The E-Myth: Roles and Phases of Businesses

[Pesso]

Hey Square Readers, 

We hope you’ve started to dive into reading The E-Myth Revisited by Michael E. Gerber!

The author breaks down the book into three main sections that we’ll tackle throughout our discussion threads: 

1. The E-Myth and American Small Business
2. The Turn-Key Revolution 
3. Building a Small Business that Works

Last week we covered what the E-Myth is and the author’s view of how it can lead to businesses failing. In this thread, we’ll keep our focus on Section 1 to look at more of the basics of the E-Myth theory and framework, and what tends to go wrong in small businesses.

Three Business Roles

The author explains that it takes three main roles to run a business, the Entrepreneur, the Manager, and the Technician. These can all be parts of a single person, or roles played by separate people, but the key to a successful business is that they are all in balance and each given room and space to take charge. When they’re not balanced, and some are ignored or not focused on, the business won’t be able to operate and grow in the way that it needs to, and it is bound to fail in one way or another. 

The author explains these roles as, “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 Managerial personality is pragmatic. Without The Manager there would be no planning, no order, no predictability… The Technician is the doer. The Technician loves to tinker. Things aren’t supposed to be dreamed about, they’re supposed to be done.”

He goes on to explain the benefits of managing to balance them, “If they were equally balanced… the Entrepreneur would be free to forge ahead into new areas of interest; The Manager would be solidifying the base of operations; and The Technician would be doing the technical work… Unfortunately, our experience shows us that few people who go into business are blessed with such a balance. Instead, the typical small business owner is only 10 percent Entrepreneur, 20 percent Manager, and 70 percent Technician.”

Three Phases of Business Growth

The author says that there are three phases of a business’s growth: Infancy, Adolescence, and Maturity, each corresponding with the three roles. This model gives insight into the problems that lead to so many businesses not surviving, and can help ensure that yours does. At the end of each of these phases, a business could either grow and move on to the next phase, or it can close down. When he says Growth here, he means the natural growth of the business, based on demand and the success of your business. 

Phase 1: Infancy – Technician 

The author explains that a lot of businesses start out with the Technician running the show, following the dream of getting out of the grind and working for yourself. Business owners tend to open a business and start doing the work, being their own boss, but not fully jumping into all of the management and visionary responsibilities involved in running and growing a business. Or doing it all, and not doing it well, and then things start to fall apart. 

The author writes, “And so you work. Ten, twelve, fourteen hours a day. Seven days a week. Even when you’re at home, you’re at work… But now you’re doing not only the work you know how to do but the work you don’t know how to do as well. You’re not only making it but you’re also buying it, selling it, and shipping it… You’re falling behind. There’s more work to do than you can possibly get done… Your enthusiasm for working with the customers wanes. Deliveries, once early, are now late. The product begins to show the wear and tear. Nothing seems to work the way it did at first… In a flash, you realize that your business has become The Boss you thought you left behind… Infancy ends when the owner realizes that the business cannot continue to run the way it has been; that, in order for it to survive, it will have to change. When that happens—when the reality sinks in—most business failures occur. When that happens, most of The Technicians lock their doors behind them and walk away. The rest go on to Adolescence… to build a small business that actually works, your Entrepreneur needs to be coaxed out, nourished, and given the room she needs to expand, and your Manager needs to be supported as well so she can develop her skill at creating order and translating the entrepreneurial vision into actions that can be efficiently manifested in the real world.”

Phase 2: Adolescence – Manager

The Adolescence phase starts when a business owner starts to get help, hiring out some of the technical tasks that they don’t want or don’t have the time to do. It’s a great feeling, and incredibly important, to hand things off to others to do. But the author describes that it can become a problem when you hand things off without checking in and making sure they’re being done to your standards. Delegating is not the same as handing off and ignoring, and then stepping in when they’re doing it “wrong.” If the technician keeps taking over, then the Manager doesn’t get a chance to lead in this stage. 

The author describes that being a Manager is more than just hiring someone, but rather working to set expectations, train, and keep them accountable. It’s putting processes and systems in place. A business often doesn’t survive if it depends on the owner to do all of the work.

He writes, “Walk into any Adolescent business anywhere in the world and you’ll find the owner of the business doing it, doing it, doing it, busy, busy, busy—doing everything that has to get done in his business—despite the fact that he now has people who are supposed to be doing it for him… Simply put, your job is to prepare yourself and your business for growth. To educate yourself sufficiently so that, as your business grows, the business’s foundation and structure can carry the additional weight. And as awesome a responsibility as that may seem to you, you have no other choice—if your business is to thrive, that is… To get out of this phase and move on to growth, make a plan on how to adapt to these changes, to become a manager and hire and delegate, to become an entrepreneur and set a vision for the growth and next phase of your business.”

Phase 3: Maturity – Entrepreneur

The author writes that most (or the most successful) Mature businesses didn’t climb the ranks, but rather were designed to be Mature from the start, focusing on the Entrepreneurial perspective from day one. The owners had a vision of their businesses becoming large companies, worked backwards to design them according to what they would need to become that big, and then focused their work on specifically growth. It’s not the only way to do it, you can absolutely grow your business into a successful Mature one, but it helps to learn from that perspective.

The author explains, “The Entrepreneurial Perspective… starts with a picture of a well-defined future, and then comes back to the present with the intention of changing it to match the vision… There’s a standard for the business, a form, a way of being that can be translated into things to do today that best exemplify it. The business operates according to articulated rules and principles. It has a clear, recognizable form… The Entrepreneurial Model has less to do with what’s done in a business and more to do with how it’s done. The commodity isn’t what’s important—the way it’s delivered is… To The Entrepreneur, the business is the product… In short, for this business model of ours to work, it must be balanced and inclusive so that The Entrepreneur, The Manager, and The Technician all find their natural place within it, so that they all find the right work to do. To find such a model, let us examine a revolutionary development that has transformed American small business in an astonishing way. I call it the Turn-Key Revolution.”

Next week we’ll start diving into the solutions that the author puts forward in The E-Myth, Section 2, what he calls the Turn-Key Revolution.

We’d love to hear your answer in the comments:

• Which of the three Roles do you naturally gravitate towards? What has your split between them been like?
• Which of the three Phases is your business in?
• What can you do to better balance these roles and move into the next phase?

Feel free to share any other thoughts you have about this book. We can’t wait to hear your thoughts in the comments below!

Don’t forget to:

• View and Subscribe to all threads about this book
• RSVP to our Live Discussion 

Happy reading,

Pesso

[CareyJo]

1.  In our business, I am the Entrepreneur and the Manager, my husband is the Technician - in the very literal sense.  He went to school to do what we do.  I've been an entrepreneur since the age of 19, when I had a desire to do something other than work to make money.  I've also been the manager at several positions.  Obviously, we do our respected jobs based on title.  Fortunately, even though we knew nothing about this process seven years ago, we set up our business in this fashion from the beginning.  There was never a question that I would manage the office and run the books and he would do the work.  We also established early on by actually talking about it, that he would produce the bids because he has to do the technical research and then hand them off to me to get sent out.  We also discussed who and how to manage inventory.  I order the stuff that I'm capable of with my skill set and manage what we have.  He tells me what and when to order what I can't.  It works perfectly.  When a bid job is accepted, I hand it back to him to review the list of equipment and he orders what he needs based on what is in stock or tells me it's all good and I can do it.  We also sign off on the page so we know who actually placed the order and when in case there's a problem.

The split for me has been fairly easy, I think because I've had so many years of doing it under my belt.  I'm able to change hats throughout the day/week and focus on whatever is needed at that time.  I also think it's easier because I spent a lot of time decades ago training on how to keep myself organized - both physically and with time management.  I learned when to do what tasks.  I learned how much time I need.  I learned how to prioritize them.  I learned where to put my focus on the busy days when I can't get away from the phone and what to focus on when the phones are quiet.  It's all a balancing act.

2.  I don't know if Mr. Gerber would agree with me, but I would say mature.  We've been at this for decades, this is not new to us.  We've seen how every other company that he has worked for has run their business and what they've done wrong.  We also know how we each work independently and what our strengths are.  I'm actually very proud to say that in 2022 and early 2023 there were a lot of times that my husband was reminding me that we were working too much and our business was running our lives and that we had to make it stop.  The reality is, that it wasn't because of what Mr. Gerber describes though - it was literally because we do heating and air conditioning and we have harsh winters.  Some days a 12 hour day is a necessity.  BUT... I also really took that to heart.  I realized that I was doing too much in the evening simply because I had the free time to do it and I wanted things to get done.  He has the luxury of clocking out at 5:00 so to speak, and I don't.  So I forced myself to turn off the computer at 5:00 no matter what and I've been doing it now for a year.  True, there are days where we literally have to discuss stuff after hours so we can't be disrupted and we've got big stuff going on.  Running a service company is far different than running retail or a restaurant where you can just lock the door and go home, especially when you work from home.

3.  If we're in Adolescent stage, I truly don't know what he would think we need to do to move to Maturity. 

Outside of those questions, I do have to say that reading your synopsis and re-reading the words that he wrote, makes a whole lot more sense now that I'm in chapter 16, than it did when I first read it.  

[Pesso]

Thank you so much for sharing and taking this to heart, @CareyJo !

I love that you decided on and had this split in roles from day one, and had a lot of those conversations to figure out who will handle which parts of the business. It's so important to get that straight and split things up so that there are no questions, and it's so great that it's been working for you. Especially that you've been able to have that practice and continue learning on how to best handle things and organize. 

It's always so impressive to hear how much thought you put into everything your business does to run as effectively as you can. It's so great that you've been working on business boundaries and having more set log-off times -- it's so important! It's a good question as to what stage you're in. It sounds like you might be somewhere in between Adolescent and Mature? Let's find out! I think his big distinctions for Mature are not the amount of time or work spent, but rather in the Entrepreneurial vision. Do you have a set vision of what this business would look like in 5-10 years? Is your business and processes/systems in a place that you could theoretically open 5 more of the exact same thing? You definitely have a big focus on not just what service you're providing, but the way you deliver that service, and the skill behind it, and that absolutely pushes you deeper into the Mature zone. It's an interesting distinction, which I'm not fully clear on myself -- so it's tricky! 

I'm so glad that my summaries have been helping to bring it all together! Thank you!

[CareyJo]

We definitely do have a vision of what we will look like both in 5 and 10 years time.  The only way we could replicate 5 more companies like ours would be to find 5 more of my husband! 🤣😂  Although we cannot replicate each service, we could replicate how the techs behave and how the company behaves.  We have no plans to do that, but I could see how we could focus on that and make it happen, if we were to choose to go that route.  Our plan is to cut the business back to only 50% of current operations in 2030 and if the retirement income is meeting the threshold we need, we'll cut it back to 25% where it will stay until we're ready to close completely or sell and that will likely be somewhere around 2032-2034 depending on how much changes between now and then.  One of our current contracts only has a 5 year lifespan, so those timeframes can be greatly impacted by that.  It could get renewed with the same company and we just keep going for another 5 or it could get changed and we may pull out.  Will depend on what we've accomplished on the retirement side between now and then.

[Pesso]

I love this, @CareyJo ! Thanks for diving in here-

That's such a great point -- just because you CAN do something doesn't mean that you WANT to do it. You absolutely have to run your business according to your vision and not just based on one method in a book! That's a wonderful plan to cut things down and start to gear into retirement. 

That's also sooo interesting and a great thing to consider about contract lengths and thinking that far ahead! 

[maxpete]

Curious thoughts from @TimP2, @AgiM, and @ChocoRee 📚

[DLRosenberg]

What works in our business is that it is a partnership- both of us have different strength of roles- I'm more the entrepreneur/idea person and my partner is amazing at pulling the ideas into reality and creating process so the ideas stick and can duplicate (technician).

[Pesso]

That's so great that you naturally have that balance, and the two of you can complement each other, @DLRosenberg ! It definitely sounds like you're the Entrepreneur and she's the Manager creating processes. 

Do either of you still do Technician work, like the day-to-day sales, filling orders, stocking, and other things like that?

Which of the 3 phases do you think your business is in?

[Stacelyn24]

WOW!!! Just wow.  To have it broken down into three part and to simply describe each part...I'm sure we each can now see which phase we're in...and what to do.  This is truly a good book 🙂

[Pesso]

Thank you so much, @Stacelyn24 ! I'm so glad that the book and my summaries are resonating with you and helping. 

I'd love to hear your answers to the discussion questions-

• Which of the three Roles do you naturally gravitate towards? What has your split between them been like?
• Which of the three Phases is your business in?
• What can you do to better balance these roles and move into the next phase?

Can't wait to hear your thoughts!

[Doran]

I think I'm more  The Entrepreneur and Technician but fall short in the Manager energy.  I'm in the adolescence stage.  After reading this book I see where I need to improve a few things to reach the maturity stage.  Over the last few years, I've started handing things off to subcontractors.  This has been a learning process as not all have been successful handoffs.  It is uncomfortable for me to micromange or fire people or ask for the work to be redone to my standards.  So I end up paying for the service but also doing the work myself.  So this year I really held myself accountable to ask for what I want in these interactions.  The growth is not only for me but the business.  Ultimately, I'd like to spend more time not chained to the desk or computer and I know this is where I need to grow to do that.  

The Profit First book made me see where I could be more accountable and profitable.  So I hired someone to revamp my business plan and marketing plan with specific end goals.  I hired a new bookkeeper, CPA and social media manager.  So far I'm really happy with the progress because I went into it with specific end goals and clear boundaries of what I expected.  

[Pesso]

Thanks for sharing, @Doran !

I'm so glad that the book has been helping you reach and grow your business (and yourself) in this way! I love that you've started delegating and hiring out more -- it's absolutely not an easy thing, and a big learning curve to do it right. Definitely not fun to have to pay just to do it yourself. If you find any resources to learn how to better do this, absolutely share them with us! And if anyone has some tips for managing staff & contractors, we'd love to hear them -- @mksavage , @DLRosenberg , @TheRealChipA , @lenjobakes ?

That is so freaking wonderful that Profit First inspired and helped you so much! It's incredible to hear that you really took it to heart, implemented the strategies, hired out, and made some positive changes. Love to hear the progress, and definitely keep us updated with both of these!

[TheRealChipA]

Managing staff and contractors.  I’ve always joked (mostly) that having employees is nothing more than raising children, only without the obvious benefits.  Occasionally I hire someone who makes me rethink that, but those are outliers.  Ha.

I have one secret that works well for me (besides meditation and mindfulness) — always, always, always remind yourself and your employees that our arrangement is business and that all decisions I make have one goal — to grow and sustain my business.  If I have to discipline an employee, it’s just business.  I’m not here to be their parent, their guardian, etc.  I’m their employer.  That is a two-way relationship — I provide a job and a paycheck and they return that favor by doing the work required in the manner I require it to be done.  That even holds true when I employ family members, as I do right now with my 17-year old grandson.  Even that is business and we leave our familial relationship at the door.  Heck, he even calls me Chip when he’s here just to keep that firmly in our minds, as well as the minds of the other employees.

Over my 20+ years in hospitality I’ve had to discipline and even fire more than a few employees.  When I was Chef de Cuisine at my last big restaurant the owners even delegated staff discipline to me because to me it was just a thing, part of my job.  I love telling stories about my husband and I being out to dinner and having someone who works there come up to me to chat.  It’s always friendly and they are always genuinely happy to see me.  Then, when they leave, Charles asks me who they were.  He’s no longer surprised when I reply that they are someone I once had to fire. LOL.  When I did that, it was always a respectful discussion — just the facts — and I treated them with respect and with compassion for what they were obviously going to be feeling. Sure, in the short term there was angst and pain and even suffering.  But, over time they came to realize that I did the best I could at the time and they came to respect that in the long run.

The point here, @Doran, is that not everyone is cut out to be a manager.  Kudos to you for realizing that your business will be better off handing tasks you feel others are more able to do.  In the end, it’s worth it, even if it costs you a little more.  As for contractors, Charles and I have a core of about a half dozen contractors who we count on to fill the gaps and to do work we just can not do.  Recently, when I purchased my second soft serve machine, I read the electrical specs wrong and was not ready for the installation.  Our electrical contractor dropped everything to fix my mistake in less than 24 hours so that my machine could be installed before the busing holiday weekend.  When I thanked him — profusely and with a few comped gift certificates in addition to his fee — his only reply was “I’ll always do that for you and Charles.”

That segues nicely to my point.  Do what you can — either by yourself or by delegating to trusted others — to make your employees/contractors feel valued, even when it involves discipline or correction.  That human investment will never stop giving you and your business great returns.

Oh… and to your point about Profit First…. This year I’ve been religiously putting aside a rather aggressive amount of my gross sales to my Owner Draw account.  Not only do I not miss that money, but I’ve become a better money manager.  I’ve found so much fat in my budget that is now gone that I’m still amazed.  When I had to spend unplanned money to make the down payment to acquire/finance my new machine, it was there.  It turns out that the money was always there and I was often just squandering it on needless things.  I don’t do that these days, at least not nearly as much as I used to. And to think I used to believe I knew everything there was to know about “running a business.” LOL

[TheRealChipA]

Oh, and @Pesso, I’m 50% entrepreneur, 50% manager and 50% technician.  Isn’t everyone? LOL