The terms entrepreneur and small business owner are often used interchangeably, and understandably so. Often, each is responsible for a vision and enterprise greater than themselves.
Yet there are key differences between the two that may be more important than you think. Why? Because once you know which category you fall into, you can better understand your strengths and weaknesses, your purpose, and—perhaps most importantly—your definition of personal success.
What Is an Entrepreneur?
You might say that all entrepreneurs are business owners, but not all business owners are entrepreneurs. The difference tends to come down to your goals and overall comfort level with risk and uncertainty.
When most of us think of an entrepreneur, we think of someone building a business from the ground up. In other words, the business generally begins as a startup and grows from there. Thus, entrepreneurs tend to place a premium on innovation, disruption, and putting capital and resources at risk to grow their market share over time.
In addition, entrepreneurs are typically focused on high growth with an end goal of selling the business for a significant profit. To do so, they must create a differentiated service or product (e.g., a distinct brand, unique offering, specific target customer, special distribution, etc.), establish processes, and scale their operations so that the business can transfer to a new owner without losing its value. Ideally, they lead the company through key stages, building and leading a team to hit key targets along the way.
Lastly, many entrepreneurs are serial entrepreneurs, starting and selling businesses repeatedly during their lifetime. Once they achieve success with one business, they take the skills and knowledge they gain to do it again and again.
What Is a Small Business Owner?
A small business owner is self-employed and owns all or part of a viable business. Generally, a business owner earns enough income from their business to support their current lifestyle and, ideally, their lifestyle in retirement.
Like an entrepreneur, a small business owner is focused on leading and growing an organization, so that they can earn more money than they otherwise would as an employee. They may also put their own capital and resources at risk to further their vision and achieve their goals.
Yet unlike an entrepreneur, a small business owner’s end goal may not be to create something new or sell their business for a large profit. In fact, many small business owners typically have not articulated a clear exit strategy, and place more attention on current income than the business’s future value. For financing, they generally rely on banking relationships but tend not to engage with broader capital markets for funding.
Why Do Definitions Matter?
It may seem unnecessary to distinguish between an entrepreneur and a business owner. After all, what difference does it make what you call yourself if you own a successful business?
The bottom line is it doesn’t matter what you call yourself. What does matter is understanding your strengths, weaknesses, goals, and definition of success, so you can feel happier and more fulfilled in your business and life. Ultimately, this sense of self-awareness can help you identify your purpose as a business owner and successfully reach your goals.
On the other hand, failing to understand which category you fall into may lead you down the path of the “directionless entrepreneur.” With no clear purpose or goals, you’re unlikely to achieve success in your business or feel fulfilled by the work you do each day. Indeed, there are both financial and opportunity costs to this lack of self-awareness.
Are You an Entrepreneur or a Small Business Owner?
If you’ve read this far, you may already know whether you fall into the category of entrepreneur or small business owner. However, if you’re still unsure which one you are, your answers to the following questions may help guide you.
- Innovation: Have you created something new with your business, or do you own a business within a well-established industry?
- I created something new with my business.
- There are many businesses that do what my business does.
- Sources of Capital: Are you funding your business primarily with personal/outside capital or profits from the business?
- Personal/outside capital.
- Profits from the business.
- Definition of Success: Are you more concerned with your future lifestyle or current lifestyle?
- I’m fine with making financial sacrifices now for a significant payout in the future.
- I want to earn enough from my business to live comfortably now.
- End Game: What is your exit strategy from your business?
- I plan to sell my business for a large profit over a particular time frame.
- I plan to eventually transfer the business to a new owner or don’t yet have an exit strategy.
- Is the value of your business predominantly based on your personal identity or tangible assets of the business?
- Personal identity.
- Tangible assets.
If you answered mostly A’s, you’re more likely to be an entrepreneur. Alternatively, if you answered mostly B’s, you’re likely a small business owner. And if you had trouble answering most of these questions, you may have some self-exploration to do.
Of course, this short quiz isn’t failproof. However, it should give you a better idea of your strengths and weaknesses as a business leader, as well as what you’re trying to accomplish with your business.
Our Life Appreciates™ Discovery Process Can Help
Entrepreneurs and small business owners face a variety of unique opportunities and challenges throughout their financial lives. The key is understanding your purpose, goals and tolerance for risk so you can capitalize on these opportunities and successfully navigate the challenges that inevitably arise along the way.
Our Life Appreciates™ Discovery Process can help you assess your values, goals, capabilities and definition of success, in context of your business and personal financial freedom. We can also help you develop a long-term sustainable wealth plan, incorporating our 3R’s™ framework and risk profiling with the goal of helping you achieve your goals.