Did you know that in the U.S. alone around 15 million people, or 10% of all workers, are self-employed?
That shouldn’t be all that surprising. Job security is no longer guaranteed, and a result, are opting to start their own businesses to control their own futures. Additionally, technology has made it easier to start your own business instead of working the traditional 9-to-5. With just a quick Google search you have access to resources, funding, market research, and networking opportunities that were typically unavailable.
Here’s the problem. Many self-employed individuals have difficulty determining whether they’re a freelancer or entrepreneur.
While there are similarities, such as running your own business and building your personal brand, there are stark differences.
Seth Godin did an excellent job of describing these differences.
“A freelancer is someone who gets paid for her work,” writes Godin. “She charges by the hour or perhaps by the project. Freelancers write, design, consult, advise, do taxes and hang wallpaper. Freelancing is the single easiest way to start a new business.”
“Entrepreneurs use money (preferably someone else’s money) to build a business bigger than themselves. Entrepreneurs make money when they sleep. Entrepreneurs focus on growth and on scaling the systems that they build. The more, the better.”
Still having a self-employment identity crisis? Here are five ways that you can determine if you’re a freelancer or entrepreneur.
1. Where does the majority of your time go?
Like a 9-to-5 gig, freelancers are compensated by the hours that they work. For example, if you’re a writer who has spent 30 hours per week on writing articles, then they the client will pay you for those hours. In other situations, freelancers are paid by the project, such as a when a web designer completes building a website. Even though freelancers set their own schedules and chose their own clients and projects, they typically have a guaranteed cash flow – as long as they invoice properly and deal with clients who pay on-time.
Furthermore, most freelancers spend the bulk of their time being hands-on with projects. While they may outsource certain tasks, like accounting, a technical writer gets paid for writing articles that explain how users can use a product and a green consultant gets paid for consulting businesses on how to become more environmentally friendly.
Entrepreneurs, on the other hand, spend their days managing others to get the work done. That’s not to say that they’re not hands-on when it comes to certain tasks, it means that they have a team behind them to help lessen the workload so that they can focus on building their business. In other words, they aren’t getting paid to write blog posts. They may write the occasional guest blog to build their brand, but on a daily basis, they have a team of writers composing content for them.
When it comes to compensation, entrepreneurs don’t have that guaranteed cash flow. They’ll be rewarded handsomely once their business is generating enough money to pay their salary.
2. Do you feel like you’re working for someone else?
“A key indicator – at least for some – when answering the ‘freelancer or entrepreneur’ question is to answer whether or not you still feel like you’re working for someone else,” writes business coach and author Amanda Abella.
“Some freelancers do feel like they are still working for someone else. This is especially true if they have long term contracts with larger companies.” It’s not uncommon for some freelancer to put in 40 hours a week for just one client. Even if you have a handful of clients, freelancers are still responsible for meeting deadlines and following certain requirements. That’s not necessarily a bad thing since it helps them schedule their time, but it can at times feel like you’re not your own boss.
“Business owners become the boss,” adds Abella. “You have multiple client accounts, you manage other people and you keep scaling. It’s a very different mindset and it’s one that for some freelancers, like myself, comes with time.” Entrepreneurs set their own deadlines, requirements, and assign their own tasks and responsibilities.
3. Do you make a living off-of skills or ideas?
Freelancers make their living on their skills and expertise. If you have a knack for taking wedding pictures, then you can charge clients for capturing their wedding day. If you can code, write, or are familiar with tax codes, then you can launch your own freelance business based on those skills and knowledge.
Entrepreneurs, however, make their money through ideas and their vision. Take Harry’s, for example. Founders Jeff Raider and Andy Katz-Mayfield weren’t literally constructing their own razors – they a bought a 100-year-old razor factory in Germany do that for them. They did have an idea to build a company that reflects their own vision and values; “affinity for simple design, appreciation of well-made things, and a belief that companies should make the world a better place.”
4. Do you sell products or services?
As I just mentioned, freelancers are compensated for their skills. They previously invested in training to develop these skills and continually work to enhance their talent. At the same, they also know their limitations. Just because you’re a coder doesn’t mean that you know each and every type of computer language. You may be a pro with HTML, but not so much Java. If a client asks if you’re familiar with Java, then you’ll probably refer them to a freelancer who is.
Entrepreneurs sell products. Whether if it’s a razor, dog toy, or digital products like apps, you are coming up with the idea for a product and are responsible for its design, prototypes, manufacturing, and marketing. It takes a lot of time and a significant investment to make your product a reality.
5. What’s your end goal?
Finally, freelancers and entrepreneurs have different end goals.
“The goal of a freelancer is to have a steady job with no boss, to do great work, to gradually increase demand so that the hourly wage goes up and the quality of gigs goes up too,” says Godin. Ultimately, freelancers want to build a successful business that they can easily manage and control by building relationships, firing bad clients, and taking on projects that they find challenging and rewarding.
“The goal of the entrepreneur is to sell out for a lot of money, or to build a long-term profit machine that is steady, stable and not particularly risky to run.” In other words, entrepreneurs focus on building and maintaining system for their business. To do so, they’ll hire a team of experts to make their business a well-oiled machine. In fact, they often use this system to build multiple businesses. Harry’s Jeffrey Raider, for example, is also one of the founders of Warby Parker.
Freelancer or Entrepreneur?
If you want to join the millions of people who are now self-employed, but are uncertain if you want to be a freelancer or entrepreneur, here’s how to determine which patch is better suited for you.
Freelancers possess a specific skill that they’re good at, such as writing or web design. They like to express themselves creatively and helping others. They’re self-motivated and don’t mind working alone. Finally, freelancing is a less risky and more affordable option if you want to start a business since you already have the skills and it doesn’t require much capital to start.
If you want to take risks, change the world, and have a diverse skill-set, entrepreneurship might be a better option for assigned business owners. Furthermore, if you have an insane work-ethic and don’t mind being the center of attention (entrepreneurs must do self-promotion, networking, join speaking engagements, meet with investors) then those are other indicators that you’re meant to be an entrepreneur.
So, are you a freelancer or entrepreneur?