Why most small businesses don’t succeed and what to do about it

A] Introduction

It is a well known fact that most small businesses fail within five years. In trying to understand this predicament I landed on a book called The E-Myth. “The E-Myth Revisited” by Michael E. Gerber is a book that addresses common myths and misconceptions about starting and running a small business. One of the key ideas is the distinction between working “in” the business (i.e., doing the technical work) and working “on” the business (i.e., strategic planning, systematizing, etc.). Most business owners struggle with distinction which explains the high failure rates of businesses.

Gerber argues that many small business owners start their ventures because they are skilled technicians but soon find themselves overwhelmed when they realize that running a business involves multiple roles like management and entrepreneurship. He introduces the concept of the “Entrepreneurial Myth” (E-Myth), which is the belief that understanding the technical work of a business equates to understanding how to run that business.

To combat this, Gerber emphasizes the importance of systematizing your business so it can operate efficiently without your constant involvement. He recommends viewing your business as a prototype for a franchise, even if you have no intention of franchising. This forces you to create scalable and replicable systems.

Three main personalities wrestle within a business owner: the Entrepreneur (dreamer), the Manager (planner), and the Technician (doer). A balance must be struck among these roles to achieve success.

The book also provides actionable steps to create systems, organizational structure, and effective management strategies to make your business run more smoothly and be more profitable.

Overall, the book is a guide for small business owners to move away from being solely a technician and to work on developing a business that can function independently of them. This way, Gerber argues that the business stands a higher chance of surviving and indeed thriving.

B] The three personalities (Entrepreneur, Manager, Technician)

Michael E. Gerber discusses three main personalities that exist within every small business owner: the Entrepreneur, the Manager, and the Technician. Understanding the dynamics among these roles is essential for successful business operation.

1. The Entrepreneur: This personality is the visionary, the dreamer, and the one who looks at the big picture. The Entrepreneur is focused on opportunities for growth, expansion, and innovation. This role is crucial for long-term planning and setting the direction of the business. However, if unchecked, the Entrepreneur might constantly chase new ideas at the expense of current operations.
2. The Manager: This personality is the planner and organizer, focusing on systems, procedures, and logistics. The Manager is risk-averse and seeks stability and efficiency. They are the ones who turn the Entrepreneur’s visions into actionable plans. They implement rules, set timelines, and make sure the day-to-day operations run smoothly. Too much emphasis on this role could stifle creativity and innovation.
3. The Technician: This personality is the doer, the one who is skilled in the actual work that the business offers. Whether it’s cooking in a restaurant, coding for a software company, or repairing cars, the Technician takes pride in their craft. While essential for delivering the product or service, this personality may get too wrapped up in the technical work, neglecting the business’s other needs.

The challenge for small business owners is to find a balance among these three roles. Neglecting any one of them can lead to problems. For example, being too much of a Technician can result in a business that’s great at what it does but fails to grow or adapt. Conversely, being too much of an Entrepreneur without adequate planning and execution can lead to a chaotic, unstable business environment.

Gerber’s argument is that successful business owners learn how to integrate these personalities effectively, creating a well-rounded, functional, and sustainable business.

C] Navigating the personalities

Navigating the three personalities effectively involves balancing the strengths and weaknesses of the Entrepreneur, the Manager, and the Technician within you. Here are some practical tips to manage these roles effectively:

1. Set Aside Time for Each Role: Schedule dedicated time to work “on” the business as the Entrepreneur, “in” the business as the Technician, and manage the systems as the Manager. For example, you could allocate certain days or hours for strategic planning, another set for technical work, and yet another for managerial tasks like reviewing finances and employee performance.
2. Create Systems: As the Manager, you should develop systems and procedures that allow for efficient daily operations. Well-designed systems can enable your business to function smoothly in your absence and also make it easier to onboard new employees.
3. Delegate: As the business grows, it will be increasingly challenging to do everything yourself. Delegating tasks according to a well-thought-out organizational chart can free you up to focus more on entrepreneurial and managerial tasks.
4. Regular Review and Adjustment: Set aside regular times to review business performance and metrics. This is your time as the Entrepreneur to assess if the business is aligned with your vision and what pivots may be necessary.
5. Stay Educated: As the Technician, you should keep up-to-date with industry changes and trends. However, you should also educate yourself on managerial best practices and strategic approaches to entrepreneurship, thus enhancing all three personalities.
6. Balance Risk and Caution: The Entrepreneur may want to take risks for growth, while the Manager may advocate for stability. Evaluate opportunities and risks with both perspectives in mind to arrive at a balanced decision.
7. Conflict Resolution: Understand that these personalities may come into conflict. For example, the Entrepreneur may want to expand to a new market, while the Manager may be concerned about stretching resources too thin. Anticipating these conflicts and having a decision-making framework can help.
8. Be Mindful of Burnout: Each role demands a different kind of energy and focus. Switching between them can be mentally exhausting. Take time to rest and recharge, so you can effectively play all three roles.
9. Seek External Input: Sometimes you’re too close to your business to see it objectively. Advisors, mentors, or even a board can offer valuable external perspectives that help balance your internal roles.
10. Adjust and Evolve: As your business grows, the time and effort you’ll need to spend in each role may change. Be flexible and willing to adapt your approach to meet the current needs of your business.

By consciously attending to each role and maintaining a balanced approach, a business owner can effectively navigate the complexities of running a small business.

D] Key systems

Michael E. Gerber advocates for a systematic approach to running a small business, treating it as if it were a franchise prototype. This means developing systems that are scalable and replicable. While the book doesn’t provide an exhaustive list of systems, it focuses on key areas that are essential for any small business:

1. Operational Systems: These include the core processes that allow your business to deliver its products or services. This could be manufacturing systems, service delivery protocols, or customer service guidelines. These systems ensure that the business can function day-to-day without hiccups.
2. Financial Systems: Budgeting, accounting, and cash flow management fall under this category. Having a robust financial system allows you to monitor the health of your business, make informed decisions, and ensure profitability.
3. Management Systems: These systems help you manage human resources, from hiring and training to performance reviews and conflict resolution. The aim is to create an organizational structure that lets your employees know what is expected of them and how they fit into the bigger picture.
4. Marketing and Sales Systems: Effective systems for marketing and sales help you attract, convert, and retain customers. This could include a standard sales process, customer relationship management (CRM) systems, and advertising strategies.
5. Inventory Systems: For businesses that deal with physical products, an efficient inventory system is crucial. This ensures that you have enough stock to meet demand without tying up too much capital in unsold goods.
6. Quality Control Systems: To maintain a consistent level of quality in your product or service, you need systems for quality assurance and quality control. These systems help you identify and rectify defects and inefficiencies in your offerings or operational processes.
7. Technology Systems: With the increasing reliance on technology, having an IT system that supports your business activities is crucial. This includes not just hardware and software, but also data management and cybersecurity measures.
8. Compliance Systems: These systems help ensure that your business is following all laws and regulations relevant to your industry, including licenses, reporting, and safety protocols.
9. Customer Feedback Systems: To keep improving, you need to know what you’re doing right and what needs work. Systems for gathering and analyzing customer feedback can offer valuable insights into how to improve your business.

By creating robust systems in these key areas, you build a business that can function effectively without your constant intervention, thereby allowing you to work “on” your business rather than just “in” it.

E] Conclusion

In summary, Michael E. Gerber’s “The E-Myth Revisited” advocates for a systematic approach to running a small business, emphasizing the need to work “on” the business, not just “in” it. The book outlines the interplay of three key personalities within a business owner: the Entrepreneur, the Manager, and the Technician. Balancing these roles is crucial for effective business management. To achieve this balance, Gerber suggests implementing systems in key areas such as operations, finance, management, marketing, inventory, quality control, technology, compliance, and customer feedback. By doing so, a business owner can create a scalable and efficient enterprise capable of functioning independently, thereby allowing for both growth and work-life balance.