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Wall St. And Business Wednesdays: Exclusive Q & A With Michael E. Gerber, Chairman, E-Myth Worldwide

Michael E. Gerber gets to the heart of the problem in his book, The E Myth Revisited when he writes, "Businesses start and fail in the United States at an increasingly staggering rate. Every year, over a million people in this country start a business of some sort. Statistics tell us that by the end of the first year at least 40 percent of them will be out of business. Within five years, more than 80 percent of them - 800,000 - will have failed. And the rest of the bad news is, if you own a small business that has managed to survive for five years or more, don't breathe a sigh of relief. Because more than 80 percent of the small businesses that survive the first five years fail in the second five. Why is this? Why do so many people go into business, only to fail? What lesson aren't they learning? Why is it that with all the information available today on how to be successful in small business, so few people really are? This book answers those questions."

Indeed, many think it does. Michael E. Gerber's book - The E Myth has sold more than 1,000,000 copies and is regarded as a classic in the field of small business development and entrepreneurship. And far more than a nice-sounding theory, the ideas contained within Mr. Gerber's book have been applied, practiced and tested by his more than 25,000 clients.

Last week Publisher, Cedric Muhammad, spoke with Michael E. Gerber, Founder and Chairman of E-Myth Worldwide, about the succinct and profound principles contained within his book which make it abundantly clear why most entrepreneurs are unsuccessful, and what must change in their thinking, if the pattern of small business failure is to be reversed.

Cedric Muhammad: What exactly is the E-Myth?

Michael E. Gerber: Well, the E-Myth is the entrepreneurial myth. And essentially it describes the reason why most small businesses fail. And if not outright fail, why they fail to fulfill their potential. And it is because the people who start small businesses aren't really the entrepreneurs that everybody thinks they are. What they are rather, is what I have come to call "Technicians" who are suffering from an entrepreneurial seizure. And so they end up creating a business to become their own boss and typically doing the work that they have become good at doing for somebody else. And they have this fatal assumption that because they know how to do the work of the business - whether they are a good bookkeeper, an accountant, a consultant - that they can create a business out of that. And unfortunately it just isn't true. Being good at a particular task - being what I call a good Technician has nothing to do with being a great entrepreneur. And so the true opportunity for a small business; or anybody who wishes to expand their reach and to grow and become more effective in the world; or a true economic development opportunity; is for those people who would start their own business to truly understand the difference between an Entrepreneur, a Manager, and a Technician and the significant relationship between those three roles in their company.

Cedric Muhammad: Your approach to me is largely unique because it indicates that business has a spiritual preface, premise or undergirding. And I know that you elaborate on this in your book in reference to what you refer to as the "Primary Aim" and the "Strategic Objective".

Michael E. Gerber: Yes, and in fact, it is so transparent when you look at it, that no one is really interested in business. We are all interested in our lives. And the business choice becomes the means through which we can get more out of life. In other words, we make a choice to start a business as opposed to going to work for a business or university or whatever else. And we do this simply because we believe it is going to give us more of an opportunity, and that "more of an opportunity" means - really - more of an opportunity to live a full life. So the question becomes - what is a full life? What is a meaningful life? What do I experience in my life as being important, as having a purpose, of adding value - to myself, family, constituents and community? Essentially, the whole E-Myth premise says that there is only one way in the world that you can add value and that is to be able to add value to your own life. You can't add value to anyone else if you have not learned to do that for yourself. And so everything starts here with me, or you Cedric, or whomever. And there is no more profound way to learn and practice all of the lessons that are essential to enrich and deepen one's spiritual relationship with life than through a small business. You have to do everything that anyone would ever have to imagine doing. You have to get results through other people. You have to discover what the best way of doing any particular task is. You have to organize, concentrate and discriminate between what is most important and what is least important. You have to learn how to spend your time productively. You have to learn how to innovate and create new ways of doing whatever needs to be done. You have to be able to see new opportunities in competition with others who desire to seize those opportunities. You have to learn about the relationship between opportunities and problems and where to spend your time and attention and energy. You have to learn how to communicate effectively. So, all of this and so much more is there, waiting for anybody who would go into business for him or herself. And so it is an extraordinary place to come to enter into a relationship with or achieve your own Primary Aim - your own purpose in life; our own spiritual connection to life - knowing that unless it works in the real world what's the point? There is another world that we can call "heaven" or "hell" or whatever we want. We can have a relationship with God. But unless we are able to come into the world and make a true difference then all of that, while important, means nothing to our fellow man. And so, your mission, as I understand it Cedric, is very much consistent with that. But unless you can organize it - as you have learned - pragmatically, to truly work, it amounts to nothing more than just constantly living in hope. And unfortunately too many people in the world are living in hope that something is going to happen, that somebody out there is going to do something for them, without that person, who hopes, having any understanding of the way in which the world does work. Not in a cynical way, not in a pessimistic way, and not in an idealistic way but the way things work. I mean, the fact is that there is a way to do everything. And if there is a way to do everything, then there is a better way to do everything and if there is a better way to do everything then there is a best way to do everything. And for us, you, me, anyone who is reading this, we must understand that our job as human beings, is to truly be curious. Not going in with our opinions, our beliefs, attitudes and all of the manner of reactions that we have formulated over our experience in life, but truly go in without any beliefs whatsoever about what is true - to truly begin to understand. There is something that is powerful about a person who is able to let go of their past and begin as if they are a fresh newborn on the face of the earth and begin to look at it through clear eyes. And that, is spiritual.

Cedric Muhammad: If what you have just stated is a premise or some type of schematic of your view of human nature, how do you place that opposite a broader view of the economy? Do you think that there needs to be in every society a critical mass of small business owners or do you think that there is something organically at work when enough people start a business and hire others and enough of those people as employees go through a natural chain reaction that leads to their owning their own business?

Michael E. Gerber: Well I think that the whole entrepreneurial environment is created by an optimistic view, a young view, a youthful view of the world. So there is something very original about our country - something very different in our country. Peter Drucker, in his book, Innovation and Entrepreneurship talks about how entrepreneurship is a peculiarly American reality. That in fact, there has never been as much entrepreneurial energy anywhere in the world as there has been in the United States, in our short history. So, what is it that accounts for that? Well Drucker says that he doesn't know and nobody does. It is one of those very strange things that just occur. But I suggest that it probably occurs because of the way in which the country was created in the beginning in terms of the enormous idealism that existed. The fresh approach. It was a new country. It was a new place. It was a place in which people who had left other countries to gain a measure of freedom, began to ask themselves and this country - "what would a great country or place look like?" In other words, what would be the rules of the game? How would that look and work like? And they began to create the country that we call the United States of America and it was based upon that enormous optimism. And that tremendous optimism doesn't exist in most places in the world. In most places in the world there is enormous pessimism. And if not enormous pessimism - then call it realism. In other words, beliefs about what can be expected and what can and cannot be done and what people are and what they are not - what they deserve and what they don't deserve. And in this country there is relatively very little bit of that. And you might say that is why we look so outrageously optimistic or unrealistic to others in the world. But so be it. We are that way. There is something so blankly stupid about it to the sophisticate. The American is not "very sophisticated". And where we have become very sophisticated, you can see enormous amounts of pessimism and realism. Where we are not sophisticated you see an enormous amount of growth in new businesses and new opportunities creating global enterprise. So, there is something about the lack of sophistication about entrepreneurship that is an amazing thing. Entrepreneurs are almost never intellectuals. Entrepreneurs are doers. They are imaginers. And their imagination has little to do with creativity but more to do with innovation. - finding better ways over and over again. They are incorrigible optimists. There is always a better way to do something. They are doers, doers, doers! They are not thinkers, thinkers, thinkers! So, thinkers end up in a world of thought. Doers end up in a world of action.

Cedric Muhammad: I think you are bringing up a very fundamental problem that I have with the vast majority of economic theoreticians of this world. They have this whole idea of equilibrium - where there is a perfect static environment and innovation is dismissed. If you look at the econometrics of many respected economists, innovation is not even an afterthought in their model or study. Risk-taking and uncertainty is not even considered. And as a result of that, the whole concept of just what a "profit" is, remains totally misunderstood or fought against...

Michael E. Gerber: Right! Economists don't create economies. Economists stand outside of economies and try to make a science out of what they think about. So economists are self-indulgent. Entrepreneurs are constantly trying to figure out how to do something. Where would you rather live - in a society comprised of economists and intellectuals or in a society where people are constantly trying to improve the impact on our lives or improve things? I would like to be in the latter not the former.

Cedric Muhammad: I want to introduce you to Reuven Brenner who is the best business economist that I know about. He is part of our community and offers a guest lesson as part of our online economics education program - Black Electorate Economics University...

Michael E. Gerber: I would love to meet him

Cedric Muhammad:Yeah, risk-taking is a fundamental aspect of his model and his writing compliments much of your presentation...One of the parts of your book that I thought - as an entrepreneur/economist - was your powerful presentation on franchising and standardization. I cannot tell you how hilarious it was for me to read your words and see myself in clear violation of them and how really enlightening and liberating it was. Can you explain this whole idea of systems theory; the Franchise Prototype, and standardization as it relates to the success of small businesses?

Michael E. Gerber: Yes, and in fact it is a fascinating...epiphany that just occurred to me as part of what I call my "E-Myth odyssey". When I was... in Silicon Valley and a consultant-friend of mine asked me to do him a favor, to (consult) and I knew that I did not know anything about business and it was clear that I didn't. I had the assumption that business owners knew something about business, otherwise, why would they own one? The very first thing that I discovered about my assumption - that I didn't know anything about business - wasn't true. And my assumption - that people with businesses did know something about business - wasn't true. I did know something that they didn't. That basic thing that I knew, based upon an experience that I had in my early life when I had learned how to sell encyclopedias is that selling is a system. That led me to see that nobody that I was calling on or working with that owned small businesses in Silicon Valley understood that selling is a system e.g. there is a very specific way to do it. Well if there is a specific way to do that then there had to be a specific way to do everything. So you had to understand that my being a systems thinker came as the result of my very real world experience using soft systems in order to be very effective at whatever I did. And those soft systems - to be effective at whatever I did - could be the way I learn to sell; learned to play the saxophone; learned to build a house with my own hands; learned to do anything that I needed to learn how to do. I began to see that in fact all that I was understanding was that these were all systems. The system by which one learns to be a saxophone player. The system by which one learns to build a house. The system by which one learns to sell. Now understand that playing a saxophone, building a house, and selling a set of encyclopedias are all obviously different things and one could conclude that they are very unique. Whatever gift I was given as a child or a growing young man, I could see that these things were not unique. In fact I could see the similarities in them all. I understood that truly what is missing in most businesses are people who understand the relationship between all of these component parts of our lives which are systems. And a system is nothing more or less than a particular way of doing something, anything, and that can be identified. If in fact that can identified, that can be documented. And if in fact that can be documented, then it can be communicated. And if in fact that can be communicated, then that can be taught. And if in fact that can be taught, then it can be learned. And if in fact that can be learned, then it can become a skill. So, a system can be a skill. And if you have a skill, based upon a system, then, in effect, you can in fact teach anybody anything, where there is a willingness and an interest in learning it. And if that is true, you can build a profoundly effective company based upon these words - "systems thinking". Systems thinking is a very practical, real and obviously replicable way of relating to the world. This is how we do it and this is who we are. Every great company you look at has a very specific way of doing what they do, while everybody else has created a business that is dependent upon great people. So, if in fact you can build a great system, you can accomplish any specific task or result that you wish to accomplish. It means that you put that great system into the hands of a less extraordinary person - call them an ordinary person - and through that system, produce an extraordinary result. Well if that is true, and of course it is - and you can find examples of that everywhere you look - then imagine the power of that in creating a business. So, if one looks at the business as a product of the entrepreneur - the business is the product - then essentially the entrepreneur goes to work to envision a company that works better than any other company in whatever market he or she wishes to focus their attention on. And ultimately that company will end up being a completely-integrated system that produces the result that the entrepreneur envisions as necessary. "When you absolutely, positively got to get it there overnight - call Federal Express" - that's a system! Unfortunately, few companies have ever been built systemically. That's the opportunity - to teach people the power of systems-thinking, and the application of it, in the most ordinary things and extraordinary things that we do. In the process of that you transform people's understanding of the world and the way it works. And in the process of transforming people's understanding of the way the world works, you actually can transform everything they do. And to the degree you can do that, you can truly have a profound impact on the economic reality that they find themselves in. And that is the only way it can be done. Change the way people think and you will change the way people do. Continue to try to change what they do or to give them money to start businesses they haven't got a clue what to do with, and all that it will be is the same old thing going round and round and round. So unfortunately, from my perspective most economic development initiatives are doomed to fail because rather than changing people's thought process they try to change what they do. And you can't change the results of what people do by changing what they do - you have to change the way they think about it. Change the way they think about it and everything is transformed.

Cedric Muhammad: I want to isolate this because this goes deeper into a very illuminating part of your book. This whole concept of standardization and the franchise prototype versus the personality-driven enterprise that can be very lucrative but does not have permanence. Could you elaborate on this?

Michael E. Gerber: Well absolutely! The prototype or metaphor of the franchise - because I am not really saying that you should go out go and franchise your business. No, what I am saying is that you should act as though you are going to franchise your business. So understand the "Business Format Franchise" and use McDonald's as the exemplar of this way of thinking. And please understand that I am not using McDonald's as an exemplar of anything else. I am only using McDonald's as the example of this way of thinking and the profound impact and scalability that is present when one thinks this way. McDonald's is in fact a success-system. It was created by Ray Kroc, who was 52-years old at the time. He created this "turn-key" operating system that had really already been pre-created for him by the McDonald brothers. He first went to sell them a milkshake machine, and came away with the franchise rights to McDonald's. The franchise rights to McDonald's was his vision. In essence, he saw he could "turn-key" this thing, this hamburger stand operation (in San Bernardino, California)- even get it better than the McDonald brothers did it, and he thought he could replicate it tens of thousands of times. So Ray Kroc went to work on McDonald's to build a franchise prototype - a perfect little operating system that Ray Kroc called the most successful small business in the world. And in the process of going to work on that business to create the most successful small business in the world, he built something that could be run by kids, at minimum wage, with a 300 percent annual personnel turnover - creating "the impossible" in an ordinary business - a hamburger stand. He able to create a multi-multi-billion dollar enterprise, and a way that anybody could do exactly the same thing, with an idea and approach that has potential, because there is a market for it; that can differentiate itself from every other business by the way it does business; and the way it packages the system through which it delivers its promise to the customer. Anybody, anybody, anybody can do what Ray Kroc did. Anybody can build their own version of McDonald's, and they can do that not only in an ordinary business like a hamburger stand, but they can also do that in an ordinary business like orthodontics. They can do it in laser surgery, as in fact has been done. But the important development is the turn-key. All by developing this turn-key, McDonald's can do in its thousands of stores what most of us can't do in one!

Cedric Muhammad: Do you make a distinction between the standardized system as a business, and a person around whom a whole business revolves ?

Michael E. Gerber: If your business depends upon you, you don't own a business you have a job! And understand that I am saying that it maybe the most enjoyable job in the world and it may pay well, but ultimately it is doomed to fail. Now, most businesses are doomed to fail. But ultimately that kind is doomed to fail - as soon as you do. So in other words, if your business is completely dependent upon you, that is, you have to get up every day to do it or it doesn't get done? That is not going to last past your ability or desire to wake up in the morning. Look, for example, I am speaking to you now, this activity is not a business, it is a job. However, understand that my speaking to you now, could be done by anyone at my company or anyone who understands the E-Myth at all, anywhere in the world. You are speaking to me because I happen to be the author of the book, but effectively, my authorship of books is really Michael Gerber-dependent. That is not a business. It is very, very important for anyone to understand that there is no way of expanding or growing economic reality through people-centered enterprises, because they have limits and the limits are that they are limited to the person being there. So if I am a financial adviser, I have a practice. If I want to grow that practice, ultimately it can become a bigger practice but the more customers I get, the more I work. So then I begin to add people to my practice like administrative assistants - this and that - and ultimately I get a very exciting practice but still, it is going to max out. In other words, it can only grow to be so big. The next thing it needs to do is become a business. And the business then, simply is a container for a number of practices. So if I were a financial adviser who wanted to create an enterprise which is greater than a business and certainly greater than a practice, I have to go to work on my practice to create a turn-key system. I would then move on up and replicate that practice - maybe 15 times. Now I have got 15 of these turn-key practices and I've got a management system in my business that manages those practices to increase their performance and productivity. But now I can replicate the business. So I move on up to become the true CEO of an enterprise and now I multiply the businesses. Each business represents 15 practices. So now, let's say I have created 15 businesses which are part of the now-expanded enterprise, and you can begin to see how it works. You can begin to see where the scalability is. Scalability is what we are talking about. Scalability means expanding our reach. Expanding our reach means expanding our economic impact and our results. It means going from a Technician running a practice to a Manager running a business to an Entrepreneur running an enterprise. It is a very systematic thing. The beauty of it is, Cedric, anybody can do it.

Cedric Muhammad: We interviewed Steven Silbiger, author of The Jewish Phenomenon and he writes about what he recognizes as the seven keys to the enduring wealth of a people that he believes Jewish community has practiced but which any other community can replicate and enjoy prosperity and wealth creation. He believes that the ethnic element has been very real in developing wealth through community. So as you look at your model in the E-Myth Revisted and with the over 25,000 business you have worked with, where do you think the Black community is juxtaposed to your model and the furtherance of its aspirations?

Michael E. Gerber: I don't differentiate between the Black community, the Jewish community, the Muslim community. It doesn't matter to me. I don't see them as being different at all. I believe the essential principles that I am talking about can be applied by anyone. And I know this from experience, no matter where they are, what they have experienced, what their social reality is or what their ethnicity is. I absolutely know that anybody at all can do what I am describing. It has nothing to do with anything other than being human. So it is the leveler of all levelers...

Cedric Muhammad: So, you don't think that the optimism that you were referring to earlier in reference to America is similarly unique or abounds in different quantities among different ethnic groups or communities?

Michael E. Gerber: No. No, I don't believe it.

Cedric Muhammad: So with America you are saying it is also a matter of laws?

Michael E. Gerber: Yeah, well, I just imagine that it simply was the unique circumstances that brought us together. But having said that, I am saying to you now that if I can speak to somebody who reads The E-Myth - any other commentary that they offer like, 'But you don't understand Michael it is different for me because of, because of, because of...' is all self-fulfilling prophecy. It has nothing to do with the reality of it. That is just all of the "stuff" that we bring to it. All of the stuff we bring to the table is what I hear constantly from anyone in any audience that I speak to. They will tell me, 'Michael, you don't understand - Cincinnati is different' or 'Mike, you don't understand - we are in the air-conditioning business' or 'Michael you don't understand - I am an optometrist'. Everybody tells you why their circumstances are unique. And what I am saying is - bullshit. That is all it is. "It" is what is keeping you where you are. "It" is your beliefs. Any energy that anyone spends on those beliefs is going to distract them from seeing the truth. And the truth has nothing to do with the political, the social or any of it. That is just "stuff". Now it is easy for me to say. I am just an old Jewish guy (laughs). But all I am saying is that I have heard this all of my life and I have seen absolute evidence that none of it at all matters, if somebody is willing to completely clean the slate and start anew. And that is where extraordinary things happen. I can sympathize or empathize with your particular circumstance but it isn't going to get you anywhere.

Cedric Muhammad: So you think it is hyperbole if a person says, 'tax rates are too high for small business' or 'inflation is too strong' or...

Michael E. Gerber: Yeah, and the reason it is hyperbole is because I can give you example after example of every extraordinary company that has been established and grew while everybody was talking about that bullshit. That is what I am saying. Whoever is focusing their attention on that "stuff" will never focus their attention on this stuff. And this stuff over here is all about repeatedly seeking the opportunity. Asking 'where's the opportunity?', where's the opportunity?' That is all that entrepreneurs look at - where is the opportunity?' They do not look at what's the problem.

Cedric Muhammad: Thank You so much for your time and let's get you connected with some individuals and leaders in the Black community

Michael E. Gerber: Thank you very much and I would love to. I really look forward to that.

Wednesday, April 23, 2003

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