The E Myth Summary: Lessons on how to succeed in business

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I first heard of The E Myth on the Tim Ferriss podcast, when he recommended it as one of his top 5 must read business books. In fact, the E Myth is a book that’s mentioned again and again as a recommendation by many successful business people. 

The E Myth is probably the most important book you could read on the subject of starting a business, bar none.

What’s The E Myth about?

The E Myth (or Entrepreneurial Myth) essentially looks at the reason why 80% of new businesses fail within the first five years. The reason, according to Gerber, is that most new businesses are not actually started by entrepreneurs with a grand vision for changing the world with their product or service. Rather, the majority of businesses are started by technicians who know a lot about and enjoy doing the hands on “technical work” of the business.

Technicians are people who’d rather work for themselves than for someone else. However, this causes two main problems.

1. They create a job for themselves rather than a business which can’t be scaled and which can maximise profit.
2. The job they create means that they have to work longer and harder than ever before which endangers their love of the technical work. Added to this they are now taking business risks that then didn’t take as employees, and are unable to utilise the upsides of being in business.

If you create a job for yourself it can’t be scaled. You are the business. It cannot become bigger than you.

Create a business, not a job

The E Myth suggests that in order to create a business rather than a job for themselves, entrepreneurs must design the business so that it can be scaled and run without their labour before the business is even started.

Gerber urges aspiring entrepreneurs not to confuse the technical work with the work running a technical business, saying that these are two completely different issues and that blurring the distinction between these issues is a fatal error in most new businesses. 

The book claims that in setting up a new business, being able to do the technical work is a liability rather than an asset. Business building skills are far more important than the mere production of output for the new business. 

For example, a baker who starts their own bakery enjoys the task of coming up with unique and delicious new recipes, they may be great at interacting with customers and they might know a lot about how to visually display their wares in a way that appeals to customers. However, they may not have the knowledge required to attract new customers, how to budget for the year or how to manage and inspire employees (all essential building business skills). If a business owner is too focused on the technical side of the business, it is very unlikely that they will adequately develop these important business building skills.

Skills required for a successful business

Building a successful business actually requires three types of skill sets: 

1. The entrepreneur who supplies the vision. They focus on the future and how to grow the business beyond what it is now.
2. The manager who supplies order and systems. They are best used in making sure the business is running properly.
3. The technician who supplies the output. The technician is most comfortable when they are doing the work that they love and are good at, sometimes to the exclusion of focusing on other important aspects of running the business. If a business owner is too focused on being the technician, the business will more than likely fail.

The typical new business owner is approximately 10% entrepreneur, 20% manager and the remainder technician, while it would be better if their skills were more equally distributed amongst these roles.

In order for your business to thrive and survive to maturity, you will need to carefully plan from day one

Problems arise when a business is run according to what the owner wants rather than what the business needs. The needs of the business will be very different depending on the stage of its development i.e. infancy, expansion, or maturity.

Stages of development in business according to The E Myth

Infancy: Most new businesses don’t get past this stage where the technician is the ‘business’. When the technician stops the business stops. 

Expansion: This is where the business begins to come up against its comfort zones. It will either outgrow the comfort zones to maturity or it will shrink back to being a small business. 

Maturity: Here the business owner is willing to learn new skills and assume different priorities for the use of his/her time.

The problem with most failing businesses I’ve encountered is not that their owners don’t know enough about finance, marketing, management and operations – they don’t, but those things are easy enough to learn – but that they spend their time and energy defending what they think they know. The greatest business people I’ve met are determined to get it right no matter what the cost.

Michael Gerber, Author of The E Myth

Working on the business rather than in the business: The Franchise Model

The E Myth claims that the best model for building a successful business is to view your business as a prototype for a large franchise or a turnkey operation, with the following rules that the business must: 

1. Deliver value that consistently exceeds expectations
2. Be capable of being operated successfully by people with a low skill level i.e. systems where ordinary people can produce extraordinary results
3. Be totally orderly with the system for everything to the customers employees managers and owners all know what’s going on. All systems must be documented in a formal written operations manual.

The franchise prototype business that Gerber outlines in The E Myth has seven distinct business development processes and three business foundation activities. 

Business foundation activities

1) Innovation

An innovative business asks the following questions:

• What stops customers from getting more added value?
• What is the best way to ensure customer needs are met?

Innovation can look progressive but it can also involve continued simplification of the business to its critical elements.

2) Quantification

Quantification is looking at the numbers that tell you whether your innovation is working or not. Good businesses record and quantify everything. If you don’t know the exact numbers how can they be improved upon?   

The bottom line here is to unerringly track your business’s health and progress.  

3) Orchestration

Orchestration is where you optimise how a business operates to produce the best results.

Business development processes

1) Primary aim

As the owner of the business ask yourself what your personal values are and what do you want your life to look like when completed? How will the business help achieve that?

Your primary aim is the vision necessary to bring your business to life and your life to your business.

Michael Gerber, author The E Myth

2) Strategic objective

The strategic objective is how you measure whether or not the primary aim has been met.  

[The strategic objective] creates the energy by which the best companies, and the most effective people, produce results.

Michael Gerber, author The E Myth

3) Organisation strategy

An organisational chart will be necessary for transparency and accountability; it reduces confusion and conflict. Each role on the organisational chart should have: 

• results to be achieved; 

• standards by which results will be measured; and 

• the signature of the role holder’s agreement to the above. 

The organisational chart provides a framework around which written manuals and other materials can be developed. 

4) Management strategy

The simpler and more direct to the management system the better.  If possible reduce management to a checklist system. Your goal is to produce extraordinary results with ordinary people.

The system will become your management strategy . . . [eliminate] the need for [management] decisions when ever and when ever possible.  

Michael Gerber, author The E Myth

5) People strategy

Make it easier for your employees to fulfil their responsibilities than to avoid them. Make sure they understand why they are being asked to do things. They need to understand three key concepts as follows:

• customers should always be made to feel that they are right

• employees should act like they are the customers best support

• growth comes from developing new skills.

Motivate your people by making serving the customer a game worth playing for them. 

6) Marketing strategy

What you think the customer wants may be significantly different from what they actually want, so forget your primary aim and your strategies and focus exclusively on the customer.

Most buying decisions are made with the subconscious. In truth, buying decisions are never really made rationally; instead they are made emotionally. 

You must know your customer demographic (i.e. relevant facts about them) and psychographic (i.e. what that demographic likes or dislikes about different things). 

Everything the business does should be integrated into the marketing process so that no other business can deliver a promise as effectively as you can.  

… if you are doing technical work all the time, 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 the business rather than in the business.

Michael Gerber, author The E Myth

7) System strategy

The three types of systems to succeed:

• soft systems e.g. people and procedures

• information systems e.g. provide data about the interaction between hard and soft systems

The very best businesses intertwine hard, soft, and Information systems so closely that it becomes virtually impossible to separate them. 

The very process of business development creates instantaneous change in the people who engage in it . . . The business becomes a symbol for the life they wish to live, a visible manifestation of who they are and what they believe. A living, acting, evolving testament to the will of man.  

Michael Gerber, author The E Myth

Final thoughts

There’s a lot of valuable information in the E Myth. This book is essential reading if you’re thinking about starting a business. I’d even go so far as to say that you should not start a business (or even bother entertaining entrepreneurial ideas) until you have read and fully understand this book. This is a foundational text in your understanding of what a business is.

If you liked this summary of The E Myth, check out some other summaries of our favourite personal development, inspirational, motivational, practical psychology and business books here.

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