Book Review 1: The E-Myth

 

Hitting the first HMS deadline here, with the completion of book #1, the E-myth by Michael E. Gerber.

One of our tasks is to either email a summary of the book to Ryan, or publish a blog post on it. I figure, I have a blog, let’s use it 🙂

SO – the E-myth. Overall, 8.8/10. An older book that has stood the test of time incredibly well. Conjured up old arguments I had with my ex-co-founder, issues in my previous employer, and gaps in my mental model of starting businesses in the future.

Let’s do this review in reverse order – I’ll give you the 3 nuggets of gold I took away first:

  1. The system runs the business. The people run the system.

  2. Businesses grow & shrink to the comfort zone of the founder

  3. Begin with the end in mind

Okay – those might not all make sense right now. Let’s plow on…

What is the E-myth? The myth that it only takes 1 type of person to start a business. The seek-all, conquer-all, scrappy entrepreneur. Not so much. Really, there are 3 types of people running a business:

  1. The technician, who wants to work in the business

  2. The manager, who wants to work on the business

  3. The entrepreneur, who dreams of all the potential business

I’m more 1&2 than 3. I had a #3 as a co-founder in my first startup, and he drove me crazy. I vowed not to be that guy, but I learned – I must, in part.

The early portion of the book walks through common mistakes made in small businesses, usually run by #1, technicians. Sarah, our example founder, owns a pie store – All About Pies. She sounded like ME in my Shopify Dev Business:

  • Early exuberance and happy clients

  • Focus on what she’s good at, and delegating the rest to a partner

  • Rapid expansion/hiring

  • No clear division of labor across employees

This works…at first. Then, at a small level of growth, she notices that things aren’t up to her standards. The customer service, the product, the people’s attention to detail, everything. Customers get mad, people complain. She’s frustrated, then angry, then heartbroken. To win customer loyalty back, she is forced to walk back the growth of her business, lose all her people, and reset…back to the size of her comfort zone. Which is, naturally, where she can have a hand in how everything goes. Problem is, when she does everything, she’s completely exhausted and can’t grow.

Sidebar-I am literally watching this happen at one of my old jobs. The founder just fired 50% of the people, other people are jumping off the sinking ship, and the founder is re-assuming control.

Problem identified. You can’t be everywhere, do everything, and still grow. You also can’t expect to experience growth that doesn’t blast through your comfort zone. If the attitude is “things go well when I…” then you’ve made yourself a lynchpin in your business, which is the opposite of what you want. If you can’t step back from your company, who is really serving who? Are you in control? Or are you a slave to the business? This point dumbfounded me at first, but it’s so true.

Solution – build systems. The rest of the book is basically a giant Standard Operating Procedure (SOP) for building SOPs that serve your company. The first step in architecting systems in your business is understanding that as much as your business sells widgets, it really sells the way in which it sells widgets. The ultimate example of this is McDonald’s. You get the same experience, anywhere in the world, every time, over and over and over again. I agree with the author that a consistent customer experience is important, perhaps not more important than the product itself, but equally so. If you are to build a consistent experience across 5,000 copies of your business, you cannot expect to be personally involved. Therein-we need a SOP for “how we do business”.

In addition to the “how we do business” SOP, to me there’s a certain human+emotional element to thinking about the how vs the what in business. One of my favorite examples is Nordstrom’s, a retailer here in the Pacific Northwest. They honor every return, receipt, no receipt, torn, old, whatever. They will call you on your birthday and leave you a voicemail. They remember your name in the store. They create an experience that could be replicated if they sold tires, software, etc… This is the magic of focusing so much on the how. What are you really selling? Are you making people feel appreciated? Are you helping them feel smarter? Are you helping them build confidence?. A great product (what) + a great customer experience (how) = an evergreen business. Apple.

Ok, so you want to build systems. Brilliant! My notes on good systems:

  1. Good systems improve through the process of iterative improvement – test, measure, optimize

  2. A good system should work for the lowest common denominator – average people

  3. A good system should leave as little room for discretion as possible, but as much room for iteration & improvement as possible

  4. A good system + associated SOP is built by the first person doing the job (usually a founder) WHILE they do it

So – how does one build good systems in practice? Start with…

  1. Primary Aim – what do you want out of life?

  2. Strategic Objective of the business – how can the business serve your primary aim?

Continually imagine that you’re not the person working in the business, but the manager working on the business. Sure, you will need to still do the technical work. But as you do it, you create the SOP for doing it well. Then when you make a hire, you hand them the manual, and step out of that job. One other thing I loved that Gerber recommends is create an org chart, even if there are only 1 or 2 founders, and fill in who will do what job(s). You might be COO, director of finance, and salesperson on Day 0. And for the most part, early on, you’ll have to do technical work. But as you grow, you can narrowly define the roles, the responsibilities, and when you do hire someone, you have them take over 1 of the many jobs you’d been fulfilling.

That replacement allows you to go upstream on the org chart – more work on the business, less in the business.

Those were my main takeaways here. In all the times I’ve tried starting successful businesses, I built 0 SOPs, I never created a document defining “how we do business” and never created an org chart that could last years. In the future, I absolutely will.

  1. I want to have a proprietary way of doing things that embodies my vision of how customers should be treated.

  2. I want my future co-founders, employees and I to understand exactly what is expected and how high our quality standards are

  3. I want to (for the first time ever) move myself up an org chart and do less technical work, and more managerial & vision work.

Thank you, and good night.

Team Wealth – OUT!

 

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