In this episode of The Profit Plot, host Jeremy Millar uncovers the timeless wisdom of Michael E. Gerber's "The E-Myth Revisited." Discover why many small businesses fail despite their owners' technical skills and learn practical strategies to transform your business from a chaotic operation to a well-oiled machine.
Through the story of Sarah, a passionate baker turned overwhelmed business owner, Jeremy explores the critical roles of the Technician, Manager, and Entrepreneur. Find out how to create systems and processes that allow your business to run smoothly, grow sustainably, and give you the freedom to focus on what truly matters. Tune in to unlock the secrets of building a profitable, scalable enterprise!
Through the story of Sarah, a passionate baker turned overwhelmed business owner, Jeremy explores the critical roles of the Technician, Manager, and Entrepreneur. Find out how to create systems and processes that allow your business to run smoothly, grow sustainably, and give you the freedom to focus on what truly matters. Tune in to unlock the secrets of building a profitable, scalable enterprise!
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Welcome to the Profit Plot, the show where we unpack and simplify one complex financial topic at a time. This show, hosted by Jeremy Millar, helps service-based business owners and entrepreneurs unlock the story behind their profitable businesses.
Imagine this: You walk into your business one day, and it runs like a well-oiled machine.
Every employee knows their role, every process is seamless, and you, the owner, are free to focus on growing your business instead of putting out daily fires.
Sounds like a dream, right?
According to Michael E. Gerber’s "The E-Myth Revisited," this dream can be a reality. But how does that work in the real world, especially for small business owners who are already stretched thin?
Stick around because today, we're looking at Gerber’s strategies and how you can realistically apply them to your business.
Welcome back to a new season of The Profit Plot, where together we'll break down the core concepts of the world's most popular business books, helping small business owners like you unlock the story behind creating profitable, well-run businesses.
I’m your host, Jeremy Millar. Today, we’re tackling a personal favorite and perhaps one of the most revered books in the entrepreneurial world: "The E-Myth Revisited."
Let me set the scene as Gerber does in this narrative-driven novel by introducing you to Sarah. Sarah is a baker, and she has developed the most delicious pastries in town. Everyone loves them. Raves about them! In fact, her friends and customers have encouraged her so much that Sarah has decided to open her own bakery.
Initially, the excitement of starting a business runs high; she dreams of her pastries reaching every corner of the city; maybe there are cookbook deals down the line, or at the least, a living based on doing what she loves.
But very quickly, reality hits.
Instead of spending her days crafting pastries, Sarah becomes bogged down with orders, managing staff, dealing with suppliers, and handling customer complaints. The joy of baking that once fueled her passion is overshadowed by the intense stress of running a business. Suddenly, she's spending all but a fraction of her time doing anything else besides baking.
This chain of events is the impetus for what Gerber in "The E-Myth" calls the Entrepreneurial Seizure – the moment when someone skilled at a technical task believes they can successfully run a business doing that task. Sarah’s story is the epitome of this seizure. She’s a fantastic baker, but baking is only one part of actually running a successful bakery.
Business owners know this reality intimately.
Tons of businesses are started because of entrepreneurial seizures, just like Sarah's. CPAs see how much their firms charge for their work and think, "I'll make more if I do this myself." Mechanics realize they could open their own shop, marketing professionals decide to start an agency, and loan officers discover a broker's license may be more valuable than making money for someone else.
This is often where an entrepreneurial journey starts and, sometimes, where it ends shortly after.
Taking a leap of faith, hanging out your shingle, reaching for the stars - whatever we call it, entrepreneurship always takes its captive passengers on a rollercoaster ride with volatile twists and turns that no one ever seems to expect. Instead of just doing taxes, fixing cars, creating content, closing loans, or baking, we suddenly find ourselves running a business.
I love how Gerber breaks down this reality; many business owners are overwhelmed when they first get started, and they end up trying to claw their way back into the technical work that they were so good at to begin with. But from Gerber's perspective, that's the wrong thing to focus on.
Instead, he introduces us to three distinct roles every business must fill: the Technician, the Manager, and the Entrepreneur. The Technician is the doer who loves to work with their hands and gets satisfaction from the task itself, like baking. The Manager is the planner and organizer. They oversee the process of how things get done, making sure things are done efficiently. The Entrepreneur is the visionary, always looking to the future and dreaming about new opportunities.
You might be thinking, "Why should I care about these roles? I'm too busy running my business to think about this stuff."
See, entrepreneurship requires a metamorphosis. To be successful as a business owner, you have to be willing to shift and change depending on what the business needs from you. Understanding and balancing these roles can be the difference between a business that thrives and one that just survives.
Most small business owners, like our baker Sarah, start as Technicians. They’re great at doing the work but often neglect the managerial and entrepreneurial aspects of running a business.
When you're stuck in Technician mode, you're working in your business, not on your business. You're consumed by the daily grind and can't see the bigger picture. This leads to burnout, stagnation, and ultimately, the failure of your business.
By recognizing and embracing the Manager and Entrepreneur roles, you can create a business that operates efficiently, grows sustainably, and doesn’t rely on you being there 24/7. This gives you more freedom, less stress, and a higher chance of long-term success.
Sounds great, right? But... How!? How does a business owner resist the siren call of technician-hood? How does an individual move away from being the crux of their business sales, customer service, marketing, operations, and financial success in an effort to bloom into something new?
This is where Gerber unveils what's behind the metaphorical curtain: the "Franchise Prototype."
"Franchise? Okay, you lost me," you might be thinking. Let's be clear: Gerber is not suggesting that you turn your bakery into a McDonald's. But, you can approach it with a similar mindset. This means creating systems and processes that allow your business to run smoothly, regardless of who is doing the work.
Whatever your opinion about McDonald's, it has one of the most systematically beautiful operations in the business world. Everything within a McDonald's is designed to make the job as simple as possible. From the ketchup squirters that they use to get the perfect portion to Hamburger University in Chicago, where they train managers and owner-operators, everything is documented, organized, and efficient.
If your business were the prototype for a franchise, everything would need to be documented, systematized, and replicable. The idea is to build a business model that can operate without you being involved in every little detail.
This is where the real magic happens.
In the E-Myth, Sarah, our overwhelmed baker, decides to take Gerber’s advice. She starts by documenting her daily opening routine – from turning on the ovens to setting up the display cases. She writes down every step in detail, creating a manual that anyone can follow.
This is her first step towards creating a system.
With her process documented, she tests it out. She has her employees follow the manual and then provide feedback. Some things work well; others need tweaking. For instance, she realizes the time allocated for preparing the bakery display in the morning is insufficient. She adjusts the schedule and refines the process accordingly.
Now that the process is refined, Sarah trains her employees to follow it. She empowers them to take ownership of their roles within this system. Over time, she notices a significant improvement. Her employees know exactly what to do, and the bakery runs more smoothly. On the other hand, Sarah has more time to focus on other business areas, like developing new products and improving customer experience.
Here's the key: this isn’t a one-time task, and it doesn't happen overnight. Systematizing your business is an ongoing process. Sarah regularly reviews her processes, seeks feedback, and makes improvements. The goal is continuous improvement, ensuring the bakery remains efficient and competitive.
What does Sarah gain from all this?
Increased efficiency, for one. Clear processes streamline operations, reduce errors, and save time. There’s also consistency. Systems ensure that every customer has the same experience, which can improve customer satisfaction and loyalty.
Scalability becomes easier. With documented processes, training new employees and expanding the business becomes more straightforward. Everybody knows what their role is and what things they're responsible for - a miracle, right? And let’s not forget reduced stress. When the business runs smoothly, Sarah can focus on strategic growth rather than daily crises.
Lastly, clear processes and delegation can empower employees and improve their job satisfaction, creating a more positive work environment.
The ideas behind The E-Myth are so impactful because they function as a framework for entrepreneurs to make an important transition. Small businesses get started every day, but they're not really a business right off the bat; they can't sustain themselves. Many of them function as really demanding jobs!
Individuals are really good at monetizing their knowledge or skills, and there's absolutely nothing wrong with that in itself! But as these types of businesses grow, the owner is all too often forced to hire people who can help support them as the core pillar. You becomes the linchpin. You are the centralized source of all knowledge. You become the product.
The business is focused on what you can do, or make, or think, rather than something independent of any one person.
Making a transition, a metamorphosis, as I put it earlier, from a business that is fully reliant on the owner to one that is independent... It's incredibly difficult and painful.
Change of any kind requires us to take a step back and analyze where we've been and where we're going. It requires a pause, a shift, and an altering of the way things are done. When a business's engines have already begun to run, it is difficult to make any meaningful change because you're so caught up in keeping the wheel spinning.
Making an adjustment is counterintuitive: slowing down and stepping back in order to move forward.
Gerber's ideas are not unachievable. But where do we start? Because we can't just start over, especially if our business is already being built. So, here are a few ideas on implementing a meaningful change in your business.
Start by listing out every job that needs to get done in your company, from sales and marketing to finance and operations. Identifying every job allows you to understand the load your business is under to continue operating.
After you've identified the jobs that need to get done in your business, map out the roles that should fulfill those jobs, even if you don't have someone for that position yet. Customer service and account management may be the role of an Account Manager or Account Executive, for example. Defining the jobs and roles in your business allow you to better allocate who does what. Even if you're a one-person business, having a deeper understanding of the definitions of each job allows you to see the areas you need to grow into.
After you've defined the jobs that need to be done, choose one area of your business that could benefit from a system. Document the process, test it, train your team, and regularly review and improve it. It’s a journey, but one that can transform your business from a job you created for yourself into a scalable, profitable enterprise.
You can continue this process until every job has a defined operational process. Naturally, as your team grows, you, as the owner, will transition from technician to manager, overseeing every process within the business. Over time, you can hire a manager to take over the process of monitoring and fixing the technical processes, allowing you to fully transition to an entrepreneurial role if you so choose.
Often, one of the first outsourced roles for business owners is financial. Find a worthy advisor who can analyze the business and grow with you as you transition from largely technical to managerial to entrepreneurial.
Financial systems are often the biggest limiter to how a business can scale. If you don't properly understand your business's accounting, you will run into significant issues trying to hire, planning for the future, and creating a sustainable operation.
Your business's finances tell a story about how your business is shifting and changing. As you transition through the roles in your business, you can focus on different key areas of improvement and discover how the jobs that need to be done in your business directly impact your bottom line.
Even the ability to hire people, to grow your business takes an understanding of your financial position. This is something that I don't think Gerber touches on enough. It's impossible to grow without proper financial management. It's easy to say, "define jobs, create processes, hire people," - those are all good things and essential to the process, but the reality of actually executing on those things takes planning and capital. You can't change your business, you can't change your life, unless you have the proper financial resources to actually implement a change.
Understanding the financial position of your business is a worthy challenge with many pitfalls, so having the right advisor and financial team in place is key to unlocking your potential for change.
On that same note, there are plenty of pitfalls that will stand in your way when trying to build a business using the model the E-Myth suggests.
There's analysis paralysis – getting stuck planning and never implementing the perfect system. It’s crucial to remember that it doesn’t have to be perfect. Start with something, test it, and improve it over time.
There's that same siren call of doing everything yourself. Letting go of control is tough but necessary. The true goal of building a business in this way is to create something that runs itself; to build a team that you can trust and empower. Mistakes will happen, but that’s part of the growth process.
Finally, many entrepreneurs tend to ignore the role of becoming a great Manager. Small business owners often love technical work or being the entrepreneur; bakers are going to bake, and dreamers are going to dream. However, focusing on too much technical work and not enough management work can be a recipe for disaster. Creating time slots dedicated solely to managing and improving business processes is important.
"The E-Myth Revisited" offers invaluable insights for small business owners. It’s not a magic bullet, but a starting point. The key takeaway is to start small, document, test, refine, delegate, and continuously improve. It’s not an overnight transformation, but with consistent effort, you can build a business that runs smoothly without having to be involved in every detail.
If you haven't read the book, I would highly recommend it. Gerber takes a refreshing approach to writing using narrative storytelling, and there's far more depth of content than we could ever hope to get into on this podcast.
If you end up reading the E-Myth, let me know! Send us an email at hello@theprofitplot.com with your thoughts. Or, if you have a suggestion for another business book that you'd like to discuss, send it to me at that same email address: hello@theprofitplot.com.
That’s all for today’s episode. Remember, start small, prioritize action over perfection, and don’t be afraid to delegate. If you enjoyed this episode, make sure to subscribe and share it with other small business owners. Together, we can unlock the story behind building a profitable business!