Entrepreneur vs. Business Owner: What’s the Difference?

Entrepreneur vs. Business Owner: What‘s the Difference?

As someone who runs a business, you‘ve likely wondered how to classify yourself: Are you an entrepreneur, a business owner, or both? While the two terms are often used interchangeably, there are some key differences between what it means to be an entrepreneur vs. a business owner.

At the highest level, an entrepreneur is someone who starts a new business venture, often with significant risk involved, in order to make a profit. A business owner, on the other hand, is simply someone who owns and operates a business. So while all entrepreneurs are business owners, not all business owners are entrepreneurs.

To better understand the distinction, let‘s dive into some of the main differences between entrepreneurs and business owners:

Mindset and Risk Tolerance

One of the biggest factors separating entrepreneurs from typical business owners is mindset, especially when it comes to risk. Entrepreneurs are the ultimate risk-seekers. They have big ideas and a burning desire to bring those ideas to life, even if it means taking on significant financial and personal risk.

Entrepreneurship is about breaking the mold, disrupting the status quo, and creating something entirely new. Think of bold entrepreneurs like Elon Musk starting SpaceX to colonize Mars, or Steve Jobs building Apple in his garage with the goal of putting a computer in every home. These visionary risk-takers dreamed of reshaping entire industries.

Business owners, while still assuming some risk in starting a business, tend to be more risk-averse. They typically start businesses in established industries using proven models. Think of a restaurateur opening a new location, a CPA launching an accounting practice, or a franchisee opening a chain store. These business owners aim for stability and profitability over taking big swings.

Goals and Vision

The differing risk profiles of entrepreneurs and business owners stem from the difference in their goals. Entrepreneurs tend to have huge, long-term visions for their companies. They want to build the next billion-dollar "unicorn" startup that fundamentally changes how an industry works.

Entrepreneurial firms like Google, Facebook, Amazon, and Tesla weren‘t aiming for slow, steady growth – they wanted to utterly dominate their markets as quickly as possible. For many entrepreneurs, the ultimate goal is scaling the company as fast and far as possible, and then exiting for a hefty payout, either by going public or selling.

Typical small business owners, however, often focus more on near-term goals like hitting revenue targets, maintaining healthy profit margins, and supporting their desired lifestyle. A business owner may want to open a handful of locations in their region, not expand to hundreds nationally or globally.

The business owner‘s long-term goal is often to build a self-sustaining company that provides them with financial freedom and a good work-life balance, which they can either continue running or pass down to the next generation. They want to be their own boss and leave a legacy, but not necessarily change the world.

Approach to Growth

These differing goals lead to dramatically different approaches to growing a company. High-growth entrepreneurial startups expand very rapidly, often fueled by outside funding from venture capitalists, angel investors, crowdfunding campaigns, etc. The name of the game is achieving exponential hockey-stick growth to establish market leadership before competitors.

As they scale, entrepreneurial companies like Uber, Airbnb, Slack and Stripe expanded their teams very rapidly, growing from a few founders to hundreds or thousands of employees across offices worldwide within a few short years. Revenue growth far outpaces profitability in the short term.

Typical small businesses, however, grow much more gradually. Without easy access to outside capital, they have to expand organically using the revenue generated by the business. When a business does borrow money to grow, it‘s more often through a bank loan than VC funding.

The small business growth model is slow and steady – open a successful pizzeria, then open a second location across town a few years later once it‘s consistently profitable. Then open a third, and so on, maintaining positive cash flow throughout. The path from one employee to 100 may take a decade or longer.

Incorporation and Legal Structure

Another interesting difference between entrepreneurs and business owners is how likely they are to formally incorporate their companies. Research shows that entrepreneurs are much more likely to incorporate, either as an LLC, S-Corp, or C-Corp, while typical business owners often operate as unincorporated sole proprietorships or partnerships.

There are a few reasons for this. One is that the kinds of high-risk, high-growth activities entrepreneurs engage in often demand the legal protections of incorporation. Investors also typically require startups to incorporate before they‘ll invest.

Many small business owners skip incorporation because they don‘t engage in such risky activities, and want to avoid the added cost and paperwork. An unincorporated business is simpler to start and run, with the downside that the owner remains personally liable for any debts or legal issues.

Funding and Capital

This leads to another major difference between entrepreneurial ventures and small businesses: how they‘re funded. Entrepreneurs at high-growth startups raise significant sums of outside capital to fuel rapid expansion, from the millions raised in seed and Series A rounds to the billion-dollar mega-rounds of late-stage startups. Capital sources include venture capital firms, angel investors, private equity, hedge funds, and crowdfunding platforms.

Small business owners, however, often bootstrap their ventures, starting with personal savings and a bank loan or line of credit. Over time they may take out larger SBA or commercial loans to expand, but they‘re still primarily funded by revenue from the business rather than outside investors.

Innovation vs. Execution

Another key difference between entrepreneurs and business owners is their focus on innovation vs. execution. Entrepreneurship is, at its core, about bringing innovative new ideas to life and pioneering new products, services, or business models. Successful entrepreneurs excel at identifying unmet customer needs or technology trends and building solutions from scratch.

Business owners, however, are often focused more on solid execution of existing business models rather than novelty. This isn‘t to say business owners aren‘t innovative – many certainly dream up new products and ways of doing things. But their core competency is typically delivering proven offerings at a high level.

Think of a restaurant owner who comes up with a creative new menu item vs. an entrepreneur pioneering food delivery by drone. Both are doing something new, but on a very different scale of innovation.

Role of the Founder

As they scale their companies, the role of the entrepreneur often shifts dramatically. Early on, a startup founder does a bit of everything, from product development to marketing to customer service. But as the company grows and departments form, the entrepreneur‘s role shifts to high-level leadership.

Many successful entrepreneurs transition from an operating role to become the chairman of the board and public face of the company. Think of Bill Gates, Mark Zuckerberg, and Jeff Bezos – they went from writing code and packing boxes to pressing the flesh with world leaders and gracing magazine covers.

The typical small business owner‘s role evolves much less over time. While they may hire a general manager as the company grows, the owner often remains involved in day-to-day operations even at a sizable company, working the front desk, keeping the books, and overseeing staff directly. The business revolves around its owner.

Impact and Legacy

Lastly, entrepreneurs and business owners tend to differ in the kind of lasting mark they want to leave. Entrepreneurs dream of changing the world with their companies, reshaping how entire industries and societies function through innovative new technology and business models.

Just as Henry Ford‘s development of the assembly line revolutionized manufacturing, the likes of Travis Kalanick and Brian Chesky disrupted transportation and lodging with Uber and Airbnb. Entrepreneurial legacies are the stuff of history books, movies and case studies, touching the lives of millions.

Business owners, however, are typically more focused on having a direct positive impact on their local community and the lives of their employees and customers. Their legacies are more often counted in the countless birthday celebrations, first dates, family dinners, and community events hosted at the beloved neighborhood Italian restaurant.

Businesses with deep community roots form the lifeblood and character of cities and towns, even if their impact rarely spreads as far as the typical unicorn startup.

Conclusion

So in summary, while there is certainly overlap between entrepreneurs and business owners, there are some real distinctions between the two paths:

• Entrepreneurs are risk-loving disruptors who want to rapidly grow innovative ventures into world-changing enterprises; business owners are often more risk-averse operators looking to make a stable living executing on proven models

• Entrepreneurs chase billion-dollar exits and IPOs to cement a legacy of industry disruption; business owners often want to build a lasting small business to pass on to their children

• Entrepreneurs raise huge sums from VCs/angels to scale quickly; business owners primarily reinvest profits and get bank loans to grow steadily

• Entrepreneurial founders transition from jacks-of-all-trades to big-picture visionaries; business owners typically maintain a consistent operational role

Of course, the lines between the two can blur. There are plenty of enterprising, growth-minded small business owners who open new locations, expand to new markets, and pioneer new offerings. And there are "lifestyle entrepreneurs" who start niche businesses not to get rich, but to pursue a passion or support a certain way of life.

Ultimately labels like "entrepreneur" and "business owner" are less important than results – businesses of all stripes play a vital role in driving innovation, economic growth, job creation, and prosperity. But understanding the key traits of each path can help you decide which suits your own goals, risk profile, and vision of success.