Strategic Discipline Blog

Even though I’m big supporter and believer in Michael Gerber’s principles as provided in The E-Myth Revisited, Why Most Small Businesses Don’t Work and What To Do About It, and was a Certified E-Myth Coach for ten years, my coaching experience with over 250 small to mid-sized businesses has provided a keen insight into where some of Michael’s assertions don’t always work in the real world.  

As posted here in an earlier blog [E-Myth Mastery Challenges], I pointed out one of the places Michael Gerber ignored or perhaps mislead small business owners was neglecting the absolute need for discipline and structure in operating a business. Arguably system development suggests that, yet discipline and structure needed to be embedded into the foundational structure for any business to be successful. It’s one missing piece of the puzzle. Another place that Michael seemed to gloss over by his emphasis on systems is people. Michael Gerber’s thesis is based on the absolute power of systems and the importance of any small business getting them in place.  His mantra is system dependency works, people dependency doesn’t.

Recently I attended a meeting with one of my clients where the discussion was on whom to hire from a list of qualified candidates within their business to replace a manager who was leaving. The departing manager was in the discussion and one of the characteristics he offered to describe one of the leaders for this position was, “I don’t ever need to manage him.” I don’t wish to diminish the value of systems, however when an authority like author Jim Collins, Good to Great and Built to Last, stresses people [“First who then what.”] as being the first and most critical decision in moving a company from good to great I take notice.
It’s been my experience in business that getting the right people on the bus is the most important step in building a successful business. People who don’t need to be managed, who do the right things, who click and are in tune with your core values and principles make life easier.

You might say but what about systems Doug? Don’t I need systems in place? Of course you do, and with the right people you hire they will understand and know that as well. They will help you document the systems they manage; in fact in most cases they will bring their documented way of doing it with them, thus saving you the trouble of having to re-invent the wheel. 

How much harm can hiring the wrong person create? What’s the cost of a mis-hire? Brad Smart who is author of the bookTopgrading estimates that the cost of a management mishire is as much as 15x their salary. Imagine that? Is it any wonder that if a small business makes the wrong hiring decision they are apt to go out of business? No wonder 80% of small businesses fail in the first year.

One of my clients recently hired a installation manager for his company based on the work he had done as a subcontractor for them, and the belief that he would have to be better than the person they had previously had. It turned out to be a bad decision, in fact possibly a fatal decision if he had not acted swiftly. Almost every installation job he and his crew did had to be redone, and not before there were numerous customer complaints and significant damage to this company’s stellar reputation.

Finding capable managers and even employees in this manufacturing field can be extremely difficult. It is odd when people are complaining about our nation’s economy that skilled manufacturing help is still so scarce. My client had made the mistake so many of us have in hiring in the past, believing that we need someone to do the work, and anyone is better than no one. So we hire a warm body believing, perhaps hoping, our system will contain them and get them to perform to our standards.

This is where Michael Gerber’s philosophy falls apart a bit on system dependency versus people dependency, although credit him with recognizing the need to hire people who are in tune with your core philosophy.  People dependency can’t work as Michael points out because people are unreliable. As he points out we can’t even count on ourselves to do the things we commit to so how can we rely on others. We must have a system. I agree with the latter, we need a system, however we all know and have had people in our employ who have been and remain reliable; in fact many as reliable as a Swiss watch. 

Verne Harnish [Mastering the Rockefeller Habits] indicates that in the near future, finding reliable, capable employees will be more important than acquiring customers. The demand for top employees will be that critical. The Container Store, Costco, GE, Merrill-Lynch and many other top companies have recognized for some time that one good employee can yield the same or better results than 3 good employees. That means you can get more production with a lower cost of labor. 

Don’t misunderstand me when I say people are important, I’m not saying systems aren’t important, I’m just emphasizing that in building a business a lack of faith in people, the inability to hire very good people, making the wrong hiring decision can be more fatal to your business than having a lack of systems.

There are a lot of negative positions on partnerships, yet many small businesses have started and succeeded with this approach simply because the value of two strong capable people can mean so much in the infantile stages of a business.   The two partners may eventually disagree and separate, but at the beginning of a business the need for capacity, passion, commitment, and strength in brain power mitigate the challenges that many partnerships eventually encounter.

In summary, please recognize the vital importance of having really great employees offers your company. Do not diminish the value of systems; increase the value of your employees and their contribution to the growth of your business.