The E-Myth: A Crash Course On Why Most SMBs Don’t Work

Lo Kidd

March 29, 2021

If you’ve spent any time around here, you know we’re raving fans of Michael E. Gerber and his book – The E-Myth Revisited: Why Most Small Businesses Don’t Work And What To Do About It. And there’s a good reason why.

Not only did The E-Myth empower our CEO, Chris Ronzio, to scale his first business at age 14. But it also inspired him to consult hundreds of companies on the method. And eventually, that consultancy led to the #1 training tool for small businesses – Trainual!

So, here’s a high-level breakdown of what every small business owner should know about The E-Myth: 

👉 Prefer to read The E-Myth for yourself (we don’t blame you – we ask all our new hires to read it too). Get the book.

Why Michael E. Gerber wrote The E-Myth

The E-Myth was first published 35 years ago, but the problem it solves still very much exists today. 

Every year, millions of people in America alone launch a business of some sort, Michael explains. And within one year, 40% of those small businesses (SMBs) will have shut down. Within 5 years, that number jumps to 80%. 

And of the 20% that make it to year 5, 80% will fail by year 10. That means only about 4% of small businesses make it.

The SMB failure rate and the reason why the E-Myth was written.

But the blaring question is, why does this happen? 

According to Michael, it’s because US business owners “work far more than they should for the return they’re getting.” Meaning, they’re doing the wrong kind of work (and they don’t even know it). And the results are total, unmanageable chaos. When this doesn’t prove sustainable, they’re forced to close their doors. 

But despite all this, small businesses open every day. And from Day 1, most of them set themselves up for failure.

Michael, dubbed the world’s #1 small business guru, figured out how to break this cycle. And he wrote The E-Myth so that any small business owner could put his findings to good use. 

But first, you have to understand what exactly is The E-Myth.

What is The E-Myth?

The E-Myth (short for The Entrepreneurial Myth) is the romantic belief that small businesses are started by entrepreneurs. But Michael, who has spent a lifetime consulting SMBs, wholeheartedly disagrees.

“There is a myth in this country – I call it The E-Myth – which says that small businesses are started by entrepreneurs risking capital to make a profit. This is simply not so,” he explains. “The real reason people start businesses has little to do with entrepreneurship.”

You see – when we picture an entrepreneur, they’re super successful but alone. They stand triumphant, defying odds and making it almost exclusively on their own. But these types of people are few and far between. 

The reality is most small businesses aren’t started by entrepreneurs. They’re started by technicians (like carpenters, accountants, or hairdressers) who are incredibly good at their jobs. 

So good, in fact, that they decide to get rid of the boss and go into business for themselves. The E-Myth calls this “the entrepreneurial seizure,” and it can happen to anyone.

While these people may be great at what they do, it doesn’t mean they know how to run (let alone scale) a business. Gerber calls this the “fatal assumption,” and it’s the reason most SMBs fail. 

There is a distinct connection between The E-Myth and the devastating rate of small business failures. But luckily, Michael provides a solution. 

In The E-Myth Revisited, he writes: “understanding The E-Myth, and applying that understanding to the creation and development of a small business, can be the secret to any business’s success.”

In other words, if you want your business to change – you have to change your business. And to do that, you have to start at the beginning.

The entrepreneurial seizure

What were you doing before you started your business? If you’re like most people, you were doing technical work (that you were also really good at). But you did it for someone else. Then, suddenly, you were hit by an entrepreneurial seizure – and things would never be the same. 

The entrepreneurial seizure is the moment when you question why you’re working for someone else and decide to go into business for yourself. There may be no particular reason for its occurrence. But once it hits, you can’t shake the feeling of “I have to start my own business!”

You realized you were great at what you do. And you knew you could do it better than pretty much anyone else (your boss included). But the problem is that, often, this simply isn’t enough.

The fatal assumption

The fatal assumption is the belief that because you’re good at the technical work, you’ll also be good at running a business that does that work. But that’s not inherently true. 

Just because a hairdresser opens a salon, it doesn’t mean she knows how to run a business. Because the skills are totally different. A hairdresser cuts and colors. A salon owner does the books, orders the supplies, and gets customers.

And here’s why that’s a problem: technicians see a business as a place to go to work. So, when they own a business, what they really own is a job. And a lot of that new job is stuff they don’t know how to do. 

As a result, the technician may not feel empowered by the business – but engulfed in the work. They have too much on their plate, feel stretched in every direction, and aren’t sure how to fix it.

This scenario ultimately leads to exhaustion, frustration, and eventually closing up shop for many small business owners. But that doesn’t have to be your story!

The 3 sides of every business owner

Now that you know why businesses start and (often) why they fail, here’s what you need to know about the technician turned business owner. 

According to Michael, every small business owner has 3 sides to them. And each one represents a specific personality trait and plays a distinct role in the business: the entrepreneur, the manager, and the technician.

What a well-rounded business owner is like, according to the E-Myth

The entrepreneur

First, the entrepreneur. AKA the person with all the ideas. They are the visionary that dreams big for the business and strategizes how to get there. They think in the future tense and know which levers to pull to achieve the vision.

The manager

Second, the manager organizes the business so those ideas can happen. They contain that entrepreneurial spirit to produce predictable results. And they use what’s happened in the past to plan for what’s next.

The technician

Third, the technician. AKA the person who actually does the work to make those ideas happen. They keep the business running by doing the tasks on hand. And as a result, they live in the present and have little interest in envisioning the future. 

But if you want your business to work, you need to strike a balance between all 3 of these sides. Because when one side wins out, the imbalance wreaks havoc on your business.

What happens when one side overpowers the others?

If the entrepreneur wins out, you can’t get any work done because you’ll always find yourself racing after the next big idea. So, you need the other 2 sides to make those ideas happen. 

If the manager is on top, you’ll get too caught up organizing all the projects (setting deadlines and putting things in buckets). But the work itself doesn’t get done. And they’ll be little thought on what comes next – even if it did. 

And if the technician takes priority, you’ll pretty much just work, work, work. So, the business doesn’t grow, and you stay married to your technical work. Meaning, as a business owner, you own a job. 

But when you give each side an equal opportunity to shine, the business can not only survive – but truly thrive.

How the 3 sides relate to each other

Because each side has a unique contribution to the business, they need to work in tandem to achieve the best results. And if they don’t, here’s what you can expect:

  • The entrepreneur gives the manager too many ideas to manage
  • The technician feels like the manager is meddling in their work
  • The manager feels overwhelmed and under-resourced
  • The technician can’t keep up with the entrepreneur’s ideas 
  • The entrepreneur doesn’t see their ideas getting done

You see – an imbalanced business owner causes frustration all around. But if you keep your 3 sides balanced and aligned, you can unlock exponential growth!

3 stages of business

Just like there are 3 sides to every business owner, there are also 3 stages to every business: infancy, adolescence, and maturity. 

Each stage presents its own challenges. And while most businesses will reach the first or second phase, only a select few will make it to the third.

The lifespan of a business, according to the E-Myth

Infancy

Infancy (AKA the start-up phase) refers to the early days of a business – when the business owner is doing all the work. 

And while everything does get done their way, not everything gets done. That’s because the owner is spread thin, super exhausted, and doesn’t have enough time (or energy) to do it all. 

Plus, at this point, the owner can’t take a day off. Because who will run the business? If the business is going to work, the business owner has to be present and working. 

So, the business owner ends up doing whatever it takes (despite the personal toll) to keep the business going. And when they burn out (roughly around that 1-year mark), a lot of SMBs shut their doors. 

But, if the business builds enough momentum, the owner may see they can’t do it all their own. They need to hire help, and this brings the business to the next stage: adolescence.

Adolescence

Marked by hiring the company’s first employee, adolescence is a growth stage for the business. That first employee hires more hands to take on more tasks (the ones that overwhelmed the owner). 

But as the team scales, not everyone does things the owner’s way. So, quality drops slash production can’t keep up. And at this point, most small business owners think no one can do the job as well as them. 

So, more often than not, the small business owner downsizes their team and reinserts themselves as the technician. This circles the business back to its infancy, creating more work for the owner. And usually, within a few years, the business is forced to close its doors. 

If the business pushes forward without returning to infancy, chances are good that it’ll grow too fast. And the team won’t be able to match the demand. Many of these businesses – despite remaining in adolescence – will shut down too. 

As for the businesses that survive, only a handful evolve into the next stage – maturity.

Maturity

You can tell in a business’ infancy if they’ll ever reach maturity. That’s because these business owners have what The E-Myth calls “Entrepreneurial Perspective.” Meaning, they have a clear vision for what the business is going to become. And from Day 1, the business models itself after that vision. 

So, to get the business there, the small business owner uses an “Entrepreneur’s Model.” AKA systems and SOPs that make sure everything is delivered to reflect that Entrepreneurial Perspective.

This way, it doesn’t matter who is doing the work. Because it’s done the same way that the business owner would do it, every time. 

Meaning, the business owner is free to focus on growing the business (or to lean into their inner entrepreneur). So, they stop working in the business and start working on the business. That’s where exponential growth happens.

🔥 Tip: Thousands of small business owners in 177 countries use Trainual to work on their business. But don’t take our word for it – try for free.

How to make sure your SMB reaches maturity

Whether you’re an early-stage start-up or you’ve been in business for years, you’re probably wondering how you can make sure your business reaches that last stage. So, here’s 3 actionable steps to help your business mature

👉 Want a detailed guide for taking your business from infancy to maturity? Get The E-Myth book.

1. Work on your business

To reach the maturity stage, you have to stop working in your business (as the technician or the manager). And instead, you need to start working on your business. 

Meaning, you need to step out of the day-to-day and let your team do the technical work and even most of the managing work. And you have to do it as soon as possible. That way, you can focus on optimizing, growing, and scaling your business.

“Effectively, you’ve got to work on the sucker to get it to work,” Michael told us in an exclusive interview. “Then, you can replicate yourself with other people. And when you can do that, you’ll grow from a company of 1 to a company of 1,000.”

But how do you actually do that exactly?

It all comes down to one very important thing: your vision. Because if your business doesn’t have a purpose, there’s no path or direction. And as a result, confusion and chaos ensue.

So, you need to stop worrying about if the work is being done right (it will be) and start focusing on why you started the business in the first place. Chances are good that it wasn’t just to “make a living.” But instead, to make a meaningful difference in the world. 

So, ask yourself, what meaningful difference is your business going to make? And how exactly can you make that happen? Because once you know these answers, running your business will finally feel a lot more fulfilling.

2. Document as you go

But I know, I promised that the work would be done correctly, but how can you be sure? 

Because before you fully step out of the day-to-day, you’ll document and delegate all the technical and managerial work off your plate. 

Meaning, you’ll create a clear standard operating procedure that outlines exactly how you do each task. That way, no matter who takes on the task, they’ll do it your way. Then, you’ll hand off the responsibility to someone else on your team (like your first employee). 

For there, your team can hire the next 3, 5, or 30 people, and all of them will be trained to do that same task how you (the business owner) once did it. Meaning, your business is scalable and replicable.

That’s because documenting your business lets you produce the same quality results again and again. And this consistency lets your business scale and mature – without anything falling through the cracks.

“The documentation of what we do, how we do it, why we do it, and what it produces is absolutely critical to operating anything on this planet,” Michael explained. 

If your business is still in its infancy, you still want to document everything you do. Even though you’re the only one doing it right now. That way, when you’re ready to hire the first employee, it’s easy to train them on your way of doing things.

🔥 Tip: Trainual puts all your documentation in one, centralized place – so your team can always find the answers they need. Try for free.

3. Make a break with the past

But with all that being said, it’s important to note that just because something’s documented doesn’t mean it’s finished. Your small business will constantly reevaluate how and why it does something. That way, your small business will keep evolving. And your processes will keep improving. 

So, in other words, “take a break from the past.” Meaning, put aside the way you always did things. And focus on how you should try doing it next.

According to Brian Scudamore, 1-800-GOT-JUNK franchiser and one of Michael’s clients, this is where your business goes from ordinary to exceptional. Because reaching maturity (and staying there) depends on constant improvement. 

And while the technician will settle on “earning a living,” the entrepreneur doesn’t want to just own a job. Meaning they don’t want to do the same thing over and over for the next 40 years. 

Instead, they’re constantly strategizing on their next play to achieve their vision. But this can’t happen if you can’t ditch the way it’s always been done for the better way.

So, when you delegate your tasks, challenge your team to find a better way to do things. And keep a written record of all the ways you’ve previously done a certain process. (Call us biased – but we like to do this in Trainual.) That way, if you try a new way and it doesn’t work, you can easily take a step back, so your business can keep moving forward!

Disclaimer: All of The E-Myth terminology and trademarks are property of E-Myth Worldwide, Inc

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