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

The summary

Sarah has been in her pie shop since three in the morning, and she was up at two getting ready. By the time she finishes baking, serving, cleaning, closing, banking and prepping tomorrow’s bake it will be ten at night — and then she can work out how to pay the rent. She opened All About Pies because friends told her she was crazy not to, she was so good at it. Three years later she can’t stand the smell of pies.

Michael Gerber’s diagnosis is the Fatal Assumption: if you understand the technical work of a business, you understand a business that does that technical work. It isn’t true, and he thinks it’s behind most small business failure. Over a million Americans start a business each year; at least 40 percent are gone within twelve months and more than 80 percent within five. Survive that and don’t relax — 80 percent of the survivors fail in the second five.

Three people go into business together

Everyone who starts a business is three people at once. The Entrepreneur is the visionary, living in the future, turning trivial conditions into opportunities. The Manager is the pragmatist, living in the past, craving order — the one who paints the outline of each tool on the garage wall so it goes back in place. The Technician is the doer, living in the present: “if you want it done right, do it yourself.”

Balanced, they’d make a formidable person. Gerber’s estimate for the typical owner: 10 percent Entrepreneur, 20 percent Manager, 70 percent Technician. So the Technician quits his job and opens a shop — not to build anything, but to get the boss off his back. The wrong person is at the helm from day one.

The business becomes the boss you quit

In Infancy, you and the business are the same thing; take you out and nothing is left. You’re the Master Juggler until the volume beats you and the balls start dropping. So you get help, and the help is always technical. You hire Harry to do the books, feel the relief of “I don’t have to do that anymore,” and hand him the work and run — Management by Abdication rather than Delegation. It holds until the complaints arrive, and then you’re on the shipping dock saying the line every adolescent business hears: “Here, give it to me. I’ll do it myself.”

The business has passed the limits of your Comfort Zone, and there are three ways out. You get small again and do everything alone; about 400,000 businesses close their doors each year, many of them this way. You go for broke, growing faster than you can absorb until you detonate. Or you survive on stubbornness until you’re the thing that gives out. All three arrive at the same sentence: if the business depends on you, you don’t own a business, you own a job — and you can’t close it, leave it, or sell it, because who wants to buy a job?

Pretend you’re going to franchise it

In 1952 a milkshake machine salesman walked into a San Bernardino hamburger stand and found a machine. What Ray Kroc fell for wasn’t the hamburger but the high school kids producing identical results at speed. The insight that built the Business Format Franchise: the true product of a business is not what it sells but how it sells it. A franchisee only asks one question — does it work? — so Kroc had to build something that worked in a stranger’s hands. Fries out of the warming bin after seven minutes. Pickles placed by hand so they can’t slide into the customer’s lap. Food served in sixty seconds. Roughly 75 percent of business format franchises succeed, against an 80 percent five-year failure rate for independents.

You don’t have to franchise anything — just pretend your shop is the prototype for 5,000 more exactly like it, and follow the rules that implies: deliver more value than people expect; staff it with the lowest skill level the job requires, because a model that needs stars can’t be copied; keep it impeccably orderly; document every task in an operations manual, since undocumented routine work turns into exceptions; and deliver the same experience every time. Gerber makes that last point with a barber who gave him three excellent haircuts and lost him anyway — scissors then shears, hair washed then not, coffee then wine.

Innovate, quantify, orchestrate

The prototype gets built through three activities. Innovation is cheap and specific: swap “May I help you?” for “Hi, have you been in here before?” and Gerber’s retail clients saw sales climb 10 to 16 percent almost immediately. Quantification is the part nobody does — ask a room of owners how many selling opportunities they had yesterday and 99 percent can’t say, so they can’t tell what worked. Orchestration eliminates discretion at the operating level: if it works, do it every time. If you haven’t orchestrated it, you don’t own it.

His proof case is a hotel where a fire is lit in your room while you’re at dinner, your brand of coffee is perking in the morning and your newspaper is on the mat — because someone asked once, and the answer went into the system. The manager was twenty-nine, a short-order cook five months earlier, running the place from a color-coded binder of checklists.

The bottom line

The work you’re best at is exactly the work that will sink you if you never stop doing it. Gerber’s demand is that you work on your business rather than in it — build the system, document it, measure it, get yourself out of the middle — starting with what you want your life to look like, since the business exists to serve that, not the reverse. Read it if you’re self-employed and quietly drowning. The E-Myth Worldwide sales pitch runs through the book, but the diagnosis is hard to argue with.