important to be aware of these three systems, as together, they are what instruct, analyze and improve every aspect of your business.

The book details seven steps that compose one’s Business Development Plan.

To find out your business' primary aim, you should sit down and answer these questions:

  • What do I value most?
  • What do I want my life to look like, to feel like?
  • Who do I wish to be?
  • How do I wish my life to be on a day-to-day basis?
  • What would I like to be able to say I truly know in my life, about my life?
  • How would I like to be with other people in my life—my family, my friends, my business associates, my customers, my employees, my community?
  • How would I like people to think about me?
  • What would I like to be doing two years from now? Ten years from now? Twenty years from now? When my life comes to a close?
  • What specifically would I like to learn during my life—spiritually, physically, financially, technically, intellectually? About relationships?
  • How much money will I need to do the things I wish to do? By when will I need it?

The answer to these questions will be your primary aim.

This is a very clear statement of what your business has to ultimately do for you to achieve your primary aim. This should define your specific and personal vision for what your business will do, and how it will operate at this point in time.

This part of the book explains how businesses should be defining roles based on what the business needs and not by the skills and interests of the current employees. He drives this home by detailing a fictional story of two business partners attempting to divide the work in two and later three when they hire their first employee. Things begin to fall apart when issues arise and there eisn’t a specific person accountable for particular jobs.

Instead, what the author proposes is designing an org chart for all the roles the business needs. In the beginning, you the business owner, will assume all the roles. This org chart still provides value as it will help you evaluate where your day is going, what roles you enjoy and what roles you’d like to hire for first.

Implementing a Management Strategy is designing the processes inside your Operators Manual, so that you may use it to teach your future managers. Each process should have checklists of itemized steps for each task, ways to be held accountable and standards for each performance.

There are a few quotes in this section of the book that I think really highlight one’s People Strategy

  • The customer is not always right, but whether he is or not, it is our job to make him feel that way.

  • Everyone who works here is expected to work toward being the best he can possibly be at the tasks he’s accountable for. When he can’t,” he should try to improve or leave.

  • The business is a place where everything we know how to do is tested by what we don’t know how to do, and that the conflict between the two” creates growth and meaning.

In order to produce a People Strategy, the other suggests following these simple steps;

  1. Never determine what you want your people to do and then try to create a game out of it.
  2. Never establish a game for your employees you are unwilling to play yourself.
  3. Ensure there are particular ways to win the game without ending it.
  4. Modify the game every so often, precisely the tactics, not the strategy.
  5. Never expect the game to be sustainable, as people should be reminded of it constantly.
  6. The game should make sense.
  7. The game should be enjoyable from time to time.
  8. If you are unable to create a good game, steal one.

One’s hiring process should be used to begin a health relationship with their employees. One’s documented Operators Manual should be used to communicate ideas to their employees.

The author breaks down the concept of “know your audience”, into two buckets:

  1. Demographics: “the science of marketplace reality” showing “who your customer is”
  2. Psychographics: “the science of perceived marketplace reality” indicating “why your customer buys”

One can leverage surveys, measuring responses in online transactions and other qualitative and quantitative approaches to getting feedback tied to individual customers.

As mentioned above, systems can be broken down in hard, soft and information systems. An example the author uses to drive home one’s system strategy is their Sales System, which is composed of the following steps:

  1. Identify the specific benchmarks or prospect decision points within the sales process.
  2. Literally, script the words that will successfully get you the sales.
  3. Create the various materials to be used with each sales script.
  4. Memorize the script for each benchmark.
  5. Have your salespeople deliver the script in an identical manner.
  6. Have them communicate effectively by listening and engaging every prospect fully.

By following this portion of the Operators Manual, one can measure success of these steps and make changes to explore more successful approaches.

I tend to take quite a few highlights when reading. I’ve decided to share those here, as they act as a great refresher for this book.

That Fatal Assumption is: if you understand the technical work of a business, you understand a business that does that technical work.

The technical work of a business and a business that does that technical work are two totally different things!

The technician suffering from an Entrepreneurial Seizure takes the work he loves to do and turns it into a job.

when you’re The Skinny Guy you’re always making promises for The Fat Guy to keep.

This quote is explaining how we assume different roles and points of view during life. In this life example, the author is showing how “The Skinny Guy” might be signing up for life style changes during a short lived healthy period, while attempting to have “The Fat Guy” adhere to these changes down the line.

The Technician mistrusts those he works for, because they are always trying to get more work done than is either possible or necessary.

The Technician’s usual experience is one of frustration and annoyance at being interrupted in the course of doing what needs to be done to try something new that probably doesn’t need to be done at all.

There’s nothing wrong with being a Technician. There’s only something wrong with being a Technician who also owns a business! Because as a Technician-turned-business-owner, your focus is upside down. You see the world from the bottom up rather than from the top down. You have a tactical view rather than a strategic view.

As the balls continue to fall at an overwhelming rate, you begin to realize that no one cares about your business the way you do. That no one is willing to work as hard as you work.

The Technician’s boundary is determined by how much he can do himself.

The Manager’s is defined by how many technicians he can supervise effectively or how many subordinate managers he can organize into a productive effort.

The Entrepreneur’s boundary is a function of how many managers he can engage in pursuit of his vision.

In Adolescent Survival you’re consumed by the business and the possibility of losing it.

A business that ‘gets small again’ is a business reduced to the level of its owner’s personal resistance to change, to its owner’s Comfort Zone, in which the owner waits and works, works and waits, hoping for something positive to happen. “This condition reminds me of a line from Samuel Beckett’s Waiting for Godot in which Estragon, having waited around for days hoping the mythical Godot will arrive and relieve him of his misery, turns to his companion, Vladimir, and says, ‘I can’t go on like this.’ To which Vladimir replies, ‘That’s what you think.’

This is describing the new business owner only giving time and energy to the role of the technician. The work never stops and they find themselves working long days, with no end in sight.

It’s up to you to dictate your business’s rate of growth as best you can by understanding the key processes that need to be performed, the key objectives that need to be achieved, the key position you are aiming your business to hold in the marketplace.

By asking the right questions, such as: Where do I wish to be? When do I wish to be there? How much capital will that take? How many people, doing what work, and how? What technology will be required? How large a space will be needed, at Benchmark One, at Benchmark Two, at Benchmark Three?

…any plan is better than no plan. Because in the process of defining the future, the plan begins to shape itself to reality,

Maturity, the third phase of a company’s growth, is exemplified by the best businesses in the world. Businesses such as McDonald’s, Federal Express, and Disney. A Mature business knows how it got to be where it is, and what it must do to get where it wants to go.

The Entrepreneurial Perspective asks the question: “How must the business work?” The Technician’s Perspective asks: “What work has to be done?”

Each step in the development of such a business is measurable, if not quantitatively, at least, qualitatively

To the trade name franchisor, the value of the franchise lies in the value of the brand name that it is licensing: Cadillac, Mercedes, Coca-Cola.

the Business Format Franchise is built on the belief that the true product of a business is not what it sells but how it sells it.

The Franchise Prototype is the name for my business-as-a-product.

What Ray Kroc understood at McDonald’s was that the hamburger wasn’t his product. McDonald’s was. At the outset, Ray Kroc wasn’t just competing with other hamburger businesses—he was competing with every other business opportunity around!

what you could never say—is that McDonald’s doesn’t keep its promise. Because it does. Better than just about any business in the world, McDonald’s, the love of Ray Kroc’s life, still keeps its promise, long after Ray Kroc has gone. It delivers exactly what we have come to expect of it every single time.

Unlike the trade name franchise before it, Ray Kroc’s system left the franchisee with as little operating discretion as possible. This was accomplished by sending him through a rigorous training program before ever being allowed to operate the franchise. At McDonald’s, they called it the University of Hamburgerology, or Hamburger U. There, the franchisee learned not how to make hamburgers but how to run the system that makes hamburgers—the system by which McDonald’s satisfied its customers every single time

Once the franchisee learns the system, he is given the key to his own business. Thus, the name: Turn-Key Operation

Your business is not your life. Your business and your life are two totally separate things. At its best, your business is something apart from you, rather than a part of you

Once you recognize that the purpose of your life is not to serve your business, but that the primary purpose of your business is to serve your life, you can then go to work on your business, rather than in it

Pretend that you are going to franchise your business.

The author describes the many benefits of having a documented Owners Manual, written in such a way that someone could stand up your business by following this manual. This allows measurable, repeatable results to be achieved.

Obviously, if yours is a legal firm, you must have attorneys. If yours is a medical firm, you must have physicians. But you don’t need to hire brilliant attorneys or brilliant physicians. Great businesses are not built by extraordinary people but by ordinary people doing extraordinary things.

All Work in the Model Will Be Documented in Operations Manuals Documentation says, “This is how we do it here.” Without documentation, all routinized work turns into exceptions. Documentation provides your people with the structure they need and with a written account of how to “get the job done” in the most efficient and effective way

There was absolutely no consistency to the experience. The expectations created at the first meeting were violated at each subsequent visit. I wasn’t sure what to expect. And something in me wanted to be sure. I wanted an experience I could repeat by making the choice to return.

What you do in your model is not nearly as important as doing what you do the same way, each and every time.

Think of your business as anything but a job!

Innovation is often thought of as creativity. But as Harvard Professor Theodore Levitt points out, the difference between creativity and Innovation is the difference between thinking about getting things done in the world and getting things done. …I think of Innovation as the “Best Way” skill.

For example, what does the salesperson in a retail store invariably say to the incoming customer? He says, “May I help you?” Have you ever heard that one before? And how does the customer invariably respond? He says, > “No thanks, just looking.” Have you ever said that one before? Of course you have! In fact, it’s a universal phenomenon. Now why do you suppose the salesperson asks that question when he knows that the customer will respond the way he does Because the customer responds the way he does, that’s why! If the customer is just looking, the salesperson doesn’t have to go to work! Can you imagine what those few words are costing retailers in this country in lost sales? Here’s a perfect opportunity to try a simple and inexpensive Innovation. THE INNOVATION Instead of asking, “Hi, may I help you?” try “Hi, have you been in here before?” The customer will respond with either a “yes” or a “no.” In either case, you are then free to pursue the conversation. If the answer is yes, you can say, “Great. We’ve created a special new program for people who have shopped here before. Let me take just a minute to tell you about it.” If the answer is no, you can say, “Great, we’ve created a special new program for people who haven’t shopped here before. Let me take just a minute to tell you about it.” Just think. A few simple words. Nothing fancy. But the result is guaranteed to put money in your pocket.

It is the skill developed within your business and your people that is constantly asking, “What is the best way to do this?” knowing, even as the question is asked, that we will never discover the best way, but by asking we will assuredly discover a way that’s better than the one we know now.

The sad fact is that Quantification is not being done in most businesses. And it’s costing them a fortune!

For example, how would you know that by changing the words you use to greet an incoming customer you produced a 16-percent increase in sales unless you quantified it by (1) determining how many people came in the door before the Innovation was put into effect; (2) determining how many people bought products and what the dollar value of those products were before you changed

Begin by quantifying everything related to how you do business. I mean everything. Without the numbers you can’t possibly know where you are, let alone where you’re going.

Orchestration is the elimination of discretion, or choice, at the operating level of your business.

Without Orchestration, nothing could be planned, and nothing anticipated—by you or your customer. If you’re doing everything differently each time you do it, if everyone in your company is doing it by their own discretion, their own choice, rather than creating order, you’re creating chaos.

Theodore Levitt says in his stunning book, Marketing for Business Growth, “Discretion is the enemy of order, standardization, and quality.” If you haven’t orchestrated it, you don’t own it! And if you don’t own it, you can’t depend on it. And if you can’t depend on it, you haven’t got a franchise. And without a franchise no business can hope to succeed. If, by a franchise, you understand that I’m talking about a proprietary way of doing business that differentiates your business from everyone else’s. In short, the definition of a franchise is simply your unique way of doing business.

Orchestration is as simple as doing what you do, saying what you say, looking like you look—being how and who you are—for as long as it works. For as long as it produces the results you want.

And when it doesn’t work any longer, change it!

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. The difference between the two is the difference between living fully and just existing.

great quote by Don Juan in Carlos Castaneda’s A Separate Peace: “The difference between a warrior and an ordinary man is that a warrior sees everything as a challenge, while an ordinary man sees everything as either a blessing or a curse.” It’s not your business you have to fear losing. It’s something much bigger than that. It’s your Self.

your business is a means rather than an end, a vehicle to enrich your life rather than one that drains the life you have

An Opportunity Worth Pursuing is a business that can fulfill the financial standards you’ve created for your Primary Aim and your Strategic Objective. If it is reasonable to assume that it can, the business is worth pursuing.

If it is unreasonable to assume that it can, then no matter how exciting, interesting, or appealing the business is, forget it. Walk away from it. It will consume too much of your precious time and prevent you from finding a true Opportunity Worth Pursuing.

Ask anyone what kind of business they’re in and they’ll instinctively respond with the name of the commodity they sell. “We’re in the computer business.” Or, “We’re in the hot tub business.” Always the commodity, never the product. What’s the difference The commodity is the thing your customer actually walks out with in his hand. The product is what your customer feels as he walks out of your business. What he feels about your business, not what he feels about the commodity.

Tears were streaming down Sarah’s cheeks. Tears of something precious lost and then found. There was a radiant smile on her face. The tears also welled up in my eyes, watching her, understanding what this meant

This is just an example of the “Story of Sarah” the author uses to parrot what we the reader just learned. I’m often not a fan of this literary device, as I find it beating the same content into our heads over and over again. While this book’s had a few nuggets of good reiteration which clarified a few topics for me, I did not find it worth it to have to endure passages like the one above.

without an Organization Chart, everything hinges on luck and good feelings, on the personalities of the people and the goodwill they share.

Doing Tactical Work, not Strategic Work. Tactical Work is the work all technicians do. Strategic Work is the work their managers do.

The work we do is a reflection of who we are. If we’re sloppy at it, it’s because we’re sloppy inside. If we’re late at it, it’s because we’re late inside. If we’re bored by it, it’s because we’re bored inside, with ourselves, not with the work. The most menial work can be a piece of art when done by an artist. So the job here is not outside of ourselves, but inside of ourselves. How we do our work becomes a mirror of how we are inside

“There is no such thing as undesirable work,” he continued. “There are only people who see certain kinds of work as undesirable. People who use every excuse in the world to justify why they have to do work they hate to do. People who look upon their work as a punishment for who they are and where they stand in the world, rather than as an opportunity to see themselves as they really are.

“And the reason it’s different here is because we give everyone who comes to work at the hotel an opportunity to make a choice. Not after they’ve done the work, but before. “And we do that by making sure they understand the idea behind the work they’re being asked to do.

Never create a game for your people you’re unwilling to play yourself. As in any game, the “people game” has rules that must be honored if you are to become any good at it. Make sure there are specific ways of winning the game without ending it. The game can never end because the end will take the life right out of your business. But unless there are victories in the process, your people will grow weary

What’s wrong with hiring experienced managers?” Everything’s wrong with it. Because, if you don’t know how to manage, how are you going to choose them, and how are you going to manage them? You can’t! Because they will manage by the standards they have been taught to manage by in somebody else’s business. Not by your standards. managers don’t simply manage people; your managers manage the System by which your business… achieves its objectives The System produces the results; your people manage the system.

In a television commercial, we’re told, the sale is made or lost in the first three or four seconds.

In a print ad, tests have shown, 75 percent of the buying decisions are made at the headline alone.

In a sales presentation, data have shown us, the sale is made or lost in the first three minutes.

Most salespeople think that selling is “closing.” It isn’t. Selling is opening

If you know who your customer is—demographics—you can then determine why he buys—psychographics

there is no such thing as reality. At least as we understand it.

Reality only exists in someone’s perceptions, attitudes, beliefs, conclusions—whatever you wish to call those positions of the mind from which all expectations arise—and nowhere else. So the famous dictum that says, “Find a need and fill it,” is inaccurate. It should say, “Find a perceived need and fill it.” Because if your customer doesn’t perceive he needs something, he doesn’t, even if he actually does.

Do you realize how much time and attention companies like Pepsico and American Express spend to get their brands just right? And how easy it is to miss the mark? And what it costs them if they do?

In a small business you simply can’t afford to spend the money they do. But you can afford to spend the time, the thought, the attention, on the same questions they ask.

“And that’s why I keep on going back to the true work of the small business owner—the strategic work rather than the tactical work. Because if you’re doing tactical work all the time, if you’re working all the time devoting all your energy in your business, you won’t have any time or energy left to ask, let alone answer, all of the absolutely critical questions you need to ask. You’ll simply have no time or energy left to work on it.

Will applied to any conflict creates energy.

Conflict without will creates frustration. An engine turning, but going nowhere.

Conflict with will creates resolution, a movement beyond the dilemma.

if the Process is to work for you, you must be willing to go through it the same way every single time. Using the same words the same way every time. Reviewing the Financial Report the same way every time.

And by doing it the same way every single time, you will not have a selling person but a selling system.

The Information System will track the activity of your Selling System from Benchmark to Benchmark.

It will tell you an astonishing number of things.

It could tell you the rate of conversion between any two Benchmarks in your Selling Process.

If you had calculated the cost of making a call, you could then calculate the cost of completing the next Benchmark in the process, and from that derive the next, and so on, until you calculate the actual cost of making one sale.

When you hear something, you forget it. When you see something, you remember it. But not until you do something will you understand it