Michael Gerber is widely regarded as one of the top small business gurus of all time. He authored the bestselling book The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, along with more than 30 other educational commerce guides. Over the past 40 years, Michael has been educating and empowering small business owners around the world, helping them to succeed and essentially create businesses that are very attractive for acquisition.
“His E Myth book has been named by the Wall Street Journal as the single most influential business book of all time. It was Inc Magazine that first called Gerber ‘the world’s number 1 small business guru’” Joseph Hansen, co-founder of the Prosper Show
Earlier this year, we attended the Prosper Show in Las Vegas. At the event, we got the chance to watch Michael’s insightful presentation about how Amazon sellers and entrepreneurs, in general, can use his methods to build extremely successful companies for sale.
In this blog, we distill the essence of what was discussed during the 90-minute speech. A video recording of the event can be found here.
Work on your business, not just in your business
“Most small business owners aren’t entrepreneurs, but what I’ve come to call technicians suffering from an entrepreneurial seizure. In short, they’re doing it, doing it, doing it, doing it, busy, busy, busy every single day. They have got a job. They’re self-employed. They work for a living.”
- Michael Gerber
Many big businesses also suffer from the same problem. Shortsightedness breeds confusion. Through confusion, staff becomes stressed and the company loses focus. By beginning with the end in mind, it is possible to build a business with a laser focus towards the future.
‘What’s my exit strategy?’ is a question that many founders fail to ask at the outset. However, it’s one of the most important things to understand when building a successful organization.
“A business is quite unlike something that most people believe it to be. A business is a persona. A business has a life. A business, unfortunately, has many many deaths.” Michael Gerber
By regarding a business as its own entity, entrepreneurs can separate themselves from the business and have a clearer view of the bigger picture. Despite the world changing so much over the past 40 years, Gerber still sees businesses running into the same problems today as they did when he first started.
Your business is a product
Products are made to be sold, and so are businesses. When you build an organization with the intention of selling it at some point in the future, it forces you to consider what buyers want to see in a company – growth potential.
“The minute you begin to see your company as a product, you realize there’s an opportunity for every single one of you to approach what you do every single day in a completely different way than you do today.” Michael Gerber
When your company has the internal workings and engineering to grow exponentially, it becomes a very attractive acquisition target. Take McDonald’s for example the original founders, Richard and Maurice McDonald created a business model that could be turnkeyed and replicated. Their solution to standardizing food production reduced wait times from 30 minutes to 30 seconds. Ultimately, this led to Ray Kroc buying them out and franchising McDonald’s to every corner of the globe. They now have over 37,000 restaurants worldwide.
There are lots of statistics showing that the vast majority of small businesses fail. Generally, this is because the owner runs out of energy, capital or desire to continue. Whilst you might not plan on selling your business from the outset, adopting this mindset will force you to separate yourself from the entity and work towards creating a highly effective machine.
Two co: old co vs. new co
To build a replicable and scalable organization, Michael explains the importance of separating your company into two entirely different businesses:
- Old co is your current business. It is where you are today in its present form. Old co provides the sustainability and cash flow that allows you to build the business of your dreams.
- New co is where you want to be. New co adopts an entirely different perspective to the organization of resources. New co asks the question ‘why are we doing this in the first place?’ and gets to work creating a scalable machine.
Rather than trying to change old co into new co, it’s better to start with a blank page. By generating regular cash flow, old co provides the breathing space required to build new co.
“Old co is going to be improved upon for sustainability by working on the three essential systems that must be worked on continuously: lead generation, lead conversion, client fulfillment… The core competency of every small company.” Michael Gerber
It’s easy to organize your company when you keep it simple. We live in a complex world, with many opportunities and threats that never existed 30 years ago. Whilst it can be tempting to make your business more complicated than it needs to be, there are really only three key things that your company needs to be concerned with: lead generation, lead conversion, and client fulfillment.
Michael emphasized the importance of having a system for each of these functions. Luckily for Amazon sellers, there are plenty of integrations, plugins and automation tools available to create extremely efficient client fulfillment systems. Modern digital marketing has made it easier than ever before to reach and convert leads into paying customers, and there is a range of management systems available that can easily be adopted in your business. To learn more about building these systems, check out Traction by Gino Wickman.
Luckily for entrepreneurs, there is a tried and proven path to grow new co from an idea into a market leader…
The 8 fold path
The only reason why people buy businesses is to grow them. They see future potential to improve upon what currently exists today. The 8 fold path is a process designed to nurture companies from an idea into a successful enterprise.
“The 8 fold process is eight steps in the process of creating a great growing company. A great growing enterprise. A great growing company for sale. Because I’m going to depart from that company by choice. I’m gonna build that company by choice to turn around and sell it. And I’m gonna turn around and sell it to somebody who is gonna buy it because they’re gonna grow it.” Michael Gerber
Building a business without a clear path to success is like sailing a boat on the open ocean with no set destination. It’s easy to veer off on a tangent and chase the latest trends and opportunities without considering the endgame. Focus is a rare and valuable resource which should be allocated to only the most important priorities.
“You’re inventing a saleable, scalable company. And you’re doing it step by step by step by step. And those steps are profoundly simple steps that every single human being on the planet can effortlessly produce.” Michael Gerber
So what are the steps to success?
1. A Dream
The dream is what drives your company. A meaningful dream ignites your passion to innovate and improve. It reminds you of why you’re here and what you are here to do. A company without a dream is like a butcher with a blunt knife.
For example, Facebook’s dream is to connect people in a way they have never been connected before. Every major undertaking that Facebook does is supposedly geared towards making this dream a reality.
2. A Vision
The vision is simply an artful way of saying ‘and this is how I’m going to do it’. It’s the direction that you take to bring your dream to life. In essence, the vision is the business model.
In 1977, Gerber and his business partner founded the Michael Thomas Corporation as a business development firm. Their dream was to transform the state of small business worldwide. To realize this dream, they had a vision of becoming ‘the McDonald’s of small business consulting’.
3. A Purpose
Every vision requires a narrative to guide an idea from conception to reality. The purpose is the story – it is a statement conceptualizing what success will look like when it is achieved. A well-defined purpose breathes live into the dream and provides the context from which the vision can become reality.
For the Michael Thomas Corporation, their purpose was that every single small business client could become as successful as a McDonald’s franchisee or even as successful as the McDonald’s franchisor.
4. A Mission
The mission is the leader’s role. It must be system-centric otherwise it’s not repeatable. Great mission statements are simple enough for anyone to understand, yet encompass the most important aspects required for success.
The mission of Michael Thomas Corporation back in 1977 was to invent the business development system that would enable them to accomplish their dream, vision, and purpose in the hands of completely inexperienced business consultants. They were aiming to develop a growth system that ‘kids’ could learn and use to help their clients at a cost 70% less than any other business consultant charges.
“The dreamer has a dream, the thinker has a vision, the storyteller has a purpose and the leader has a mission.” Michael Gerber
Steps 1-4 are concerned with the ambitions and direction of the company. Once you’re completely clear about where you are going, and you have scalable systems ready to bring your dream to life, steps 5-8 will guide the path to success – from prototype to enterprise.
5. The Job
The job is your client fulfillment system. It’s what you do every single day to satisfy the needs and desires of paying customers. Think of it as the processes and systems that are required to consistently deliver on your promises.
For McDonald’s, their client fulfillment system is the burger shop and kitchen that creates a reliable and replicable product throughout the world.
“You have to go to work on your client fulfillment system, and then you have to document your client fulfillment system. You have to turnkey your client fulfillment system so that you can replicate yourself… You want to start out with your tools at the beginning, not at the end.” Michael Gerber
6. The Practice
The practice is your franchise prototype to get it ready for scale. The practice is the premise upon which your business is going to be built. At this stage, it is important to refine your systems and get them ready to be replicated. As we mentioned previously, there are three systems that need to be working properly for a business to flourish:
- Lead generation system.
- Lead conversion system.
- Client fulfillment system.
Everything else is secondary. If you don’t have a way of attracting customers and making good on your promises, then you won’t be in business for long.
“McDonald’s first hamburger stand wasn’t a business. It was a practice preparing for the evolution of an enterprise by replicating the practice… You can begin to see the system as the solution that enabled Ray Kroc to grow it 37,000 times.” Michael Gerber
7. The Business
Once your prototype is working properly and you’re ready to expand, it is then time to move up to the next stage of the 8 fold path: the business.
By replicating the practice, you can create economies of scale and eliminate any unnecessary activities from business operations. For a fast food chain such as McDonald’s or KFC, replication involves opening new stores.
However, franchising isn’t necessarily the only way that businesses can grow. In the world of a private label Amazon seller, this might involve developing new products that meet specific success criteria (e.g: high demand, low competition, non-perishable, lightweight products) and bringing them to market using the methods which have been proven to work in the practice. Alternatively, sellers might look to new markets such as Amazon Australia or Walmart Online for scalability.
As the business expands, the importance of having an intelligent management system will become clear:
“If it is not a scalable management system, it doesn’t enable you to do what your company is there to do, which is to scale. Your company becomes a business, and that business becomes an enterprise. How? By replicating the business up to seven times.” Michael Gerber
8. The Enterprise
The enterprise is the endgame. Once the business has been replicated up to seven times, the path for future expansion becomes clear. A scalable enterprise with a proven track record of manageable growth is a highly attractive acquisition target.
Which brings us back to a point that we touched on earlier – ‘your business is a product. Products are made to be sold, and so are businesses’.
Once you reach the end of the 8 fold path by developing a successful growing enterprise, it is your choice whether to keep or sell the business. The genius in Gerber’s system is the profound simplicity which allows entrepreneurs to design their future with clarity and create a life where options abound.
“It’s the numbers, ladies and gentlemen. It’s the math of it, the mechanics of it.” Michael Gerber
RadicalU Online Learning
“The greatest business school on the planet. We just launched it on March 4th, 2018… RadicalU. 52 weeks a year, 24 hours a day, available.” Michael Gerber
RadicalU helps to train, educate and guide budding entrepreneurs through the 8 fold path. Rather than trying to reinvent the wheel, you can use this online learning course to tap into Michael’s 40+ years of coaching experience.
At $479.40/year, RadicalU is one of the cheapest ways to access the knowledge and skills required to build a roaringly successful enterprise. Every week, you get new lessons and tutorials.
“Innovation isn’t simply making something up. Innovation is an improvement upon the past.” Michael Gerber
It’s all about the process
Much of the success that McDonald’s has enjoyed can be attributed to great processes. When developing and implementing processes, it is important to ensure that they are simple enough for anyone to do, and that they are diligently executed by everyone involved.
During the Q&A session at the end of his speech, one business owner mentioned that if you employ ‘monkeys’, it doesn’t matter how good your processes are, you’re still going to struggle. Michael explained how McDonald’s employs kids at minimum wage with a 300% annual personnel turnover, but still manages to offer the same standardized service throughout the world.
“Your people are a product of your mindset when you bring them aboard. They are shaped by you… In short, you’re shaping a reality, and that reality is going to be inclusive of the people you draw into it. And the method through which you draw those people into it is the ball game. And because so few of us are conscious of that reality, we constantly then say ‘a business is only as good as the people within it’.” Michael Gerber
Think like a creator – like a true imagineer
The final question of Michael’s speech is a great one to end this article with. A lady from the audience explained how Amazon sellers are bringing the shift from the old economy into the new economy. Products that are popular today are often redundant 16 months from now, and there is a great deal of turbulence in the world today.
‘How do you envision a company operating on this new structure of the economy that is not completely established yet?’
“You completely forget the model you are working on right now. When you think about product, you think about commodity, a widget… You’ve been entrained to think in certain ways. Stop thinking that way. In new co, that way is not going to serve you. That way is never gonna create the future.
Instead of thinking like that – like a mercenary, think instead like a creator. Like a true imagineer. Like Walt Disney’s Imagineers at Disney Imagineering. ‘Don’t show me anything I’ve seen before. Don’t show me anything I would even recognize… show me something that blows my mind” Michael Gerber
Our world is more interconnected than ever before. Modern digital marketing is breaking down the barriers to reaching new customers and automation technologies such as A2X are simplifying business processes and systems for Amazon sellers.
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