I got a thought-provoking comment from my reader Murali the other day that I thought was worth posting about. In discussing whether or not you needed an MBA to be a successful entrepreneur, he said:
"Many often call self-employed people as entrepreneurs. I disagree. Rich Dad-Poor Dad offers a striking distinction between to understand it better. If you stop working now, do you make money from what you are doing? Having control of your job, self-employment does not make it a business. And doesn’t make an entrepreneur either."
I am very familiar with Robert Kiyosaki’s distinction, as I have read many of his books, and even was treated to a free 8-hour in-person seminar that he was recording for a television series (it pays to live in Phoenix and be on his mailing list!). He describes four different people in the world of business in what he calls the Cash Flow Quadrant.
E stands for employee
S stands for self-employed
B stands for big business owner (over 500 employees)
I stands for investor
Kiyosaki argues that small business owners are nothing more than independent employees, and have no chance at accumulating real wealth until they change their mindset and start to think like big business owners and investors. He has written a good book about this called Before You Quit Your Job.
I find his thoughts interesting and challenging. I know that although I have done very well for myself as an independent person, my business is still very dependent on me for revenue. If I am not here, money doesn’t come into my bank account. In the next decade of my business, I am going to do as much as possible to create passive revenue streams (I simply adore how that sounds! Kind of like money gushing out of a spigot in the backyard, doesn’t it?) and focus on investing and growing our wealth.
However, and this is a big however, I don’t ever want to build my business into a multi-national empire. Although I certainly know how, I don’t enjoy managing huge groups of people and dealing with the headaches and hassles of a big operation. I would rather have a lean and flexible solo business where I hire independent partners to get large projects done, then disband and go back to being me, myself and my trusty computer. Does this make me any less of an entrepreneur?
Robert Gerrish and Sam Leader, co-authors of the very interesting book Flying Solo tend to agree with me on page 4 of their book:
"The dizzying array of books that imply your solo business is all but worthless unless it can be turned into a worldwide empire makes soloists even more discouraged. this "bigger, better, faster" assumption is so last century and sorely misses the point, at least according to most of the soloists we talk to. For them, soloism is about the connection, not the career. They seek to nurture a business that is an expression of themselves and their values. They would rather keep things manageable and meaningful than sweat about growth and profits, thank you very much. The idea that a soloist business should be run like a micro version of a multinational is not only outmoded, but is actually at the root of many a soloist’s misery."
Not everyone has the interest or skills to create a large business empire out of their garage. But many independent service professionals or niche product business owners (like my friend Carla from the wonderful zena moon) are still very much entrepreneurs in my book. They are totally responsible for creating their livelihood and have to sell and market their own services.
At the end of the day, what is important is that your work is interesting, fulfilling and meets the criteria you lay out in your ideal Life Plan.
Any thoughts about entrepreneur vs. small business owner? Does the distinction matter to you?
Update later this evening:
I should have done it before, but I just looked up the definition of "entrepreneur" in my trusty Webster’s Dictionary. It says:
"en*tre*pre*neur n. {Fr.<OFr.<entreprendre, to undertake. -see ENTERPRISE} One who organizes, operates, and assumes the risk in a business venture in expectation of gaining the profit."
Sure sounds like what some of us small-time players are doing, even if we aren’t selling our companies to Yahoo, n’est ce-pas?
Are You A Small Business Person Or An Entrepreneur?
A small business person in the fashion world would probably be somebody like me who is simply happy just doing what she loves
Kiosaki himself achieved financial independence by starting an S quadrant business (his financial seminars) and using the income to buy distressed real estate. He build his first successful big business (B quadrant) only after he was financially free. Does this mean he wasn’t a successful entrepreneur until after he retired?
I love Kiyosaki’s books, but I also agree with his own admission that he’s not a very disciplined writer. If he uses the word “entrepreneur” in more than one way, I don’t really mind as long as I can still generally understand what he’s saying. If you’ve listed to his tape series Choose to Be Rich, you’ve probably noticed that he equivocates his definitions quite often, but the tapes are still entertaining and informative.
His 500-employee requirement for a big business was probably true in the beginning of the Industrial Age. This is how Henry Ford and Thomas Edison obtained leverage, for example. In the Information Age, however, computers have automated many of the tasks people used to do, making it possible to generate passive income simply by hiring someone from India to write a few lines of code for you. The efforts of the “S” in India can be used to generate “B” or “I” types of income as long as someone knows how to leverage that effort strategically.
Thanks for continuing to blog. Your posts make for very enjoyable reading!
The best topological equivalent is that you have a “practice”. A dentist or chiropractor is not an entrepreneur. She is getting paid for her knowledge, skill and time.
Right now I have a Persuasion Architecture and advertising consulting practice.
It’s the word that works best for me! 😉
I’m new to Cubicle Nation, but I read this blog pretty religiously. This is the first time I’ve had the balls to comment on anything. Speaking as the employee of a small business owner, I would have to agree that, first off, an entreprenuer should be interpreted as anyone that has busted their hump to get their business off the ground, and keep it running. It’s not like its an easy task. It’s not like having 2 employees vs 500 employees makes a business any less valid. Yet my boss runs into these self important, almost elitist ideals on a regular basis, as I assume many others do as well.
Secondly, who cares? The reason a person becomes self employed, or a business owner or WHATEVER is so that they can do things as they wish. So why be bothered with a title from elsewhere for something that YOU’VE created. I agree with Glenda Watson Hyatt….”these are simply labels that others can then use to pigeon-hole and stereotype us. These labels aren’t who we are”. That is the bottom line.
I’m with Jack Hayhow in terms of asking the right question.
Does it matter what label we put on ourselves: entrepreneurs or small business owners or something else.
When I think of entrepreneur I do think about words such as creative, dynamic, risk-taking, but I think you can also have an entrepreneur that has a very comfortable business, that runs smoothly, with little risk.
I also think about a certain lifestyle when I think entrepreneur (at least in terms of small business owners).
I don’t think you need to have Fortune 500 on your mind or as a goal.
And I disagree with the point made by Little Ram: “Being able to have the business run without you personally (to some extent).”
I think it’s the complete opposite. Being an entrepreneur is about you; you’re critical, you’ve got your hands in everything and you dictate what’s going on. I don’t mean that in a totalitarian sense though. And there’s definitely merit to having a business that can run without you, but I don’t see that as a criteria for being an entrepreneur.
This is a question I’ve enjoyed toying with over the years. Peter Drucker suggested in Innovation and Entreprenuership that to qualify as entrepreneurial, a business must creat new satisfaction or new consumer demand. I think that’s an interesting qualification, and probably correct.
But after a good deal of thought, I’m not sure the question itself – am I or am I not an entrepreneur? – is a particularly productive question. Perhaps a better question is: Does this business serve my purpose? Which, of course, begs the question: Why am I really doing this? Those questions have profound impact on a business and a business owner’s life.
Pam,
I think Murali has a point. Being a soloist means independence and sure, all of us have a right to live life the way we feel most fulfilled. For some, running an organization is not what they want to do and I think we should respect that. I myself am an independent consultant and I am still contemplatng the move to bulidng a smallish organization.
However, 2 criteria that I think are essential to being classifed as an entreprenur are-
a. Being able to have the business run without you personally (to some extent)
b. Risking a certain amount in the business venture.
Those that leave the comfort of a paycheck might point out to the risk in forgoing the steady income. However, if the business stops when they do, it is not true entrepreneurship I guess, at least IMHO. I am not too sure about he 500+ criterion though, it seems way to huge and quite arbitrary. India’s largest law firm wouldn’t qualify for instance.
Going by the dictionary meaning ‘Entrepreneur’ is a person who set up a business. Sole proprietorship is a legal business entity. So one can call a soloist an entrepreneur.
But my understanding and belief goes little beyond the terminology. Even if the most remote goal of ‘escaping the cube’ is to achieve some level of financial freedom, then ‘soloism’ or ‘a business with one person’ does not pay off, unless you derive hefty royalties or passive income of your work. (Like a a rockstar or Oprah or a scientist with lots of patents for example). Otherwise, no matter how great you are, your income cease to exist once you stop working, just like your job.
Even if your goal is realization of your ideals or great ideas, to have your ideals live longer than your younger and healthier breath and nurture your family and possibly generations, an organization that can survive without you would be a defintive answer. I mean an organization that is started and propelled by you but can run without you. That is the whole idea behind building a business. It does not necessarily mean a billion dollar company with thousands of employees.
Solo business is a great starting point. Because it gives all needed self-confidence and self-reliance to achieve your goals. But it is just that.
I am software consultant by profession. I can quit my job and start as an independent consultant. I prefer to call myself an Independent Consultant rather than a Entreprenuer. When I partner with a few like minded folks and start a firm and recruit some more like minded folks and build a structure and organization around it then I would call my self an Entrepreneur. Because, now I built a business that can run without me. More over, now it gives me more freedom and more power to venture out on my new dreams.
What’s in a name? Small business owner, self employed, entrepreneur? I do not really care, as long as I wake up every morning looking forward to my day. I just know it will not happen in a 500 employee business. I will change my business card title from nothing to “happy like a self employed Californian cow small business owner”.
For me the ‘self employeed’ thing is a part time gig to fund an entrepreneurial lifestyle.
I found working full time I was just too tired to be efficient in my spare time for my entrepreneurial pursuits.
Now I have time for both. The single employee (me) business does consulting to pay the bills, and that leaves time for other pursuits.
John
Interesting post, Pam. This is something I have sort of thought about over the past few years. I have considered which label best applies to me – self-employed, entrepreneur or small business owner?
Since I am my business, I’m not too sure I’m a small business owner as what do I own? Myself? And small? Nano-sized might be closer to the truth.
Self-employed? Yes, I guess I am when I actually have a client. So, those periods when I’m not working on a specific project, what am I? Label-less? Nothing?
I like the perceived passion and energy that goes with the term entrepreneur, and how entrepreneurs seem to undertake various kinds of projects in the course of doing business, as if their work is more fluid. I definitely have that kind of passion and mindset, seeing potential opportunities everywhere – or perhaps that is my short attention span, high distractibility and interest in so many things. However, I’m definitely not at like multi-million dollar deal level, and, really, I have no intention to be. Enough money to live beyond the “survival mode” and I’d be happy. I have found myself using solopreneur lately. That seems to fit, for the moment. Or, is nanopreneur an option?
However, all of these are simply labels that others can then use to pigeon-hole and stereotype us. These labels aren’t who we are.
To be, or not to be
…an entrepreneur, that is. Pam Slim at Escape from Cubicle Nation has a thoughtful post on the distinctions between being self-employed and being an entrepreneur.
I too revel in having a flexible business that is based on me and my values. I have no intention of ever building a business empire in my downstairs office. I get help when I need it, and appreciate that I can scale down when I don’t.
I’d like to think the distinction doesn’t matter, but I think there’s a part of me that does care and does want to be recognized as an entrepreneur on some level.
Fantastic post!