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

The Rabbit Hole is written by Blas Moros. To support, sign up for the newsletter, become a patron, and/or join The Latticework. Original Design by Thilo Konzok.


  1. “E-Myth \ ‘e-,’mith\ n 1: the entrepreneurial myth: the myth that most people who start small businesses are entrepreneurs 2: the fatal assumption that an individual who understands the technical work of a business can successfully run a business that does that technical work…Those mundane and tedious little things that, when done exactly right, with the right kind of attention and intention, form in their aggregate a distinctive essence, an evanescent quality that distinguishes every great business you’ve ever done business with from its more mediocre counterparts whose owners are satisfied to simply get through the day. Yes, the simple truth about the greatest businesspeople I have known is that they have a genuine fascination for the truly astonishing impact little things done exactly right can have on the world. It is to that fascination that this book is dedicated.”

Key Takeaways

  1. Overview
    1. Contrary to popular belief, my experience has shown me that the people who are exceptionally good in business aren’t so because of what they know but because of their insatiable need to know more. 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 businesspeople I’ve met are determined to get it right no matter what the cost.
    2. So if your business is to change—as it must continuously to thrive—you must change first. If you are unwilling to change, your business will never be capable of giving you what you want. The first change that needs to take place has to do with your idea of what a business really is and what it takes to make one work.
    3. That myth, that misunderstanding, I call the E-Myth, the myth of the entrepreneur. And it finds its roots in this country in a romantic belief that small businesses are started by entrepreneurs, when, in fact, most are not. That Fatal Assumption is: if you understand the technical work of a business, you understand a business that does that technical work. And the reason it’s fatal is that it just isn’t true. In fact, it’s the root cause of most small business failures! The technical work of a business and a business that does that technical work are two totally different things! But the technician who starts a business fails to see this. To the technician suffering from an Entrepreneurial Seizure, a business is not a business but a place to go to work.
  2. The Entrepreneur / Manager/ Technician
    1. But it’s a three-way battle between The Entrepreneur, The Manager, and The Technician. The entrepreneurial personality turns the most trivial condition into an exceptional opportunity. The Entrepreneur is the visionary in us. The dreamer. The energy behind every human activity. The imagination that sparks the fire of the future. The catalyst for change. The managerial personality is pragmatic. Without The Manager there would be no planning, no order, no predictability. The Technician is the doer. “If you want it done right, do it yourself” is The Technician’s credo. The Technician loves to tinker. Things are to be taken apart and put back together again. Things aren’t supposed to be dreamed about, they’re supposed to be done. If The Entrepreneur lives in the future and The Manager lives in the past, The Technician lives in the present. Put another way, while The Entrepreneur dreams, The Manager frets, and The Technician ruminates.
    2. It is self-evident that business, like people, are supposed to grow; and with growth, comes change. Unfortunately, most businesses are not run according to this principle. Instead most businesses are operated according to what the owner wants as opposed to what the business needs. And what The Technician who runs the company wants is not growth or change but exactly the opposite. He wants a place to go to work, free to do what he wants, when he wants, free from the constraints of work Unfortunately, what The Technician wants dooms his business before it even begins.
    3. If you want to work in a business, get a job in somebody else’s business! But don’t go to work in your own. Because while you’re working, while you’re answering the telephone, while you’re baking pies, while you’re cleaning the windows and the floors, while you’re doing it, doing it, doing it, there’s something much more important that isn’t getting done. And it’s the work you’re not doing, the strategic work, the entrepreneurial work, that will lead your business forward, that will give you the life you’ve not yet known…“Don’t you see? If your business depends on you, you don’t own a business—you have a job. And it’s the worst job in the world because you’re working for a lunatic! “And, besides, that’s not the purpose of going into business. “The purpose of going into business is to get free of a job so you can create jobs for other people.
    4. The Technician’s boundary is determined by how much he can do himself. The Manager’s is defined by how many technicians he can supervise effectively or how many subordinate managers he can organize into a productive effort. The Entrepreneur’s boundary is a function of how many managers he can engage in pursuit of his vision.
    5. You come face to face with the unavoidable truth: You don’t own a business—you own a job! What’s more, it’s the worst job in the world! You can’t close it when you want to, because if it’s closed you don’t get paid. You can’t leave it when you want to, because when you leave there’s nobody there to do the work. You can’t sell it when you want to, because who wants to buy a job? At that point you feel the despair and the cynicism almost every small business owner gets to feel.
    6. “The true question is not how small a business should be but how big. How big can your business naturally become, with the operative word being naturally? “Because, whatever that size is, any limitation you place on its growth is unnatural, shaped not by the market or by your lack of capital (even though that may play a part) but by your own personal limitations. Your lack of skill, knowledge, and experience, and, most of all, passion, for growing a healthy, functionally dynamic, extraordinary business. “In short, businesses that ‘get small again’ die. They literally implode upon themselves. “Not right away, necessarily. But over time they die. Atrophy and die. They can’t do anything else. “And the result of that is enormous disappointment, lost investment, shattered lives, not only the owner’s but those of the employees, the families of both the owner and the employees, the customers, the suppliers, the lenders, all of those people whose lives have somehow been intertwined with the life of this small business, and now with its death.
    7. “Simply put, your job is to prepare yourself and your business for growth. “To educate yourself sufficiently so that, as your business grows, the business’s foundation and structure can carry the additional weight. “And as awesome a responsibility as that may seem to you, you have no other choice—if your business is to thrive, that is. “It’s up to you to dictate your business’s rate of growth as best you can by understanding the key processes that need to be performed, the key objectives that need to be achieved, the key position you are aiming your business to hold in the marketplace.
    8. A Mature company is founded on a broader perspective, an entrepreneurial perspective, a more intelligent point of view. About building a business that works not because of you but without you.
    9. IBM is what it is today for three special reasons. The first reason is that, at the very beginning, I had a very clear picture of what the company would look like when it was finally done. You might say I had a model in my mind of what it would look like when the dream—my vision—was in place. The second reason was that once I had that picture, I then asked myself how a company which looked like that would have to act. I then created a picture of how IBM would act when it was finally done. The third reason IBM has been so successful was that once I had a picture of how IBM would look when the dream was in place and how such a company would have to act, I then realized that, unless we began to act that way from the very beginning, we would never get there. In other words, I realized that for IBM to become a great company it would have to act like a great company long before it ever became one. From the very outset, IBM was fashioned after the template of my vision. And each and every day we attempted to model the company after that template. At the end of each day, we asked ourselves how well we did, discovered the disparity between where we were and where we had committed ourselves to be, and, at the start of the following day, set out to make up for the difference.
    10. The Entrepreneurial Perspective adopts a wider, more expansive scale. It views the business as a network of seamlessly integrated components, each contributing to some larger pattern that comes together in such a way as to produce a specifically planned result, a systematic way of doing business. Said another way, the Entrepreneurial Model has less to do with what’s done in a business and more to do with how it’s done. The commodity isn’t what’s important—the way it’s delivered is. Thus, the Entrepreneurial Model does not start with a picture of the business to be created but of the customer for whom the business is to be created. It understands that without a clear picture of that customer, no business can succeed. To The Entrepreneur, the business is the product.
  3. The Business Format Francise
    1. The Business Format Franchise not only lends its name to the smaller enterprise but it also provides the franchisee with an entire system of doing business. And in that difference lies the true significance of the Turn-Key Revolution and its phenomenal success. The true product of a business is the business itself.
    2. Armed with that realization, he set about the task of creating a foolproof, predictable business. A systems-dependent business, not a people-dependent business. A business that could work without him. Unlike most small business owners before him—and since—Ray Kroc went to work on his business, not in it.
    3. The system integrates all the elements required to make a business work. It transforms a business into a machine, or more accurately, because it is so alive, into an organism, driven by the integrity of its parts, all working in concert toward a realized objective. And, with its Prototype as its progenitor, it works like nothing else before
    4. The system isn’t something you bring to the business. It’s something you derive from the process of building the business.
    5. It is critical that you understand the point I’m about to make. For if you do, neither your business nor your life will ever be the same. The point is: your business is not your life. Your business and your life are two totally separate things. Once you recognize that the purpose of your life is not to serve your business, but that the primary purpose of your business is to serve your life, you can then go to work on your business, rather than in it, with a full understanding of why it is absolutely necessary for you to do so. This is where you can put the model of the Franchise Prototype to work for you. Where working on your business rather than in your business will become the central theme of your daily activity, the prime catalyst for everything you do from this moment forward.
    6. Pretend that the business you own—or want to own—is the prototype, or will be the prototype, for 5,000 more just like it. That your business is going to serve as the model for 5,000 more just like it. Not almost like it, but just like it. Perfect replicates. Clones. In other words, pretend that you are going to franchise your business. (Note: I said pretend. I’m not saying that you should. That isn’t the point here—unless, of course, you want it to be.) Further, now that you know what the game is—the franchise game—understand that there are rules to follow if you are to win:
      1. The model will provide consistent value to your customers, employees, suppliers, and lenders, beyond what they expect.
      2. The model will be operated by people with the lowest possible level of skill.
      3. The model will stand out as a place of impeccable order.
      4. All work in the model will be documented in Operations Manuals.
      5. The model will provide a uniformly predictable service to the customer.
      6. The model will utilize a uniform color, dress, and facilities code.
    7. How can I create a business whose results are systems-dependent rather than people-dependent? Systems-dependent rather than expert-dependent. It is literally impossible to produce a consistent result in a business that depends on extraordinary people. No business can do it for long. And no extraordinary business tries to! Because every extraordinary business knows that when you intentionally build your business around the skills of ordinary people, you will be forced to ask the difficult questions about how to produce a result without the extraordinary ones. You will be forced to find a system that leverages your ordinary people to the point where they can produce extraordinary results over and over again.
    8. Your Business Development Program is the vehicle through which you can create your Franchise Prototype. The Program is composed of seven distinct steps: 1. Your Primary Aim 2. Your Strategic Objective 3. Your Organizational Strategy 4. Your Management Strategy 5. Your People Strategy 6. Your Marketing Strategy 7. Your Systems Strategy
    9. I believe it’s true that the difference between great people and everyone else is that great people create their lives actively, while everyone else is created by their lives, passively waiting to see where life takes them next.
    10. In that regard, your Primary Aim is the vision necessary to bring your business to life and your life to your business. It provides you with a purpose. It provides you with energy. Your Strategic Objective is a very clear statement of what your business has to ultimately do for you to achieve your Primary Aim. It is the vision of the finished product that is and will be your business. In this context, your business is a means rather than an end, a vehicle to enrich your life rather than one that drains the life you have.
    11. The commercial is saying, “Buy Chanel and this fantasy can be yours.” What’s your product? What feeling will your customer walk away with? Peace of mind? Order? Power? Love? What is he really buying when he buys from you? The truth is, nobody’s interested in the commodity. People buy feelings. And as the world becomes more and more complex, and the commodities more varied, the feelings we want become more urgent, less rational, more unconscious. How your business anticipates those feelings and satisfies them is your product.
    12. “If you want it done,” I tell them, “you’re going to have to create an environment in which ‘doing it’ is more important to your people than not doing it. Where ‘doing it’ well becomes a way of life for them.”
    13. Your Marketing Strategy starts, ends, lives, and dies with your customer. So in the development of your Marketing Strategy, it is absolutely imperative that you forget about your dreams, forget about your visions, forget about your interests, forget about what you want—forget about everything but your customer! When it comes to marketing, what you want is unimportant. It’s what your customer wants that matters. And what your customer wants is probably significantly different from what you think he wants. The question then becomes: If my customer doesn’t know what he wants, how can I? The answer is, you can’t! Not unless you know more about him than he does about himself. Not unless you know his demographics and his psychographics. Demographics and psychographics are the two essential pillars supporting a successful marketing program. If you know who your customer is—demographics—you can then determine why he buys—psychographics…And so, while the VP/Marketing and the VP/Operations and the VP/Finance each have their own specific accountabilities, they share one common purpose—to make a promise their customer wants to hear, and to deliver on that promise better than anyone else on the block!
    14. “To do what? “To deliver the promise no one else in your industry dares to make! “That’s what marketing is, Sarah. That’s what your business must be. Alive, growing, committed to keeping a promise no competitor would dare to make.
    15. That your Primary Aim and your Strategic Objective and your Organizational Strategy and your Management Strategy and your People Strategy and your Marketing Strategy and your Systems Strategy—all of them are totally interdependent, rather than independent of one another. That the success of your Business Development Program totally depends on your appreciation of that integration. And that your Prototype is that integration. If you understand all of that, then this book has been worth our time.

What I got out of it

  1. Sounded like a pretty cheesy book  but I got way more out of this than I expected. The entrepreneur/manager/technician, work on your business rather than in your business, continuous learning, get free from your job so that you can create jobs for others, build a “franchise” – something that can be replicated over and over again without fail (a systems thinking approach that is effective even if you never open another office/shop/etc…)