“Being in business for yourself” can mean many different things. For every Steve Jobs or Bill Gates who started companies worth billions there are many others whose businesses provide for simpler means like a comfortable living or more time with family.
There are subtle, but critical, differences between different business models. An aspiring entrepreneur must make the simple, but not easy, decision of choosing which path best suits his skills, personality, and passions. There are a number of different business models that, if followed well, will lead to successful business ownership. It’s up to you to understand the differences between the two. The following differences will help you determine which type of business ownership may be best for your own situation.
Self-employment generally means you are working traditional jobs in a more independent and flexible work setting. One example of self-employment is a graphic designer who leaves a company to start his own graphic design company. This new entrepreneur is probably doing the same type of work he did when employed, but now is free to work with different companies and on his own time. Instead of going to the office for a set number of hours, he may work hours of his choosing from the comfort of his home.
A typical business model for this type of work is the independent contractor agreement, where you work for a company outside a traditional employee agreement. The companies for whom you work will pay you a flat rate or hourly fee instead of a salary. I will discuss the differences between traditional and independent contractor work in a future article.
A business owner typically spends more time working on marketing, hiring employees, and growing the business than working in the business. You may do some of the “technical work” that an independent contractor would do, but you also set up systems and delegate responsibility to lessen the workload. You may hire employees or use other independent contractors, but you spend more time working “on” the business not “in” the business.
Services vs. products
Many self-employed individuals offer specialized services and may be writers, architects, accountants, financial planners, or any other profession where someone performs a service for a customer and is paid for time or results.
Business owners find ways to earn income that do not require an exchange of time. Small business expert Pat Flynn calls this type of income “passive income” because once initially set up it is generated without your direct involvement.
Many successful businesses contain a mix of products and services to generate multiple streams of income, Cliff Ravenscraft, founder of the GSPN.tv podcast network and nationally-recognized host of “Podcast Answer Man,” has transitioned his business from a purely service-based business to a mix of equipment sales, digital classes, and traditional consulting. Pat Flynn at Smart Passive Income is another example of someone who is building a business instead of creating a self-employment type of job.
Work smarter not harder
There is nothing inherently right or wrong with either type of business. In fact, many businesses start as service-based companies because little start-up money is required. As the business grows and the owner generates more revenue, selling products and generating other passive income allow owners to spend less time doing technical work and becoming an entrepreneur instead of a worker.
The beauty of entrepreneurship is there a nearly-unlimited range of opportunities to achive the goal of owning a business. What you must do is find the business model and activities that match your personality and individual goals. Owning a business should reflect your unique ideas and vision, and it’s up to you to find the right way to bring the best of yourself to your business.
Matt’s note: To increase joy and longevity make sure your business helps fulfill your life mission, whatever that may be.
Recommended further reading for this topic is Michael Gerber’s excellent book The E-Myth Revisited – Why Most Small Businesses Don’t Work and What to Do About It.