E-Myth Lessons – Are They Still Relevant Today?

“No” according to Jason Andrew in his article “Why Michael Gerber’s ‘E-Myth’ fails in the internet age”.

But for many, I would say most, businesses the E-Myth lessons are as relevant today as when they were written 40 years ago.

So, for all these businesses, the answer to this question is a resounding “Yes, it is as relevant today as it was then”.

So why is there such a difference in opinion? Why should the internet age be so different?

And then in conclusion, who is correct?

According to Andrew, we are now in a creative age and age of intangible assets. So based on this observation he opens with.

“But as of late I’ve been questioning some of the principles and ‘advice’ in Gerber’s book.”

The first principle that Andrew questions is that according to Michael Gerber.

“The model will be operated by people with the lowest possible level of skill".

Andrew contends that “Gerber’s advice is that you don’t want to hire smart people, as you should be the smartest.” But from my recollection, I don’t think Gerber ever said that “you should be the smartest” but let’s put that aside.

Andrew claims all work done today is creative and involved in intangible assets. And according to him, this type of work needs the imagination and talents of a tiny percentage of the working world.

What he calls the “smart people”. Seeming to imply that they operate freely in a smart space vacuum?

The "Franchise Model"

Andrew also lumps all “franchise model” companies into an industrial age category. .

“The typical industrial age business has a widget to sell and the only way to grow is to sell more widgets, at scale. The problem is that, because the widget is consistently average, produced by average people doing average tasks, the market will only accept to pay an average price. Therefore, in order to generate a profit, the only lever a manager can pull in the business machine is to manage costs.”

This may be true with some businesses in a commodity space. Whereas many of these "average" businesses are profitable, have strong cash flows and support a massive working population.

They are best operated without too much creativity but consistently using structure and systems and creativity to leverage their operation.

In exactly the way proposed by Gerber.

He also neglects to consider that the proportion of business being done in the creative, intangible space is an infinitesimal fraction of all businesses done in the world.

Systems are the Service Consistency Glue

Even in the age of creativity and intangible assets, businesses have services or products that must be delivered consistently and predictably. This requires defined systems with operators operating at the simplest and most efficient level to perform the specified delivery tasks.

So, if simplest and most efficient is "average" then that is what is required. Except for the tools, nothing much else has changed in 40 years and structure and systems still dominate effective business work in the world today.

Andrew concludes it is unacceptable for a modern business to use the lowest skilled workers.

“Where industrial age businesses leverage a factory or ‘hard asset’ to generate revenue, today’s most valuable organisations build economic value via a different form of scalable asset that is not humans in factories.”

So, what about workers at every MacDonalds? In every factory making Apple products, farmers or pilots flying the airplanes you travel in? Some systems are extraordinarily complex and require higher levels of skill.

But even in these complex cases, there is no point in having people who exceed the requirements for delivering the required product or service. Or the lowest level of the skill.

Exponential Leverage

Andrew goes on;

“Apple, Facebook, Tencent, Google and Netflix — are amongst the world’s most valuable companies. What do they have in common? Well, they don’t sell widgets. A core product of their business models are highly scalable, intangible assets.”

“They don’t follow a rule book because there are no rules — they are writing it as they go.”

Every one of these companies makes money out of the "service or product widgets" that they sell. To state that they somehow manage this with "no rules" is ridiculous. As it implies that these businesses do not need structure and systems operated by people with the lowest essential level of skill.

One accepts that pure "no rules" creativity is a valuable and essential part of these businesses but it is a tiny fraction of the overall organization. The bulk of their operations that deliver products and services need detailed systems and procedures.

Algorithmic vs. Heuristic Work

Andrew correctly states that in the “industrial age economy, most jobs were algorithmic. A standard '9 to 5'. There was always a guideline, a formula, or a manual that could be followed.”

He goes on to make a further dubious claim.

“However, this model is changing. Algorithmic work is increasingly becoming outsourced to countries where well-trained employees can produce the same kind of results for a fraction of the price.

It’s either that, or there is software to replace the need for human workers altogether. Algorithmic work is becoming obsolete.”

This point is moot as a lot of heuristic work is also outsourced to the same countries or is being automated in some form or another!

Whether the algorithmic work is performed in a First or Third World country it is still done within a defined structure. With limited unstructured, free form heuristic creativity.

Andrew relates risk with algorithmic and heuristic work. Stating that algorithmic work is low risk and heuristic high risk.

Whereas the exact opposite may be true — a system failure in an algorithmic process can be disastrous. For example, in the algorithmic process of flying an airplane. Whereas the failure of a heuristic, creative project may have little consequence — say in creating a new app.

Conclusion - Ignore the E-Myth lessons at the Peril of your SMB 

In summary, Andrew concludes;

“Gerber’s ‘perfect business model’ may have been perfect in an industrial age economy. But it’s not anymore. There is no such thing as ‘perfect’ if you’re doing truly meaningful, groundbreaking work.

You can make average things perfect, but they will always just be average.”

But what is “perfect”? And, as anyone who has been in a manufacturing or service delivery business knows, even the most mundane work is near to impossible to execute perfectly. Defined systems are an attempt to achieve the elusive “perfection”.

In Gerber’s model, the small minority of “clever creative” people design and define the systems and rules. The operators use these systems and rules with the goal of delivering predictable and consistent results.

There has always been algorithmic work and heuristic work. The relationship between the two may have changed over the years but they are still bedfellows.

So, both opinions are correct, but Andrew's view is limited to only a small-scale section of business operations and work.

Even in today's fast changing world, the bulk of business operations will benefit from the lessons and structure proposed by Michael Gerber in The E-Myth Revisited.