Business & leadership

The E-Myth Revisited

Michael E. Gerber

Why most small businesses don't work and what to do about it

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  • 12 key ideas
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  • Published 1995

Introduction

Michael Gerber argues that most small businesses are started not by entrepreneurs but by people skilled at a trade who decide to work for themselves, and that this is why so many struggle. Knowing how to do the work, he says, is not the same as knowing how to build a business that does the work. His answer is to work on your business, not in it: to build it like the prototype of a franchise, so that it runs on clear systems rather than on the owner's constant presence.

The book has three parts. Part One describes the myth of the entrepreneur, the three people inside every owner (the Entrepreneur, the Manager and the Technician) and the stages a business passes through: Infancy, Adolescence and Maturity. Part Two, "The Turn-Key Revolution," uses the McDonald's franchise as a model of a business that works and sets out the process for building one. Part Three is a seven-step Business Development Program, from the owner's aim in life to the systems that tie the business together. Gerber tells the whole book through conversations with Sarah, the owner of a small pie shop. She is how he tells the story; he says that neither her name nor her shop's is the real one. This summary follows the updated text that carries Gerber's 2001 foreword.

Note: the figures in Gerber's introduction, that at least 40 percent of new businesses close within a year and more than 80 percent within five years, are his claims and are widely disputed. Figures from the US Bureau of Labor Statistics show lower failure rates: roughly one in five new businesses closes in its first year, and about half are still open after five years. The business advice and the sales results Gerber reports from his own clients are his.

  1. 1Gerber argues that most small businesses are started not by entrepreneurs but by technicians, who assume that knowing the work means knowing how to run a business that does it
  2. 2Gerber says every owner is three people in one, the Entrepreneur, the Manager and the Technician, and in most owners the Technician wins
  3. 3Gerber describes the first stage of a business, Infancy, as the time when owner and business are the same thing, and warns that such a business is really a job
  4. 4Gerber says the second stage, Adolescence, begins when the owner gets help, and goes wrong when he hands work over and walks away instead of managing it
  5. 5Gerber argues that mature companies such as McDonald's, Federal Express and Disney did not grow into maturity but started that way, with an entrepreneurial view of the business
  6. 6Gerber holds up the McDonald's franchise as the model of a business that works without its owner, because Ray Kroc treated the business itself as his product
  7. 7Gerber's central advice is to work on your business, not in it, by treating it as the prototype for 5,000 more just like it
  8. 8Gerber says the prototype is built by a continuous process of Innovation, Quantification and Orchestration
  9. 9Gerber's seven-step program starts with the owner's Primary Aim in life, then a Strategic Objective that says what the business must do to serve it
  10. 10Gerber says to organize around functions rather than personalities: draw the chart of the finished business, then replace yourself, position by position, with a system
  11. 11Gerber says a business manages through systems rather than star managers, and gets the best from its people by giving them a clear game worth playing
  12. 12Gerber argues that marketing starts with what the customer wants, not what the owner wants, and that hard, soft and information systems hold the whole business together

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The E-Myth Revisited by Michael E. Gerber: summary | Daridanesh