A while ago I wrote a slightly controversial post that mentioned the differences between small business owners and entrepreneurs. Since then, I continue to have discussions with people about this difference. Specifically, does it really matter?
I'll reiterate that the main characteristic of an entrepreneur, in my definition, is the desire to innovate. I asked the question on Twitter about what exactly people thought this difference was. Here are some of the answers:
via @GregDigneo: When I think small business owner, I think pizza shop. When I think entrepreneur, I think google, virgin, microsoft
via @RochelleDelong: entrepreneur: creative, high energy, loose systems. small business owner: creative, steady energy, reasonable systems.
via @tjdooley: Gut reaction is entrepreneurs pushing new ideas vs small business owners using existing ideas/business models.
So people obviously understand that there's a difference. But why make it?
The Problem with the Definition
A small business owner is not necessarily an entrepreneur. In fact, an entrepreneur isn't necessarily a small business owner. As Wikipedia mentions, Entrepreneurship can also involve revitalizing mature organizations, not just starting new ones. It's a blurry definition, and based on an individual's ability to innovate rather than the act of starting or running a company. Therein lies the issue. We commonly give ourselves titles based on our actions rather than who we are.
I am a software developer and I am an entrepreneur. One title defines what I do, the other defines who I am. To build on the post about serial entrepreneurs, this is another reason why you shouldn't introduce yourself to someone as a serial entrepreneur. Apart from being incredibly annoying, people don't commonly introduce themselves by their personality traits ("My name is Dale and I have the ability to innovate!"), but rather by their occupation. Entrepreneur is not an occupation. Neither is Serial Entrepreneur.
Who Cares?
Ok, so I'm nitpicking the definition of entrepreneur. Well I actually think that it matters. First, it matters to yourself. I think that it's important to have an understanding of who you are and what your goals are. The way you run your business is going to be dependent on those goals. Is your goal to provide a stable income for you and your family or is your goal to change the world?
There are going to be a couple other people who care about your goals as well, especially if you're trying to raise money.
To an angel investor, the difference may not actually matter. Angel investors may potentially invest in small businesses that aren't geared for high growth but have a higher probability of success. To a venture capitalist, however, it certainly matters. I doubt many VCs look for companies that have a plateau in their financial projections. I couldn't sum this up better myself: "Choosing the label entrepreneur is choosing growth."
What about lending institutions? Banks probably aren't going to be willing to give money to your high-growth startup right out of the gate. It's possible that micro-lending groups would (we have a couple here in Wisconsin, such as WWBIC and WHEDA), but the sums of money are typically smaller, up to $100K. There are SBA loans, up to $35K, that you can use to start your business as well.
Regardless, lending institutions aren't
necessarily concerned with whether or not you're an entrepreneur or a
small business owner. They're concerned with their level of risk in
the investment. Not only is it incredibly risky to fully fund a
company with debt but most banks won't even lend to startup
businesses that don't have two to three years' worth of financial
statements.
Small business is typically less risky, which is why they will be more willing to take on personally-backed debt. Angels and VCs exist to take on part of the financial risk in starting a company, in exchange for equity.
It's Just a Label
It's true that nobody really cares about the name. But as a business owner, you should be aware of what your goals are and the people best suited to help you achieve them.
Are you following me on Twitter?
There are some great comments over at http://www.brazencareerist.com/2009/01/29/entrepreneur-or-small-business-owner-does-it-matter.
What a lot of this discussion comes down to is that there is no English word to differentiate the personality traits inherent in who I am calling an entrepreneur from the personality traits of a small business owner.
Posted by: Dale Beermann | January 30, 2009 at 12:11 PM