Just because you own a business doesn't mean you are a business owner.

In this episode, Steve introduces the Awesomers Book of the Week. Written by Michael E. Gerber, E-Myth and E-Myth Revisited talk about entrepreneurial management and leadership. Here are more awesome things you will learn from this episode:

• Why having great technical skills does not mean you know how to run a business.

• The three different business systems: the hard system, soft systems, and information systems.

• How to focus on the big picture and work towards engineering your desired outcome and more.

So listen to find out why E-Myth and E-Myth Revisited should be on every business owner’s book list.  

Welcome to the Awesomers.com podcast. If you love to learn and if you're motivated to expand your mind and heck if you desire to break through those traditional paradigms and find your own version of success, you are in the right place. Awesomers around the world are on a journey to improve their lives and the lives of those around them. We believe in paying it forward and we fundamentally try to live up to the great Zig Ziglar quote where he said, "You can have everything in your life you want if you help enough other people get what they want." It doesn't matter where you came from. It only matters where you're going. My name is Steve Simonson and I hope that you will join me on this Awesomer journey.

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01:15 (Steve Simonson introduces today’s Book of the Week episode.)

Steve: Again Awesomers, this is Steve Simonson coming back to you for another episode. Today's episode is a book of the week episode from Awesomers.com and our episode today is episode number 8 so you can go to Awesomers.com/8 to see show notes and relevant details about today's episode. So I want to just give you a little context of the concept of the book of the week show. So my principle is I'm going to share some of the books that have been deeply meaningful to me and instrumental in my journey and also those who have recommended books around me, I may also you know include those as part of our reviews. However most of the time I will have read this book. From time to time we'll even bring on the authors of these books as well so we can talk about the thinking behind the book and here's firsthand some of their philosophies on a live basis. I'm anxious to see you guys feedback about this but I do believe that learning is a key part of being an entrepreneur and I've talked in the past about how important thought leaders and some of the brightest minds in our world think about learning and that all the guys from Elon Musk and Warren Buffett and you know Sheryl Sandberg and so many others talk about reading as a critical part of our kind of evolution as entrepreneurs and as people and this always goes back to that concept of equity. This is intellectual equity where we're spending. So without further ado, let's jump in here. So today's book of the week is one that I think has been very very important in my journey and I've recommended this book countless times, countless times. I can't even count them that's why I call it countless and in many regards this book has proven instrumental not only my life but some of the folks that I've referred it to, they've come back to me and said, “Gosh, you know that moment where you recommended this book and basically let us know that we need to improve, that was something important to us.” And this has happened more than one time, kind of to my surprise. I deserve no credit for it. All I'm saying is it was a good book for me and I think it could be a good book for you. Now I like to pay particular attention to the little headline on the book that says why most small businesses don't work and what to do about it. This is that concept of the E-Myth which was released back in the early 90s then as he says revisited in the late 90s. He sold millions of copies. This is one of the most foundation setting books that I know for entrepreneurs and by the way, the E in the E-Myth is that entrepreneurial myth. Fundamentally the philosophy of the book is just because we think we're entrepreneurs or business owners and CEOs doesn't mean we are until we learn it. So we're going to dig into this book a little bit but first, we're gonna take a quick break.

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04:36 sec. (Steve gives us more insight about the book E-Myth)

Steve: Okay back again everybody and we're going to talk again in depth about this book the E-Myth and the E-Myth revisited. One of the key quotes is from the great Michael Gerber where he says the following, “If your business depends on you, you don't have a business - you have a job.” And it's the worst job in the world because you're working for a lunatic. And man oh man, when I first read this in the mid to late 90s it definitely hit home because no question I'm a lunatic but it really was a job. I had a business that I technically owned but I was working seven days a week day and night, I had multiple locations and I was just running ragged and there was nothing systemic about it. There was nothing about it that was leverageable it was just all guts of myself and an incredibly great team. They were great people but they weren't being led well and the leadership was my responsibility. So not only did we have this you know business going and we were getting things done and we were selling a couple of million bucks a year at the time. But it was not profitable per se. I mean we made a little money but it was a nightmare to run and operate. And I can't stress that enough. I was working seven days a week, at one point. For two and a half years I worked seven days every day for two and a half years and that is not a good way to live. The business technically owned me, I did not own the business. And that was what some of that messaging resonated in this book about the fact that just because you own a business doesn't mean you are a business owner. You might just be a worker there because you're making some mistakes. So let's talk about some history here. It's a common statistic for us to know that 80 percent of all small businesses fail in the first five years. The way this is measured is basically states go well, five years ago all of these companies started in business and now it's five years later and 80 percent are not continuing their registration. Now other things happen along the way. Some businesses were bought, some may have done some sort of reorganization in another state but largely I think it's accepted that most small businesses fail within the first five years. It's precisely this phenomenon that Michael Gerber kind of tries to explain and tries to help us get to the bottom of. One of the things that I think is important for us to remember is that running a business and getting the technical work done are two different things right. Delivering the products or service that you're offering in your business is not the same thing as running that business. We confuse it so often and that's something that I think he does a good job of talking about and helping us kind of separate and understand those things. For my part, one of the big takeaways is that Michael Gerber talks all about systems and that the more your company depends on the systems then it's easier to kind of operate that business over time. So three kind of big takeaway lessons. One, if you want to help your business survive this adolescence phase of the business and just think of business having a lifespan, there's the baby business they adolescent business then it grows up to be a teenage rebellious business and then you know a business that's spawning off other businesses and maybe someday has little grandbaby businesses but during the adolescence phase you need to make sure that you focus on systems. So let's start with a foundational point. Again having great technical skills doesn't mean you know how to run a business. We're going to talk a little bit more about that second is to kind of imagine from day one that you make this thing a nationwide national franchise phenomena. Then you decide to build your first store with that kind of mindset in mind. You're seeing that big picture and then you're going to try to engineer the outcome. And then when you when you build the business around systems instead of around people's personalities or their individual skill sets, it's much more scalable. Now we'll talk later about the fact that systems of people are together critical but you know if you have a particular person on your staff and they're really good, “Hey I could do both finance and I can do customer service.” That's great! That person is probably wearing two different hats because you're never probably going to be able to hire somebody that is both a great accountant and great at customer service later. So think of those as two separate positions instead of that individual person who's great being the person who needs to be replaced if they ever leave the company. So that's part of that system mindset. We're going probably dive into that a little bit more as well. So let's let's repeat this premise having great technical skills does not mean you know how to run a business. As always I like to let some of these things just sink in for a second. We know for a fact that many of us running a business is today, you know when we look in the mirror we're like I don't actually know what I'm doing. If we're honest with ourselves most of us who don't have experience actually managing or running a business we have to learn it. That's a big gap in most people's understanding of business ownership. You can file the permits and you can open the business and you can even start producing revenue but that doesn't give you leadership experience management experience and the experience of being an owner.  And kind of the buck stops here because owning a business can be a very lonely situation. That's I think talked about pretty well in this book as well. The fact that you know 80% of businesses were four out of five small businesses don't make it past the five-year mark could be considered I don't know depressing in many ways. But you know we have to ask ourselves you know what's why is this happening? What's the cause of it? And this is where the title of the book the e-myth comes from. This great entrepreneurial myth - all I have to do is become an entrepreneur and my problems are solved.Because I'm a great carpet cleaner, because I'm a great window cleaner or because I'm a great janitor or because I'm a great salesman that doesn't make me a great runner of any of those businesses and that's that is such a paradox. We have these great skills, maybe I'm the best painter on the planet but that doesn't mean I know how to run a painting company without learning. No matter what business type you're in, let's think about that. Think about how we develop ourselves as leaders and as managers so you know whether you're a great Baker, a great auto mechanic, a writer - that doesn't mean you are capable of running a business yet. Those are different things entirely. We have to really give ourselves the chance to develop both sides of it. If you're already good technician you don't have to develop that much but I will tell you this, it's a common trap that's talked about in the E-Myth. That we're so anxious to show off our technical skills because we're so good at it that we will often find ourselves back fighting the fires day to day, working in the business, not on the business. And that's a big premise that Michael Gerber brings to this book. Once you start a business you don't want to be the one who's doing all of the technical work and ideally in the future probably not any of the technical work. You have to be developing yourself as a CEO, CFO, CTO, CMO and all of the other you know normal functions that you might find in a business. These are critical tasks that have to be done from a leadership perspective and that key role is always going to rely on you up front until you have time to hire for more of those positions. If you understand how to be a great server or a great barista, that doesn't mean you should go open a coffee shop or restaurant. It means maybe you first have to figure out how to do some of those technical details like how to hire great people, how to retain the people, is there a way that you can put you know VAs into the mix and delegate some of these tasks to outside providers. How are you going to manage these people on a day to day basis? What's your vacation policy? There are so many important things when it comes to dealing with a business from a management perspective that we don't always take time to really understand. The big picture concept is this idea that Michael Gerber calls the franchise prototype because he says all of this is solvable, every problem we've described thus far has a solution to it, of course, it does. One of my core philosophies is every problem does have a solution and in fact, I think is one of my axioms. This underlying solution is that systems are what solve the problems. McDonald's which is the ultimate example of a franchise roll out they have made it so easy. Let's say there are 20 people on a McDonald's most of them are high school kids and you might have a leader to floating around in there but really people without skills without extraordinary abilities are able to run that business because the systems are clear, because the process and all of the things that have been set up are so clear. This is why if you consider, what if you had to sell this thing as a franchise you're going to start systematizing everything from the beginning so that you can ultimately take yourself out of the equation. It's that concept of making the systems be responsible first and then the people for the system's second that will allow you to sustainably scale and grow your business. As you think about building you know this franchise concept and even if you're an E-commerce, the same thing applies because maybe you want to have more than one brand or maybe you want to apply your cool system technique for other their other customers. You have to figure out what are the functions in the business.  You have to figure out you know what you need to do to kind of deliver a positive customer experience and source the product or service and keep the people engaged in happy long-term. How are you going to do the training? How are you going to make sure that if somebody leaves a company that you can slot somebody back into that role? All of this is about the franchise prototype which requires documentation at the end of the day. I want to be sure everybody understands that today it's easier than ever to put these systems and processes in play. When I started out, when reading this book, probably when it first came out in the late 90s, mid-90s perhaps - everything was by hand. We were literally you know we'd write things down. We did have computers, yes for you young people, we did have computers in the 90s but you know it was all just kind of writing it down and putting in a word documents. There were no online you know cool tools to help you keep things like Process Street or other things like that. You know Parsimony didn't exist you know. Today in part the Parsimony ERP system, there are training programs you can put in there. There's documentation you can put in there. There are FAQs that you know every customer who submits a contact form you can answer that and then you can click the help and it just automatically builds an FAQ section so you can leverage kind of these customer interactions. So the power of technology to help build this franchise prototype concept is way better than it has ever been before. This is the solid days of coming up to you know building systems. Think about that franchise prototype and then when we come back we're gonna dive farther into this great book, the E-Myth right after this.

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17:22 (Steve quotes his favorites lines in the book, E-Myth)

Steve: Okay gang, we're back here and one of my favorite quotes from the book and I've repeated this over and over and I created it regularly but you know when I failed to just know that it came from the E-Myth and that is, the system runs the business and that people run the systems right. Let's just kind of let that marinate for a minute. When you have this concept that the system is what's driving the key metrics, that the system is executing, the system is then measuring and then the system is going to help you review those metrics. that's what runs the business. The people then look at those metrics and determine if a system running correctly and if so and we still have failures maybe we need to tweak the system right. This is really really important that we don't want to rely on individuals people's awesomeness. Another quote which I've repeated often and I think I even mentioned earlier in this episode is that the principle of the E-Myth is to have ordinary people produce extraordinary results and the way they do that is they they take the power of the system and they leverage that power. So if you have an individual who's extraordinary at Facebook marketing or copywriting or whatever the skill set is, that's great. We want to you know fully utilize that person's skill and their savvy and talent in people is never going to be replaced or eliminated. But if that person leaves you can't have your whole business disappear. You can't fold up the tent and go home so that's why you need to have the system that is built around so all of the people can have support and they can be empowered in their building of their own you know function and and delivering those accountable metrics often called strategic indicators in the E-Myth vernacular and these are things that vary from job to job. Some examples of strategic indicators may be in sales. It's how many sales did I do this month? The quantity and the total gross dollar volume or whatever your currency is.  Maybe it's the margin also for sales whereas the merchandising or product development teams, they're going to be probably on inventory turns. They're probably going to be on margin. Also probably on some sort of dollars. The marketing team is probably going to be on conversion rates. They may be on you know ad to sales ratio, return on ad spend, those types of things. The key indicators in each function helps you measure the business and this is a big part of the E-Myth. Now what this means is when you have systems you can go through and you can make changes to the individual systems in a particular function without it breaking every other part of the business. This is a modular concept and having these different modules is an important thing right. So if you change something in finance it shouldn't break what's happening in marketing or logistics or whatever else. They're generally according to the E-Myth three kinds of systems that will help you know put your business together. There's the the heart systems and think of this as something as simple as the alarm system in your building or the coffee machine or you know Seller Central if you're an Amazon seller these are these are hard systems because they they are just part of you know the ecosystems and they're inanimate in many ways. Now there’s soft systems that would be things like the ideas and you know the the concepts at your office. You might have a policy that says, hey every Friday we're going to do a free lunch. So the soft systems are going to be things that you know kind of help the culture. Then there's of course the the information systems. This is going to be any of your training manuals, any of your online training, the data. This is where the key indicators will come out, where you start to figure out you know what are my sales? What is my margin? What is the performance of my business overall? Think about those different systems types. So we've talked about you know the three different systems; the hard system, soft systems and information systems that have been reflected in the E-Myth Revisited, our Book of the week but the important takeaway perhaps is the idea that you know your job ultimately is to make sure that the system's run together, to develop the systems, to develop people who can also develop and tweak those systems on an ongoing basis. I definitely am not talented enough or perhaps I'm too lazy but I'm not going to write all the systems myself right. I want to be able to provide the system's mentality and the support and infrastructure and tools so that my team can build the systems. So they can build the systems because ultimately you know when we talk about people leaving positions it's not just that they quit or they were fired. They may need to move on to other more important jobs within the organization and that allows us to bring in new junior people and then promote our people which is good for the company culture. That's why systems are important right. This is not about you know we lack retention or we're bad managers so we have to fire people. We made a bad hire and then we got to resolve that. This is about giving opportunity to our people and that's a big important part of this process. So we've talked in a little bit about this in the opening about this business life cycle right. The human grows we understand you know you got the baby and they're crawling around. Then the toddlers starting to walk around and get his legs under him. Then you know kind of the adolescent is you know kind of starting to do things and learning elementary schools type things. Then you're into the rebellious teen years and and so on and so forth. So think about your business and that same concept because it really does go through that same kind of life cycle and the E-Myth is certainly going to talk you through that concept. So you have to think about you know especially if you haven't started an entrepreneurial endeavor yet. One of these questions look like ahead of time and this book is really good to to drive you to try to figure these things out ahead of time. If you're already in the midst of it like I was when you read the business, it can be a little bit daunting and even depressing to go oh my gosh this is so much work. How am I gonna get systems for all these you know different departments and all these different roles? It's just difficult. I don't want it to be overwhelming for you. I think the first thing is to kind of understand the systems are the key and then have a process for starting to build those systems over time.I heard a quote I don't remember where it came from forgive me, if this was your quote, but basically people are like yes but I need it all now right. It doesn't matter what your goal is, whether it's getting all your systems done or you want to lose some weight or whatever it is but I want it now. Somebody just said one time you know what? The times gonna pass either way right, if you're lucky. The times going to pass either way so just relax and just make it something that is sustainable and feasible to get done. Don't overwhelm yourself. Don't focus on what you don't have. Focus on what you do have and then what you can build. So Michael Gerber calls something called the turnkey revolution which he claims has a 75% success rate and this idea is that turnkey franchise prototype, where you know a business owner can turn the business over to managers and staff and team to run that business without requiring them day to day. That is the critical transition point between working on your business from that high level to working in your business and going through the doing it, doing it, doing a day-in-day-out grind and all of us have had that day-in-day-out grind. This is why we talk about the different roles for you as the as the owner or CEO, you have different roles right. One of them is your manager, where you're looking after people. One of them is your technician where you know the skills that need to be deployed to solve a particular problem and then one of course as you as the owner-entrepreneur. When we start out we're splitting our time between those three; the owner, the manager and the the technician but mostly the technician is getting the time because we got to get some stuff, sold we got to get things done. Over time, you need to move from the technician into management and for management into ownership as you can build layers of people to take on those responsibilities. This is why over time an organizational chart is a critical part of the equation even if you hate them like I do, making first a functional organizational chart and I'll share one of those in the future Awesomers episode is the first step and then making a position org chart is kind of the second step so that you can really understand how the business flows from top to bottom. It's really an important thing and at the end of the day if your business doesn't serve the the needs of the customer then you're going to be fired anyway by those customers so there's no point in worrying about a long-term business because you didn't focus on you know getting happy customers. Fundamentally understanding those different business roles and then migrating from that heavily technician mindset into management and then ultimately into the ownership is very important. So finally I want to share you know what kind of my summary is and what my biggest takeaways. One of the things I love about the E-Myth is that he shares a common vocabulary that we can use. This vocabulary about systems and about process and about you know franchise prototype and so forth, all of the things inside there give you and I a vocabulary we could share and you will get a lot more out of Awesomers episodes if you read this book but more importantly you will change your business, you will change your mindset, if you really adopt that systems mentality. There will be many many more episodes in our future where we talk about you know the philosophical piece of this, where we talk about the system's piece, the technician side, the management side - all of these different things but having that baseline of vocabulary is a great start. Now the second piece of that is the philosophical baseline right. I like to be able to share that the philosophy that I have. Again, strategy, systems and scale and it's a linear process. If you have a crappy strategy, the other two won't matter. If you get strategy right, the other two then become critical. Because you want to hit systems and then you hit scale. And that philosophy helps us all kind of have again, a basic understanding and a general baseline of understanding and philosophical kind of alignment so that when we talk about these things in Awesomers episodes and you know in our daily lives even, that there's a common understanding. I really think that this has been something that has been a very very important book to me. I applaud Michael Gerber for you know writing this original book.I have to say I've read some of these other books that are more like lead magnets for their training programs and things like that, it's a little not quite as good for me. I also want to say as much as I love this book I always give people kind of the same general disclaimer. The way the book is written has some soft edges to it. When I first started explaining I'm like you know, they make sure that you focus on the core messages in this book and you can kind of skip the hippie talk. I know that may be a stupid way to say it, but you know some of the soft edges, I didn't have a lot of time or empathy for at that moment. Probably some of those lessons are valuable but even if you find some of those soft edges, things that you don't resonate with, I want to extol to you the virtues of the core takeaways working on your business not in it. Building something in this long-term and sustainable through systems. I highly believe it and I think this book is really really pivotal in my own understanding of it. Then how I began my journey to really get you know systems in every possible thing I could do. Although we're not perfect at it I would guess that we are probably highly systems focused proportionally much higher than the average company and certainly the average startup. Systems really do run our business. I hope this was instructive for you guys. This is a again at kind of a book of the week review for the E-Myth written by Michael E. Gerber. I really do recommend this book. I hope you get out there check it out and in the show notes we'll have links to the book and maybe even some other takeaways or stories though that we may be able to share with you. Hope you enjoyed this episode. awesomer.com/8 is where you can go to find show notes in the details. I really do enjoy this book. It's something that I believe in and it's certainly something that I hope you guys take the time to read it's for sure something that really made a mark on me, in my career and my systems building and I think it's worth your time to investigate it right now. We will be right back after this.

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Well, we've done it again everybody. We have another episode of the Awesomers podcast ready for the world. Thank you for joining us and we hope that you've enjoyed our program today. Now is a good time to take a moment to subscribe, like and share this podcast. Heck, you can even leave a review if you wanted. Awesomers around you will appreciate your help. It's only with your participation and sharing that we'll be able to achieve our goals. Our success is literally in your hands. Thank you again for joining us. We are at your service. Find out more about me, Steve Simonson, our guest, team and all the other Awesomers involved at Awesomers.com . Thank you again.