I recently found myself unmoored from my software engineering job. Despite abundant opportunities for work, I decided to take a break. I have a safe amount of runway and a backlog of projects I’ve wanted to work on. Plus, it felt like a good time to revisit a recurring dream - starting my own business to ‘work for myself’. I’ve had this dream in various forms since high school.

When you work at a large corporation, it’s easy to see inefficiences and ask “How hard could it be to compete?”. I love programming. Surely my software engineering skills and some hard work could form the backbone of a strong business, right?

As I will cover, this thinking could not be more wrong. This aspiration (the vague business vision of a competent employee) could never work. It’s a myth dispelled in the business classic The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, gifted to me by a wise (and timely!) friend.

I could tell this book was special shortly after I started reading it, and I intend to reread it at least once. Here is brief reflection on the book and my key takeaways.

This is not a full review - I’ll simply omit the annoying, outdated, or contradictory parts, and share the powerful ideas that resonated with me.

Key Takeaways

A few key ideas represent the main drive of the book. For your average Joe thinking of quitting his day job to start a business, they represent an entirely new mindset. A paradigm shift.

The E-Myth is the idea that people who start a business to sell work they know how to do are entrepreneurs. They’re not. Really, they’re Technicians, one of the 3 personalities present in every business. The three personality thing sounds corny at first, but it’s really a powerful and coherent model that describes the types of work that need to happen for a business. The author pegged me: I’m a Technician (for now).

Another key idea is the Business Development process - a crucial set of work and responsibilities that are explicitly separate from the day-to-day work performed by Technicians to produce the Commodity. In other words, work on your business, not in it.

Note the loose definition of ‘Commodity’ here – Whether your business provides a service (like financial advice), or a physical product, think of that deliverable as the commodity. Why? This brings us to the final key idea:

Your business itself is the product. It provides value to customers, of course, but also employees, suppliers, and investors. In particular, your business development should work towards creating a Franchise Prototype - a reproducible model of your business - a proprietary operating system that produces value. This is true whether or not you intend to franchise or scale your business.

Questions and Notes

Software and Internet

As someone interested in the software business, the book leaves me with questions. Since its publication in 1985, the landscape has drastically changed. I’m particularly curious about the latest advances in managing programmers. The book emphasizes designing your business so tasks can be managed by individuals with the minimum required skill level. However, this approach seems to fall short when applied to software engineers. Their work involves managing complexity, and attempting to break down their tasks for multiple developers often leads to decreased productivity (The Mythical Man-Month, etc.). The book’s examples focus primarily on retail sectors such as restaurants, hotels, and physical goods, as well as some services. I would appreciate seeing how these concepts could be adapted for online businesses.

Startup

The book mostly describes things that happen after business validation and initial product development. There is a chapter on marketing, but it’s not very actionable and probably covered better in other books. Innovation is not described in great detail. Basically, finding a market and paying customers should always come first, but this book is mostly about what to do after that step. Unfortunately, that initial step is one of the hardest problems! I’m sure there are other books that cover this area well and complement the E-Myth Revisited.

What to Actually Do

More in-depth information about how to prioritize various tasks as an entrepreneur would have been valuable to me. Some of it is common sense, but I would love to have it spelled out. When do you prioritize… marketing? Hiring? Simplification?

Summary

The E-Myth

• Most “Entrepreneurs” are Technicians
• They are caught up in a moment of ‘Entrepreneurial Seizure’ to start a business doing the work they know how to do because they believe they can do it more effectively without being under their management
• When building a business, your technical knowledge is a liability and does not help run or design a business

The Three Personalities

• Entrepreneur: dreamer, visionary, says “I wonder…”
  • often and neglected and atrophied
  • sees problems in the world to fix
• Manager: Organizer focused on the status quo and afraid of change
  • seeks to use Technicians as components in the machine of the business
• Technician: cares about details, perfection, and a good day’s work
  • focused on the past, doesn’t like change
  • too dominant and drowns out the other personalities
• all three tend to conflict!

Business Development

• changing how you think changes your business

  • you are not your business, nor do you work ‘in’ it or ‘for’ it
    • it is something outside of you that you build to serve you and others
    • you must separate yourself from your business
    • work on your business, not in it
  • the business should be viewed holistically, from outside, from the perspective of how it works, not what it does

• ‘mature’ businesses are mature right from the start

• Business Development is comprised of three processes:

  1. Innovation - doing things in a new way to improve how the business works. The ‘Best Way’ skill breathes life and energy into the business. Innovation is the mechanism through which the company differentiates itself in the mind of the customer
  2. Quantification - Quantify every possible detail about customer interactions in particular
  3. Orchestration - the elimination of discretion, or choice, at the operating level of your business. Orchestrate everything. Orchestration is how you apply innovation. Use operations manuals, automation, etc.

• Containerization:

  • the business itself is the product, and that product is what you need to spend your time working on, not the work done by the business
  • the business must be developed so all three personalities work together in harmony
  • your job is to develop a proprietary business operating system - a model - which must provide consistent value to customers, employees, suppliers, lenders, and investers, beyond what they expect
  • Franchise Prototype – build your business as if there will be 10,000 copies of it
    • the business should stand out as a place of impeccable order
    • it should provide uniformly predictable service to the customer
    • everything must be documented in operations manuals

Comfort Zone

• you can’t see and touch every part of your business, even though the technician in you wants to. That’s why you need to design it from the ground up (using accountability, incentives, orchestration, etc) so that the different parts work together and the system as a whole functions predictably and correctly

Organizational Strategy

• the Franchise Prototype is recursive - prototype each and every position in the company!
• organize all work into an institutional hierarchy
• then start working each job and writing operations manuals, job contracts, etc.
• start at the bottom (in the ‘tactical’ roles - mostly performed by technicians) and work your way into strategic roles
• by hiring!
• each position must be accountable to other positions
• you must follow your own rules

People Strategy

• the model will be operated by people with the lowest possible level of skill
• work provides a structure within which your employees can find meaning, fun, etc.
• it’s a game that you should introduce right when you hire people
• the game isn’t just a device to get people to do the work you want, it must be real to you and the employees
• the game is the business
• the game isn’t self-sustaining and needs to be refreshed constantly and carefully designed and communicated
• the game flows from the accountability set up in your organizational structure
• the game and business must not be dehumanizing, in fact it should be the opposite, because you should design it around a real understanding of your employees and meeting their needs
• for management, don’t rely on skilled, charismatic managers - your organizational chart and job contracts are what you’re relying on

Marketing

• customers make decisions irrationally/subconsciously, often within seconds (long before they appear to logically make the final decision)
• you need to know who your customers are (demographics)
• and why they buy (psychographics)
• percieved need matters more than “real” need or marketplace reality
  • find your perceived need and fill it!
• go back to basics - take surveys, etc
• leave nothing to chance and design everything intentionally
• strategic work that builds your marketing is essential compared to much of your tactical work
• every position in the company should be asking marketing questions, not just the marketing team
• what business are you in? Not cosmetics, shoes, etc. but Hope, Fantasy, Power, Peace of Mind…