July 16, 2021

📚️ Book Notes: The E-Myth Revisited

Loved this business novel. It hit me that the sole aim of a small business owner should be to create playbooks that anyone can execute.

Here are my notes from The E-Myth Revisited:

1. 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. Your business is nothing more than a distinct reflection of who you are.
   If your thinking is sloppy, your business will be sloppy.
   If you are disorganized, your business will be disorganized.
   If you are greedy, your employees will be greedy, giving you less and less of themselves and always asking for more.
   If your information about what needs to be done in your business is limited, your business will reflect that limitation.
   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.
3. The problem is that everybody who goes into business is actually three-people-in-one: The Entrepreneur, The Manager, and The Technician.
   And the problem is compounded by the fact that while each of these personalities wants to be the boss, none of them wants to have a boss.
   So they start a business together in order to get rid of the boss. And the conflict begins.
   To show you how the problem manifests itself in all of us, let’s examine the way our various internal personalities interact. Let’s take a look at two personalities we’re all familiar with: The Fat Guy and The Skinny Guy.
   Have you ever decided to go on a diet?
   You’re sitting in front of the television set one Saturday afternoon, watching an athletic competition, awed by the athletes’ stamina and dexterity.
   You’re eating a sandwich, your second since you sat down to watch the event two hours before.
   You’re feeling sluggish in the face of all the action on the screen when, suddenly, somebody wakes up in you and says, “What are you doing? Look at yourself, You’re Fat! You’re out of shape! Do something about it!”
   It has happened to us all. Somebody wakes up inside us with a totally different picture of who we should be and what we should be doing. In this case, let’s call him The Skinny Guy.
   Who’s The Skinny Guy? He’s the one who uses words like discipline, exercise, organization. The Skinny Guy is intolerant, self-righteous, a stickler for detail, a compulsive tyrant.
   The Skinny Guy abhors fat people. Can’t stand sitting around. Needs to be on the move. Lives for action.
   The Skinny Guy has just taken over. Watch out—things are about to change.
   Before you know it, you’re cleaning all the fattening foods out of the refrigerator. You’re buying a new pair of running shoes, barbells, and sweats. Things are going to be different around here. You have a new lease on life. You plan your new physical regimen: up at five, run three miles, cold shower at six, a breakfast of wheat toast, black coffee, and half a grapefruit; then, ride your bicycle to work, home by seven, run another two miles, to bed at ten—the world’s already a different place!
   And you actually pull it off! By Monday night, you’ve lost two pounds. You go to sleep dreaming of winning the Boston Marathon. Why not? The way things are going, it’s only a matter of time.
   Tuesday night you get on the scale. Another pound gone! You’re incredible. Gorgeous. A lean machine.
   On Wednesday, you really pour it on. You work out an extra hour in the morning, an extra half-hour at night.
   You can’t wait to get on the scale. You strip down to your bare skin, shivering in the bathroom, filled with expectation of what your scale is going to tell you. You step lightly onto it and look down. What you see is…nothing. You haven’t lost an ounce. You’re exactly the same as you were on Tuesday.
   Dejection creeps in. You begin to feel a slight twinge of resentment. “After all that work? After all that sweat and effort? And then—nothing? It isn’t fair.” But you shrug it off. After all, tomorrow’s another day. You go to bed, vowing to work harder on Thursday. But somehow something has changed.
   You don’t know what’s changed until Thursday morning.
   It’s raining.
   The room is cold.
   Something feels different.
   What is it?
   For a minute or two you can’t quite put your finger on it.
   And then you get it: somebody else is in your body.
   It’s The Fat Guy!
   He’s back!
   And he doesn’t want to run.
   As a matter of fact, he doesn’t even want to get out of bed. It’s cold outside. “Run? Are you kidding me?” The Fat Guy doesn’t want anything to do with it. The only exercise he might be interested in is eating!
   And all of a sudden you find yourself in front of the refrigerator—inside the refrigerator—all over the kitchen!
   Food is now your major interest.
   The Marathon is gone; the lean machine is gone; the sweats and barbells and running shoes are gone.
   The Fat Guy is back. He’s running the show again.
   It happens to all of us, time and time again. Because we’ve been deluded into thinking we’re really one person.
   And so when The Skinny Guy decides to change things we actually believe that it’s I who’s making that decision.
   And when The Fat Guy wakes up and changes it all back again, we think it’s I who’s making that decision too.
   But it isn’t I. It’s we.
   The Skinny Guy and The Fat Guy are two totally different personalities, with different needs, different interests, and different lifestyles.
   That’s why they don’t like each other. They each want totally different things.
   The problem is that when you’re The Skinny Guy, you’re totally consumed by his needs, his interests, his lifestyle.
   And then something happens—the scale disappoints you, the weather turns cold, somebody offers you a ham sandwich. At that moment, The Fat Guy, who’s been waiting in the wings all this time, grabs your attention. Grabs control.
   You’re him again.
   In other words, when you’re The Skinny Guy you’re always making promises for The Fat Guy to keep.
   And when you’re The Fat Guy, you’re always making promises for The Skinny Guy to keep.
   Is it any wonder we have such a tough time keeping our commitments to ourselves?
   It’s not that we’re indecisive or unreliable; it’s that each and every one of us is a whole set of different personalities, each with his own interests and way of doing things. Asking any one of them to defer to any of the others is inviting a battle or even a full-scale war.
   Anyone who has ever experienced the conflict between The Fat Guy and The Skinny Guy (and haven’t we all?) knows what I mean. You can’t be both; one of them has to lose. And they both know it.
   Well, that’s the kind of war going on inside the owner of every small business.
   But it’s a three-way battle between The Entrepreneur, The Manager, and The Technician.
   Unfortunately, it’s a battle no one can win.
4. 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 Entrepreneur lives in the future, never in the past, rarely in the present. He’s happiest when left free to construct images of “what-if” and “if-when.”
   In science, the entrepreneurial personality works in the most abstract and least pragmatic areas of particle physics, pure mathematics, and theoretical astronomy. In art, it thrives in the rarefied arena of the avant-garde. In business, The Entrepreneur is the innovator, the grand strategist, the creator of new methods for penetrating or creating new markets, the world-bending giant—like Sears Roebuck, Henry Ford, Tom Watson of IBM, and Ray Kroc of McDonald’s.
   The Entrepreneur is our creative personality—always at its best dealing with the unknown, prodding the future, creating probabilities out of possibilities, engineering chaos into harmony.
   Every strong entrepreneurial personality has an extraordinary need for control. Living as he does in the visionary world of the future, he needs control of people and events in the present so that he can concentrate on his dreams.
   Given his need for change, The Entrepreneur creates a great deal of havoc around him, which is predictably unsettling for those he enlists in his projects.
   As a result, he often finds himself rapidly outdistancing the others.
   The farther ahead he is, the greater the effort required to pull his cohorts along.
   This then becomes the entrepreneurial worldview: a world made up of both an overabundance of opportunities and dragging feet.
   The problem is, how can he pursue the opportunities without getting mired down by the feet?
   The way he usually chooses is to bully, harass, excoriate, flatter, cajole, scream, and finally, when all else fails, promise whatever he must to keep the project moving.
   To The Entrepreneur, most people are problems that get in the way of the dream.
5. The managerial personality is pragmatic. Without The Manager there would be no planning, no order, no predictability.
   The Manager is the part of us that goes to Sears and buys stacking plastic boxes, takes them back to the garage, and systematically stores all the various sized nuts, bolts, and screws in their own carefully identified drawer. He then hangs all of the tools in impeccable order on the walls—lawn tools on one wall, carpentry tools on another—and, to be absolutely certain that order is not disturbed, paints a picture of each tool on the wall where it hangs!
   If The Entrepreneur lives in the future, The Manager lives in the past.
   Where The Entrepreneur craves control, The Manager craves order.
   Where The Entrepreneur thrives on change, The Manager compulsively clings to the status quo.
   Where The Entrepreneur invariably sees the opportunity in events, The Manager invariably sees the problems.
   The Manager builds a house and then lives in it, forever.
   The Entrepreneur builds a house and the instant it’s done begins planning the next one.
   The Manager creates neat, orderly rows of things. The Entrepreneur creates the things The Manager puts in rows.
   The Manager is the one who runs after The Entrepreneur to clean up the mess. Without The Entrepreneur there would be no mess to clean up.
   Without The Manager, there could be no business, no society. Without The Entrepreneur, there would be no innovation.
   It is the tension between The Entrepreneur’s vision and The Manager’s pragmatism that creates the synthesis from which all great works are born.
6. 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. He loves the feel of things and the fact that things can get done.
   As long as The Technician is working, he is happy, but only on one thing at a time. He knows that two things can’t get done simultaneously; only a fool would try. So he works steadily and is happiest when he is in control of the work flow.
   As a result, The Technician mistrusts those he works for, because they are always trying to get more work done than is either possible or necessary.
   To The Technician, thinking is unproductive unless it’s thinking about the work that needs to be done.
   As a result, he is suspicious of lofty ideas or abstractions.
   Thinking isn’t work; it gets in the way of work.
   The Technician isn’t interested in ideas; he’s interested in “how to do it.”
   To The Technician, all ideas need to be reduced to methodology if they are to be of any value. And with good reason.
   The Technician knows that if it weren’t for him, the world would be in more trouble than it already is. Nothing would get done, but lots of people would be thinking about it.
   Put another way, while The Entrepreneur dreams, The Manager frets, and The Technician ruminates.
   The Technician is a resolute individualist, standing his ground, producing today’s bread to eat at tonight’s dinner. He is the backbone of every cultural tradition, but most importantly, of ours. If The Technician didn’t do it, it wouldn’t get done. Everyone gets in The Technician’s way.
   The Entrepreneur is always throwing a monkey wrench into his day with the creation of yet another “great new idea.” On the other hand, The Entrepreneur is always creating new and interesting work for The Technician to do, thus establishing a potentially symbiotic relationship.
   Unfortunately, it rarely works out that way.
   Since most entrepreneurial ideas don’t work in the real world, The Technician’s usual experience is one of frustration and annoyance at being interrupted in the course of doing what needs to be done to try something new that probably doesn’t need to be done at all.
   The Manager is also a problem to The Technician because he is determined to impose order on The Technician’s work, to reduce him to a part of “the system.”
   But being a rugged individualist, The Technician can’t stand being treated that way.
   To The Technician, “the system” is dehumanizing, cold, antiseptic, and impersonal. It violates his individuality.
   Work is what a person does. And to the degree that it’s not, work becomes something foreign.
   To The Manager, however, work is a system of results in which The Technician is but a component part.
   To The Manager, then, The Technician becomes a problem to be managed. To The Technician, The Manager becomes a meddler to be avoided.
   To both of them, The Entrepreneur is the one who got them into trouble in the first place!
7. “But I can’t even imagine what my business would be like without me doing the work,” she said. “It has always depended on me. If it weren’t for me, my customers would go someplace else. I’m not sure I understand what’s really wrong with that.”
   “Well, think about it,” I said. “In a business that depends on you, on your style, on your personality, on your presence, on your talent and willingness to do the work, if you’re not there why of course your customers would go someplace else. Wouldn’t you?
   “Because in a business like that what your customers are buying is not your business’s ability to give them what they want but your ability to give them what they want. And that’s what’s wrong with it!
   “What if you don’t want to be there? What if you’d like to be someplace else? On a vacation? Or at home? Reading a book? Working in the garden? Or on a sabbatical, for God’s sake? Isn’t there any place you would rather be at times than in your business, filling the needs of your customers who need you so badly because you’re the only one who can do it? “What if you’re sick, or feel like being sick? Or what if you just feel lazy?
   “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.
   “The purpose of going into business is to expand beyond your existing horizons. So you can invent something that satisfies a need in the marketplace that has never been satisfied before. So you can live an expanded, stimulating new life.”
   Sarah said, “I hate to beat a dead horse, but what if I want to do the technical work in my business? What if I don’t want to do anything else but that?”
   “Then for God’s sake,” I said as emphatically as I dared, “get rid of your business! And get rid of it as quickly as you can. Because you can’t have it both ways. You can’t ‘have your pie and eat it too.’ You can’t ignore the financial accountabilities, the marketing accountabilities, the sales and administrative accountabilities. You can’t ignore your future employees’ need for leadership, for purpose, for responsible management, for effective communication, for something more than just a job in which their sole purpose is to support you doing your job. Let alone what your business needs from you if it’s to thrive: that you understand the way a business works, that you understand the dynamics of a business—cash flow, growth, customer sensitivity, competitive sensitivity, and so forth.
   “The point is,” I said to her, watching her face sink and then begin to lift with an unexpressed question, “if all you want from a business of your own is the opportunity to do what you did before you started your business, get paid more for it, and have more freedom to come and go, your greed—I know that sounds harsh, but that’s what it is—your self-indulgence will eventually consume both you and your business.”
8. You could have anticipated that people would love your pies and that the business would therefore have to grow.
9. It all started in 1952 when a fifty-two-year-old salesman walked into a hamburger stand in San Bernardino, California, to sell the two brothers who owned it a milkshake machine.
   What he saw there was a miracle.
   At least that’s how Ray Kroc, the milkshake machine salesman, might have described it. For he had never seen anything like that very first MacDonald’s (later to become McDonald’s) hamburger stand.
   It worked like a Swiss watch!
   Hamburgers were produced in a way he’d never seen before—quickly, efficiently, inexpensively, and identically.
   Best of all, anyone could do it.
   He watched high school kids working with precision under the supervision of the owners, happily responding to the long lines of customers queued up in front of the stand.
   It became apparent to Ray Kroc that what the MacDonald brothers had created was not just another hamburger stand but a money machine!
   Soon after that first visit, and possessed by a passion he had never felt quite like that before, Ray Kroc convinced Mac and Jim MacDonald to let him franchise their method.
   Twelve years and several million hamburgers later, he bought them out and went on to create the largest retail prepared food distribution system in the world.
   “The Most Successful Small Business in the World”
   That’s what McDonald’s calls itself today.
   And for good reason.
   Because the success of McDonald’s is truly staggering.
   Think about it. In less than forty years, Ray Kroc’s McDonald’s has become a $40-billion-a-year business, with 28,707 restaurants worldwide—and growing in number every minute—serving food to more than 43 million people every day in 120 countries, representing more than 10 percent of the gross restaurant receipts in America!
   The average McDonald’s restaurant produces more than $2 million in annual sales, and is more profitable than almost any other retail business in the world, with an average 17 percent pretax net profit.
   But Ray Kroc created much more than just a fantastically successful business. He created the model upon which an entire generation of entrepreneurs have since built their fortunes—a model that was the genesis of the franchise phenomenon.
   It started as a trickle when a few entrepreneurs began to experiment with Kroc’s formula for success. But it wasn’t long before the trickle turned into Niagara Falls!
   In 2000, there were 320,000 franchised businesses in 75 industries. Franchises produce $1-trillion in sales each year—almost 50 percent of every retail dollar spent in the nation—and had more than 8 million full- and part-time people, the largest employer of high school youth in the country’s economy.
   But the genius of McDonald’s isn’t franchising itself. The franchise has been around for more than a hundred years. Many companies—Coca-Cola and General Motors among them—have utilized franchising as an effective method of distribution to reach broadly expanding markets inexpensively. The true genius of Ray Kroc’s McDonald’s is the Business Format Franchise.
   It is the Business Format Franchise that has revolutionized American business.
   It is the Business Format Franchise, with one new franchise opening its doors every eight minutes of every single business day, that has spawned so much of the success of the franchise phenomenon over the past forty years. And, according to studies conducted by the U.S. Commerce Department from 1971 to 1987, less than 5 percent of franchises have been terminated on an annual basis, or 25 percent in five years.
   Compare that statistic to the more than 80-percent failure rate of independently owned businesses, and you can immediately understand the power of the Turn-Key Revolution in our economy, and the contribution that the Business Format Franchise has made to it and the future success of your business.
10. Instead of asking, “Hi, may I help you?” try “Hi, have you been in here before?” The customer will respond with either a “yes” or a “no.” In either case, you are then free to pursue the conversation.
    If the answer is yes, you can say, “Great. We’ve created a special new program for people who have shopped here before. Let me take just a minute to tell you about it.”
    If the answer is no, you can say, “Great, we’ve created a special new program for people who haven’t shopped here before. Let me take just a minute to tell you about it.”
    Of course, you’ll have to have created a special new program to talk about in either case. But that’s the easy part.
    Just think. A few simple words. Nothing fancy. But the result is guaranteed to put money in your pocket. How much? That depends on how enthusiastically you do it. The experience of our retail clients tells us that by doing this one thing alone, sales will increase between 10 and 16 percent almost immediately!
    Can you believe it? A few simple words and sales instantly go up. Not by just a little bit, mind you, but by a considerable amount! What would you do for a 10-to 16-percent increase in sales?
11. Again, for salespeople, a six-week test. For the first three weeks, wear a brown suit to work, a starched tan shirt, a brown tie (for men), and well-polished brown shoes. Make certain that all the elements of your suit are clean and well-pressed. For the following three weeks wear a navy blue suit, a good, starched white shirt, a tie with red in it (a pin or a scarf with red in it for women), and highly polished black shoes.
    The result will be dramatic: sales will go up during the second three-week period! Why? Because, as our clients have consistently discovered, blue suits outsell brown suits! And it doesn’t matter who’s in them.
    Is it any wonder that McDonald’s, Federal Express, Disney, Mrs. Field’s Cookies, and many more extraordinary companies spend so much time and money on determining how they look? It pays! And it pays consistently, over and over and over again.
12. A franchise is simply your unique way of doing business.
13. Think of your business as though it were the prototype for 5,000 more just like it.
    To imagine that someone will walk through your door with the intention of buying your business—but only if it works. And only if it works without a lot of work and without you to work it.
14. Ask anyone what kind of business they’re in and they’ll instinctively respond with the name of the commodity they sell. “We’re in the computer business.” Or, “We’re in the hot tub business.” Always the commodity, never the product. What’s the difference?
    The commodity is the thing your customer actually walks out with in his hand.
    The product is what your customer feels as he walks out of your business.
    What he feels about your business, not what he feels about the commodity.
    Understanding the difference between the two is what creating a great business is all about.
    Charles Revson, the founder of Revlon and an extraordinarily successful entrepreneur, once said about his company: “In the factory Revlon manufactures cosmetics, but in the store Revlon sells hope.”
    The commodity is cosmetics; the product, hope.
    In a Chanel television commercial in the 1980s, an incredibly handsome man and a strikingly beautiful woman are alone while music plays hypnotically in the background.
    The scene shifts quickly and frequently to other shots, such as a tall, erect building.
    So far there hasn’t been a sound except for the music that supports this suggestive visual ballet.
    The black shadow of an airplane moves vertically up the building.
    She approaches him.
    The music continues.
    He says, “Can I ask you a question?” in a voice filled with intimacy and invitation.
    We don’t hear her answer.
    We just see her tilt her head back, close her eyes, and open her mouth slightly.
    Suddenly, the message: “Share the Fantasy. Chanel.”
    Not a word about perfume. That’s the commodity. The commercial is selling the product—fantasy.
    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.
    And the demographics and psychographics associated with your customer will predetermine how you do that.
15. All organizations are hierarchical. At each level people serve under those above them. An organization is therefore a structured institution. If it is not structured, it is a mob. Mobs do not get things done, they destroy things.
16. The work we do is a reflection of who we are. If we’re sloppy at it, it’s because we’re sloppy inside. If we’re late at it, it’s because we’re late inside. If we’re bored by it, it’s because we’re bored inside, with ourselves, not with the work. The most menial work can be a piece of art when done by an artist. So the job here is not outside of ourselves, but inside of ourselves. How we do our work becomes a mirror of how we are inside.

If you liked the above content, I'd definitely recommend reading the whole book. 💯

Until We Meet Again...
🖖 swap