Why Most Small Businesses Don't Work and What to Do About It

This is the last in our series of Top 10 books for entrepreneurs, and for Daoud Kakish, this is the one that’s been the most impactful.  The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael Gerber is #1 on our list.  For Daoud, he found this book before he started his own business and thinks every entrepreneur should consider this a must-read. 

The ”E” in E-Myth stands for Entrepreneur and in spite of the stories we hear about business owners who make it big (Uber, Facebook etc) most don’t make it.  In fact, Gerber shares some alarming statistics (from the US) in his book:

·        40% of independent businesses fail within their first year

·        80% fail within their first 5 years

·        Very few businesses ever make it past the $1 million dollar in revenue  

Yet, in spite of the high fail rate for entrepreneurs, Gerber doesn’t discourage you from starting your own business.  Quite the opposite, he encourages you to do so in this book.  But he really wants your business to succeed. 

Gerber talks about the “franchise model” (think McDonalds) as an example of businesses that have a significantly higher success rate than independent business.  In fact, while roughly 80% of independent businesses fail in the first 5 years, roughly 80% of franchises succeed in the first 5 years.    What are franchise businesses doing that you can go and apply in your small or midsize business?  This is one of the big ideas in his book. 

Here are the top takeaways from this book.

#1– The Entrepreneurial Myth 

“Out of the thousands of businesspeople I got to know, few were real entrepreneurs when I met them.  The vision was all but gone in most.  The zest for the climb had turned into terror.  Exhaustion was common, exhilaration was rare.”  - Michael Gerber

For most business owners, at some point they got the entrepreneurial bug and there was not turning back.  That business idea would not go away so you pursued it.  The fatal assumption for most is that if you understand the technical work of your business, you understand how to run a business that does that technical work.  For example, if you know how to bake pies, you assume you know how to run a business that bakes pies.  That is often not the case.  Often, when this is the situation, that entrepreneur works exhausting, crazy hours but never seems to make it work.     

#2 – You are not your business. 

You and your business are 2 different things.  If your business fails, that does not mean you are a failure.  It means that the business failed.  This might be subtle, but it’s an important concept.  When you understand this, you have the freedom and confidence to start the business knowing that if it doesn’t succeed, it is ok. 

This was an important message for Daoud.  He feels that as an entrepreneur, your business is there to serve you.  It’s part of the story of your life but it isn’t your entire story.  You should be able to walk away from your business for 2 weeks without things falling apart.  If you can’t do that, you’re a hostage to your business. 

#3 – As an entrepreneur, you are three in one. 

Think of your entrepreneurship as a triangle or a 3-legged stool.  There are 3 essential components:

·        The Entrepreneur: is the visionary or the dreamer

·        The Manager: is the planner.   

·        The Technical: is the doer with a “If you want it done right, do it yourself” motto 

When starting out, you play all three roles and they really conflict with each other and compete for your time and energy.  That never really goes away as your business grows, but if you succeed and grow, you spend more and more of your time being the Entrepreneur/ Visionary and less time managing or doing the technical work in your business.

#4 – The 3 different stages of your business 

Every business has 3 stages: Infancy, Adolescence, and Maturity.  Most of us ending up going through these stages in order.  But it is possible to launch a business and start in the maturity stage.  It’s rare, but you could do this. 

·        Infancy: you are doing it all (or almost all) yourself

·        Adolescence: you get some help, but you are depending on people instead of processes.  If someone leaves, you’re in a lot of trouble because you have to start all over and find someone to replace that skilled person to do that work.  You are starting from scratch.   

·        Maturity: You have a business process and people follow that process.  If someone leaves, you hire a replacement who can step in and follow the existing process. 

This might sound simple, but it’s not.  It’s much more complex than it might seem at first but it’s worth the effort and can have a huge impact on your business.  However, you don’t have to get complicated with your processes – it can just be bullet points – but they need to be in place and thorough. 

#5 – The Franchise Model 

As a reminder, Gerber shared that the success rate of a franchise is roughly 80% after 5 years where is the success rate is around 20% after 5 years for independent businesses.  The big difference is that franchises have processes in place.  When an entrepreneur starts a franchise, they have systems and processes from day 1 so they are set up to succeed.  Every Subway around the world operates with the same sytems.  The experience you have at a Subway in the United States will be very similar to the experience at Subway in Dubai. 

Because a franchise owner begins with systems (at the Maturity stage), they can work on their business instead of in their business. 

How can you learn from this franchise model and apply it to your business: start by creating and documenting processes for everything you do: marketing, customer service, operations, etc.  Imagine you are going to open 20 different locations of your business (even if you don’t want to open other locations).  Obviously, you can’t be in 20 locations at once.  Document what you want the customer’s experience to be like from the moment they walk in until they leave.  Every little thing.  You are the “Designer” of the customer experience, creating the customer service process for your business.  Doing this for all areas of your business is how you get out of working in your business and you end up working on your business. 

 

We encourage you to check out The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael Gerber.  Connect with us on Twitter to tell us if you read the book and what you thought of it.