E-Myth vs. 37Signals

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For years I have been a big fan of Michael Gerber’s E-Myth.  Basically the E-Myth  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. His  argues that every business, big or small, should operate as a franchise where there is a systematized, documented process for doing everything.  A start with the end in mind mentality.  Its a great book that I recommend to everybody that is looking to get into business for themselves.

But now contrast the E-mtyhs approach with 37signals.  37signals is a small web design gone software development company based out of Chicago.  Only 7 people strong, this company has development the immensely popular “Basecamp” project management software.  Jason Fried, co-founder of 37signals, says “If you believe 100% in some big upfront advance plan, you’re just lying to yourself.”  37signals created their empire simply by developing a great, simple, software that people can use.  The never spent any money on advertising when they launch the software.  The attribute their success to their blog following and the “trial” membership which allowed people to use the software for free with some limitations. No business development plan, no manuals, no mission statement. Just execution and a blog following.

So it has me thinking…  Can online companies in the web 2.0 age really thrive from an E-myth approach? Or is the more effective way to take an approach like 37signals? I’m starting to think that 37signals has the right idea…

  • http://www.marketingartfully.com Tara Jacobsen

    Hi! Thanks for inviting me over to comment -

    I have multiple thoughts! I think that most small business owners do get caught up in doing (technician) work rather than building their business with a plan.

    I think most small business owners don’t like to look ahead or back too much because what is on paper is probably not great looking and what is coming is unknown BUT it is so vital to their growth.

    That having been said, I think we need to throw the 4 hour work week in here to muddy the waters even more! I LOVE basecamp and use for my business. I just wonder how many hours a week 7 people are spending to produce, track, strategize, support and grow a company like that!

    I am focusing on building a sustainable business that does not take over all my time, that can operate and make money without me working stupid hours and that makes enough to support the lifestyle my husband would like to become accustomed to!

    Great topic – glad you threw it out there!

  • http://www.kahlillechelt.com Kahlil Lechelt

    Interesting post. I think those two approaches are not contradictory at all. If you listen to 37signals Jason Fried in interviews you will see that he knows very well how to run a business. 37signals is actually very business focused. They became profitable really fast. The bottom line is focus, care and execution.
    37signals also has a very clear mission and every product has a 1 sentence mission.
    I can definitely recommend their book http://gettingreal.37signals.com it makes it very clear what 37signals is all about.

  • Chris Spamo

    Marty, I had never heard of the “E-Myth” until you brought the concept to my attention. And thanks for doing that by the way! I agree with the general premise that a lot of businesses fail when the techie founders realize they have no business building skills – or actually never realize it and fail because of that. While I think there are companies that fit this mold, I tend to prescribe to the 37Signals success story. A lot has to do with being true to one’s principles – in the case of 37Signals, they are 100% true to their agile roots. I have written about this before on my cjsparno.com blog and still think they are an archetype for the agile software development organization. Everything they do espouses this philosophy and the elegance of their products is the best example of their success and staying power. If you look at some of the other successful software firms today (Twitter for example), many of which built their foundations on Ruby on Rails and agile development, there is no coincidence that this type of business plan (or as Jason Fried has stated – lack of a plan) is successful when followed passionately.

  • http://www.purlem.com Martin Thomas

    Thanks for your comments. Kahill.. I agree with you that 37signals are not the typical “technicians” gone business owners as the e-myth would put it. I agree that they have a strong business model. I guess what I was distingusing between the two is the difference in execution.

    Where e-myth would start with the end in mind. Would create a full-out business plan, marketing plan, and detailed manuals for every role with associated goals. 37signals would ditch the business and marketing plan, and simply focus on execution.

    In the stage that I am in with my business developing Purlem, I am torn between the two. Do I spend time in this early stage setting goals, developing plans, and organizational charts of how the business is going to look in 5 years? Or do I just focus on developing the software, spreading the word, and growing “when it hurts” as Jason Fried puts it.

  • http://sellbetter.ca/blog Sell Better

    Hi Marty,

    An interesting question, having read E-Myth, I always appreciated it, but as with most thins had some questions. At the same time I think web 2.0 is as much a marketing label as anything else. What makes marketing great is the underlying principles not the vehicle of deliver.

    I think reality is somewhere between the two. What Gerber brings to the dance is the need for the realization that passion and expertise will only take you so far. Execution is the key and must, so one way for “technicians to translate their expertise and passion to success is to have a proper plan they can follow to execute.

    The 37signals guys seem to grasp the need to execute, and went to it, focusing their passion and innate abilities. It will be interesting to revisit them in 12 – 18 months, and with continued growth, what their view on planning and process is at that time.

    So I am not sure I see the issue as one vs. the other, but rather as recognizing what your strengths and weaknesses are as an entrepreneur, and make sure that you augment those with the things that will help you execute completely.

    Hope this makes sense, looking forward to talking more.
    Tibor

  • http://www.kherize5.com Suzanne Vara/Lvadgal

    Martin

    Interesting post with 2 totally different thoughts on how to start and run a business. A business plan is necessary to determine what steps you will take but so many create it, follow it for a bit and then never alter it to affect the changing marketplace.

    In your case, I would build the software while at the same time build relationships with folks online and then spread the word when the software is ready. That is part of a business plan right there.

  • http://www.igetthenet.com Brian P. Hower

    If there’s anything I have learned about business, especially in the era of the Internet, there are NO “set in stone” standards for doing business.

    Well, the basics will never change.

    I think the real keys to success are:

    1. Uniqueness
    2. Integrity
    3. Quality
    4. Professionalism
    5. Flexibility
    6. Skill
    7. Service
    8. Efficiency
    9. Systems/Support
    10. Love

    No matter how you “spin” it, those are the main keys to success in not only business, but in life.

  • http://www.tradesecretsrsa.co.za Gavin

    Hi Martin
    my answer is neither as the simple truth about business is that you need to generate sufficient sales to run-beginning of story and end of story

    If you have money use it, if you do not find it but my most successful ventures was pre-selling. finding something and then pitching it selling up front for a deposit and then running a very tight ship.

    Most business do not need money to start but it is a fixation with small business

    The reason these companies were successful is that they drove sufficient business through the doors in order to leave some behind in the bank account and each new step they could drive from this turnover

    The other success was management was able to cope with the business and create sufficient confidence for people to buy into their concepts. They also had enough left in the bank for compensating school fees etc

    So the reason most companies fail is they do not have enough sales, and spend too much money they do not have so eventually crippled with debt they close

    Business should grow from business I made a huge mistake in growing too fast where I needed more and more capital to grow the business which cost more money needed more money became a hard lesson in life.

  • http://infusioncreative.com Matt Simpson

    Marty – Great question.

    We’ve recently been evaluating this ourselves. I’ve always been a fan of E-Myth but the thing I love (and am great at) is being a technician (design & strategy). As we’ve adopted Basecamp over the last year, I’ve followed the 37signals team more closely, trying to determine HOW they have managed to stay at seven people while being so incredibly successful.

    It seems that while 37signals is a fantastic organization with great market impact and a stellar brand, the company is built too closely around the founding principals. It would seem that while things are going well today, the organization lacks some of the strategic “franchising” components E-Myth preaches. Things are great now, but what happens if, God forbid, Jason Fried is in a plane crash tomorrow? Can the organization survive without one of the primary driving forces behind the brand?

    I’m fine with the technician based model of building your business UP TO A POINT, but I think for sustainability’s sake, you have to put people in roles that will be able to step in and cover your butt should something happen. Oh, and BTW – who wants to work forever? Can you sell the thing for the same amount of coin if you are the primary visionary AND the primary technician? Probably not. Just something to consider…

  • http://www.cambelmedia.com Jack Campbell

    Martin,

    When I read Tara Jacobsen’s post I thought exactly. Except of course I want to keep my wife in the lifestyle she’s grown accustomed to.

  • http://www.smallbusinessdigest.info clet anni

    There is always a need to make plans especially when executing a business. business plan keeps you up-to-date with you initial dream over that business.
    To finalize this issue, i strongly recommend studying the business you want to venture into before starting up even if it’s your passion.

  • http://www.business-strategy-innovation.com/innovation-blog.html Braden Kelley

    I don’t think that it is a versus relationship. For any organization to succeed long-term (and for a startup to succeed in the short-term) they need to both have the ability to plan and execute, but also the ability to retain flexibility and reinvent themselves.

    37signals had a plan and a vision when they began, but they also had the flexibility to adapt their plan as they went to what customers were willing to pay them for.

    That is the key.

    Success comes from customer connection. Startups have to modify their strategy and execution until they connect with customers and successful businesses have to continually evolve to maintain that connection with customers (or either is at risk of going out of business).

    Braden
    http://blogginginnovation.com
    http://twitter.com/innovate

  • Bobbi Linkemer

    Martin,
    Thanks for your comment on The Writing Life, my blog, which led me here to your blog. The E-Myth and 37signals do seem to be poles apart, don’t they?

    First, let me say that what intrigues me about the E-Myth is not the franchise section but the “you need to be three people to operate a small business” part. I am a writer, and my business is a one-woman band. It’s hard to franchise what I do. On the other hand, I could really use a business manager and an dreamer/entrepreneur.

    Gerber wrote that book a while ago, I suspect, and didn’t have online businesses in mind. i honestly don’t know if his ideas would work, but I think we should find him and send him your blog.

  • http://www.designgeneralist.com Qin Han

    Thank you for the comments on designgenerialist.com

    I have not read E-Myth yet… but I agree with Braden Kelley, as a clear vision (whether it is written down as a mission statement is another story) and certain level of flexibility (that depends on business models and also business size) are both important. Also… a lot of start-up business only start to face certain problems when they grows into a certain level of complexity and size. But it is true that, at least for software company, making things/services/systems that people can use is always a fundamental!

    best,
    Qin

  • http://www.6degreesnetworking.co.uk Steven

    Hello Martin

    I take your point about how 37 Signals have become successful without lots of marketing or external funding. I have read the E-Myth a few times and reviewed it on our blog. I think a lot the key points in the book would still apply to an online business like 37 Signals. For example, systems need to be in place to ensure that everything is done to the necessary standards and that the business runs efficiently even when the owners aren’t there. Even if it’s a small team that works there, they would still need an ‘organisational chart’ to ensure everyone knows their responsibilities. A system isn’t only a flow chart or computer application, it’s a method of communicating every aspect of the business to employees and customers – from it’s core values and culture through to dealing with staff contracts and customer management. Good manuals and staff handbooks should be provided to employees no matter what the business, to ensure a smooth running of the operation and help new employees learn the ropes quickly. These books and systems will also help the owner create a ‘turn-key’ operation or franchise, so that a buyer can learn the business and then manage it himself. Thanks Steven

  • http://butyoureagirl.com Adria Richards, ButYoureAGirl.com

    I first found out about 37Signals in 2005 when I tried their product, Basecamp.

    37Signals wrote a book called, “Getting Real”. If you haven’t read it, you should.

    If you have not subscribed to their blog, “Signal vs Noise”, you should.

    I fully endorse their style of business and I think their current number of folks is closer to 14 now due their astronomic financial growth.

  • http://GeorgeKao.com George Kao

    I think there are relatively few people in today’s complex world (especially with web technology) who can plan ahead successfully to the degree of detail E Myth seems to suggest.

    Planning deeply satisfies certain personality types.

    Ability to change plans quickly based on changing opportunities (i.e. to improvise) is I think a more valuable skill today, especially in web-based business.

    Reminds me of the argument between “Intelligent Design” and “Evolution”.

    Which camp are you in? :)

    http://facebook.com/georgekao
    http://twitter.com/georgekao

  • http://www.healthaliciousness.com Paul

    I think it is important not to get lost in the paperwork and the planning, however, having a business plan can help you raise capital, and grow your business. Sure Google could be a little $4-12 million a year tech company right now, but instead they went for venture capital and started their company.

    It is like anything in life, you can still succeed and have fun without a plan, but if you want to go big, a plan sure helps.

  • http://www.smallbusinessmavericks.com Steve Melberg

    Martin,
    Thanks for the invite – great question you’ve posed regarding the difference between the “E-Myth” and “37 Signals” philosophies!

    On paper, the E-Myth philosophy makes a lot of sense – prior proper planning preventing p*** poor performance and all that.

    In the real world, however, sometimes you’ve gotta just do it (even if all of your I’s aren’t dotted and your T’s aren’t crossed). In the Web 2.0 world (and beyond), change is coming at us at such a rapid pace that often times the best strategy is “Ready, Fire, Aim” – even if that doesn’t look as good on paper.

    The reality is, using social media the way you are doing it – reaching out to your audience while you build your product and incorporating real world feedback – that’s the way of the future.

    I’m not saying that you fly completely blind, without any plan at all. What I’m advocating is that you build your plan while you build your product, incorporating your intended audience’s feedback. I can’t tell you how many “plans” I’ve watched people spend hundreds of hours building, only to let them sit on the shelf once the product hit the market.

    I think it was Eisenhower who said, “no good battle plan survives contact with the enemy.” Of course, in this case, substitute your audience for that metaphor and build your plan as you go.

    Steve

  • http://www.geoffabrown.com Geoff Brown

    Hi Matt,

    Thanks for the comment over on my article about e-Myth. http://geoffabrown.com/2009/06/10/the-e-myth-revisited-why-most-small-businesses-dont-work-and-what-to-do-about-it/

    Do we have to choose one approach over the other? My biggest takeaway from e-Myth was that you shouldn’t think that being a “technician” is akin to actually running a business. The folks at 37Signals.com are clearly doing a great job at being both.

    Rather than become yet another software development house, bidding on projects and answering to clients, they decided that they’d create a “system” (e-Myth) that they could work within and replicate to great effect. This “system” I’m talking about is the Agile software development methodology that they’ve popularized.

    In essence, they’ve created a system by which a very unpredictable and chaotic thing (software development) can become more manageable (agile). I’d say Michael E. Gerber would be quite happy with the way that 37Signals has implemented “order” where before there was “chaos”.

  • http://www.lifetime-media.com Eric Habert

    I am a huge e-myth fan as well as a user of 37signals basecamp since 2005 for our video production company Lifetime Media, LLC.

    I believe it is both the long term view of a well defined plan but also the short term flexibility to adjust and change as you go. Braden Kelley pointed this out a few posts back.

    Jim Collins points this out beautifully in his book ‘Built to Last.’ It is the constant drive towards progress while at the same time holding on to your core values…the things that never change. It’s both all out at the same time. The chapter specifically on this is called the “Tyranny of the OR.”

    Our business has a overall document that is called the Evolution that is lengthy and detailed (once a year review). We also have a 1 page business plan that is quick for a glance. Then we have a weekly development meeting (separate from a project meeting) that is in the moment and flexible on anything….but always must align with the Evolution or the 1 page business plan goals in some way.