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How to Avoid Feeding Your Own Monster

Edited by AMANDA GOME

Michael Gerber has seen thousands of small-business owners fall victim to their own creations. And he knows what to do about it.

ALMOST everyone who starts their own enterprise will end up as an exhausted failure rather than a successful developer of their own private money machine.

So says Californian business consultant and author Michael Gerber. He says most people who get into business for themselves have been "suddenly stricken by an entrepreneurial seizure".

Gerber wrote The E-Myth Revisited, Why Most Small Businesses Don't Work and What To Do About It (Harper Business, 1995). He founded Gerber Business Development Corporation, a consultancy in small-business re-engineering that has worked with more than 20,000 small businesses in the United States.

Typical of his would be entrepreneurs are the laid-off manager who decides to set up a consultancy, the laborer who quits to become a contractor, or the cook who opens a pie shop or restaurant. Their dreams of independence and wealth usually end in an awakening that their business is going nowhere as it grinds the life out of them.

In the United States, more than a million people launch new businesses each year.

Within 12 months, 40% of the businesses will have sunk; within five years, 80% will be gone. Worse still, in the following five years, 80% of the survivors will go under. (The Australian Bureau of Statistics recently began its first long-term survey to track small- business success rates here.)
Gerber says that one of the main reasons for failure is the assumption that someone who understands the technical work of a business will understand a business that does that technical work. Does a solicitor know how to market a suburban legal service? Does a hamburger flipper know what the customers want in food service?

The answer is usually no.

Gerber writes: "Rather than being their greatest single asset, knowing the technical work of their business becomes their greatest single liability." Many of these technicians end up creating a job they can never leave nor look beyond. They work in their business, not on it.

Gerber suggests that small- business owners should do the exercise of imagining how they would franchise their operation to 5000 outlets. What would the business look like?

How would it handle customers and what sort of people would they be?

By thinking how their business would work on this scale, they move beyond what they can do personally (as a technician), or the number of people they can personally oversee
(as a manager). They must become entrepreneurs who create a business system that will work for them rather than swallow their lives.

Gerber says the key to developing what he calls a business- format franchise is an organisation's "proprietary operating system". This is the unique style that distinguishes one business from another: the way it provides hamburgers or flow- ers or legal services that is distinct from competitors.

Gerber admires the way milkshake-machine salesman Ray Kroc and the MacDonald brothers transformed McDonald's from a San Bernardino hamburger stand in 1952 to the global franchise it is today.

They may not make the best chips or the tastiest burgers, but they developed a system that customers rely on.

Gerber has six rules for owners to apply to their business the prototype of a franchiseable proprietary system (he believes they are applicable to any business, from hamburgers to a medical practice):

Provide consistent value to customers, employees, suppliers and lenders, beyond what they normally expect.
The model can be operated by people with the lowest possible level of skill. Service and quality should be dependent on systems rather than staff or specialists.
The model will stand out as a place of impeccable order, assuring customers that the desired service will always be delivered.
All work will be document- ed in operations manuals. This shows staff how the business provides its services without having to refer to managers or provide their own solutions.
The model will provide uniform service to customers.
The model will utilise a uniform code for color, dress and facilities. Determine what look and colors work for the business and apply them.

Gerber says that a business owner should be able to leave the operation for 8-10 weeks and return to find it running smoothly. Until they reach that point, the owners are working for the business and not the other way around.

--ROSS LANGFORD

BUSINESS REVIEW WEEKLY,
December 18, 1995

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