Many people dream of quitting a job or leaving a boss they dislike and becoming their own boss by starting a business. Each year, a million new businesses are started. However, 40 percent fail within the first year and 80 percent fail within five years. Of those that last five years, more than 80 percent fail in the next five.
Underlying the high failure rate are persistent romantic notions about how businesses are born and what it takes to succeed. In The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About it, Michael E. Gerber argues that new business owners typically fail because they focus on technical expertise rather than on developing business knowledge. They mistakenly think that knowing how to do a specific thing, such as baking pies, is all it takes to make a business work. But there’s much more to it. The important thing isn't the commodity — what is produced — but how it’s produced. The business itself is the product.
The “E-Myth” of the book’s title refers to what Gerber calls the Entrepreneurial Myth that small businesses are founded by entrepreneurs with a great idea, capital to invest, and the business acumen to pull it off. The truth is that most small businesses are started by ill-equipped technicians.
A small business owner needs to cultivate and balance three roles or mindsets, all of which are necessary for running a business. The first is the technician mindset, which is where most small business owners begin and end. But this mindset by itself is insufficient. The other necessary roles are entrepreneur and manager. Here’s how they work:
A typical small business develops in three phases — infancy, adolescence, and maturity — although many fail before reaching maturity.
In the infancy phase, the owner wears the technician hat. The business is driven not by business needs but by what the owner wants, which is to produce something he enjoys making. The volume of work soon exceeds his capacity to get it all done. At this point, many businesses fail — the exhausted owner/technician gives up.
If the owner doesn’t give up in the infancy stage due to overwork, she moves into the adolescent phase in which she hires another technician and quickly off-loads responsibilities to that person while providing little oversight. Problems soon develop, so the owner jumps in again to do things herself. Soon the business reaches a crisis point where the owner feels she’s losing control.
Businesses can grow from infancy and adolescence to maturity as their owner learns and grows. But the most successful companies start out differently, as mature businesses already knowing where they’re going and how they’ll get there. The founders have business knowledge and an entrepreneur’s mindset.
Developing business knowledge is the crucial missing piece for most small business owners. If they don’t move out of their technician’s comfort zone to learn new skills and roles at the adolescence crisis point, business owners typically go one of three directions: they shrink the business (return to the infancy stage), go all out until they crash, or go into survival mode and barely hang on.
However, there’s a more effective and less painful route. The franchise movement, which started in the 1950s, has provided a “turn-key” model for successful business development that independent business owners can emulate.
The movement began when a milkshake machine salesman, Ray Kroc, visited a hamburger restaurant owned by two brothers named MacDonald in San Bernardino, California. At the restaurant, he found high school students producing identical burgers systematically and efficiently under the supervision of the owners. Kroc saw that this process could be replicated to continually make money and he persuaded the brothers to let him franchise it. He created McDonald’s, which became the world’s largest prepared food delivery system.
Franchising wasn’t a new idea — Kroc’s innovation was his “business format franchise,” a a new-business template that’s been widely adopted by other companies. Under business format franchising, the franchisor teaches the business format (marketing, selling, inventory, finance, personnel procedures) to the franchisee.
Kroc’s model format can be applied to small business development in any field.
In applying business format franchise principles, an owner must first think of his business in a new way — as though it were the prototype for thousands of others like it. He should imagine he’s going to franchise it, then create a model in which the parts — purpose, organization, management strategy, production systems and processes — can be replicated. In other words, he should create a model for a business that runs without him.
A business development program is the means for organizing or reorganizing a business into such a model or structure. There are seven components that you as an owner must work through:
Once a business is organized and on track, development is an ongoing process that involves three activities: innovation, measurement of results, and execution. Here’s how they work:
Implementing a systematic business development process transforms both owner and business. Her personal and business goals function in harmony, and she achieves the American small business dream that eludes so many others.
Many people dream of quitting a job or boss they dislike and becoming their own boss by starting a business. Each year, a million new businesses are started. However, 40 percent fail within the first year and 80 percent fail within five years. Of those that last five years, more than 80 percent fail in the next five.
Underlying the failure rate are persistent romantic notions about how businesses are born and what it takes to succeed. In The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About it, Michael E. Gerber explains how wrong beliefs and assumptions undermine new businesses and how to overcome them and succeed.
Succeeding in a new business starts with understanding these driving forces:
The typical small business owner — a technician — works too hard, too long for the return she’s getting. She’s overworked and exhausted because she’s focused on the wrong work — technical work. As a result, the business that started as a dream becomes overwhelming and the work a grind.
This book is about starting a successful business or turning your business around if you’re struggling. The process starts with changing yourself. For your business to change, you must change first because your business is a reflection of who you are, including your limitations.
The first thing to change is your understanding of what a business is and what makes a business work.
Most people believe the Myth of the Entrepreneur, which is that new businesses are started by entrepreneurs who spot opportunities for making a profit and risk capital for an ultimate payoff.
However, most small businesses aren’t started by sharp-eyed entrepreneurs. They’re started by people like you, struck by the idea of becoming your own boss. Usually, you’re doing technical work and something triggers the thought of going it alone and doing the same work for yourself rather than for someone else. For instance, you might suddenly get fed up with the demands or feel your talents and efforts are unappreciated. So whether you’re a hairstylist, pet groomer, plumber, or technical writer, you start your own business.
You erroneously assume that your ability to make something or do something well will translate into business success — that what a business does and how it works are the same thing. But technical knowledge isn’t enough. It can even be a liability if you think you already know everything you need to know. Running a business requires a different mindset from that of a technician and a broader set of skills.
As a technically oriented small business owner, you jump in with both feet, enthusiastically working around the clock, but eventually, your labor of love becomes drudgery, a lot like the drudgery of the job you left. The small business that you thought would liberate you has become a job — one that’s taken over your life — and you end up tired and disillusioned.
The problem is that you’ve focused too narrowly on one role. A small business owner needs to cultivate and balance three roles or mindsets, all of which are necessary for running a business. The first is the technician mindset, which, as noted, often prompts you to start a business but by itself is insufficient to maintain a business. The other roles are those of the entrepreneur and the manager.
Two of them — technician and manager — may be delegated as the business grows, but in the beginning, the owner must apply and balance all three. The three roles or mindsets may compete to dominate the business owner’s actions, the way your desire to indulge in eating a favorite snack may compete with your desire to stay trim and fit.
Here are the key characteristics of each role. They can be both strengths and, if taken too far, drawbacks.
The entrepreneur role provides the vision, creativity, and energy that drive the business. The entrepreneur is always thinking of the future. He likes to consider what-if scenarios, envisioning strategies, new ways of doing things, and ways to create or reach new markets. The entrepreneur’s desire for change can frustrate those wanting stability or a consistent direction. He may come to view such people as obstacles who need to be pushed or pulled along. The entrepreneur also has a strong need for control.
The manager is a pragmatist who uses planning and systems to create order and predictability. She strives to maintain the status quo. Her mindset conflicts with the entrepreneur’s in that she sees problems rather than opportunities and her pragmatism counters the entrepreneur’s desire for innovation.
The technician is an individualist and a doer. He prefers to do things himself to ensure that they’re done right. With his focus on getting things done, he lives in the present. He likes to be in control of his workflow and to work on one thing at a time. He distrusts managers because they push for more than is reasonable (more than can be done right) and they get in the way. This mindset conflicts with that of the entrepreneur, who keeps interrupting with changes, and with the mindset of the manager, who tries to impose a system.
A small business needs all three mindsets working in harmony, and an owner possesses all three to varying degrees. Typically, however, a small business owner is 70 percent technician, 20 percent manager, and 10 percent entrepreneur. Running a business with mostly a technician mindset is a mistake for reasons that are explained in the next chapter.
Be aware of which mindset dominates your thinking and which hat you spend most of your time wearing. Your business mirrors your strongest tendency. But to succeed, you need to master all three.
In addition to understanding the three roles of a business owner, it’s important to understand where your business is in the typical life cycle of a small business. There are three phases: infancy, adolescence, and maturity. Each has various characteristics and risks.
In the infancy phase, the owner wears the technician hat. The business is driven not by what it needs, but by what the owner wants. In the infancy phase, you (the owner/technician) want a place to work as you see fit, free of constraints.
For a while, you’re happy functioning on your own. You don’t mind working fourteen hours a day, every day, because you’re used to “paying your dues,” and besides, this work is for your own business. You’re willing to do whatever it takes to keep the business afloat — doing the technical work plus buying, selling, shipping, ordering, and keeping the books. At this stage, you are the business. Your name may even be part of your business’s name (for example, Joe’s Place).
Customers appreciate your work and keep patronizing the business. But the volume of work soon exceeds your capacity to get it all done. You work harder but start having problems keeping up. Your business has taken over your life; it’s become your boss — a boss who can’t be satisfied. You have a job that’s even worse than the one you left. You may begin feeling hopeless and disillusioned. At this point, many businesses fail — the exhausted owner/technician gives up.
The problem is that you’ve neglected your roles as entrepreneur and manager. You’ve been taking solely a tactical approach focused on the work that needs to be done, rather than also taking a strategic view that would move the business forward. Part of a business owner’s role — the entrepreneurial part — is to grow the business. That role is often absent during a business’s infancy stage, as is the manager role responsible for ensuring things run smoothly.
One reason you focus on your role as technician, at the expense of your other roles, is that you enjoy doing the technical work more than entrepreneurial or management work. But a more subtle reason is that you may be unable, at this stage, to separate yourself from your business. It’s your name on the sign outside. You take pride in your work and like that customers depend on you personally to deliver your product. Further, you can’t imagine what your business would look like if you weren’t the one doing the work. But when you are your business and your business is you, you can’t get sick or take a vacation, and your business can’t grow.
Your business won’t succeed if you play or fulfill just one role because it’s the one you’re most comfortable with. You need to learn all three: creating a vision (entrepreneur), translating your vision into action through systems and processes (manager), and getting the work done (technician). When you balance all three, the business becomes energizing and rewarding rather than draining.
If you don’t give up in the infancy stage due to overwork, you move into the adolescent phase with the idea of hiring some help. You typically look for another technician, preferably with experience in the same field.
Also, you might look for someone with experience doing the things you don’t like doing — for instance, bookkeeping, ordering supplies, or maintaining a schedule. In fact, if you’re like most overworked owners, if you can find an experienced person, you’re happy to give up responsibility for those areas, in effect abdicating rather than delegating. You start enjoying shorter hours and less grunt work without giving much thought to what your employee is doing as long as things seem to go smoothly.
However, without your oversight, problems start to develop and mistakes are made — for instance, you don’t have supplies when you need them or the quality of your product slips and customers get upset. So you jump back in again (into your comfort zone) and start doing things yourself so they’re done right, instead of developing the managerial and entrepreneurial skills that would advance your business.
In the adolescent phase, your business always reaches a point beyond your comfort zone, at which you begin to feel you’re losing control. Business owners typically go one of three directions at this point: they shrink the business in size (return to the infancy stage), keep growing willy-nilly (go all out), or go into survival mode.
When you have a technician mindset and hit the crisis point, you’ll be inclined to try to go back to the way things used to be, when having fewer customers, fewer bills, and fewer employees meant things were less complicated. You can get rid of some of the problems of growth this way, but when you go back to doing everything yourself, you’ll soon be overloaded again. Things will deteriorate and, like 400,000 small business owners in the U.S. each year, you’ll throw in the towel.
An alternative to shrinking is to go all out as fast and as far as you can. This is a common approach in the technology sector. Tech companies started by technician/owners who have a good idea tend to stay focused on what they’re producing, rather than on running a business. This looks deceptively promising — they usually build momentum, until they crash due to a weak underlying business foundation.
If you go all out, your problems will be magnified by the pace of growth — demand ultimately will exceed your production capacity — and your business will collapse. A brilliant idea and rapid growth by themselves can’t sustain a business, although you may be able to walk away with some cash.
The third possibility, also unpalatable, is that you soldier on and survive for a time by pushing yourself and your employees to the extreme. But when you become consumed by your business, you’ll inevitably reach a personal breaking point.
Business owners have a better alternative to shrinking, growing uncontrollably, or entering survival mode: productive change.
Productive change requires leaving your comfort zone and developing new identities (manager and entrepreneur) by learning new skills.
Businesses are destined to grow — what usually holds them back are the owner’s limitations in skill, knowledge, and, most importantly, passion for learning and for the business. As your business grows, you need to grow personally.
When you decide to shrink or go back to square one, you’re reacting to changes you could have anticipated and planned for, had you learned business skills to accompany your technical skills. For instance, you could have predicted that customers would like your product and, therefore, that your business would grow. You could have predicted the result of failing to be involved in the work of your employees. You could have predicted that a growing business would require learning new skills. Your job is larger than that of a technician — it’s to prepare yourself to grow your business.
You do this by understanding business processes, having clear objectives for yourself and your business, and developing a plan for getting there. This includes deciding at the outset how you want your business to grow by answering questions like:
By following the right process, you can build a business that works because of the way you designed it, not because of what you do each day to keep it going. In other words, you can build a business that works without you rather than one that enslaves you.
Businesses can grow from infancy and adolescence to maturity, in which they have a clear sense of purpose and direction. But the most successful companies start out differently, already knowing where they’re going and how. Maturity isn’t a phase for these companies — they’re mature from the outset.
The entrepreneurs who started companies like McDonald’s and Federal Express had an entrepreneur’s mindset. They understood what businesses are and how they work. In addition to business knowledge, they had clear objectives and a plan.
For example, when Tom Watson founded IBM, he knew several things: He had a clear vision of what the company would look and act like, and he knew that to become a great company IBM would have to act like one from the start. He created a template for a great company and worked daily to match the company to the model. He focused on developing the business rather than “doing business.”
When you build a business from an entrepreneur’s perspective, you focus on the business and how it works as opposed to what it does. However, most people start businesses from a technician’s perspective, focused on the work rather than on the business.
Other differences between the two perspectives are:
The entrepreneur uses a business development model with measurable steps. The business itself has a guiding vision and a defined structure and it functions by principles and rules. The business is an aggregation of parts that work together systematically to produce the intended result.
The business model of a technician-run business is created day by day. The vision is narrow, focusing on the work and the present, with no sense of where the business is headed.
The two models begin at different points. The entrepreneur starts with a particular customer in mind rather than with an idea for a business. She looks for an opportunity to provide something a specific customer wants and that no one else offers, in a unique way. The result is a business designed based on the customer’s needs. The entrepreneur understands that the customer’s needs will continue to change, which provides the business with ongoing opportunities to fulfill needs.
By contrast, the technician’s starting point is to satisfy herself by doing what she wants to do. She views the customer as a problem because he’s never satisfied.
A small business owner needs to break away from her technical side and employ her entrepreneurial instincts to create and activate an entrepreneurial model for a business that works effectively. The franchise movement provides that business model.
Every business owner has three roles or mindsets — entrepreneur, manager, and technician. The entrepreneur provides the vision that drives the business, the manager creates systems to carry out the vision, and the technician produces the product or service.
In running your business, what is your dominant mindset? What are the advantages and disadvantages of this?
What percentage of your time do you spend focusing on each role? Which role do you neglect most?
How can you bring the three roles into better balance and how would that benefit your business and/or your life?
The franchise movement, which provided a “turn-key” model for new businesses, has had a transformative effect on American small business comparable to that of the industrial revolution and the rise of technology and computers. The franchise model brings organization to the disarray of many small businesses and a path for development and continuous growth.
The movement began in 1952, when a milkshake machine salesman, Ray Kroc, visited a hamburger restaurant owned by two brothers named MacDonald in San Bernardino, Calif.
At the restaurant, he found high school students producing identical burgers systematically and efficiently under the supervision of the owners.
Kroc immediately saw that this process could be replicated to continually make money, and he persuaded the brothers to let him franchise it. A dozen years later, he bought them out and created what became the world’s largest prepared food delivery system.
McDonald’s, a $40 billion-a-year business with more than 28,000 restaurants at the time this book was written, calls itself “the most successful small business in the world.” It triggered the growth of franchised businesses in the U.S. to the point that, in 2000, there were 320,000 franchised businesses in 75 industries.
Franchising wasn’t a new idea — Kroc’s innovation was his “business format franchise,” a new-business template that’s been widely adopted by other companies. Under business format franchising, the franchisor teaches the business format (marketing, selling, inventory, finance, personnel procedures) to the franchisee. It was so successful that from 1971-87, less than 5 percent of franchises failed. In five years, 5 percent failed compared to the 80 percent failure rate for independently owned businesses.
Originally, franchised businesses were “trade name” franchises in which the franchisor merely gave small businesses a license to use its name and sell its products. In contrast, under a business format franchise, the franchisee gets not only the name but also a complete system for operating a business.
In the case of a trade franchise, the value lies in the brand name it’s licensing (for example, Mercedes), but with a business format franchise, the value comes from the process or business model (how it sells something, rather than what it sells). For Ray Kroc, the business — McDonald’s — was the product, not hamburgers. Kroc sold franchisees a business that works. Here’s how he did it.
Franchisees who wanted to buy a successful business were Kroc’s customers. He sought to differentiate his franchises from others by making sure they worked better than any others did. Because small businesses failed so frequently, he had to create a model or format that would be nearly foolproof no matter who bought it.
He created a franchise prototype similar to the assembly-line model for making a mass-production product like a car: it was based on systems rather than people and could be assembled easily, efficiently, and inexpensively with uniform parts. Together, the systems produced exactly what the customer wanted and expected every time.
Kroc had tested every part of his prototype and standardized everything. For instance, he determined that:
He created a rigorous training program (Hamburger U) to teach franchisees how to run the system. Having thought through every problem, he left franchisees with little discretion. The system has worked for owners, employees, and customers.
Many businesses have taken Kroc’s ideas and created their own business format franchises. The system is a proven success. Seventy-five percent succeed in their first five years, compared to the twenty percent survival rate of independently owned businesses within five years. Others using the franchise prototype include Federal Express, Mrs. Field’s Cookies, Subway, Domino’s Pizza, and KFC.
Fortunately for would-be small business owners everywhere, Kroc’s model of systematizing a business can be applied to small business development in any field. Like Kroc in building McDonald’s, you can build a reliable system for operating your business that stops relying on you as a technician and is capable of scaling to handle more demand.
Building your business prototype solves the problems, such as lack of coordination and inconsistency, that typically undermine small businesses. It provides you, as a small business owner, with an organizational framework for realizing your dream. It’s an incubator in which you can test ideas and assumptions in a disciplined way. The system, with all its parts working together, turns your business into a smoothly functioning machine.
It balances the three roles of a business owner: it provides a vision of what the business is and how it should work (entrepreneur), a system for implementing the vision (manager), and specific standards and instructions for the daily work (technician).
By building your business template, you create your own way of doing business that differentiates it from competitors — and that functions automatically by design rather than force of will. You’ll control your business rather than it controlling you.
Before applying the prototype business format, you need to think of your business in a new way. The first and most important principle is that your business is separate from your life. Your business must serve your life, as opposed to your life serving your business. When you accept this principle, your business becomes an entity you shape and work on rather than in. This perspective should drive all of your actions.
Creating a franchise prototype helps you do this. Try this exercise for reconceptualizing your business. Think of it as though it were the prototype for thousands of others like it.
Imagine you’re going to franchise it with the following guidelines. How would your franchise prototype look compared to the way your business looks today?
1) Your model will provide a level of value to your customers and everyone else your business touches that’s consistent and exceeds expectations.
The answer to how your business will provide value is the reason it exists. Your customers, employees, and suppliers, not you, define the value your business provides. It’s reflected in such things as the way you greet customers and recognize/reward employees, the price of your service or product, or the time you spend answering a customer’s questions.
2) Your model can be applied by people with the minimal skills necessary for each position. If you base it on highly skilled people, you’ll have a harder time filling positions and you’ll pay more. Further, your model will be hard to reproduce.
Make your business dependent on systems rather than people. People can still help you improve your systems by coming up with ways to serve customers better. But when your business is people-dependent, it’s subject to their moods — you have to motivate them — and can’t produce consistent results. Your system is a tool you develop and use to teach people to do the work of your business and differentiate it from competitors.
3) Your model provides organization and order. There’s more than enough chaos in the world; most people are looking for order. A business that appears organized gives your customers, employees, and suppliers confidence that it can deliver the results they want.
4) Your model is documented in an operations manual. Documentation provides your employees with clarity. It explains the purpose of the work, the steps for doing it, and the standards that must be met. Without documentation, everyone creates their own processes and standards.
5) Your business provides consistent service. To be comfortable with your business, customers must receive the same service, in the same way, each time. If they don’t know what to expect, they’ll stop coming back. When you run a business arbitrarily, you’re running it for yourself, not the customer.
6) Your business has a coherent, uniform look. Everything, including the office design, employee dress code, business cards, signs, and printed materials, should be coordinated. Colors, shapes, and overall look motivate customers and should be professional and research-based.
To work on your business:
When you can answer these questions, you’ll be thinking of your business in a new way, as your product, and with a new level of excitement.
A typical small business goes through infancy and adolescence phases. In the infancy stage, the owner usually focuses on the technician role and tries to do it all; in adolescence, the owner hires additional employees but begins losing control. A business doesn’t reach maturity unless the owner expands his or her skillset.
Which phase describes your business right now? What do you see as the next step in its evolution?
Is your business on a path to maturity (success)? Why or why not?
Imagine you had to create a franchise prototype template that would create thousands of businesses like yours. When thinking from this perspective, what are the greatest opportunities to systematize your business?
To organize or reorganize your business into a model or prototype that could be replicated, you need a business development program.
It has seven components:
1) Personal objective
2) Business objective
3) Organizational plan
4) Management plan
5) Personnel plan
6) Marketing plan
7) Systems plan
As noted previously, your life and your business are separate things. But your business can and should play an important role in your life, and its purpose should dovetail with your personal goals.
Before determining your business’s role in your life, determine your own primary goal by considering what you most value, what kind of life you want, and who you want to be. You need to know where you’re going in life in order for your business to contribute to that goal.
Other questions to help determine your life goal include:
Knowing your life goal can help you shape your business goals and provide the energy and purpose to drive your business.
Your business can be part of achieving your life goal. Your business objective is a clear statement of what you want your business to look like and what you want it to accomplish.
A vision of what you want your business to be includes financial goals; clarity on what you propose to sell and specifically to whom; and considerations such as your growth timeline and standards for how you’ll do business.
In picturing what your business will look like when fully realized, decide how big it will be in terms of gross revenue. Also, estimate pre- and after-tax profits. Does the amount match what you need to achieve your life goal? How much do you want to be able to ultimately sell the business for, and when do you want to sell it?
If the business you’re developing can’t provide the return you want, you need to change it, walk away, or come up with a better opportunity.
Other relevant questions include:
Once you have a clear picture of what you want your fully realized business to look like, you need to create an organizational plan.
Small business owners often think they don’t need an organization chart because they’re starting with only a few people. But a chart reflects not just where you are at present, but how you want the business to develop organizationally.
Many businesses make the mistake of organizing around people rather than around the necessary functions. For example, a naive business might merely think about hiring a specific number of people, equally distributing tasks between those people.
If you organize around people, your operating ability will depend on specific employees’ strengths, weaknesses, moods, and attitudes. When employees quit, you’ll be left in the lurch. Responsibilities will be unclear and you won’t be able to hold anyone accountable for getting the necessary things done.
Instead, create an organization plan reflecting what your organization will look like when the business is fully evolved.
Your organization chart evolves from your objectives and establishes the logic and structure of your business, as well as how positions/functions relate to each other and to the whole.
Your management plan is your operating philosophy: it reflects why and how you do what you do. Your management system is also the way you and your employees communicate your operating philosophy to your customers through your actions.
The author’s experience at a favorite hotel in the Pacific Northwest illustrates how a management strategy and system work. The hotel’s management plan or philosophy was to provide harried guests with a place of peace and order, where they could relax and feel taken care of.
The company had a system for going above and beyond expectations to consistently serve the needs (even unconscious ones) of each customer. The check-in staff and the staff at the adjoining restaurant used subtle questions to determine each guest’s preferences for wine, coffee, and newspaper brand. Automatic lighting inside and outside adjusted to the time of day and darkness. Staff anticipated the needs of guests — for instance, starting a fire in each room’s fireplace on chilly evenings and setting a timer to start the coffee pot in the morning.
To ensure that a plethora of little things were done consistently for each guest each time he visited, staff followed numerous checklists and supervisors did spot checks. Guests’ preferences were noted and addressed on subsequent visits as well. New employees were taught the company’s management philosophy and were walked through an operations manual for their particular job. The management system was effective in applying the business’s philosophy because of these and other automated processes.
To get things done and done right consistently, create an environment in your business where doing what needs to be done is important and gratifying to the people tasked to do it. Create processes, as the hotel in the previous example did, that make doing what you want a habit.
In addition, make sure people understand the purpose of the work you’re asking them to do and make sure the steps and standards are clear. Go through the company’s objectives, standards, strategy, philosophy, and operations manual. Also, exemplify the behavior you want to see from your employees.
The work environment and rules you create for accomplishing the company’s purpose can be likened to a game in which everyone participates and tests their skills and talents. Communicate your business’s “game” (its purpose and method of achieving it) to each employee when you start your relationship. How you do this is your personnel plan.
Here are some guidelines for establishing and communicating your game (purpose and methods):
Your hiring process is crucial to achieving your purpose. It’s your first opportunity to communicate your purpose to potential employees.
The hotel owner in the example followed a carefully designed and scripted process of choosing, hiring, and orienting employees. It included a presentation in a group meeting to all applicants, followed by an individual meeting to discuss each applicant’s reactions to the ideas presented.
A new employee’s first day of training included:
Your system or way of doing business, communicated clearly to and by your people, differentiates your business from your competitors’.
Your marketing plan begins and ends with your customer. In deciding this strategy, forget what you want — your dreams and goals for the business — and focus on what the customer wants, which you need to discover and cater to better than anyone else.
To do this, you need to know two things in detail :
By knowing these things, you can scientifically build your business model or prototype to satisfy your customer’s needs (which may be subconscious). To learn about your target customers, you can buy market data, or you can learn from existing customers by asking them about their needs and interests via surveys and questionnaires that provide a reward (something free or discounted) in return for participation.
Many business owners make marketing decisions on how to attract customers without objective information, depending instead on instincts and opinions, which are likely inaccurate or incomplete. However, with a demographic and psychographic customer profile, you have a far better chance of reaching and satisfying your customers.
Every element of your business is part of a system, which is a set of interrelated procedures, methods, and routines designed to accomplish a purpose. You have multiple systems — for instance, billing or inventory control — that affect each other.
In a business, there are three general types of systems:
Your business model or prototype must integrate your systems so they strengthen each other.
Your business systems work together to present a single, consistent message — the idea or purpose driving your business.
Once you have your business organized and on track, development becomes an ongoing process that involves three activities: innovation, measurement of results, and execution.
Most business owners think innovation means coming up with new products to increase sales. In contrast, the franchise movement increases sales by applying innovation to the process — how a business does (or sells) things — rather than to what it produces.
For example, innovating or changing the way your business interacts with customers can improve your results. The innovation can be as simple as changing your greeting from “How may I help you” to “Hello, have you been here before?” The changed greeting allows you to pursue a conversation about what you have to offer. By contrast, when a salesperson simply asks how he or she can help, the customer usually replies, “I’m just looking,” and moves on. A small change like this can increase sales.
Changing the color of your employees’ suits or uniforms can increase sales as well. For instance, one business found that salesmen sold more while wearing blue suits than while wearing black suits.
Innovations should be:
Innovations in the way you do business differentiate your business from competitors, and the process of continuous improvement generates energy among employees.
Measuring the results and quantifying everything you do are the only ways to know what’s working and what’s not. However, many businesses don’t do it — for example, most can’t tell you how many selling opportunities they had the day before, an omission that’s costing them money.
You need numbers for everything in order to know where you are and where you’re headed. For example, to learn the impact of changing your customer greeting, you need to determine:
You also need to be certain that any change in sales or revenue was in fact a result of the new greeting, rather than due to some other factor.
Begin your business development process by attaching numbers to everything related to your business practices, such as:
Once you innovate (find better ways to do things) and measure how you’re doing, you need to execute changes systematically so that people know what to do and how, rather than acting on their own discretion.
If you’ve found that something works, do it consistently so customers can depend on it and your business retains the identity you created. Of course, if you find that something isn’t working, figure out what will work better and do that instead. Your business development process should be ongoing — you need to keep innovating, measuring, and executing.
Your business objective is a clear statement of what you want your business to look like when fully evolved and what you want it to accomplish.
Do you have a written business objective? If so, what is it? How could it be improved? If not, write a potential strategy statement.
When your business has fully evolved, how big it will be in terms of gross revenue? What are your estimated pre- and after-tax profits?
How does your business’s strategic objective dovetail with your life goals?
In your small business, which is a reflection of you, you have created a practical space in which to learn and grow. It’s similar to a dojo or practice hall, as described by Joe Hyams in Zen in the Martial Arts. It’s a space for immersive learning.
Your small business is a manageable world that responds to your actions instantly. You can test your ideas and assumptions about the business and yourself. You’re forced to be specific rather than make generalizations, and you have to think strategically as well as operationally. You have ideals, but you still must be practical and maintain rules and order.
Creating your own world, which is the entrepreneur’s dream after all, teaches you your limitations and strengths and helps you understand yourself and the larger world. Innovation, measurement, and execution are your belief system and way of functioning. You have the opportunity to develop all three facets of yourself — entrepreneur, manager, and technician — so that you and your business are whole and balanced.
Implementing the business development process changes both you and your business. You’re separate but working harmoniously. You realize the American small business dream.
Have you thought about starting a business? Remember, it takes more than a technical skill like dog grooming or baking and more than a great idea.
What is your idea? Why do you think it would succeed?
In a sentence, describe the purpose of your proposed business. How can you differentiate it from other similar businesses?
Who would your customers be? What customer wants/needs would your business meet?