Over the weekend, I read an article from Business News Daily that argued that just because you are a business owner doesn’t mean you are necessarily an entrepreneur. I’ve always used the terms interchangeably, but according to a study published in the Quarterly Journal of Economics, I’ve been wrong.
Let’s look at why.
The Oxford Dictionary defines a business owner as “an individual or entity who owns a business entity in an attempt to profit from the successful operation of the company.”
An entrepreneur, on the other hand, is defined as “a person who organizes and operates a business or businesses, taking on greater than normal financial risks to do so.”
What quantifies “greater than normal financial risk?” It doesn’t say, but I believe it probably has more to do with a mindset than an amount. According to the definitions, entrepreneurs are bigger risk takers than business owners. The study claims that business owners are there to make a profit; entrepreneurs want to make their mark.
According to the study, there are some other key differences between the two:
- Entrepreneurs tend to run incorporated businesses. This means they are separating themselves legally from their businesses, allowing more freedom to take risks without worrying about losing their personal belongings. In fact, the study found that owners of incorporated businesses generally described themselves as “entrepreneurs,” while unincorporated business owners did not.
- Entrepreneurs require more cognitive skills – i.e., strategies for growth – while business owners have jobs that require more manual skills.
- Entrepreneurs tend to have more employees while business owners have few or no employees.
Additionally, the research found that entrepreneurs tended to have some specific character traits prior to starting their businesses:
- Entrepreneurs had greater self-esteem.
- Entrepreneurs wanted to have more control over their futures.
- Entrepreneurs had jobs that relied heavily on intellect.
- Entrepreneurs scored higher on learning aptitude tests; and
- (The most interesting one) Entrepreneurs engaged in more risky activities: cutting classes, shoplifting, gambling, marijuana and alcohol use, and even assault.
The study’s authors wrote that “the high-ability person who tends to ‘break the rules’ as a youth is especially likely to become a successful entrepreneur.”
Entrepreneur or Business Owner: Does it really matter?
If you’re interested in the bottom line, then yes.
According to the study, incorporated business owners – i.e., “entrepreneurs” – reported an average annual increase in salary of $6,600, while unincorporated business owners had a median annual salary increase of just $716. In other words, entrepreneurs had annual raises that were almost 10 times as much as those of unincorporated business owners.
The good news in our industry is that if you are truly wanting to become an entrepreneur, you can. If you caught part 1 of the story of Patrick Clark last week, you know that he came from very humble beginnings with no business knowledge, yet today runs a multi-million dollar company. (And for those who have been asking, you can read part 2 here). Like with Pat, the “secret” is seeking out the knowledge. Attending industry events. Reading or listening to business books. Finding mentors to guide you.
And the other good news is that if you’re happy as a “business owner,” that is great too! It’s all about you, your goals, your journey.
Remember, no matter your business’s goals, we at J. Racenstein are here to help. We don’t care if you run a multi-million dollar company or are someone who is just getting started. Your success is our success. Give us a call and we’ll help get you going this busy season.