Archives For policies and procedures

Policy Manual On the recommendation of a friend and fellow entrepreneur, I recently picked up “The E-Myth Revisited” by Michael Gerber, published in 1995 and based on “The E-Myth” concept he created that was originally published in 1986.

Michael Gerber and anyone with millions of entrepreneurial business books sold deserves our respect. But, after reading this book I personally think the E-Myth concept should be abandoned immediately by today’s entrepreneurs. Put plainly, I think the idea is tremendously out of date and the ecosystem of business in today’s world demands a completely different business philosophy.

I didn’t do a whole lot of research on the E-Myth concept prior to purchasing the book. As the book began, Mr. Gerber explained the common occurrence of experienced technicians or “experts” in their field who can no longer stand to work under the oppressive systems of their current positions and decide to become their own boss and use their expertise to start their own business.

Unfortunately, it is extremely common for a very high percentage of these businesses to fail within the first few years. The primary reason Mr. Gerber presents as the reason this failure rate is so high is due to the “experts” inability to create the “red binder of business systems, policies, and scripts” that becomes the all knowing “god” of the company and covers everything an employee may encounter and what to do about it. It is so specific and tested it provides employees direction right down to how an oven should be opened, how sharp the pencils on the desk should be, and what an employee should be doing every minute of every shift.

The goal he pontificates entrepreneurs should strive for is a red binder that is so complete, that you could place any person, of any capacity into a position and their performance duties are so scripted, that all they must do is mindlessly follow the yellow brick road and the business will succeed. “This will eliminate the variable within the business that is human beings” and place the business in the absolute ideal position for success.

Based on the title of the book “The E-MYTH”, halfway through the book I believed that at some point the author was going to make a major shift and demonstrate that this “god like red binder” of oppressive dictatorial systems should be thrown out the window as it’s turns employees into “cogs” and destroys any inkling of employee initiative, inspiration, or motivation. I was wrong.

There are three reasons I believe Mr. Gerber’s “E-Myth” concept should be eliminated from any entrepreneur’s start-up business plan and they are supported by more recent business concepts that are proving more relevant to today’s business environment. [*See Book List]


  1. Business is about people, not systems
  2. There is no such thing as an unmitigated good: The inverted U
  3. Business problems of today are candle problems


People, Not Systems

The first and most important reason to toss the “E-Myth” concept is its specific focus on “removing the human element” from your business systems. This idea has been debunked by countless authors who have researched successful businesses and identified that a core reason for their success is their focus on people and the human element of their business and brand. In short successful business entrepreneurs operate their businesses in a more open environment where they engage, share, and value their people with a focus on inspiration and shared vision.

Mr. Gerber did get one thing right in that most business are started by “technicians” or “experts”. By creating a concept (The E-Myth) that gave technicians, who are often very linear in thinking and inclined toward perfectionism and control, permission to oppress their team; many new entrepreneurs have hailed to his banner.  The concept appeals to these technicians because once the red binder of systems is created, in their minds it alleviates any pressure to demonstrate leadership, engage their people, or take responsibility for the social culture of the business.  All they need is the policies and procedures, carrots, and sticks and they will be successful.

What these unsuccessful entrepreneurs then do is preach, push their agenda, expect employees to simply follow their protocols and policies, hide or ignore feedback, suppress team members who challenge current thinking, and basically try to control every aspect and interaction within the business by putting their team on the end of their whip.

In his book “The Fifth Discipline”, Peter M. Senge best identified the fallacy of this system rather than people based approach. Put simply, a systems and policy based environment at best can hope for “compliance” from its people. As opposed to a business designed around shared vision, employee autonomy, and inspiration will achieve “commitment” and experience not only an exciting work environment and business growth, but a deep and long lasting connection with all stakeholders.


The Inverted U

This is not to say that a business should operate with zero guidance or business organization. Author Malcolm Gladwell in his book “David and Goliath” presented the concept of the Inverted U developed by psychologists Barry Schwartz and Adam Grant. The inverted U graphically demonstrates how all positive traits, states, and experiences have costs that at high levels begin to outweigh their benefits.

Inverted U Employee MotivationIn the case of designing business systems around policies and procedures that eliminate the human element from the engagement of the business, the inverted U clearly demonstrates the limit of policy driven business systems and the negative effect on employee motivation and business growth. Inverted U Ingenuity and Growth

Based on the inverted U, at what level should a start-up create policies to maximize the benefits? Author Simon Sinek provides a very clear recommendation in his book “Start with Why” on this muddy topic. Businesses should develop a very clear “Why, How, and What” that are used to guide all company decision making. This process is very mission oriented and is designed to leave room for autonomy and innovation. As an example, he presents Apple’s “Why, How, What”.

Everything we do, we believe in challenging the status quo. We believe in thinking differently. (Why)

The way we challenge the status quo is by making our products beautifully designed, simple to use, and user-friendly. (How)

We happen to make great computers. (What)

This is a business philosophy designed for the new “experience economy” we find ourselves in. A policy designed around motivation rather than manipulation that will take you to the peak of the inverted U.

The Candle Problem

Dan Pink describes the new nature of business in his TED talk on the puzzle of motivation. The “red binder of policies and procedures” force team members into a box of “function fixedness” whereby they can no longer engage their creative side and see potential in areas outside the “red binder”. Similar to the “Candle Problem” developed by Karl Dunker in 1945.

Dunker coined the term “functional fixedness” for describing the difficulties in visual perception and in problem solving that arise from the fact that one element of a whole situation already has a (fixed) function, which has to be changed for making the correct perception or for finding the solution to a problem. Mr. Gerber’s “red binder of policies and procedures” does exactly that, it “fixes” all functions of the business thereby ensuring the cognitive abilities of the business team can no longer see potential solutions to their business problems as the leader has purposely installed rules and regulation that become cognitive blinders.

The effect is nothing more than a purposeful leadership lid placed on your start-up.

Before you begin creating policies and procedures for your start-up, I highly recommend exploring multiple pathways and engaging a free and autonomous team to open their thinking on how to achieve your “why”. As an entrepreneur who has worked at business building multiple companies, I can say with absolute certainty that if I had created stringent policies and procedures at the outset of the business and fenced in the start-up team, none of those businesses would have had a chance at success because we didn’t know, what we didn’t know yet.

 * Book List

Book List