Entrepreneurs & business owners

  • Columns
  • Monday, 12 Oct 2015

Whos the business owner and whos the entrepreneur? — 123rf.com

Is there a difference between an ‘entrepreneur’ and a ‘business owner’? Does it matter? Perhaps and maybe not. Let’s see.

I HAVE found in my discussions with others on the topic of entrepreneurship that I need to clarify the different kinds of businesses and what entrepreneurship means, at least as I see it.

These days, the world of work is completely different from what it was a couple of decades ago. Jobs are no longer for life; for millennials, job hopping is the new normal.

The average career in the US now lasts a little over four years, and the same trend will follow suit here in South-East Asia. In fact, people are increasingly choosing to run their own businesses.

However, people confuse running their own businesses with startups. The term “entrepreneur” has come to refer to anyone who starts or runs their own business. However, setting up or owning a business doesn’t necessarily make you an entrepreneur. As I see it, starting a business just makes you a business owner.

My personal definition of entrepreneurship: “an entrepreneur identifies a need or gap in the market and creates a product or service to solve that problem.”

Since this problem has to be big enough and affect a lot of people in the world, being an entrepreneur usually involves taking big risks. It is their hope that this new solution will eventually yield a sustainable profit.

Therefore, the primary difference between a business owner and entrepreneur is based on risk, rate of growth and, more importantly, the reason for being involved in the business.

Here are the categories of businesses one can start:

Family businesses: Usually, family businesses are synonymous with “brick-and-mortar” setups, which implies a physical presence — production facilities or store for operations — and offer face-to-face customer experience. It’s everywhere in the world and makes up 95% of US companies and 97.3% of Malaysian companies.

Business owners are primarily interested in earning a living to support themselves and their families. They will usually only grow the business when they need to generate a larger income. They are traditionally financed via microcredit or bank loans. They don’t typically take Venture Capital (VC) or investor money because they don’t yield returns in the timeframe expected from a VC.

However, these businesses can still grow and turn into huge companies.

Examples from this category include franchises, restaurants, retail outlets, reseller outfits, agricultural farms, etc.

Freelancing or lifestyle businesses: This category is for people who are self-employed and either work on specific projects at different companies or own a business that allows for solo remote work.

Freelancers usually don’t take big financial risks because they look for clients that pay them for their work. The primary value is in their skills. How much they earn directly correlates with the time they put into their work.

Freelancers are not entrepreneurs but they sell their services and time whilst being self-employed. They have a flexible lifestyle and can fit their work around their travel. This category includes musicians, artists, carpenters, and anyone who leverages on their specific skills for project-based work.

Large freelancing websites such as Upworks and Freelancer have truly liberalised the flexible labour market where anyone can work virtually from home.

Service-based agencies: When one expands one’s freelancing or lifestyle business to include partners or employees, one can create a service-based agency to service more clients and projects. Consulting agencies, creative agencies and digital (web or mobile) agencies fit into this category.

Usually, these agencies work with more established clients and sometimes service them for years. Some effectively become a larger company’s outsourced arm for certain services.

High-tech companies: Hi-tech companies use cutting-edge technology and often requires a lot of research and development (R&D), as well as high upfront capital to develop intellectual property (IP).

Hi-tech startups boomed in Silicon Valley with Fairchild Semiconductor’s presence in the 1950s. Employees who left Fairchild started other innovative companies. Because the hi-tech sector creates new and innovative technology, it’s often seen as having the most potential for growth. Investments usually come from larger institutional investors and VCs.

However, it’s viewed as high-risk since it requires high capital and takes a longer time to yield returns. Examples include robotics, aerospace, automotive and bio-technology.

High-growth startups: This category of businesses is currently the most popular in Silicon Valley and most innovation hubs in the world. It’s also the category of entrepreneurs that MaGIC is developing.

Startups learn the lean startup methodology to develop their business models via rapid prototyping, quick iteration based on early customer feedback and validation from the market via product traction. Largely leveraging technology either as its core or as an enabler, startups have the potential to scale to a large user-base very quickly.

It’s perceived by investors to be lower risk than traditional or hi-tech businesses because of the lower capital requirements to push the product out in the early stages.

Usually, startups work on software solutions but recently, hardware or IoT startups have made a big wave with wearable technology and connected home devices. Venture capitalists and investors look for multiple returns on their investments and an exit of between five and 10 years.

Local examples include GrabTaxi, KFIT, iMoney, CatchThatBus, BloomThis, etc.

Social Enterprises: Social entrepreneurship is a relatively new form of entrepreneurship, where the social or environmental mission of the company is higher or equal to the profit-making mission.

Social entrepreneurs are concerned with measuring the impact of their solutions on the pressing social and environmental problems but must have a sustainable business model.

Social enterprises (SEs) are on the rise in South-East Asia, with people caring about their communities and wanting to give back. MaGIC is working on developing this sector such that SEs become self-sustainable and even profitable, while reinvesting back towards societal needs. Local examples include Epic Homes, Biji Biji Initiative, The Batik Boutique, Arus Academy, Tonibung, Mabul Skills Project, etc.

Hopefully, these six categories of businesses will help clarify what it means to be a business owner versus an entrepreneur.

Based on the different skills, resources and scale required by each business, one can figure out which kind suits them best.

There is no right or wrong answer. Everyone has different career ambitions, but it’s important to understand which type of businesses align with your life goals.

Cheryl Yeoh is the Founding CEO of the Malaysian Global Innovation & Creativity Centre (MaGIC).

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