04 Aug How the e-myth hurts small business buyers and sellers
Do you own a business? Is everything you need to operate your business “in your head”?
Businesses that rely on their owners for success have less value. Yet that’s how many small businesses still operate today.
Working ON the business, not IN the business can be hard, especially for those whose business has been their means of self-employment such as a mechanic who started a garage or a baker who opened a bakery. Some now have others working for them as well.
But many are happiest applying the technical skills that got them there in the first place—rebuilding that motor or turning out that fresh batch of perfectly formed bread. Dealing with the sales, inventory, suppliers, customers and employees may be secondary; they are in fact happier being the employee than the owner. Many do not use financial data to run their business because they are too busy “running” the business. They “manage” by being there.
Somewhere along the line, people started calling business owners entrepreneurs. While they can be, many are not. I explain this at the seminars I hold for individuals who are interested in buying a business. It’s especially important for first-time buyers to understand. Yes, buying a business is a means of creating a job for themselves and statistically, there’s a much higher rate of success based on buying an established business compared to starting one. But what are the factors a buyer needs for personal success? That’s where entrepreneurial qualities come in.
Examining the entrepreneurial myth
Michael Garber published his first e-myth book in 1985 and it’s become a management classic. Here’s what Wikipedia has to say about the e-myth. It’s a good summary.
E-Myth in the business vernacular refers to the Entrepreneurial Myth, and refers to the idea that most businesses fail because the founders are technicians that were inspired to start a business without knowledge of how successful businesses run. They have created a job for themselves, rather than a business.
The mythic and often disastrous assumption is that people who are experts regarding technical details of a product or service will also be expert at running that sort of business. Many small business owners eventually realize that just as they had to learn their technical skills, they have to learn business growth and management skills.
Many business people fail because they rely too heavily on their innate skills and not enough on learned skills. Entrepreneurs know to supplement the skills they don’t have.
Let’s go back to our first-time buyer. They need to define their skills, interest and experience, as well as their personal and financial goals before they start looking at any businesses. A business broker can then work on matching them with business opportunities best suited to their profile and objectives. It’s also a help if sellers stay on a few months to assist the new buyers with transition and training. That’s pretty standard with the businesses we sell. We also introduce them to other professionals who can help them grow their business. Lawyers, accountants, bookkeepers, bankers, wealth advisers, marketing specialists, insurance professionals, and business coaches, each have valuable expertise and services they can draw on.
Sellers can also work with these professional advisors to maximize value while minimizing risk and taxes when they sell. I mentioned at the start of this post how it’s important for owners to make their business independent of them. If you want to add value make sure systems run the business and have a great team running those systems.
As ActionCOACH describes it: “The greater value comes when the business runs without its owners, now making money from the profits of the business. Attaining the level of entrepreneur, the business owner can even choose to “retire on the job” with greater income and flexibility in their life.”