Book Review: The E-Myth Accountant

I’ve long been a fan of Michael Gerber’s E-Myth book. His concept of working “on” the business rather than “in” the business was a major theme of the Accountant’s Boot Camp, developed by my good friends Paul Dunn and Ric Payne.

So when I learned that Darren Root co-authored The E-Myth Accountant with Gerber, and especially since I was presenting with Darren at the Sage Summit, I was looking forward to reading their views on what Darren calls The Next Generation Accounting Firm™. The Firm of the Future is a topic near and dear to my, and VeraSage’s collective, heart, and I was looking forward to learning another perspective.


Areas of Agreement

There is a lot of good advice in this book with which I agree. Here is a bullet point summary of some of their better recommendations, most of which come from the chapters that Darren Root wrote:

  • Darren asks a good question: “How did the accounting profession become a mass of technicians and very few business leaders?” David Maister’s book, True Professionalism, is necessary reading to overcome this.
  • Firms engage in mass client acquisition, whether or not they are a good fit for the firm. We call this the market-share myth, a form of cancer (growth for the sake of growth). It leads to incredibly weak pricing power.
  • Same as above with offering too many services, which Darren argues keep CPAs at the technician level as well. The debate between the specialist and generalist is over—the specialist won. This video from the late Paul O’Byrne illustrates this very effectively.
  • Darren writes:

    It’s time to trust your people, let go, and give yourself the opportunity to work on your practice…not in it.

    Good point. Follow this path to its logical conclusion: it leads to scrapping timesheets and implementing a Results-Only Work Environment (ROWE).

  • It’s hard to disagree with this:

    The old business model has long been to sell billable hours. Instead of selling billable hours, your firm sells complete solutions. If your goal is to get off the proverbial hamster wheel and build a business, it is critical to abandon the billable-hour model and adopt value billing [sic—he means value pricing].

    Darren believes that accountants are finally starting to hear the value pricing message, and I hope he’s right. He says that hourly billing doesn’t take into account efficiency or new technologies.

    However, that’s not the major weakness of the billable hour. It’s Achilles heel is it doesn’t take into account customer value, and is based upon an incorrect theory of value.

  • In a chapter written by Gerber (“On the Subject of Clients”), he discusses how to deal with client dissatisfaction with a 7-step process. What’s missing, though, is the recommendation that firms offer a guarantee to all customers.
  • Darren suggests spending a good portion of your marketing budget geared toward strengthening existing client relationships. Indeed. As the AICPA pointed out years ago, it costs eleven times more to acquire a customer than to retain one.

The Gap

For as many topics as we agree on above, I’m afraid the chasm that exists between my vision of the Firm of the Future and the one laid out in this book is simply irreconcilable.

But as with most disagreements, this is more a conflict of visions rather than a disagreement about facts. I’m reminded of what Blaise Pascal wrote in Pensees:

When we wish to reprove with profit, and show another that he is mistaken, we must observe on what side he looks at the thing, for it is usually true on that side, and to admit to him that truth, but to discover to him the side whereon it is false. He is pleased with this, for he perceives that he was not mistaken, and that he only failed to look on all sides.

The side the authors are coming from is to build the McDonald’s of professional firms, by laying out a path for creating “a highly efficient money-making practice.”

Yet a glaring omission from this work is any mention of the knowledge economy, or knowledge workers. This is the dimension the book ignores completely.

A professional knowledge firm isn’t McDonald’s, nor should it be. This example of Gerber’s has always irritated me, but it is particularly egregious in a book for professionals.

This is where the author’s analogies to the importance of systems break down in a knowledge economy. Gerber posits “The People Law: without a systematic way of doing business, people are more often a liability than an asset.”

This is strange statement, given that 75% of the world’s wealth resides in human capital, according to the World Bank.

The prominence given to the “system” over people is redolent of Frederick Taylor, who wrote:

In the past the man has been first; in the future the system must be first.

Peter Drucker refuted this logic in his 2002 book, Managing in the Next Society:

What made the traditional workforce productive was the system—whether it was Frederick Winslow Taylor’s “one best way,” Henry Ford’s assembly line, or Ed Deming’s Total Quality Management. The system embodies the knowledge. The system is productive because it enables individual workers to perform without much knowledge or skill….In a knowledge-based organization, however, it is the individual worker’s productivity that makes the system productive. In a traditional workforce, the worker serves the system; in a knowledge workforce the system must serve the worker.

Yes, knowledge workers will create their own systems. That’s the point. Two surgeons will not perform an operation the same way. Even two barbers won’t cut hair the same way (nor would we want them to).

This is why Steve Jobs says:

The system [at Apple] is that there is no system. That doesn’t mean we don’t have a process.

Sure, there are things that can be turned into a repeatable process, but the value in knowledge work lies in where there is applied judgment, creativity, and wisdom. And you simply can’t systemized those virtues. Indeed, if you try—with Six-Sigma, Lean, etc.—you kill them.

The better solution is to capture the knowledge that is tacit in those unique ways of doing things so the knowledge can be spread across the firm. Yet any discussion of knowledge management and capture is missing from this book.

The authors also seem to think that the systems should only be designed by the firm’s owners, rather than its workers—this is a large part of working “on” the business rather than “in” it.

But to borrow from Steve Jobs again, does it really make sense to hire smart people and then tell them what to do? Apple hires smart people so they can tell Apple what to do. Welcome to the knowledge era.

The idea that all the intelligence rests with management didn’t work in Frederick Taylor’s industrial era and it certainly doesn’t work in a knowledge economy. Worse, you cannot inspire creative knowledge workers by spouting Taylor’s efficiency mantra.

Today, knowledge workers are the system, which means they have to have a hand is designing it. Even auto manufacturers understand that those closest to the work are the ones who can improve it the most. See Toyota.

Yet the cult of efficiency is worshipped throughout the book, even though Darren quotes Steven Covey:

If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.

Nowhere is the recognition that there’s nothing more wasteful than being efficient at doing something that shouldn’t be done at all. Or that efficiency—and technology—are mere table stakes, not a competitive advantage, since your competition can easily replicate those gains.

Darren even suggests you identify those services you do best, which he defines as being able to perform with a high level of efficiency. But surely you should identify those services that you can perform most effectively—better yet, efficaciously—and that create the highest value.

If there’s that much efficiency to be gained, they are probably low-value services that should be outsourced (see the Stan Shih Smile Curve).

Peak efficiency is a sign of no innovation.

The same error is made when he claims the major factor driving realization is the existence of proper systems and processes. But this is incorrect. Price drives profit more than any other factor.

Further, he writes that his firm’s realization is over 100%, but that just means he’s still comparing price to hours x rate; it has nothing whatsoever to do with pricing commensurate with value, as he claims.

He also proclaims he’s not a proponent of throwing away timesheets, since they can catch scope creep, measure efficiency, benchmark against other firms, and allow him to manage what he can measure.

These are weak arguments for timesheets. If you’re catching scope creep from timesheets, it’s way too late to price it—you’re billing and ducking in arrears at that point, and by the hour. Project management is far more effective.

And the idea that timesheets measure the efficiency of a knowledge worker has been well destroyed in all of my books. This is illusion of control and one of the seven moral hazards of measurement.

This defense of timesheets is particularly amusing when compared to what he writes toward the end of the book:

Remember: Just because you’ve always done things in a certain way doesn’t mean you have to continue that tradition. If it’s not working, it’s not working. Abandon the old and make way for the new.

Except, of course, when it comes to the ancient tradition of maintaining timesheets.

Also, towards the end of the book, Gerber explains that Time is not money; time is life. If true, then why are we dividing a firm’s revenues and costs by life?

[And even if you still believe the old canard that time is money, all that means is we are dividing cost by cost if we use the hourly metric system].

There are other major areas of disagreement with the book. Their concept of a firm’s vision is too focused on what and how, not why. It’s far more effective to develop your firm’s why, letting that drive your what and how, consistent with Simon Sinek’s TED talk, and book Start With Why.

Gerber posits that there are six types of clients around which your entire marketing strategy must be based. But I find this unconvincing, and it could benefit from Occam’s Razor. Asking customers about their expectations would be more effective. Also, innovation is the firm’s job, as customers don’t innovate, they iterate.

Then Darren writes that clients are a firm’s greatest assets. But customers are not owned by firms, anymore than human capital is owned. Speaking of them as assets is inhumane and demoralizing.

The book does not contain any endnotes, a bibliography, or index. Outside of the few books and authors mentioned, it would be helpful if the authors shared the books that have shaped their thinking.

In conclusion, if you read this book, do so with this caveat: the book’s gap of not discussing the knowledge economy is simply too wide for me to overcome. It overshadows everything they write, and the logic traps them into the cult of efficiency rather than one of creating value.

We no longer live in an industrial economy where the talisman is Frederick Taylor’s enigma of efficiency and the “one best way.” A PKF is a human relationships-based entity, not a factory.

On the positive side, now that I’ve met Darren, there’s an opportunity for ongoing dialogue. If all goes well, we’ll get him to trash his timesheets someday.


  1. Ron,

    Excellent review. The whole process of remaining focussed on efficiency is one that will require a generational change I believe as the “old guard” is too emotionally invested in their processes and for them to ditch timesheets and productivity focus will be to admit that their practices to date are not working. Big move for many of them – as we’ve found out with a number of our professional firm customers (lawyers etc).

    The move to a greater appreciation of what your people require to enable them to not only perform but ENGAGE is a very very big one – a lot of lip service is paid to it, but very few firms are prepared to “walk the talk”.

    At least there is some discussion in the book on issues that are near and dear to us. This will assist in us achieving our “why”. It’s helping people understand the rationale behind Jobs’ quote that is vital.

  2. Thanks, Matthew.

    You’re right, the book does support Value Pricing (though maybe for other reasons than we do), but the efficiency vs. effectiveness difference is not at all addressed.

    The assumption to me that’s troubling is the idea that efficiency is always ideal. It’s not. There are just too many examples of where being inefficient creates more wealth.

    We don’t discount the importance of being efficient with things. I just think the learning curve for sentient human beings takes care of this more than any other program that tries to dictate a numerical efficiency.

    Anyway, great stuff as always.

  3. Thank you for your response, Darren. I truly appreciate the dialogue.

    I have no doubt that your entire life is based on starting with Why. Unfortunately, I can?t read what?s in your heart, only what?s in your book. Multiple times in the book (pages 31, 38, 43, 51, and 177) all start with what and how, not why.

    I didn?t see where processes and procedures are created in a collaborative effort with the team. Indeed, on page 69 under ?Setting the Course? you wrote:

    ?We should be creating a business that leads staff in the direction they should go?plotting the course for success in our firms. This means giving them an organizational, simplified structure in which to work, as well as the tools required to accomplish their work. What you don?t want to do is allow staff to create their own processes and set the course for your firm.?

    I also never wrote that you suggested taking creativity, professional judgment, and wisdom from the professional. But you never acknowledge the importance?and value?of these virtues either. I am arguing that the consequence of being so devoted to efficiency is that you are driving these traits out, replacing them with rote systems, and mindless checklists (which is also my major issue with auditors?don?t think, follow the PPC checklist).

    You will never get anyone at VeraSage to agree that technology is anything but a table stake, including Ed Kless, who works for a major company in that sector. It?s simply not a competitive advantage if competitors have access to the same technology. I can show you firms that are laggards in technology but that are in the top 1% in terms of profitability, not to mention quality of life. Technology?s been around for decades; it?s the equivalent of restrooms. Competitive advantage is built on other characteristics.

    If indeed I took liberties with the interpretation of your thinking it?s only because I?m basing them on what?s in the book, not what you might actually do, or believe. Feel free to set the record straight any time.

    But ?The Gap? that exists between what you?ve written and what I?ve written is still enormous. I side with Peter Drucker?s comment, and his work on the knowledge worker.

    It?s not the timesheet, Darren. It?s the thinking behind the timesheet?the belief that we can measure what we manage, the lack of recognizing that you can?t capture intellectual capital and value in 6-minute units, or be efficient with relationships, and a myriad of other things that have to change in CPA firms if they really want to be knowledge organizations, not factories.

    If you read my book, Implementing Value Pricing (or The Firm of the Future), you will note the differences are stark between our worldviews, many more than I could write in a limited review.

    I?d be happy to post your review of my book here, and continue what I hope will be an effective dialogue.

  4. Ron,

    You are wrong once again. I hate to be the guy to point it out (and by that I mean I love being the guy to point it out).

    In your critique of the E-Myth Accountant you say:

    “The side the authors are coming from is to build the McDonald’s of professional firms, by laying out a path for creating a highly efficient money-making practice. A professional knowledge firm isn’t McDonald’s, nor should it be.”

    Shut your apple pie hole. McDonald’s is arguably one of the most successful Irish clown-based businesses of all time. Why would you not want to create the McDonald’s of the accounting profession? A place where every employee is deeply fulfilled every moment of every day; a place where you are challenged mentally; a place where you can conveniently dip your head into a fryer at the end of a bad day. Don’t sell us short, Ron, even accountants and lawyers can live the dream of the fast food industry. One in eight Americans will work for McDonald’s at some point in their lives. Maybe if we model our firms after McDonald’s we can finally attract and retain top talent, too.

    McDonald’s success is the result of leveraging efficiency and consistency. If the accounting industry were perfectly consistent and efficient with our attestation engagements there would be no way our clients would have the balls to perpetrate fraud. They’d be too scared, knowing that we would do the bare minimum required in exactly the same way we did the bare minimum last year. Consistency and efficiency is also the path to top-notch tax planning just like McDonald’s consistency and efficiency is the path to top-notch meal planning.

    Also, I cannot agree with your analogy that technology is a table stake because we generally don’t understand gambling metaphors in Utah. I believe that what you’re trying to communicate is that technology is to the accounting industry what steroids were to pro wrestling. Your dad lives in South Carolina; I think you know what I mean.

    Darren Root, I’ve got your back, brother. Suck it Baker.

    Greg Kyte

  5. Rick Dopuch says


    You missed much of the “value” of Darren’s book. Your review would have been much more valuable to the accounting world had you tried harder to understand it from the perspective which it came. It appears you even misunderstand the important work of Michael Gerber, “working on the business rather than in it” is clearly directed at creating systems for building a “turn-key franchise prototype” in Gerber’s own words. In fact, Gerber’s E-Myth founding Vision was “to build the McDonald’s of small business consulting” with a Purpose of “transforming the lives of every small business owner in the world”. In this day of the “knowledge” worker, Michael Gerber has invented a new company called Origination with a Vision “to create the McDonald’s of new business creation” with a Purpose “to transform the lives of ordinary people by providing them with the thrill of creation while creating the means to generate their own and other’s economic freedom”.

    Darren and Michael teamed up to write this book because they have a life changing perspective to share that thousands of accountants need to hear, a perspective that is helpful for me to hear. While Michael and Darren are pioneering the path to the next generation of change for accountants, you’re looking more like a bully than a leader of future thought. Your “Area’s of Agreement” has a bullet point that says “It’s hard to disagree with this:” which exemplifies the idea that you’re looking for a fight.

    The knowledge worker certainly has his place, but so does the system. You said “Yes, knowledge workers will create their own systems. That?s the point. Two surgeons will not perform an operation the same way.” I hope you are never under the surgeon’s knife, but if you are, I hope for your sake they use a system or a checklist. Take a look at the book The Checklist Manifesto by Atul Gawande who is an associate professor at Harvard Medical School, he reports the findings of his study regarding operating room and surgical procedures. “Overall, in this group of nearly 4,000 patients, 435 would have been expected to develop serious complications based on our earlier observation data. But instead just 277 did. Using the checklist had spared more than 150 people from harm – and 27 of them from death”. It’s getting late, I’m signing off. I’m sure your really not a bully, but your review makes you sound like one.

  6. Thank you for your comment, Rick.

    You claim I missed the value of the E-Myth book, then proceeded to an ad hominem attack (but not really, it just sounds like one).

    I totally understand what Gerber and Root are trying to do in the book, and there’s much I agree with, as my review pointed out. But we have different visions of what a knowledge firm is, and I don’t know if you’ve ever read any of my work, but the differences are stark.

    Of course process has its place, but if you’ve read Peter Drucker’s work you know that knowledge workers are the system. This is not just my opinion–Peter Drucker, Stephen Covey, Gary Hamel, among many others think as I do. In fact, they are the ones who changed my mind.

    As for surgeons, I did go under the knife back in 2008, and yes I’ve read Atul’s book (it’s excellent). For that matter, I fly a lot and I’m glad that there are checklists in the cockpit.

    But that’s a far cry from replacing the wisdom and judgment of knowledge workers with a mindless system, or checklist. I’m glad Captain Scully didn’t need a checklist to land the plane in the Hudson. He relied on judgment and experience, and that’s where the value is created in a knowledge firm. Same with my surgeon. You don’t think the actual operation is performed by a checklist do you?

    My issue with Gerber and Root is this: McDonald’s isn’t the model for a professional knowledge firm.

    It’s a difference of visions, and one I’ve discussed at length with Darren. He must believe there’s something to it, he’s attempting to get rid of timesheets in his firm.

    The clash of ideas, hopefully, will produce better ideas. That’s not being a bully; that’s the purpose of a think tank.

  7. Rick Dopuch says

    I’m a big fan of Peter Drucker and Ron Baker :). We’ve been using value billing for 25 years. I’ve read your book “Value Pricing” and I just bought “The firm of the Future”. Right now we’re reworking “systems” for hosted accounting software, client dashboards and bill paying services. My immediate “future” will be consumed with collaborating with staff about the best way (system) to produce these results. As always, this type of systemized basic client work will be supporting others in the firm that do not work by system or checklist, which are apparently called “knowledge” workers now.

    I’m not ready to give up our supporting systems and our checklist just yet, that’s part of my point. My short term future is all about systems, but I do see less reliance on systems further into the future. The recent Wall Street Journal article “Why Software Is eating The World” suggests that more and more products and services will be replaced by software, which will replace much of the systemized routine work we currently do for clients and greatly increase the importance of the knowledge worker. I get that.

    I also get the need to have a clash of ideas from time to time, and I think that we are all moving in the same direction. It seems that you are further down the road of the future than I’m willing to focus my attention on. For the short term future, I’m still on board with Root & Gerber on these issues. The principles in this book are greatly needed now as a springboard into the future for thousands of smaller accounting firms and that’s why I still say you missed much of the value of “The E-Myth Accountant”. I understand you agreed with some of the book, but your review casts a negative shadow on the entire book which is not helpful for the many that need to hear this message. I’m also on board with you, but a little further down the road.

  8. Thanks, Rick. Fair enough, you make very good points.

    We are big fans of the diffusion of ideas curve, and we understand completely that VeraSage attracts those on the far left of the curve (the Innovators and Early Adopters). But that is a very small percentage of the market, and until we get to the “tipping point” (around 17%) we are way ahead of where most folks are.

    I applaud your efforts to rework your systems (and getting Team Member input), and I think as you do this, you’ll move further down the road.

    All that said, we at VeraSage know that our ideas work, and they transform the lives of firms that implement them. It it our purpose (I say quest) to spread these ideas as far and wide as we can, but we recognize that’s a slow process since they are so radical and different from the status quo. Experience and empirical evidence has convinced us that there is a better way, and this is probably why my review casts a negative shadow. I’m ok with that for many reasons that I won’t spell out here, except one given Steve Jobs’ recent passing: There’s no book in the library titled “Great Moderates in History.”

    I’m thrilled you’re a fan, and hope you will continue to dialogue with us as you continue on your Journey.

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  10. Fred Bumpass says

    I loved the E-Myth book. Several really key points, above all the working on vs. in the business principle.

    I have read several other of Michael Gerber’s books as well.

    Sadly, everything Gerber knows about this topic he wrote in his first book.

    Cudos to him for being able to continue an income stream without any new ideas.

    I thought that other than perhaps a few interesting points in the E-Myth for Accountants book, it was pretty much a waste of a read.

    As CPAs we do need to always work on increased effectiveness and efficiency. Systems and processes are critical part of redundant work. Whether it is the owner of another more qualified, I agree that more focus needs to be put on the “business” part of our business.

    Traditionally we have all been taught to be technicians, not businessmen. Ironic since we charge good money to be business advisers!

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