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Small business owners and entrepreneurs may fulfill similar roles, but they don't necessarily fall under the same category. With 804,398 new businesses under one year old in the US as of March 2020, it's worth defining the distinction between the two. While all entrepreneurs are business owners, not all business owners are entrepreneurs. The primary difference between them is in their approaches to growing and sustaining their businesses in terms of their goals, risk tolerance, and more. In this article, we'll explore the key differences that set small business owners and entrepreneurs apart.
Sustainable Growth vs. Maximum Potential
Small business owners don't start their businesses with exceptional growth in mind. That's not to say that they don't aim to grow and succeed, but their growth goals are contained within the parameters of keeping their business manageable. They tend to be more involved in and sentimental about their business; they take responsibility for most daily tasks, and they are resistant to selling to other owners or investors.
Entrepreneurs, on the other hand, want their businesses to grow as much as possible to maximize their revenue. They will often remove themselves from the daily operations of the business and organize it to run independently, treating it like a financial asset. As such, entrepreneurs will sometimes be willing to sell if it makes financial sense.
Higher Risk Tolerance for Greater Payouts
When it comes to revenue, debt, and growth, small business owners tend to have a low risk tolerance. They avoid relying on loans, credit, and investments, and 62% of owners will instead rely on personal funds when faced with financial difficulties. Small business owners are more likely to carefully consider every aspect of a decision and only proceed with incremental opportunities that are low-risk and high-reward.
Conversely, risk tolerance is one of the most defining characteristics of entrepreneurs. In order to bring their innovative ideas to life and scale them to larger markets, entrepreneurs need to take big risks. In fact, 74% of entrepreneurs are willing to take larger risks to be successful, even if 28% of them don't have the cash to do so. Instead, they'll fund their ideas with money from banks, creditors, and investors. If their business fails, they'll try again.
Satisfying a Market Demand or Innovating the Market
Small business owners are often motivated to start a business because they want to work for themselves in an industry they are familiar with, or because they recognize a demand for a service or product in their community. They might also choose to build a business around something they are passionate about. After starting their business, owners will figure out the strategies that work for them and generally sustain that approach. They are content with satisfying a market demand without making a large disruption.
In contrast, satisfaction is a foreign concept for entrepreneurs. While their motivation for starting their business might stem from similar origins, they often do so with more innovation and creativity. Entrepreneurs aim to challenge and improve existing products and services in hopes of maximizing their impact in their relative market, be it local or global.
Long-Term Strategies
Because small business owners have a set business plan that focuses on small and sustainable growth, they usually don't focus on achieving long-term goals; their larger goals are already factored into monthly or quarterly goals. Instead, small business owners focus on weekly and daily tasks, such as supervising their business and its employees directly and interacting with customers.
Rather than managing their business directly, entrepreneurs will delegate daily and weekly tasks to teams so they are free to work on their bigger goals for the business. To grow their business as quickly as possible, entrepreneurs need to stay ahead of the curve and prepare a strategy for continually scaling and expanding their reach, attracting funds, and developing new ideas.
Moving Ahead
In summary, small business owners and entrepreneurs technically fill the same role, but their approaches to business are vastly different. Small business owners represent the population of people who enjoy hands-on ownership, have a personal attachment to their product or service, and are content with turning sustainable profits.
Entrepreneurs, on the other hand, are motivated by maximizing the potential of an innovative idea and doing whatever it takes to accomplish ambitious goals. It is important to remember that both styles of business ownership are equally valuable, since the market benefits from both.
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BBB of Southern Piedmont and Western N.C. contributed this article.