The Fatal Assumption

The Fatal assumption:

One of the biggest reasons that so many small businesses fail is that they lack a clear system of operation. Michael Gerber, author of the E-myth, talked about what he calls the “fatal assumption” that many business owners make. It goes something like this; because you understand how to do work of a recruiter you therefore assume that you understand how to run a successful recruiting business. Or put another way, because you are a great chef, you assume that you will automatically be a successful restaurateur. This erroneous thinking is a big part of the reason why 80% of all small businesses fail in first 5 years. Many owners are “winging it” instead of building a business from a systems point of view.

A systems mindset:

A systems mindset will make your firm much more efficient and will reduce turnover and wasted time. The beauty of systems is that if you take the time to document a function properly, let’s say how to take a flawless search assignment, and enforce its execution, you never have to create it from scratch again. Small business owners will earn more profit in less time if they focus on system solutions to their business frustrations. Systems can and should be simple and can be created and implemented quickly.

A few definitions:

System: a documented way of performing a task that solves a problem and ensures that the task is performed properly and consistently.

Frustration: a frustration in your business is an undesirable pattern of events that can be eliminated by installing a system.

Why do you need systems?

Some grim statistics:

– 57% of all small businesses fail in first year.

– As mentioned above, 80% of all small businesses fail within the first 5 years.

– 80% of those that survive the first 5 years are gone after the second 5 years.

– 80% of recruiters that you hire will not be with you after 12 months (if you’re an average firm).

What if we said the cure rate for an experimental surgery was 20%? Or there is an 80% chance that you’ll lose your 100K investment by going ahead with a proposed venture? Or you should hire this applicant even though he’s been fired by 80% of his employers? How many people would sign on with such odds? And yet, these are the odds of making it for most new business owners.

Franchise statistics:

Franchises have exploded in the last 30 years and have been extremely successful. Here’s a staggering statistic, 80% of all franchises succeed in first 5 years. So let’s contrast the difference in the failure rate between small businesses and franchises: 80% of all small businesses fail in the first 5 years and 80% of all franchises succeed in the first 5 years. You don’t have to be a genius to realize that there is a strong message being sent by those numbers.

Here’s the #1 difference between the two: franchises rely on systems that have been perfected and proven over time and most small businesses operate without documented systems. Some franchises are a complete waste of money for their members but compared to your average entrepreneur, their success rate is much higher.

Systems solutions:

Becoming systems oriented is at first a mental mind shift. You have to begin to view problems and frustrations as being cause by the lack of a good system as opposed to simple “people failure.” So for example, when you realize that you are spending too much time going through useless resumes you’d say to yourself: “What system am I missing that would solve this problem?” Or, if you can’t motivate you or your staff to consistently be on the phone, you’d ask, “What system am I missing that would ensure that my team is bringing in 5 new clients per month?”

All successful businesses are nothing more or less than a collection of well running systems. So, your job as a business owner is to design your business so that it runs like a finely tuned watch.

To do that, you must begin to think of your business as a collection of systems that is apart from you, rather than just a part of you.

Many owners operate as if their business is nothing more than a glorified job so part of the shift is looking at yourself and your role in a new way. As the E-myth says, you must go to work on your business rather than simply in it. You need to think about your business systemically, rather than personally.

Conclusion

A systems mindset will give the owner more freedom, less headaches and will help to build equity in the firm. This one idea is the core of the entire franchise industry that has exploded over the last 30 years. As an owner, this concept can provide you with security and freedom as much or more than any other strategy that you can employ. I’ll write more about systemization in future articles.