Which Kind of Self-employed Business Are You?

Are you sometimes confused about the differences between an entrepreneur and a small business owner? An entrepreneur and a freelancer? How about a freelancer and an independent professional?

Scholars, talking heads and online pundits have defined these terms differently over the decades. And, of course, these definitions keep evolving as the business and professional world evolves.

Let’s try to get clear on the current definitions for these different self-employed identities. This is important because, not only does it impact how, as self-employed people, we see ourselves and project ourselves to our customers / clients but it needs to inform our personal and financial goals and methods for our ventures / businesses.

Recently, while listening to Seth Godin’s podcast series, Startup School, I was pleased to revisit his straightforward and effective distinction between entrepreneurs, small business owners and freelancers. He has also spoken and written about this numerous times in books, online blogs, talks, etc.

For the purpose of this post, I will stay away from the large amount of academic theory that exists on this topic and build off of Godin’s definitions:

Freelancers:

Autonomous, boss-free, work for themselves, get paid for the work done by themselves, require less in terms of money, specialized education or formal qualifications to get business started – e.g. web designers, consultants, writers, most bloggers, etc. The key is that their venture / business cannot function without them – it depends almost entirely on their talents, skills and hands-on management.

Independent Professionals:

Similar to freelancers EXCEPT that they require some or all of the following: specialized education, formal qualifications, continuing education, apprenticeships, examinations, licensing, association memberships, compliance with industry regulations, etc. – e.g. lawyers, accountants, tax experts, financial advisors, etc.

Small Business Owners:

When either of the above grows their venture to a certain business size that, while it is bigger than they are, may or may not be scalable – e.g. your local hair salon or pizza place. If they do build something scalable and unique, they are really more entrepreneurial. As for the size of a small business, even the US Census Bureau, while it provides statistics with size breakdowns, says that it will not define “small” as the criteria can vary by intended use. The most useful segmentation I’ve seen here is an Intuit study from some years ago as follows:

• 0-4 employees – Micro or Personal Business
• 5-19 employees – Main Street Small Business
• 20-99 employees – Mid-market Small Business
• 100-499 – Large Small Business (yes, someone should have thought of a better descriptor here)

Entrepreneurs:

Again, they could start out as any of the above, but, they eventually create scalable systems / organizations that are bigger than themselves and can run, eventually, without their hands-on involvement. As such, they, generally, take on a lot more risk and require a lot more capital. Mainly, though, their contribution is the creation of an offering that did not exist before or is really disruptive in how they’re offering it.  – e.g. Zuckerberg coding in a Harvard dorm-room was a freelancer and Zuckerberg as the founder and CEO of Facebook Inc. is, clearly, an entrepreneur.

What I’m learning as I get to meet more self-employed people through my work, is that entrepreneurs who started out as freelancers, independent professionals or small business owners made their successful transitions to entrepreneurship because they had always aimed to create something unique, disruptive and, more importantly, scalable and independent from themselves. Therefore, beyond all the hard work and access to required financing, the goals, risks, choices and trade-offs they made along their way to success were anchored by that vision / driver. [Note: That's not to say that this vision is something static and never-changing - more on that another time.]

In Conclusion

Let me assure you that I am not suggesting that all self-employment must be about entrepreneurship. Nor do I glorify it over the other forms of self-employment. I do, however, advocate well-aligned goals and actions to achieve the desired level of financial freedom, regardless of whichever kind of self-employed business you choose to create. So, my questions to you today are:

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