The E-Myth: Why Most Small Businesses Fail, & What You Can Do About It
Tell me if this story sounds familiar.
My friend Tom is a gifted carpenter. After working for 15 years as the lead project manager for a contractor who built & renovated houses, he decided to go out on his own. He’d learned everything there was to learn about a building site and managing a construction job, and grew tired of making lots of money for someone else.
Within six months he’d eaten through all the money he’d put aside to start the business, and was now dipping into his 401K. Within a year he was putting major charges on his credit cards and paying the monthly minimum, incurring debt at 20% interest.
All this and he couldn’t understand why his business was failing. He’d landed a bunch of jobs early on and they were all going well. The workmanship was solid, his customers were happy; in short everything about the building of houses was going smoothly. The business, however, was heading over a cliff.
Feel free to insert any other job into the above scenario, and it’s always the same. Lawyer, architect, graphic designer, web developer, event producer, etc. We all know people in our industry who are good at what they do, really good in some cases, and fail miserably when they go out on their own. We look at their work, and wonder, “how on earth is this guy NOT successful?”
On the flip side, we see people who are mediocre at best at their craft, but who are very successful at running their businesses. We look at their work and think, “how on earth IS this guy successful?”
The answer to both scenarios is neatly encapsulated in an eye-opening book called “The E-Myth Revisited”, by Michael Gerber. It’s often one of the first books I recommend to business owners I consult for, as it’s easy to read and never fails to produce a ‘Eureka!’ moment.
Gerber’s tenet is basically this: There is a big difference between being good at a craft, and being good at the business of selling and providing that craft. Too often people assume that if they’re good at being carpenters, or event planners, they should be able to run a business a carpentry or event planning business. Sadly, those skills do not run hand-in-hand and are completely unrelated.
The easiest way to see this is in sports. Pat Riley and Phil Jackson, two of the most successful coaches in NBA history, were mediocre players at best, in their day. Isaiah Thomas, a hall of fame point guard for the Detroit Pistons, is only one of numerous all star players who failed miserably at running a team. (I will never forgive him for wrecking my beloved NY Knicks).
What’s the difference in doing something and running a business? There’s lots; financial planning, personnel management, pricing, marketing, etc. Probably the most common areas I’ve seen people fall short are:
1) in managing their pipeline of developing new business. They get absorbed in producing events for their clients, and put off going after new ones until its too late.
2) in properly pricing their services to allow for the time it takes to operate the business. Too often they assume they can do X number of events a year, because that’s what they did when they worked for someone else, and forget to factor in the time it takes to run the business.
The first step is simply the realization that different skill sets are required between doing the craft and running the business, and it’s hard to do both, even if you’re good at both.
One successful example in our industry was Sarah Merians Photography, which for most of its 20 years or so in business was the dominant event photography company in the NYC area. The firm was a partnership between Sarah Merians, who was the photography expert, and Elizabeth Beskin, who was the business expert. Though they recently went their separate ways, with Elizabeth focusing on Fifth Avenue Digital (the corporate and online end of the business), and Sarah keeping the social end of the business, their partnership was something I always admired, and stands as a case book example of how a craft expert brought in someone else to focus on the business needs of the company.
At the end of the day, my belief is that a good business person will trump a good craft person, which is why you see people with mediocre event skills sometimes be quite successful in business. The key is identifying which side of the spectrum you’re good at, and making sure you fill in the other side with someone who complements your skills.