I’m sure you have heard these statistics before. Fifty percent of all businesses fail within two years, 80 percent fail within five years, and most businesses never come close to the original projections for revenue and profit.
In his book, The E-Myth Revisited, Michael Gerber states that much of this has to do with the fact that there are three identities within a business owner. There is the entrepreneur who is the visionary and dreamer for the business. Then there is the manager who plans and manages the work. And third, there is the technician who actually does the work. Gerber claims that most business owners are 10 percent entrepreneur, 20 percent manager and 70 percent technician. With most business owners being more technician than anything else he claims they really don’t own a business, rather they own a JOB.
Gerber further explains the four phases all businesses go through:
Phase I is Infancy – this is usually where the business owner is the business. The owner is not only doing the technical work, but is the sales executive, the bookkeeper, the shipping and receiving department along with the janitor.
Phase II is Adolescence – this is where the owner will start to hire employees. Now in addition to having personnel issues to deal with the owner needs to be sure to generate enough income to support the employees.
Phase III is Beyond the Comfort Zone – the business owner feels out of control, employees aren’t doing what they are suppose to do, sales aren’t what they need to be and the owner is usually working ridiculous hours.
Phase IV is Maturity and Entrepreneurial Perspective – Here the vision for the business is clearly defined and there is a systematic way of conducting business. The owner is working more ON the business rather than IN it.
Most business never reach phase IV. Either the business never generates sufficient profit or the business owner decides all the aggravation is just not worth it and scales way down or shuts down the business completely.
So what’s the answer? Gerber talks about the Turnkey Franchise Prototype. Using this model you essentially ask yourself — “If I was to franchise and duplicate my business what would need to be in place?” (Think McDonalds). Gerber’s answer to this question is SYSTEMS. If you think about a franchise with multiple locations, as the owner, you cannot be in all your businesses at once. Therefore, the business must be able to operate without the owner present.
His process is to first create an organization chart for every position in your business, from sales to marketing to finance to operations to customer service. Then document the description of each position and document the systems needed to complete the tasks required for each position. Gradually, by doing this, the business owner can hire people to run these systems eventually replacing himself or herself in each and every position. Eventually, the owner will be working more ON the business rather than IN it. This will take time but it is time well spent. The rewards of being a business owner will be realized. You will be able to say to yourself — “this is why I got into business in the first place.”
My recommendation to anyone who owns a business is to read this book.