Entrepreneur or Small Business Owner: Which One Are You?

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Written By Obaid Ur Rehman

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The difference between being an entrepreneur and a Small Business Owner owner may lie in your company’s legal status, as well as your personality.

  • Research published in the Quarterly Journal of Economics found that the legal status of a company is frequently what distinguishes entrepreneurs from other business owners.
  • The survey also revealed that company owners and entrepreneurs have various backgrounds and personality traits.
  • When compared to other business owners, entrepreneurs reported a larger rise in their median yearly earnings.
  • The purpose of this essay is to help readers identify if they are an entrepreneur or small company owner (or possibly both).

You’re not necessarily an entrepreneur just because you own your own firm.

An analysis that was published in the Quarterly Journal of Economics (QJE) identified a crucial distinction between being an entrepreneur and owning a firm. The researchers discovered that what frequently distinguishes entrepreneurs from other business owners is a company’s legal standing, whether it is incorporated or unincorporated.

Also read: Customer Service 101: Phone Etiquette for Small Businesses

Defining entrepreneurs and small business owners

It’s critical to first grasp what the phrases “entrepreneur” and “small business owner” signify in order to comprehend the distinctions between the two groups of people. In general, business owners may be more concerned with the steady profitability of their company, whereas entrepreneurs may be more prepared to take significant risks. However, there are subtler distinctions than that.

According to research published in the Quarterly Journal of Economics (QJE), which considered data from over 40 years, entrepreneurs are more likely to operate incorporated enterprises with articles of incorporation than small company owners are. Businesses that are corporations have an entity that is legally distinct from the owner. An unincorporated business is seen as a component of the owner’s personal responsibilities and their legal duty.

What is an entrepreneur?

An entrepreneur is defined as “a person who creates and maintains a firm or businesses, taking up higher than usual financial risks to do so” by the Oxford Dictionary.

Compared to a small business owner, an entrepreneur may concentrate more on independence and creativity. They frequently launch new companies based on concepts that are a little unconventional. Entrepreneurship Defined: What It Means to Be an entrepreneur [Read related article]

This indicates that a lot of business owners are just getting started. They thus frequently lack access to the resources that larger, more established businesses would. As a result, they can be more dependent on company loans or other outside finance. On the other hand, the same lack of resources may also increase their propensity to take big chances in order to succeed.

What is a business owner?

An owner of a business is “an individual or entity that owns a commercial entity in an effort to profit from the successful functioning of the firm,” according to the Oxford Dictionary.

Business owners often have a stronger industry reputation and a better understanding of the strategies that produce results. Although they can launch their own companies, they’re as likely to take on a leadership position inside an already existing organization.

Due to their experience and the security of their positions, business owners may be less reluctant to take chances with their organizations. Instead of pursuing a prospective increase in income, business leaders frequently opt to employ tried-and-true measures to sustain constant profitability for an organization.

Entrepreneur vs. business owner strengths and personality types

According to the QJE study, incorporated business owners often start up projects that involve high-level cognitive abilities, whereas unincorporated business owners typically run businesses that require more physical skills.

Examples of the kinds of enterprises that an entrepreneur or owner of an incorporated firm could start were provided by the researchers. An entrepreneur may launch a mobile app company or a digital marketing agency, for instance. On the other hand, a proprietor of an unincorporated firm can be a contractor or a plumber.

The data suggest that, on average, the incorporated self-employed engage in entrepreneurial activities while the unincorporated do not, according to the study’s authors, to the extent that one associates entrepreneurship with analytical reasoning, creativity, and complex interpersonal communications rather than with eye, hand, and foot coordination.

According to one of the study’s authors and professor at the University of California, Berkeley, Ross Levine, people frequently imagine entrepreneurs as persons who come up with innovative, unusual, dangerous, and mentally taxing ideas.

Levine stated in a statement, “We observed that persons who start such enterprises prefer to open incorporated businesses.” Contrarily, founders of companies that execute fairly typical tasks are more likely to be unincorporated and to have less formal education.

Differences between entrepreneurs and other small business owners

According to the report, having an incorporated status affords entrepreneurs some additional legal safeguards, which frequently enables them a bit more leeway to engage in bigger and riskier investments than their peers who do not have an incorporated status. The difference in legal standing seems to match how many business owners currently view themselves.

According to research, incorporated business owners are more likely than unincorporated firm owners to identify as “entrepreneurs,” according to Levine.

The inquiry also identified a number of distinctions between business owners who are incorporated and those who are not. In particular, it was found that incorporated entrepreneurs took the following actions before launching their own business:

  • They showed higher levels of self-esteem.
  • They desired more control over their own destiny.
  • They typically worked in occupations that relied heavily on intelligence.
  • They were more likely than salaried employees to have come from wealthy backgrounds with two parents who had advanced degrees.

Entrepreneurs also performed well on learning aptitude exams prior to starting their own businesses and participated in more illegal and dangerous actions, such as skipping class, vandalism, stealing, gambling, alcohol and marijuana usage, and even violence.

Levine and co-author Yona Rubinstein said in the research that “it is a unique balance of qualities that seems to matter for both becoming an entrepreneur and flourishing as an entrepreneur.” “High-ability individuals who frequently “break the rules” as children are especially likely to succeed as entrepreneurs.”

On the other hand, proprietors of unincorporated businesses typically have duties that call for greater manual labour and have experience in related fields. Additionally, the researchers discovered that incorporated firm owners frequently have a large staff, compared to unincorporated business owners who typically have few or no workers.

Additionally, the financial profits of each group of business owners vary. According to the survey, entrepreneurs who own incorporated businesses earn a median of $6,600 each year. Owners of unincorporated businesses saw just a $716 gain in their median yearly income. [Learn more about paying yourself as an entrepreneur and company owner salary.]

Define yourself to define your business

The term “self-employed” doesn’t accurately represent all business owners, and success depends more on what you label yourself as a businessperson than most people realize. The terms “entrepreneur” and “small company owner” aren’t merely used differently; they’re also linked to various mentalities, ways of acting, and legal statuses. In the end, you and your company will be defined by the characteristics you possess and the legal framework of your organization.

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