The E-Myth
Posted on July 11, 2006 - Filed Under Philosophy |
Being on the Rich Dad track, I read the book entitled "The E-Myth: Why Most Small Businesses Fail and What to do about it". This was one of about 27 books that Kiyosaki recommended for us budding entrepreneurs to read.
I’m going to summarize what Michel Gerber ideas are. First, don’t build your business with dependency on people but on systems. He also explains the basic three levels of any business. There is the entrepreneur level, the manager level and finally the employee level. Gerber claims that most small businesses fail because people get stuck in the employee level and never leave it to go to the next level, which is manager. This explains why 90% of franchised businesses succeed whereas 90% of small, start-up businesses fail.
I have tried treating my project as a business. Even though I don’t know much about the accounting aspects about it, I’m learning. And learning quickly. As much as I’d like to say that I could build my business on systems it is dependent on people. I never had the choice of being at the employee level because . . . well, I’m not a contractor. So that automatically puts me in the manager slot.
If people don’t show up, it takes days or even weeks to replace them. Even that can be sketchy.
This last weekend, I really struggled with how I could make my business dependent on systems. And I’m lost. The manager slot is driving me nuts, due to the fact the contractors I hire (a) don’t show up (b) show up 6 hours late or (c) show up 3 days late.
The only thing that makes sense to me is skipping the lower two slots completely and finding someone who is the manager with their own employees. I just hire them to do all the work and then I reap the benefits.
My real estate agent assures me that the first project will be my toughest. I just didn’t have the capital to get things rollings. And that will definitely change on the next project. I don’t know if I’ll be able to completely jump from Manager to Entrepreneur. But I’m going to try.
It’s all good.
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I would say you were at the employee level on that guy’s scale. Not sure if Kiyosaki would call it S or I, but clearly really you are an investor. The people you are hiring are just the same as buying building supplies, though it can give you some insight for future use into managing people (something I don’t like to do!). You aren’t going to be able to develop a “system” here as there is only one deal/project/transaction happening. But it might give you some idea of how to do that in the future. So see it as learning what works and what doesn’t.
Some guy I was chatting with on Silicon Investor pointed out if you apply your own labor to rennovating an owner occupied house it is a great tax shelter - when you sell there is a huge CGT free allowance and your labor you put in never gets taxed. In that case it would be optimal to spend as little as possible on purchased inputs which you can’t deduct when there is no tax and as much as possible of your own labor. Learning how to do some of the basic building skills might be worthwhile. Even if it isn’t owner occupied the CGT rate is lower than regular income tax if you hold more than a year.