Did you ever realize that the vast majority of small businesses fail without ever becoming successful? Did you ever wonder what’s so special about businesses that survive past the five-year mark and then run smoothly ever after?
In The E-Myth Revisited, author Michael Gerber, goes through the E-Myth related to start ups. The E-Myth, or entrepreneurial myth, is a fundamental misunderstanding in American business. It’s the notion that skillful technical work and a good idea form a sufficient basis for business success.
Did you know that one million small businesses are founded in America each year, but 40 percent of them fail in the first year and 80 percent in the first five years? That’s 800,000 failed businesses, and most of these failures are due to the E-Myth.
People often start their own business merely because they excel at work in a certain field, such as a machinist, barber or computer programmer. Then one day the entrepreneurial seizure strikes. They realize they don’t want to do technical work for someone else. They want to work for themselves as per their own ideas for their own business.
Let’s say you work as a barista. You’ve mastered coffee roasting, brewing and latte art and you have lots of ideas of how to run a cafe. Suddenly, you realize you’d rather open your own cafe.
Such a realization is the reason behind the one million new businesses each year. But if you start a business from the basis that you have technical expertise and new ideas, you’ve already started on the wrong foot. Your business will probably fail.
You’ve made the fatal assumption, the mistaken belief that knowing how to do technical work means you know how to run a business. In fact, technical work and the work required to run a business are two completely different things.
Here’s an example. A barista opens her own cafe, and soon realizes that her coffee skills are not enough to make her business successful. She has to know how to hire more employees, organize tasks and grow her business.
This is why so many small businesses fail!
Have you ever thought about the stages of a business like those of a person? Interestingly enough, businesses go through infant, adolescent and mature stages, just like we do. The difference is that most businesses won’t survive adolescence.
In the first stage, infancy, the owner and the business are one and the same. At first, infancy is romantic. The business owner finally gets to do all the work herself! For example, the barista opens her own cafe and is now roasting and brewing her own coffee – great!
But success at this stage means more customers and more production. Eventually, the work becomes too much to handle. At the barista’s cafe, customers notice the space isn’t as orderly anymore, because the owner doesn’t have time to clean every day.
Suddenly, by starting her own business, the owner too finds herself buried under technical tasks. She’s become the boss she wanted to avoid! When she hires someone to help her, the business enters its adolescence phase. Adolescence also starts out great, as the owner doesn’t have to do everything herself anymore.
But most adolescent business owners enjoy freedom too much and manage by abdication instead of managing by delegation. They leave their tasks to others and assume they’re taken care of, instead of ensuring everything is done properly.
Back at the cafe, customers start to complain about the lackluster lattes the new employees make.
During this part of the adolescent stage, the owner must be pulled past her comfort zone, where she controlled everything in the business herself. The business will fail unless it can grow beyond the owner’s ability to do and control everything herself.
What can the former barista, now business owner, do?
She could get small again, fire her employees and return to her comfort zone, where she’s instead overwhelmed with work. Alternatively, she could go for broke and let the growth of her business accelerate until it got out of control, hiring more employees and accepting an inevitable decline in quality.
Or finally, she can accept that her business has to grow and plan for this opportunity from day one. Even if you’re prepared to get out of your comfort zone and relinquish some control to grow your business, where do you start? You have to start from the very beginning, back before you even opened your business.
That’s because businesses that make it past adolescence and into maturity are founded on a broader perspective than most, and have planned their structures accordingly. Successful businesses consider the future, focusing on building a business that works without being dependent on the owner always being there. That way, when it’s time to grow past adolescence, they’ll be able to handle the growth.
To launch a business that will make it to maturity, you need entrepreneurial perspective. This means that you plan from the very beginning how your business will look, feel and work toward its goals.
Instead of asking “What work is necessary in the business?” ask “How will the business work as a whole?” For example, the barista knows the technical work her cafe requires. She’ll roast Guatemalan beans and serve lattes. But what will set her business apart from competitors? How will she attract customers? What sort of customer does she want? The answers to these questions demand entrepreneurial perspective.
Then, to implement your entrepreneurial perspective, you’ll need an entrepreneurial model. The entrepreneurial model is a plan for your business that satisfies potential customers’ needs in an innovative way.
Your entrepreneurial model will include your business’s market opportunities, a clear idea of your ideal customer and exactly how your product is to be delivered.
To save her business, the barista might have to close the cafe for a few days to ponder her entrepreneurial perspective and entrepreneurial model. She could decide, then, that her target customers are eco-conscious students and she’ll satisfy their needs by being the first cafe to offer locally sourced milk and reading cubicles.
Do you think of yourself as just one single, predictable personality? Then your business is probably going to struggle. The truth is that we’re made up of a number of battling personalities. Specifically, we’re each some part entrepreneur, manager and technician.
One moment we’re entrepreneurs creating a new product, and the next we’re a technician, frustrated with the new idea we just came up with a moment ago!
Of our battling personalities, the entrepreneur is the innovator, looking around and seeing a world of opportunity. She’s a high-energy dreamer and visionary. She sees all the angles, all the possibilities toward success and is intently focused on the future.
Sometimes that energy and constant opportunity-chasing creates havoc and chaos. She tries to pull people along and gets frustrated when things slow down or lag behind.
Without the entrepreneur, there’d be no innovation.
The manager in you is pragmatic and craves order. More than opportunities, she sees problems to fix. As the entrepreneur innovates and creates new things, the manager arranges things into rows, organized and orderly.
Without the manager, the business could never function.
Lastly, there’s the technician, the doer and the tinkerer.
The technician in you loves controlling the work flow and getting things done.
She’s frustrated by the entrepreneur’s flakiness and need to constantly change ideas, and irked by the manager’s meddling in her work flow. But she’s happy when the entrepreneur and the manager create more work for her to do.
Without the technician, nothing in the business would ever get done.
Although the three personalities inside us seem to be totally at odds with each other, we must utilize the strengths of each to run a successful business. That’s why the average small business owner is approximately 10 percent entrepreneur, 20 percent manager and 70 percent technician.
So now you know the daunting odds stacked against you if you decide to start a company. But how can you avoid becoming one of the 800,000 failed businesses? Well, there’s a revolution going on in small business, and within lies the secret of success.
Did you realize that we’re in the middle of a historic revolution that will change business forever?
It’s called the turn-key revolution, because more and more, businesses are being built so that an owner could in principle give the key to their business to anyone, and that person would be able to run the business successfully.
Businesses in the turn-key revolution create a model that works perfectly, provides a predictable product to the customer with every purchase and can be replicated without the owner’s presence.
In other words, they’re franchises.
For your business to be a turn-key business, you need to have a business format franchise: the model you give to the franchisee, the person who will run your franchise. It contains your business’s processes, organizations and systems.
The success rate for franchises is amazing. Whereas 80 percent of small businesses fail in the first five years, 75 percent of business format franchises succeed.
The turn-key revolution is so successful because it focuses on building businesses that anyone would want to buy.
For example, if someone wanted to buy your business, their first question would probably be, “Does it work?” If your business’s systems are designed to work in the simplest and most efficient way, anyone can run the business, and thus it is appealing to buy.
In the turn-key revolution, you’re not just selling the products you make to customers. You’re working to sell the whole business, including its processes and systems, to franchisees.
Ray Kroc started the turn-key revolution in 1952 when he became obsessed with creating a hamburger stand that would produce a precisely replicable hamburger to each customer. He reengineered the way hamburger stands worked, making everything so exact that, for example, every hamburger was flipped at precisely the same time. Kroc defined processes that anybody could follow because he saw the eventual franchisee, the person who would run the stand, as his real customer.
Kroc then sold the system of McDonald’s businesses as a franchise, thousands of times over.
So how do you go about making a franchise? The first thing you have to do is build a franchise prototype, the original model of your business that will be replicated. Your franchise prototype has to give people value and be so simple that it can operated by anyone.
The value your prototype gives customers is whatever they perceive it to be. Sound confusing? What it means is that the value can be anywhere: in your reasonable prices, in your amazing customer service, in a gift your customers receive in the mail, and so on.
For example, the barista’s cafe value could be her impeccable lattes that come with free cookies. Next, the way the value is delivered has to be designed in a way that is systems-dependent, not expert-dependent.
This means that you should design your systems to be so simple and efficient that your business will no longer rely on you or on technical experts.
For example, if the barista designs a flawless training program that ensures every barista in her cafe makes perfect lattes, she or other latte experts will not have to do it themselves. In addition, the franchise prototype should document everything in an operations manual.
If you don’t document how your business works, how will someone be able to run it without you? Therefore, you must write down every single process as part of your company’s how-to guide.
The barista’s cafe, then, should have manuals not just on how to make a latte, but on how to train people to make lattes. Lastly, the franchise prototype also should provide predictable service, 100 percent of the time.
If people don’t know what kind of product or service they’re going to receive, they probably won’t become regular customers. For example, people who come to the barista’s cafe shouldn’t get a delicious latte one day and a rancid one the next or they’ll never come back again. And of course, a franchisee won’t want to run a business with unpredictable results.
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