Announcer: Please note disclaimers at end of show. Welcome to Creating Wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the Complete Solution for Real Estate Investors™.
Jason Hartman: Welcome to the Creating Wealth Show. This is your host, Jason Hartman, and this is Episode No. 161. Thanks so much for joining me today. We are going to talk today about the business track, and even if your business is the real estate business, you’re going to want to hear what our special guest has to say, and that is Michael Gerber. He is the author of The E-Myth and several subsequent books related to the concept of the E-Myth. And the E-Myth is the Entrepreneurial Myth. It’s why most businesses don’t work and what to do about it. It’s about working on your business, not in your business.
So even as a real estate investor, you can apply a lot of these principles. But if you work for somebody else, you can help them apply these principles and become a more valuable employee. And if you have your own business, you can apply these principles to make your own business far more successful, far more scalable, and far more duplicatable.
So this will be a great show today. Did a good interview with Michael Gerber, and we’ll have that coming up in just a moment here.
But first, I have two people here in the office with me. I have Ari and Brittney. Say hello, guys.
Ari: How are you doing?
Brittney: Hi. Good to be here, Jason.
Jason Hartman: Well, we wanted to kind of debrief on two things before we get into the interview with Michael Gerber, and the first one is Masters Weekend. I know we’re a little late in talking about this because it was a week and a half ago now. We’ve just been so busy with so many projects. Business has really been heating up, too. I’ve definitely noticed that there’s a lot more interest in purchasing properties, and I think people feel that the stock market is pretty much topped out and a new collapse is coming up. But again, there are lots of predictions on that kind of stuff.
But on Masters Weekend, I really think that was probably our most successful Masters Weekend yet. I think it was the seventh Masters Weekend. I have to get my numbers straight. It might have been the sixth or the eighth, but I think it was the seventh one. It might have been the tenth. Hey, if it was government math, it was the 40 trillionth Masters Weekend. But anyway, I think it was a great Masters Weekend. What do you guys think?
Ari: Well, this is my third Masters Weekend. I have been here for a year, so I’ve attended three. There were actually a lot more people than I anticipated. There was definitely a full room there. We were squeezed up against the back of the wall.
Jason Hartman: I originally expected to have nice luxurious tables at the back so people could sit down and talk with investment counselors. And then we had so many additional people that we had to move extra tables in and the hotel was scrambling at the last minute to do it. But it all worked out pretty good, and when we had the first break, they kind of rearranged the room and made it better.
Ari: But I will say something that before we even opened the doors, people were actually asking me questions, before we even started on Saturday morning. So they were full of energy and ready to go and that’s always a good sign.
Jason Hartman: Yeah, there’s a lot more interest now. And one of the things that I think we’re going to do for the next Masters Weekend in the fall – and by the way, listeners, we’re also thinking of doing a new kind of Masters Weekend, which is called The Masters of Marketing, where we will totally segment the business and the marketing and the internet and all of that kind of stuff into its own Masters Weekend. And then the Masters Weekend, the original version, will just be on finance and real estate and economics.
But I think this next Masters Weekend, we’re probably going to do fewer speakers and give them more time. What do you think, Brittney?
Brittney: I agree. Jason, I had a great time at Masters Weekend. I know the three of us did here, but it’s always good to hear encouragement from the guests that were there as well. During our meeting yesterday, we were going over the evaluations and nothing but good things about Mark. He talked about asset protection.
Jason Hartman: He was hilarious. That guy had the room just laughing. He was so funny.
Brittney: Lots of energy he had. And Doug had a great discussion on Saturday morning about the boom and bust cycles. I know a lot of people enjoyed that.
Jason Hartman: Yes, it’s very important for investors to understand how the business cycle works, how booms and busts work, what creates them, and how to profit from them by being on the right side of the movement in a market.
Brittney: And as you mentioned, about the only complaint that we were getting was that each speaker needed more time and that they wanted to hear more information. So I think next Masters Weekend should be Masters Week. What do you think?
Jason Hartman: Well, Masters Week, I would do it because I think altogether, and for you regular listeners, you know this, I think really if we sort of put all of our content end-to-end and all of our experts, I think we probably have 2 – 3 weeks of solid content.
Brittney: Very easy.
Jason Hartman: Maybe we should make this a college course. What do you think, folks? We’ll call it Personal Finance 101 and Personal Finance 201, and maybe we’ll have an upper division even 301. Who knows?
But yeah, it was really good and we’re publishing, which I’m really excited about, Ari – you were putting the final touches on it today – a Masters Weekend product that is sort of a Best of Masters Weekend, which includes, I think, 15 hours and 22 speakers. Wow! That’s phenomenal.
Ari: Yeah, it’s a lot of content. I’ve painstakingly edited everything and it’s totally worth the while to listen to it all. Twenty-two speakers, probably close to 16 hours of audio, and everything you can imagine from taxes to asset preservation to exchanges.
Jason Hartman: 1031 Exchange. Yeah, everything.
Ari: It has local market specialists, everything. It’s a really phenomenal product.
Jason Hartman: Yeah, area reports. That will be available on our website. We’re going to launch that at a special price of $497 so you can have that audio as a download and listen to it over and over again. Listen to it at your convenience. And it will also include the materials package, which will be all of the handouts and the Power Point slides for those speakers that want to share them, which is the vast majority of them. It will be in one simple PDF document that you can have as well. So that will be a great product.
For those of you that don’t know this, Ari used to be an audio engineer, so he does a great job editing all of our stuff and just keeps up on all of it. Thank you for doing that, Ari.
Ari: Not a problem.
Jason Hartman: That was your former life, but you do it just for us a specialty.
Ari: I love audio engineering and sound engineering. It’s always been my passion, so it’s great.
Jason Hartman: Anything else on Masters Weekend because I want to talk about just a couple properties real quickly and then go to the Michael Gerber interview.
Ari: Jason, I want to talk real quick. A lot of people seemed really interested in the taxes and the asset preservation part of the seminar. People were asking tons of questions about that stuff and I definitely think next Masters we should spend more time on that. I’m sure the listeners would probably agree on that.
Jason Hartman: Right. I agree with you because the CPA that we had speak really had a very short presentation and then just opened it up for Q&A, and I couldn’t believe the number of questions people had. The great thing about the Masters Weekend is you get all of these professionals all of these experts in different disciplines, different areas of expertise, and many from different geographies that have come from around the country, and some of them charge $250, $300, $350, $400 an hour for their advice. So if you were to have a consultation with them and say you picked two experts, by the time you pay for a one-hour consultation with each other them, you could buy a ticket for two people to the Masters Weekend. It’s a very economical way to get all of this great expertise, isn’t it?
Ari: It is, and it’s actually probably one of the most important things of real estate investing is the tax problem. Everyone has questions all the time. I get calls and emails all the time from people. And that’s probably one of my favorite parts of the Masters Weekend, no doubt about it.
Jason Hartman: Yeah, and remember the thing about this is so many people get bored when we start talking about taxes, but remember taxes are the single largest expense any of you have in your life, and it’s so important. Think about it. Think about the effect of living your life so that you could not pay or dramatically reduce an expense that totals maybe 40 or 45 percent of your income. I mean can you imagine how much further ahead you could be if you could just not spend that money for a couple of years? You could buy an extra rental property or two, and you multiply that out over the course of years and it just compounds and compounds and compounds if it’s invested properly.
So taxation is a big deal and I do want to make the disclaimer, while you’re listening, that we are not tax or legal advisors. I always have to do that legal stuff. We call in and we have on the show and at Masters Weekend the experts in these fields where we’re not experts. Every situation is different. Get individual advice, of course, too.
Ari: I will tell you one thing, Jason. If I was not living in California, I would definitely have a lower tax bracket than here.
Jason Hartman: California is a complete rip-off in every way.
Ari: They’re taxing things left and right here. It’s unbelievable.
Jason Hartman: Yeah, it’s crazy. Brittney, do you have something to say about that?
Brittney: No, we’re just ramping up for next show already, and the fall 2010 Masters Weekend is already on the website so you can go and sign up and grab that early-bird special.
Jason Hartman: Excellent, www.JasonHartman.com. Sign up for Masters Weekend and make sure you see us in the fall. That will be in October. We hope to see you there, and definitely, advanced planning pays off because you get the early-bird pricing.
All right, good. Well, let’s just talk about a couple properties before we dig into the interview. The first one, Ari, do you want to take this new special deal?
Ari: I will. This just came across my desk today and this is probably the ideal rental property. This is a Dallas single-family home. It was built in 2001. It’s a three-bedroom, two-bath, 1,300 square feet, almost 1,400 actually, and it’s being offered at $110,000. That’s $79 per square foot. It’s already rehabbed. It has a rental guarantee, tenant placement, first-year property management, home warranty included, and this one cash flows for about $200 a month.
Jason Hartman: Now, by the way, let me take a look at that. With this one, with the property management – the property management is paid for the first year, but in the pro forma, we won’t let them show it that way, our local market specialist in Dallas. So they have to put in as though you’re paying for property management, even though you’re not. And look at this, Ari. The return on investment here is projected at 28 percent annually. Now, when you get the free property management, I’m just thinking off the top of my head, but that return on investment probably goes up to a projected 32 or 33 percent annually.
And you know what I say to investors all the time? Even if it doesn’t work out as well as projected, which sometimes things go wrong and it doesn’t work out as well as projected, if you do half as good as that, you’re still going to outdo the stock market or really any other investment probably by a long shot.
Ari: I agree, Jason.
Jason Hartman: Okay, so a couple other properties here. I was just in Arizona with Brittney, actually last week. We were at an internet marketing and technology conference out there. And then I spent Saturday looking at foreclosure properties in Arizona, and you know what? Some of the deals are getting pretty good there. We’ve talked about it before on the show. Here’s an example: 2,336 square feet, $119,000. This is only $51 per square foot. Projected rent is $1,250. Projected cash flow is $93 per month and projected return on investment is 31 percent annually. And you know what, folks? It’s a dry heat.
Ari: That’s actually an awesome property and from what I’ve heard from the property management company in that area down there, they have no issues at all finding tenants. They’re leasing out properties in a very small amount of time.
Jason Hartman: And you can find all these properties we’re talking about on the website at www.JasonHartman.com. Hey, let me tell you about one more. You know what market we really haven’t talked about that I personally have done very well in as an investor and many of our clients have is the Greater Houston Metropolitan area. Here’s an example in Houston. Now, there it’s not a dry heat by the way. Their people look young forever because the air is moist. But this one is 1,325 square feet; $102,900 is the price, $77 per square foot, so right about the cost of actual construction. This home was built in 2004. It’s in a great neighborhood and has a nice yard; $1,200 a month projected rent, $63 a month projected deposit of cash flow, and 22 percent projected return on investment.
Again, we have a lot of phenomenal opportunities for investment, whether they by single-family homes, duplexes, four-plexes, apartment buildings. We can even source, although it’s much harder and that’s why we don’t really talk about them on the show that much because they have to be sourced individually, but we can help you source mobile home parks, self-storage facilities, and larger properties as well, too. So a lot of great opportunities and I tell you, there’s a lot of pressure to see interest rates go up, so there is real urgency, folks, to build your portfolio. If you’ve already started, build it as fast as you can. As long as you invest prudently, keep proper reserves – we say about 4 percent of the value of the portfolio as a minimum cash reserves – you’ll never get yourself into trouble when you do this right. It’s a really conservative investment, isn’t it?
Ari: It is. Jason, I’d like to also touch on, real quick, about the Masters Weekend again. A lot of people have expressed interest in the Texas market, Dallas, Houston, Austin, and one of the reasons I love what I do here is that the rents here are $1,200 – $1,250 average. I look in other markets we’re not recommending and the rent is a lot lower, but the cost of the house is a lot higher. And it just goes to show that Texas has a strong rental market and it’s great for cash flow.
Jason Hartman: Very much so. In Texas, there really isn’t a recession. Well, maybe there’s a little one in pockets, but it’s not significant. And you know, Ari, Texas is so business friendly. I just had lunch with one of my friends, who used to be the vice president of Sales and Marketing for the Irvin Company, the largest landowner here in Orange County. He had hired me to do a project for them several years back, and we got to talking about Texas. I said what I’ve said on this show before. If Texas were ever to succeed from the Union, it would become the Hong Kong of the United States, as businesses would just flock there because it is so business friendly. It just has great fundamentals. I love Texas. It’s a great place to invest. There is no state income tax.
Property taxes are high, but that really passes through to the tenant because tenants think they’re getting such a great deal because they don’t pay income tax, and if they don’t own, they don’t property tax. But what they really pay is higher rents as a proportion to value.
Ari: And the other thing real quick is I read today on the Bureau of Labor Statistics that Texas actually has an 8.3 percent unemployment rate.
Jason Hartman: Much lower than the nation currently.
Ari: And it’s probably one of the second or third lowest in the nation. It’s huge.
Jason Hartman: Employers go there because it’s a business friendly place; so of course, there’s a much lower unemployment problem. We also, of course, have properties in the Midwest. We have properties in Kansas City, Indianapolis. In South Carolina, we have some great opportunities that many clients have taken advantage of. We’re basically in 42 markets around the U.S. At any given time, we’re usually only recommending maybe ten or a dozen of those because we’re area agnostic. So wherever it makes the most sense, that’s where we recommend our clients be investing.
So that’s enough about real estate and income property investing for now. This show, let’s talk a little bit about business. Let’s talk about systematizing your business. Let’s talk about making businesses run smoothly. Let’s talk about a franchise prototype. Let’s talk about working on your business, not in your business, and why most small businesses don’t work and what to do about it, with Michael Gerber, the very renowned and famous author of The E-Myth. Here’s the interview.
Interview with Michael Gerber, author of the E-Myth
Jason Hartman: It’s my pleasure to welcome Michael Gerber to the show. I’m sure you know his name. He’s a very renowned author. I first discovered The E-Myth when I was dating a girl back in the early ‘90s, who was going to business school at UCLA, and she was talking about The E-Myth. I read it and basically, it was all about developing a franchise prototype for your business, about why small businesses don’t work, and what to do about it. Since then, he’s created many, many works. We’re going to talk about his older stuff and then some of his more recent works to date. Michael, welcome.
Michael Gerber: Thank you, Jason. It’s a pleasure being here.
Jason Hartman: Glad to have you on. Tell us about The E-Myth real quickly and then let’s kind of zoom forward to some of your newer books.
Michael Gerber: Well, The E-Myth is the fundamental premise underlying my first company, called E-Myth Worldwide. And E-Myth Worldwide has been delivering E-Myth programs and products since I founded it in 1977, with over 70,000 small business clients in 145 countries. The E-Myth means the Entrepreneurial Myth and essentially says that most small businesses don’t work because the person who founded that business really isn’t an entrepreneur, but what I’ve come to call a technician suffering from an entrepreneurial seizure.
So people create their own business to get rid of a job to become their own boss, and unfortunately, they end up working for a lunatic. Their business doesn’t work. They do. And they end up doing it, doing it, doing it, busy, busy, busy, busy, knocking their brains out day after day after day, and unfortunately and ultimately, find that what they hoped to happen, that is, the business would free them financially, psychologically, emotionally, spiritually, physically, in fact, does exactly the opposite. They become a prisoner in their own business.
Jason Hartman: I couldn’t agree with you more. Most entrepreneurs are working in their business rather than on their business, as you recommend, which is certainly great advice. What can they do to free themselves from this prison of the small business, their sort of self-created prison, if you will?
Michael Gerber: Well, they, first of all, have to come to the realization that this prison is really self-created, which is what you just said, rather than a product of the problems that are happening around us. It has nothing to do with the economy. Today, everybody would blame the economic problem. It has nothing to do with the government, taxes. It has nothing to do with “can’t find good people.” It has all to do with the fact that people who start their own businesses are rarely, truly entrepreneurial, so they don’t invent a business that works without them. They create a business that works because of them. Unfortunately, they don’t know how to do everything that needs to be done.
Jason Hartman: So what can they do then? I mean they want to create, as you recommend, a franchise prototype, even if they’re not franchising, right?
Michael Gerber: Absolutely, yes. When you say that, Jason, it’s like, well, golly, everybody would understand that. But the reality is they don’t understand. When I say creating a franchise prototype, I’m saying an exemplar like Ray Krok’s McDonald’s or like Starbucks or like Wal-Mart, or like Michael Dell’s Dell Computer. That company, each of those companies is really profoundly effective systems, and they started those companies systemically to build a perfect system that could be scaled, meaning they could grow. They could grow, not because Michael Dell is there, not because Ray Krok is there, etc, and so forth, but because Starbucks is there, because McDonald’s is there.
McDonald’s is a perfectly operating, fluent system that was invented for exactly the reason that he invented it, and that is to grow. So we’re saying then that every small business owner needs to begin to think like Ray Krok and understand that their business is a prototype. For as I say in my new book, 10,000 more just like them, rather than simply a place to go to work every day. What they need to do in my invitation is to come dream with me. Come to the dreaming room. Come and begin to look at the opportunity to invent something that is significantly different from the job they created for themselves.
Jason Hartman: So before we touch on – now, I know that was a very good segue, by the way, into your newer works, which I’m very anxious to hear about, but before we leave sort of the older foundational principles of the E-Myth, what I find interesting Michael, is that in my 12 years of owning my own company, it always seemed like it was about getting good people, high quality, highly educated people. And I love the example you give about McDonald’s. They have one of the youngest workforces in the world. They’re all paid minimum wage, and they have massive amounts of turnover. But that business works and it delivers a consistent result every time, all over the planet, very, very consistently.
Distinguish, if you will, between what type of employees a small business owner should be going after, and how the system sort of works and plays into that whole thing.
Michael Gerber: Well, in a way to do that, let me describe one of the key principles in The E-Myth books, and that is that there are really three very distinct roles that an entrepreneur, founder, a company owner must fill, the first being the entrepreneur, the second being the manager, and the third being the technician. The entrepreneur, the manager, and technician. Unfortunately, rather than being the entrepreneur and the manager, the vast majority of people that start their own business are the technicians, the doers, the producers. And in fact, that’s what they do every day. They go to work every day. In real estate, they sell real estate. In the automobile industry, they sell cars, and on and on and on. That’s obvious.
Well, what has to happen then is that person needs to begin to think like an entrepreneur and think like a manager, and that means they have to become a systems thinker. So rather than creating a company that is people-dependent, personality-dependent, experientially dependent – that is a guy who knows how, a guy who knows how – instead they have to build an intelligent system. So McDonald’s is the perfect exemplar for building an intelligent system. This is how it works. It works so you don’t have to, and because it works, you can then teach new people how to use the system and produce the results the company produces.
So every extraordinary company in the world has been built on the principle I just shared with you, as opposed to the principle of most small businesses, e.g. I have to find a really great guy because it takes a really great guy to do what I do because I’m a really great guy, and I can never find anybody who will do it as well as I do.
Jason Hartman: That is a huge trap and I tell you at various points in my career, I have been in that trap, too, because the problem is as soon as you get that really great guy, as you say, that great guy starts realizing how valuable he is to your business and constantly holds you hostage for more and more money. And that is a very bad place to be. You have to have systems that work.
Michael Gerber: So you’ve experienced that.
Jason Hartman: Oh, sure I have. Yeah, it’s a terrible place to be and I’m glad to say I have graduated from that and I do not have that problem anymore, but I have at various times been sort of in and out of that. And the problem is when you are dependent on that person, that person can, God forbid, get sick, God forbid, they can leave. They can set up shop down the block and steal your customers and steal your intellectual property. And none of that is any fun. You don’t want to go there.
Michael Gerber: No, not any fun, and everybody – everybody who’s listening in has gone through it. And they believe that’s why they have to stay small. So effectively what they then end up doing is rather than growing in size, they shrink in size because they know they can’t depend upon anybody else like they can depend upon themselves. And therefore, they have to reduce their business to a job that only they know how to do, knowing in their hearts that they’ll never be able to find anybody as good as they are. And the reality is thank God because if you did, they’d leave, just as you said, and take it with them, and it happens again and again and again and again.
The kid at McDonald’s is not going to take Ray Krok’s business with him. The young guy at Dell is not going to take Dell’s business with him. And the reason they aren’t, is because the system that was created in each of those companies is absolutely world class. And not just anybody can create that.
But in our experience, in my experience, in the world that I’ve been living in, teaching small business owners exactly how to build that kind of a system, we have learned that we can teach everybody, anybody who truly wants to awaken the entrepreneur within themselves, to actually build a turnkey system, and in the process, grow a practice, which they can grow into a business, which they can grow into an enterprise. And that might sound foreign to the people that are listening into me, but understand the logic for it makes absolutely compelling sense.
Jason Hartman: It sure does. And I’ll you one of the beautiful things today that has really come about since you originally wrote The E-Myth back in the mid-‘80s is now we have – what? We have the internet. It allows such great opportunities for scale and systemization like never before. This is a very exciting time to be in business. It definitely is. Tell us, Michael, about the Dreaming Room. What is that?
Michael Gerber: Well, the Dreaming Room was invented by me. My first one was held in December 2005. And the reason for it was that I felt that I’d left something out at E-Myth. The company, E-Myth Worldwide, has done just amazing things with what I call “broken businesses.” E-Myth is in the business of fixing broken businesses, broken small businesses. I realized that what it isn’t in the business of is helping people start their own company, to truly awaken the entrepreneur within people, and to help people before they ever get into trouble in a business of their own to do it right.
So the Dreaming Room was designed to begin new businesses or to help people who are already in business to start a new business in a new way, for a new reason, to produce a stunningly different result than they’ve ever produced before. And it’s absolutely phenomenal.
I’ve done about 56 Dreaming Rooms since that very first one. We’re about to scale it to create Dreaming Room facilitators and we’re going to launch that and take it worldwide. So there are going to be 10,000 facilitators doing Dreaming Rooms in small groups of new entrepreneurs, who truly want to learn how to awaken the entrepreneur inside of themselves, to really create a stunningly original and effective and efficient and productive small business. Anybody can do it.
Jason Hartman: Anybody can do it?
Michael Gerber: Anybody can do it.
Jason Hartman: That’s so exciting to hear that. You know what’s interesting to me, Michael? And I’m sure you’ll have a comment on this. I said this on one of my recent shows that it’s funny – when someone wants to be an attorney, when someone wants to be an accountant, when someone wants to be a massage therapist or a hair stylist or any sort of vocation or profession, they go and get very specific training. Yet when it comes to starting your own business or becoming an entrepreneur, just like you say, it’s the technician that has an entrepreneurial seizure.
And people discount that they actually need true education on how to run a business. Most people, which is great, – it’s the American way – just have an idea and they think, hey, I work for someone. I’m in this line of work. I can do it better. Now that’s a good place to start because that’s innovation right there. But they don’t know how to do it. They go out there and they find there are a million roadblocks and a million things that come into their path and sabotage their success. What would your comment be on that?
Michael Gerber: First of all, it’s absolutely true and the reason that 80 percent of all businesses fail and in a very, very short order, and yet, people keep on starting them, and astonishing to me, that they don’t realize that if, in fact, 80 percent of all people who became attorneys were to fail or 80 percent of people who were to become doctors were to fail, that you’d certainly question whether or not you want to do. But for whatever reason, people say, well, anybody can start a business. I’ll do that because I know how to sell real estate, because I know how to fix a car, because I know how to be a graphic designer. And after all, what else do I need to know? I’m really good at that.
Well, what else do I need to know? Everything. The reality is you’re right. They don’t go to school until they get to that point where they’re about to fail. And then they say, “Help!”
Jason Hartman: When I’m talking about school or education, I’m not necessarily talking about business school and getting your MBA. I’m talking about the real world life of entrepreneurship. There are real business skills. The skills of running a business are legitimate skills. They’re quantifiable. It is a whole art and science in and of itself, isn’t it?
Michael Gerber: Absolutely. We address in the creation of our E-Myth Mastery Programs the seven essential skills that are necessary, the seven centers of management attention that are absolutely critical to learn. And we teach them. As I say, we’ve taught these and implemented these with over 70,000 small business clients in high tech, low tech, no tech. It doesn’t matter what kind of business it is.
That’s the other thing you learn, that all businesses essentially depend upon these very same skills. And so one needs to learn them. That’s what we do. We teach them and they apply them in real life, in the real world, and real time. Not academic skills, but actual pragmatic skills that one needs to know in order to lead, in order to know money, in order to manage, and in order to market, in order to create more opportunities, in order to convert those opportunities into cash flow in order to monetize the idea that you have.
All of these things, we have built into systems that we can then provide to a small business owner, a new entrepreneur. And in the process of doing that at less than the cost of a minimum wage employee, we can help anybody produce stunningly great results than they ever imagined possible before. And we do it every single day of the week. That’s the good news.
Jason Hartman: The latest book, I love the title and the cover and the look of your latest book, The Most Successful Small Business in the World: the Ten Principles. Talk to us about some of those ten principles, if you would.
Michael Gerber: Well, you have to understand that this book essentially talks about the ethos of a company and I’m talking about what I now know to be this being the age of the new entrepreneur. I’m saying that people today, who are starting companies, must think, dream, imagine in different ways than they’ve ever dreamt before, that it’s unacceptable simply to create a company to sell something. It’s unacceptable to think of a company that’s simply there to do the ordinary things that everybody expects a company to do.
So let me just give you a taste of the ten principles. Understand that in the New Oxford American Dictionary, “principle” is a fundamental truth or a proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning. So these ten principles are exactly that. They’re fundamental.
The first principle is that small business built rightly can grow 10,000 times its current size. I could have said 9,384 times or I could have said 11,752 times, but I think 10,000 is outrageous enough for anybody to say, “Now, wait a minute. Why would I want to do that?” I’m essentially saying if, in fact, you had done what I talked about in Awakening the Entrepreneur Within, if, in fact, you had truly awakened the entrepreneur within you, you’d understand that the entrepreneur is four personalities that are absolutely essential to creating the most successful small business in the world. The first is the dreamer. The second is the thinker. The third is the storyteller. And the fourth is the leader.
The dreamer has a dream of creating a stunning transformation in the world. I like to think of Mohammed Yunus as one of those who invented Grameen Bank, and the purpose of Grameen Bank by Mohammed Yunus in Bangladesh, was to transform the lives of women who were impoverished. It was to literally eradicate poverty from the face of this earth. So here’s a guy, who has no knowledge of banking whatsoever, who’s created one of the most successful entrepreneurial ventures of all time, that is truly transforming the lives of millions upon millions upon millions of impoverished women through a micro-lending system that he invented, that is going to be replicated tens and tens and tens and tens of thousands of times, millions of times, in fact, around the world.
So the first principle is not as outlandish as you might think. The second principle, a small business is no more effective than the idea upon which it is built. That’s obvious. The third principle, a small business is a system in which all parts contribute to the success or failure of the whole. A small business is one thing that can be scaled simply because it’s systematically been built through truly connected parts, each of which fit perfectly in each of the other parts. Think Dell. Think Microsoft. Think any great company and you’ll see, in fact, that’s exactly what has happened.
The fourth principle is a small business must be sustainable through all economic conditions and all markets, providing meaningful, highly differentiated results to all of its customers. And that sounds like a lot of rhetoric, but, in fact, in this economic reality that each and every one of us is facing, it’s only great companies that can do that today. And great companies are not just surviving today in these terrible times; they’re thriving today in these terrible times, and they’re thriving because I believe they’re built on these ten principles. So I can go on and on and on and talk about the rest, but let them read about it.
Jason Hartman: Just to comment on your first statement about the 10,000 percent growth rate, which is very outlandish sounding, but if you look at it, there are real success stories that have even succeeded that. I mean one example, and you didn’t mention him, but he’s a systems guy and it’s going to be Jeff Bezos, the founder of Amazon.com. Bezos, at age 30, he was living in a 500-square-foot apartment, and five years later, his net worth was $10 billion.
Michael Gerber: That’s just outrageous, isn’t it?
Jason Hartman: If there is a better example of systemization in the world, please tell me.
Michael Gerber: It’s one massive, intelligent system.
Jason Hartman: It sure is.
Michael Gerber: But understand when you go back to the ridiculous example that I gave you of McDonald’s, from one, it’s almost fantasy, Amazon, to something very, very pragmatic and real. You could see it down the street. There it is. Oh, there it is, the Golden Arches. I mean these are kids. As you said, at minimum wage, with a 300 percent annual personnel turnover, producing absolutely predictable results in over 30,000 stores and growing today exactly in the same fashion as it grew 10, 15, 20 years ago. A perfect example of it, just as the one you’ve just given us.
Jason Hartman: It is really totally amazing. I’ve noticed that when I’ve experienced turnover in my business and people leave and try to recreate what I’ve created, it seems like they’re doing it for a little while, but it’s never sustained. I have yet to see one example of someone sustaining that. They may do it for a couple of months and believe me, it will get under my skin if they’re taking customers and they’re doing all this stuff, but eventually, it seems like they really just never realize that there are true business skills. You may need capital, depending on the type of business you’re in, and you need all of those relationships and the ability to negotiate them.
I’d like to talk to you about kind of the relationships or all the elements that go into a business because you have a couple of sort of E-Myth Vertical books. And one that I find interesting is the E-Myth contractor. What is that all about?
Michael Gerber: It essentially was an insight that I had about four and a half years ago. Essentially, E-Myth Worldwide, the company that I talked about here, the company I founded in 1977, has focused its attention on small businesses. But the general market called small business. That means all business, everybody. In the state of California, for example, where we’re speaking, 99 percent of all businesses have fewer than 20 employees. So understand 99 percent of all businesses in the state of California have fewer than 20 employees, and 90 percent of those businesses have fewer than five.
So understand all business is very, very small business. But over the time, it came to me that I’m talking to the general market called a small business owner and I can speak because we work with every single kind of small business owner. I can talk to a graphic designer. I can talk to a contractor, as we’ve just used an example. I can talk to an attorney. I can talk to an accountant. But what I want to do when I talk to them is to provide them with the E-Myth perspective as it applies to their very specific business. They think their business is unique, so the contractor really believes that his problems are unique. The cookie store really believes that her problems are unique.
Well, they’re not unique, but they think they’re unique. So I had to develop a unique way of speaking, as I’ve said, vertically. Well, the contractor is a contractor is a contractor. It could be a plumbing contractor. It could be a homebuilder. It could be an electrical contractor. And that book will be focusing, over time, on the E-Myth electrical contractor, the E-Myth homebuilder, etc, etc, etc.
Jason Hartman: Really narrowing the niche.
Michael Gerber: Narrowing it, narrowing it, narrowing it. There are about 300 such vertical markets that we’ve identified. And there’s going to be an E-Myth book written for each and every one of them. But the difference between the E-Myth Contractor, which was the first, that was the template. That was for commercial services. The second was the E-Myth Physician, and that was for professional services.
The third is now the E-Myth Attorney, why most legal practices don’t work and what to do about it. But my co-author of the E-Myth attorney are a couple of attorneys who took the E-Myth and applied it to their financial planning legal practice, and decided that, yes, they want to partner with me, become a Michael Gerber partner to take this book, the E-Myth Attorney out to all legal practices throughout the world. They created a company as a result of their E-Myth work, called the American Academy of Estate Planning Attorneys. They have now replicated their members in the academy to over 135 legal practices around the country. They want to do that with every vertical legal practice, a divorce attorney, a tax attorney, a business attorney, etc.
This book enables them now to communicate to all attorneys to say you have to go to work on your practice like we did. You have to go to work on your practice, not in your practice to build a turnkey system, and by working with us you’ll be able to do that.
Jason Hartman: I tell you, Michael, I would pick out law as one area that is a total mess. I mean it seems like physicians typically have their business pretty systematized. You go to the doctor’s office, it’s a system, and it seems to work. God forbid if the government takes it over. They’ll really mess it all up. Right now, with private industry doing it, it seems pretty good. I think it’s pretty darn efficient as a business. But with legal services, if you really make inroads into helping attorneys systematize that business, you will not only help the attorneys themselves, but you’ll help the customers because if a customer can get their legal services in an efficient, systematized, predictable result way with that franchise prototype, boy, they’ll love it because, I’ll tell you, the legal profession is a complete mess. That has to be one of the worst businesses ever.
Michael Gerber: Anybody in business, Jason, says exactly the same thing.
Jason Hartman: It’s a disaster.
Michael Gerber: It’s a disaster. You walk in, you have no idea, and it was obviously built for them. Not for us.
Jason Hartman: Yeah, but I don’t even think they’re winning because all of the lawyers that I’m friends with, they don’t really like what they do. I don’t meet too many lawyers that like their business. Everybody complains they’re billing too much, but on the other hand, you look at the attorneys and I don’t see any of them particularly happy with what they do. I love what I do. I come to work every day and I love it. I have a huge passion for it. That’s what I want all entrepreneurs to get, is to get that passion and to get that sense of independence, where they’re not dependent on “the man,” right, where they can direct their own future. They can create value in the world, innovation in the world, and let’s just hope the government doesn’t stifle that too darn much.
Michael Gerber: Please, let’s not even bring that subject up because that’s 17 shows, in 17 shows, on the disaster of depending on the government to do anything productive, anything at all. If anybody in this world could live here and actually believe that the government has a solution for any one of us, we have completely lost it.
Jason Hartman: We totally have. We have become completely complacent if we think the government is going to do it for us. What I’d like to know, Michael, is from the time you published the original E-Myth book and then much later, you did the E-Myth Revisited and the E-Myth Enterprise, what were the revelations that you heard from training entrepreneurs and being out there, interacting with them, getting feedback on the first book? What did you have to revisit in the E-Myth and maybe some of the more advanced ideas, the Enterprise and the Revisiting, and the E-Myth Mastery as well?
Michael Gerber: You said something just a few minutes ago that I rarely ever hear and that is from a business owner. You said I love coming in here every day.
Jason Hartman: Oh, absolutely. It’s vacation.
Michael Gerber: And Jason, the reason you love coming in here every day is because you’re creating every day. It’s the creator in you that gives you the joy that you get. Most small business owners are not creating every day. They’re working every day. They’re the worst of the worst technicians, doing it, doing it, doing it, as I said earlier. Busy, busy, busy, consumed with work and problems. In fact, never truly experience the kind of joy that they thought they would experience at the very beginning of it. So that’s the one thing I’ve absolutely learned.
We’ve called on hundreds of thousands of small businesses throughout the world. I mean literally, hundreds of thousands. And I will guarantee you that only an infinitesimal number of them would say to me, with as much pleasure as you said just a few minutes ago, “I love coming to work every day.” Most of them hate it. They hate it because it doesn’t work, and it doesn’t work and they don’t know how to make it work.
So the other thing that I’ve learned is that they truly don’t understand what leadership is. They don’t truly understand what management is. They don’t truly understand what marketing is, what money is. They truly don’t understand what cash flow is and how to understand and relate to cash flow. They don’t understand that a business is, at its best, an absolutely, stunningly, effective system, in which all of the parts work coherently with each other to produce one result.
So they don’t understand also the nature of a brand. So a business that can produce coherent results absolutely every single time because a system is in place in that business, that enables them to do that so it’s not a random exercise, that is at the heart of branding.
Listen to this, a business says. This is who we are. This is how we do what we do, and this is who we are, and we stand out as a highly differentiated entity in the world. Nobody does what McDonald’s does as well as McDonald’s does it.
Jason Hartman: That’s for sure. That’s so true, Michael because I’ve been following Dan Sullivan’s work for many years and I had him on the show a while back, and he constantly pounds into my head “don’t be a commodity.” When you become a commodity, that is the end because then you are competing completely on price with no differentiation. And that’s what you teach people to do is not become commoditized. And the way you do it is as much through the branding and maybe the personality – correct me, if I’m wrong – but through the back end, through the system, through the back office as to the way that business runs. And that shows up, of course, to the customer, doesn’t it?
Michael Gerber: Absolutely, and you’re right. That’s what we do. We take the ordinary elements of the business and make them extraordinary. We show every single business owner – I don’t care what kind of business it is; I’ve said that before, but I’ll say it again and again and again and again to show them how absolutely exquisite a business can operate when they focus their attention on it by going to work on it, to invent it, to eliminate all of the broken pieces, broken parts, the parts that disenable it to do what great companies do. And anybody can do this. That’s the extraordinary thing about it.
So yes, we approach the ordinary systemic reality of a company the way it generates leads, the way it converts those leads into sales, and the way it fulfills the promise that it made to attract those people to its store. The three essential systems in any company: lead generation, lead conversion, client fulfillment. And you know it and I know it. If you were to walk into any company close by you, you’d find those systems are either absent, completely absent, or if they’re there, they’re broken.
Jason Hartman: The vast majority of businesses, again, like I say, they’re just self-imposed prisons and the entrepreneurs buy themselves a job essentially, rather than having anything they could ever scale, anything that they could ever truly grow, or anything they could ever really make great. And it is so exciting and so fulfilling when you get to the point when you can make it great and you see it grow, and it grows without your effort directly, where you’re sort of working on it, not in it. It’s just very exciting.
A lot of our listeners are particularly interested in having – I’ll call it a side business, a home-based business. Not in the conventional sense that I think people think of being an entrepreneur, something that they may have a day job, but they launch a website and sell a product or a service. Do you have any distinctions that you want to make for those E-Myth people or how they become the most successful small business in the world out of their spare bedroom?
Michael Gerber: Absolutely, but understand that to the degree that they’re impassioned by the result they’re truly intending to produce, they get out of that bedroom. Do you understand? Nobody is going to stay in the bedroom unless they’re thinking small, unless they’re thinking in a limited way, unless they’re simply inhibited by the beliefs they have that “wouldn’t it be wonderful to make $1,000 extra a month,” “wouldn’t it be wonderful to…,” etc. Why would anybody stay in their bedroom when they can grow out in the world?
Jason Hartman: Fair enough.
Michael Gerber: They don’t think they can do it.
Jason Hartman: Okay, fair enough. That comment is fair enough definitely. But they sort of seem like they develop that confidence through a progression. It doesn’t happen all in one day, unless it’s an entrepreneurial seizure, and that may be bad and not turn out good that way when they just go out and rent a storefront or an office or whatever without having these systems in place. And I have seen and interviewed on my show some incredibly successful home-based businesses.
Michael Gerber: As I have, too.
Jason Hartman: I don’t necessarily mean thinking small when I say that, but maybe it starts small and starts as a side thing, and as soon as the momentum catches, they leave the job, but they still stay at home. And there are some incredibly successful home-based businesses, aren’t there?
Michael Gerber: Well, there are, but understand when you talk about home-based business and success, the question is what is “successful?” And so I want to get them to a place where they’re believing and thinking in a way they never thought before. This is not about creating success. This is about creating a revolution. This is about creating something truly, remarkably new. So I’m suggesting there are two primary dictates for any small business when you’re starting it, and that is, one, that it’s transformational, and two, that it’s scalable. Transformational meaning that it’s going to transform the world in which we live, and anybody can do that. I’ve seen it again and again and again. And scalable, that means you can replicate it.
So we use the perfect example of McDonald’s. Just as you talked about earlier about Amazon, it’s scalable. When he started that company, he started that company in the most unlikely way. Nobody believed he’d ever make it. In fact, even after he’d been doing it for five years, the company was still under the water, meaning it never made any money, not until eight years into the process. And what happened with it is he stayed with his vision. He had a dream bigger than life. He saw something nobody else could see and he drove it and drove it and drove it to that point, and he sustained the passion to reach that point.
And today, everybody looks at it as a matter of fact. Amazon is a matter of fact. It’s the largest retailer online of all. It’s a stunning, stunning fact. I am saying that anybody can, to the degree they awaken the entrepreneur within them, reach towards something of that size and that scale, and there’s a way to do it. And because of the way to do it, I could teach that way to do it. And because I could teach that way to do it, as I’ve already said, anybody can learn the way to do it. Once you begin to taste it, you get out of that bedroom fast. Honest to God, you do. You get out of that bedroom fast because that bedroom is a prison, no matter how successful you may be.
Jason Hartman: Good. So Michael, maybe you want to kind of wrap up with this, but we are in tough economic times. No question about it. People out there have ideas. They may be working a traditional corporate job and they have an idea. In one way, they’re scared of being laid off from their job and there’s tremendous job insecurity out there. And then on the flipside, they have an idea. They have a passion in the back of their mind. What would you say to that person about developing that passion into a real business, making the jump, and then after they’ve done it, if they’re facing hard times now, fixing their problems and maintaining their passion and enthusiasm that they originally had?
Michael Gerber: Well, the very first thing that I’d say to them is read three books. The first book is the E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It. It’s fundamental. It’s the fundamental text for anybody, who has in their mind, in their spirit, that they truly want to create a small company. E-Myth tells you pragmatically, constantly, and effectively exactly how to do that.
The second book is Awakening the Entrepreneur Within: How Ordinary People Can Create Extraordinary Companies with No Experience to Guide Them. Read that book, and that book will define for you, just as in the Dreaming Room, exactly how to take now this idea that you’ve been talking about, Jason, and begin to divide it into a manifestation of reality, e.g. that idea can turn into something real.
And finally, the third book to read is The Most Successful Small Business in the World and the Ten Principles. And when you tie those three books together, they are an entrepreneur’s library. The person who you’re speaking about will suddenly come to the realization that they’re dreaming; they’re fantasizing. Their idea, their desire, their passion for truly creating something wonderful is not only realizable, but it’s realizable as a Lego Blocks thing is. This is how you do it. Put this block here. Put this block here. Put this block here and put this block here, and you can start that in your home, and you can grow that and scale that in an absolutely predictable fashion. We have done that again and again and again.
So nobody should be sitting there saying, “Yeah, but…, yeah, but…I can’t do that,” because every place you look in the world, somebody’s doing it. Now you could do it, too.
Jason Hartman: That’s a very inspiring message from Michael Gerber. The website is www.michaelegerber.com. And what else would you like people to know?
Michael Gerber: Well, I’d love for them to come and dream with me. I’d love for them to come to the Dreaming Room to find out more about it. Go to www.michaelegerber.com/events/ and they’ll find out how to dream with me. And in that process, they’ll awaken the entrepreneur within, and when that happens, look out because everything is going to happen.
Jason Hartman: That’s fantastic. These ideas could really save the economy and turn things around. Forget about the government. Obama is not going to fix it. We’re going to fix it as entrepreneurs with our innovation, our passion, our tenacity, and really just change the world and get this economy going again. It’s all up to the entrepreneurs, so start with the E-Myth and go from there. Michael Gerber, thanks so much for joining us today.
Michael Gerber: Jason, thanks for having me.
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Duration: 59 minutes