We talk about entrepreneurship for all different companies and the people starting and running them. It's too broad a definition. To know whether or not advice or conventional wisdom applies to your business, it helps to make a distinction.
There are two main categories of entrepreneurship that operate very differently. They have different business models. Their most valuable work is different. They are (1) The Freelancer and (2) The Entrepreneur.
Now, both run a business, act entrepreneurial and can have employees. But, the main focus of their work and their business models are entirely different.
Note: I heavily borrow this distinction from Seth Godin, who does a great job explaining the difference in this Akimbo-episode, or in this excerpt from a masterclass he gave. But I have added to it from many different sources and my own experience.
The freelancer gets paid when she works. She can't outsource her work or have someone else show up.
She's asked to deliver a service. This service is customized to the client exact needs. So every time is different.
She is the brand of her company. The company is hired for her. It's her uniqueness that makes others choose her. Her unique craftsmanship, experiences, track record, etc.
She's not a hired set of hands that need to be instructed. She's the advisor. The expert. There's a need, and it's up to her to decide how to solve that.
She's not for everyone. She also doesn't need to be. She needs to be the absolute best for some. Possibly even the only one. And at the same time, she needs to accept that the rest will absolutely dislike it because it's incredibly not for them.
They often run a company of one. They can expand by hiring help. Though, when they do, their employees are not a duplicate of the brand. The freelancer is still the one who is hired.
They're in business from the moment they find their first client. Generally, her costs are low and most of the revenue is her income.
But most importantly, her main job is to do the work. To do great and unique work. Everything else, like administration, marketing, hiring, is all in service of doing great work.
- The archetypical freelancer: The logo designer, travel photographer, video production, consulting, painter, etc. They sell customized services/products on a project basis.
- The agency: The consultancy firm, design agency, architecture firm, etc. However many people work there, the work is still sold by and by virtue of the partners of the firm.
- The quick hit: The coach, masseuse, jewelry repair, workshop facilitator, etc. Usually sells productized services in short time-slots.
- The interimmer: The interim event manager, change manager, etc. Sells large chunks of time. Say, 2 days a week for 3 months.
(Side note: An employee could technically also be seen as a 'freelancer', albeit with a bit of different fee-structure. She's someone who is paid to do the work, has a personal brand and is entrepreneurial in her career. But, of course, she doesn't take on the risk of generating enough work and doesn't get the freedom to do the work as she sees fit.)
(Side note 2: Beware that as the interimmer, you must make sure to not be paid like a temp employee. You still take on the risk of working for yourself. And you're also responsible for your own gear, payment for days off, education, insurance, and pension.)
The entrepreneur gets paid when the company he runs sells enough products. He himself is not the one making or delivering the product.
Clients don't necessarily want the entrepreneur to deliver the product. We want the thing the company makes. And since the entrepreneur is not involved in actually making every single product, they all need to be standardized. They need to meet 'spec'.
The company has a brand. It stands for something. It makes a promise and its products need to fulfill that. The uniqueness is in how the 'machine' is built. The entrepreneur downloads his vision in the company and translates it into values, culture, mantras, archetypes and processes/rules.
The work can be taught relatively quickly. Or the work is a complicated concoction of different expertises, brought together by the entrepreneur. By doing this organizing, the entrepreneur creates a product that solves a problem.
Sometimes it is a company of one. But most often, the entrepreneur hires people who do the "actual" work.
He makes his profit off of the margins of the products he sells. Others do the work; revenue is higher than the costs; the profit is his. It often takes time and investments to build this machine up to a point where it can generate money. That's why there are often loans or venture capital involved.
His main job is growing the company. That involves telling the story about the company to find clients and teaching others to do the work by downloading the vision into the company. It involves very little to none doing the actual work.
Examples range far and wide. Here are a few:
- Classic physical products: Pizza or coffee shop, jewelry or clothing line, event space or hotel, car manufacturer, etc.
- Outsource galore: Simple products, designed once, with automated selling, purchasing and assembling and shipping.
- Reseller: Supermarket, Plant store, Amazon.
- Standardized service company: Events like festivals and conferences, temporary employment agencies.
- Digital: Software, apps, data sets, ebooks, online courses, etc.
But what about... A few more examples
Let's do a few more example to illustrate the differences. Note that some people are both in different endeavors. Maybe one subsidizes the other. Perhaps one is an easy add-on. That's fine. But either part of their business runs at a different mode of operandi.
A musician selling music albums/streams on Spotify is an entrepreneur. Selling a gig to play at an event is freelancing. Putting on a concert and selling tickets is also freelancing but with a productized service. She can't not show up.
A bookkeeper selling the service of doing taxes is a freelancer. The guys behind Jortt are entrepreneurs running a do-it-yourself bookkeeping software. The Bookie is also entrepreneurship. Even though they sell time of specialist, it's not one of the founders who necessarily have to do the work.
Creating a custom art piece like a painting is freelancing. She gets paid for the service of making it. Creating a line of jewelry creates a product line that's produced en masse? That's entrepreneurship.
My trainings are freelancing: you get custom time from me. Festivals or conferences are generally entrepreneurship. It gets more blurry in massive trainings like Tony Robbins' Date with Destiny. Even though it's bigger than him alone (many coaches involved), he can't not show up. It's his 'show'. Now, he also teaching other the 'Tony Robbins Method' for coaching. That's entrepreneurship.
A masseuse who sells her time is a freelancer. She needs a brand to have her uniqueness stand out. A chain of masseuse parlors is run by an entrepreneur selling standardized services. That brand is there so you can know what to expect when you walk in.
The red flags
The freelancer works best when your uniqueness adds substantially more value. And when you can use your small size as an advantage to be even more specific.
The entrepreneur works best when customers actually desire a standard way and you can teach that to employees. And when standardizing allows for scale.
It gets tricky when you navigate too close to the edge of the comfort zone of your natural type of entrepreneurship. Here are some red flags to be aware of.
A hard business model: When time is expensive
A freelancer that creates every single physical product she sells (custom jewelry, ceramics, paintings, etc.) will have to convince customers that the price is worth it. Looking at what goes into production, it might not be expensive. But it sure quickly adds up to a lot of money. Especially when selling to consumers. This can be incredibly difficult.
The solution is not to be faster and more efficient in your production. Be effective, sure, but you'll never out-machine a machine.
Instead of watering down your brand, the way out is to be more high-end. To lean more into the uniqueness of your taste, skill or story; strive for more mastery of the craft; and find customers that value what you do more. From here you can produce custom art and, while you build up a brand, expand to product lines where your brand is draped in the design but that you don't hand-produce.
Charging a premium for ordinary
An entrepreneur needs to be aware that what's special is the machine they've built. The work they do is not especially unique.
A pitfall is when the machine is not efficient enough and the price is high to cover the costs of your time and you end up needing to charge like you do special work. While you, actually, run a business that does work that could be standardized. This puts you at risk of being copied and undercut by someone who's figured out to do it more efficient cheaper. An extreme example is when Amazon moves into your business. But it can be as simple as someone else who's really committed to connecting clients with people he's taught to do the work.
You either make your work unique, or you build a unique "production machinery". So, understand well why people buy from you. Is it something you do extraordinarily well? Or, is it the well put together, a convenient experience of getting and using the product?
Stretched too thin
One of the ways a freelancer can grow is by having part of the work of projects done by people you hire. This doesn't work well for every type of work. It works best for work where a large portion of the work is not face to face and doesn't require the absolute best of the craft. That's why it's difficult for trainers and coaches; and more natural for consultancy and design.
In the ideal situation, you find people to do the simpler parts of the projects (or the parts of complementary skillsets) and you spend your time on the complex and strategic elements of the project that really require your attention. And at the same time, spending more time on getting new clients.
What you don't do is have the employees run the entire project. Because, the tricky thing with hiring new people is that they'll always be less qualified (or they'd be too expensive). That means a) that your client base still expects you to do the more complex parts of the project, and b) that you have to spend a lot of time teaching. Or, they're less committed than you (or they'd have their own shop). So, when in a pinch, you still end up fixing it yourself.
It's a balancing act. Because you're still hired for the work; the complex work only you can do. It becomes overwhelming when you have to that ánd spend time teaching, ánd end up doing the simple work, ánd run a company with people for the first time, ánd find enough work.
A more prudent approach is to start outsourcing the parts of your projects you keep doing again and again, and thus learn how to teach well. First with freelancers. And you hire someone permanently when the size of the work allows and after working with them on a project basis.
Forgetting what makes you special
Design agencies or consultancy firms run a freelance business. They get the work because the client trusts the partners/the principle of the firm. But for the sake of growth, it's tempting to forget. "Sure, we can do that too." When they mistake themselves for entrepreneurs, they'll standardize the service and dilute their brand.
Forgetting what it is that makes your special makes you vulnerable to be copied. You'll need to decide if you are the high-end specialists, with junior designers/consultants for support. Or are you a teacher, being effective in getting inexperienced and cheap(er) employees to do relatively good work (like 'simple' accounting firms).
When, what got you off to a good start isn't what will help you make the next hump.
An entrepreneur might get off to a good start off the merits of his personal brand, goodwill and network. But, it's hard to scale selling when people buy because of the connection to you. After a while, the product and company need to stand on their own two feet.
The process of selling, producing and delivering needs to be independent of him. And thus, an entrepreneur needs to download himself and his vision into the company. This is what a successful clothing brand does.
The trick is to find people (or services) who are better at those individual elements than you and to weave it all together in a positive business case. The bottlenecks are teaching and letting go. The more you keep doing yourself, the slower the business grows.
How to know
Some questions to ask when you want to figure out which one you are.
- Do you get paid when you don't work?
- Is your product or service the same every time? Or are they custom and based on the client?
- How unique is your approach? Is there something about your experience or journey in life that helps you do it in a way no-one else can do? Is it teachable to someone else?
- Do people come for you and what you can do, or for the product? Would the customer mind if you yourself didn't show up to do the work yourself?
- What is your main job? Is it to do the work or to grow the company?
If you need to choose: What work would you love doing the most? Do you want to do the work, solve the problem, create the solution? Or do you want to connect clients to a way of solving their needs that you've designed and grown?
Thanks for reading!
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