Why Most Small Businesses Fail
(Hint … It’s a Myth)

“Of the thousands of business people I have had the opportunity to know and work with over the past two decades, few were real entrepreneurs … If the entrepreneur survived at all, it was only as a myth that grew out of a misunderstanding about who goes into business and why … That myth, that misunderstanding, I call the E-Myth, the myth of the entrepreneur”  

Michael Gerber, The E-Myth Revisited

The E-Myth, according to Michael Gerber, is a very common misunderstanding. The misunderstanding goes something like this:  

Myth: Small Business Owner = Entrepreneur  

Reality: Most Small Business Owners = Technicians Who Think They’re Entrepreneurs

The small business owner has basically traded a job and a boss they don’t like for a new independent job (not a business) with a boss who is even worse (him or herself!).

Why is this deception dangerous?

Because the new business owner misses the forest for the trees. The technical details, while important, are NOT the business itself. There are other crucial entrepreneurial tasks and ideas that must be learned.

Accepting this myth, according to Gerber, ultimately leads to small business failure.

His book, The E-Myth Revisited, basically explains the myth and how to overcome it.  I put this book in my personal top 5 business books to own.

The Fatal Assumption

A new small business story rarely ends happily. Over 80% of new businesses fail in the first 5 years, and 96% (!!) fail within their first 10 years! [Cited in E-Myth – Revisited, source U.S. Department of Commerce].

Why?

Gerber says that most new business owners make a fatal assumption. The assumption is this:

If you understand the technical work of a business, you understand a business that does the technical work.

This assumption is fatal because it’s absolutely false.

Just because you know how to swing a hammer, fix up a house, or manage a rehab, does not mean you can successfully create a business remodeling and selling houses.

Just because you know how to screen a tenant applicant, fill out the paperwork, take a maintenance call does not mean you can create a management business.

The technical work of a business and the business itself are totally different. Creating and running a business is much more complex, much more multifaceted.

But the person who starts a business with this fatal assumption, Gerber calls them the technician, misses this truth.

We all know the end of this story.

This honest, hardworking, skilled person starts the business with big hopes and aspirations, but the grind, the changes, the constant demands from every direction eventually lead to several possibilities:

1) Business failure

2) Burnout

3) A state of survival so difficult and gut-wrenching that the former entrepreneur has their life and spirit sucked right out of them.

So how do most new business owners, including people who start buying investment real estate, originally buy into this myth?

Let me share a story from Gerber’s book about something he calls the Entrepreneurial Seizure.

The Entrepreneurial Seizure

One day a normal person (a job, a salary, expenses, a home, a family) grew sick and tired of being sick and tired.

This person was good at what she did. She had technical skills. She had experience. She knew how to do her job better than even the boss did.

But the problem with this situation was this: She worked for someone else.

One day, our heroine, for no obvious reason, maybe a look from the boss, a feeling of not being appreciated, or a desire for a change … had an entrepreneurial seizure.

She had enough. No more would she make money for someone else.

Why should she? She was the one doing all the work anyway.

She would start her own business, put all the money in her pocket, and be free of the tyranny and strangulation of a boss, of a big system, of not controlling her own destiny.

This idea, this entrepreneurial seizure, was so strong, so consuming that her fate was sealed. She would start a small business and make her dream a reality.

I don’t mean to depress or deflate your entrepreneurial dreams with this story or the earlier statistics. The opposite is true.

But what I love about Michael Gerber’s book is that he doesn’t sugarcoat the real problem or consequences. Once you acknowledge the E-Myth that contributes to 96% of small businesses failing, you can replace that myth with a solid entrepreneurial foundation.

I feel very fortunate that my business partner and I discovered Gerber and E-Myth Revisited in the very beginning of our business life.

We used the book as an instruction manual to start our business, and today we continue to reference it and his more detailed companion book, E-Myth Mastery when we face business challenges.

I’ll share many lessons from Gerber in future articles, but I’ll close with the one that was probably the most helpful lesson we learned and internalized:

Work On Your Business, Not In It

“Once you recognize that the purpose of your life is not to serve your business, but that the primary purpose of your business is to serve your life, you can then go to work on your business, rather than in it, with a full understanding of why it is absolutely necessary for you to do so.”

Michael Gerber, The E-Myth Revisited

If you had to summarize Gerber’s entire book in one phrase, this idea would be it.

This is the distinction that so many business owners don’t get, and the result is at worst business failure and is at best a sub-par existence that sucks 100% of the business owner’s energy and time.

You are not your business.

I repeat: YOU ARE NOT YOUR BUSINESS.

Your business is a separate entity, a creation by you, and not the master of your life. Because it’s separate from you, it needs to have its own identity, own rules, and own purposes.

Gerber says the business is like an organism, and this organism lives and dies according to how well it does its sole functions:

  • to find customers

  • to deliver a valuable service to them

  • and subsequently, to deliver a profit to you, the owner.

So think of the business as a farm animal that you must train and break in to do its purpose.

If you had an ox on your farm to pull the plow, would you be out there digging and plowing the fields by yourself 100% of the time?

Of course not!

You must train and break in your good ol’ ox; otherwise, he can’t do the work he’s meant to do. Once the ox starts to do more of the work, you can then be in your proper place as observer where you can use your greatest tool – YOUR BRAIN – to continue making improvements to the operation.

So working on your business requires you to develop and perfect systems and processes that essentially “plow the fields” of your business.  

We save our own systems and processes in our Operations Manual.

When you implement this step, instead of manically and feverishly working and never having time to think, you’ll now have systems and processes that you can use and improve over time.

Just like tinkering with a car, the tweaking and optimizing of your business never ends, but by doing this work you will own a well-oiled machine that does its purpose – to serve needs of customers and deliver profits to you.

The primary purpose of this E-Newsletter and my other classes is to help you work ON and not IN your business.  I try to share insights, systems, and processes that have worked for me, and I hope you can take and implement them in your own small real estate business.

So I look forward to sharing more with you each week going forward!

Enthusiastically your coach,

Chad Carson

PS – If you want an archive of old E-Newsletter articles, just visit www.coachcarson.com/blog. You might’ve noticed that my weekly E-Newsletter articles now rotate and cover the following categories:

  • Real estate deal-making

  • Building income and wealth

  • Entrepreneurship (like this article)

  • Travel and lifestyle design

  • Personal development and time management

Let me know if there are specific topics I can cover to help you.

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