Michael Gerber's "Profound Idea #1"

Michael Gerber, The E-Myth Revisited; Why most Small Business Don't Work and What to Do About It(New York: Harper Collins, 1995),p. 3, gives us the first of four of what he calls profound ideas:

There is a myth in this country--I call it the E-Myth--which says that small businesses are started by entrepreneurs risking capital to make a profit. This is simply not so. The real reasons people start businesses have little to do with entrepreneurship. In fact, this belief in the Entrepreneurial Myth is the most important factor in the devastating rate of small business failure today. Understanding the E-Myth, and applying that understanding to the creation and development of a small business, can be the secret to any business's success.

When I first read this I about fell off my chair. In fact throughout the whole book, I felt he was speaking directly to me.

I might add a little here. Applying the understanding of the E-Myth to a small business is important. It's important also to understand why that is a myth. Wikipedia, the free, on-line encyclopedia, defines "myths" as, in part, "stories that a particular culture believes to be true.

To this particular point, once I was talking to a software designer I met at a Chamber of Commerce networking event. I asked him why he went into business. He said he'd been working for a software firm for 7 years with no raise. His boss went out and hired another programmer for a salary higher than his. He got mad, told his boss to shove it, figured that since he was a good programmer he could succeed on his own. Was he an entrepreneur? Maybe, but I would think that Gerber would say definitely not.

Are you interested in this? I'd like to know. Post a comment.

Entrepreneurship informs all of my professional activities. Entrepreneurial ideas are their life's blood. For my ideas on entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for my ideas on writing and publishing, go to www.kearneymusicschoolmurders.blogspot.com

Michael Gerber: Business Failure

Michael Gerber, The E-Myth Revisited; Why most Small Business Don't Work and What to Do About It(New York: Harper Collins, 1995),pp. 2-3, argues that

Small businesses in the United States do not work; the people in them do...

What we have also discovered is that the people who own small businesses in this country work far more than they should for the return they're getting.

Indeed, the problem is not that the owners of small businesses in this country don't work; the problem is that they're doing the wrong work.

As a result, most of their businesses end up in chaos--unmanageable, unpredictable, and unrewarding.

Just look at the numbers.

Businesses start and fail in the United States at an increasingly staggering rate. Every year, over a million people in this country start a business of some sort. Statistics tell us that by the end of the first year at least 40 percent of them will be out of business.

Within five years, more than 80 percent of them--800,000--will have failed.

Gerber follows this up with what he calls four big ideas. I'll put those out there in the next four days and discuss them a little bit.

Are you interested in this? I'd like to know. Post a comment.

Entrepreneurship informs all of my professional activities. Entrepreneurial ideas are their life's blood. For my ideas on entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for my ideas on writing and publishing, go to www.kearneymusicschoolmurders.blogspot.com

Financial Capital

Financial capital is money or access to money. Wikipedia, the free, on-line encyclopedia, says:

Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, and investment banking.

The Wikipedia goes on to talk about different kinds of capital.

Basically, you have two sources of money: you, and someone else. I call money from other people, OPM (other people's money). If you can finance your venture with OPM while putting very little of your own money in there, that's the best thing. If you have money yourself or are about to get a big inheritance, that's from you. That's the best kind.

Business failure is most often attributed to undercapitalization. That's the most common noted reason, but it may not be the most important reason. It may be a proxy for any number of other things. The entrepreneur's health, for example. Maybe he or she had a bout with cancer and had to entrust his business to a subordinate who ran it into the ground. So this would be lack of human capital which led to the death of the company.

Generally we think of undercapitalization as not enough financial capital relative to the amount needed to fund the venture adequately. However, that lack of funds may simply mask a deeper problem. It could have not enough human or social capital.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com