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.

1. Consistent value to customers employees, suppliers, etc.
2. Model is operated by people with the lowest skill level
3. Model will stand out as a place with impeccable order
4. All work in the model will be documented in the operations manual
5. The model will provide a uniformly predictable service to the customer
6. 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.