Our Entrepreneurship Model for Small Business Updated with Systems Thinking

At Endurance Eagle, we’re not precious about our models or frameworks. One of our favorite quotes is Paul Saffo’s, “strong opinions, weakly held,” which argues one should come to a conclusion and then challenge that conclusion’s assumptions to form a more useful opinion or strategy. We think that’s right on the money and also love the subtext of that philosophy which promotes speed of execution (or decision-making) to solve a business challenge while giving yourself (and your team) the flexibility to revise as new information arises. We bring up Saffo because we recently finished reading The E-Myth Revisited by Michael E. Gerber and realized our Entrepreneurship Model for Small Businesses was missing something that Gerber lays out in his book. Our model was our “strong opinion,” that we must adapt with new information. That information was Gerber’s thinking on systems design, what he calls the Franchise Model. It’s a component that we implicitly included in the last step of our model but realized it should be more clearly stated. So, we did.

There’s much of Gerber’s book and rules that we don’t agree with (it is written for a particular type of business), but his Franchise Model resonates with our years of experience in small business operating. His model’s goal is to ensure consistent output to maintain customer expectations as the business grows (a common problem when entrepreneurs move from “hands-on” to “hands-off”). This is done by establishing systems early in the company’s life to remove defect, key-man, or knowledge-loss risk in outputs. The rules of the Franchise Model are below. We don’t 100% agree with them (especially rule #2), so we’ve struck those rules that we don’t think are relevant to all businesses.

Consistent value to customers employees, suppliers, etc.

~~Model is operated by people with the lowest skill level~~

Model will stand out as a place with impeccable order

All work in the model will be documented in the operations manual

The model will provide a uniformly predictable service to the customer

~~Model will utilize a uniform color, dress, and facilities code~~

The Franchise Model is a good formalized version of a broad discipline called, “systems design.” His rules help a small business entrepreneur remember that systems are just as important as people in the success of a small business (having the right people/culture is important in small business development too, even if this is not part of Gerber’s model). We agree. Frankly, we’re a bit embarrassed that we didn’t explicitly include this in our original model (that’s how important we think it is to have good systems), but we’re happy to have it now after the adoption of the MVP step when scale becomes a reality for a small business.

Once a system is in place it might be easy to assume that the process is done and that the business can now scale infinitely. This is dangerous thinking. A good system doesn’t move to the “scale” step of our Small Business Entrepreneurship Model, instead it becomes part of a recursive subroutine reset by a defined metrics. That’s why we call the final step, “Optimize and Scale.” At this stage, the business is constantly moving back and forth between the system and scale steps depending on the performance of the outputs. It might seem exhausting to forever be in this cycle, but we believe that it is paramount to success in small business growth for the long-run.

Where do you start to implement systems? Gerber provides a few questions that small business leaders should ask themselves (we’ve lightly edited them here) as thought-starters:

How can I get my team to work without my interference or daily direction?

How do I get the 5,000^th unit of production or service to be the same as the first one?

Do I know the output/measurement of each action in the business?

If I increase or decrease one output, do I know how it will impact other parts of the process/business?

There are many detailed frameworks for systems a company could implement and it would be impossible to choose one as the absolute truth. We believe different businesses will find success with different frameworks (or pieces of many frameworks), so having the goal of creating systems, will put you and your company on the right path and that’s at least 80% of the solution. That said, we enjoy the thinking and frameworks that Kevin Fishner created at HashiCorp as documented by First Round Review if you’re looking for additional reading.

One final note: We suspect that some followers of Gerber’s model might argue that Gerber’s rule of using the lowest skilled employee possible is a point about avoiding key-man risk and not an edict. That may be true, but we still feel that it’s a dated concept because it doesn’t empower the sharing of information and optimization from the bottom to the top of the company. We could (and might) write more on this, but HBR’s Execution Trap by Roger L. Martin does this perfectly, so we’ll let him do the talking (for now).

If you agree with our thinking and are looking to sell your small business in the next few years, we’d love to discuss finding a long-term home for your small business with Endurance Eagle.

Our Entrepreneurship Model for Small Business Owners

Starting and building a small business is entrepreneurship. The definition of entrepreneurship (the activity of setting up a business or businesses, taking on financial risks in the hope of profit) has no distinction between size or type of business. However, the world likes to think startups, technology/software companies, or Silicon Valley is the only form of entrepreneurial pursuit. We at Endurance Eagle know that entrepreneurship is more expansive. In fact, around 700,000 small businesses are started each year (Bureau of Labor Statistics) and only 9,000 of those are angel/seed/early stage startups (National Venture Capital Association). That means venture-backed startups created each year are only 1.3% of the entrepreneurial landscape. Even if you were to argue that there are a large number of “hidden” startups that aren’t venture funded (i.e., they are bootstrapping or using the founder’s money) and that the true number was double NVCA’s number, you’d still only be looking at startups representing 2.7% of the entrepreneurial landscape. Although we’d also argue that if a startup is bootstrapping it to profitability then it is much more like an entrepreneurial small business than a startup. But that’s a different topic.

For us, this thinking on startups vs. small business entrepreneurship started with reading on the principles of Entrepreneurial Effectuation, created by UVA Darden’s Professor Saras Sarasvathy, and the Lean Startup method, created by Eric Ries. Both models are based on research and experience of real-world entrepreneurs and are fine entrepreneurship templates. The issue is that these templates only get shared with the startup entrepreneurship community. After spending years in startups, we’ve absolutely heard of these methods and applied some of them. Re-reading these writers, set us on exploring how we could refine these methods for small businesses, based on our experiences. Could we create something that applied to the other 98.7% of entrepreneurial pursuits and share it here?

Our model might be an oversimplification of other, better ideas, but we believe that in the model’s simplicity lies its power. Here are the steps of the Endurance Eagle Entrepreneurship Model:

Apply what you know – This step is borrowed from Dr. Sarasvathy’s Effectuation model. She calls this principle, “Bird-In Hand,” (Effectuation’s other steps) and it is a different way to start than most would suggest. Instead of starting with the “classic” business strategy (look for market opportunities), “apply what you know” starts with what/who you know as a vector for finding problems worth solving with a new venture. What problems have you experienced in your life? What problems do you see in your network of friends and family? What problems has your education/training/job exposed you to? Using this as a basis for forming a thesis grounds the business in real-world problems and puts it on stronger footing than the “potential” problems that might exist when employing a more typical business development strategy.
Build a Minimum Viable Product (MVP) – This step is borrowed from the Lean Startup model (more can be learned here). An MVP is a product or service that meets the bare minimum requirements of the customers (you might even call it a prototype) such that data can be collected on usage. At this step, you shouldn’t make the “perfect” product or even a “good” product, but instead make a “adequate” product that will get some adoption and give you data on how it’s used. The faster you can execute, the sooner you can get data back and make revisions (if needed). Thus, it is important to get something done quickly (which aligns well with our CEO Leadership Principles) and ignore all the “bells and whistles” features that typically slow a process down and add expense. Often this means “hacking” product creation and doing many processes or services very manually to start. That’s OK since it won’t be the final product. Scaling a final product only begins after the MVP proves product market fit with step three.
Check for Adoption – Here we consider the near-term adoption data from the MVP deployment to customers (e.g., are customers using the product or service now? How are they using it?). Based on the data, we can then then extrapolate on how our product/service would scale beyond an MVP version. If the adoption metrics don’t align with our goal metrics, we must return to the MVP step to make revisions and test again. If the MVP is working, then investing more to scale the product/service is warranted. It’s worth noting that investing in an MVP to scale could be treated as a mini-MVP for each new feature. These smaller loops keep you and the team true to the goals as development/scale and cost increase.

We believe that successful small business entrepreneurs have instinctively or deliberately used a model like what we define above. But we also believe that creating and sharing our model, adapted from the startup entrepreneurial ecosystem, and refined for another the small businesses ecosystem only benefits the entire community of entrepreneurs by helping to provide a repeatable framework for success. Said differently, we’re not creating a new road, just repainting the lines so they’re easier to see.

If you’re looking to sell your small business and feel that your entrepreneurial model align with the Endurance Eagle model, contact us today.