If you think about entrepreneurship, what is the first thing that pops into your mind?
Exactly, these are the buzzwords of the 21st century that even little kids in high school know.
It rarely happens that people are talking about entrepreneurship and don’t mention startup in the same sentences and all too often they think of every new business as startup.
In fact, I have the feeling that many are not even aware that there is something beyond a “Startup”.
The purpose of this article is to create a common understanding of the 4 different levels of entrepreneurship and that not every new business is a startup by definition.
It also should help you to think about what type of business is the right one for you if you are thinking about building your own business now.
None of them is better than the other, they all have advantages and disadvantages and the more important question is which one is best for you.
I created a simple scale to give a quick overview of the advantages and disadvantages. Of course all values highly depend on the type of business and represent my personal opinion. As always, use your own brain and judge for yourself.
How flexible is your business? Can you change directions quickly or can you walk away for a while without worrying?
How depended is your business from other factors? Factors can be people, location, time, partners, resources…
How scaleable is your business? To how many customers can your business reach out?
4. Success rate
How likely is your business able to generate revenue from day one to survive? How likely is your business going to succeed?
5. Income level
How much revenue can your business create? How stable is the income stream?
Let’s get started and dive into the different levels of entrepreneurship.
1. Freelance Business
The first level of entrepreneurship is the freelance business where you offer your services to companies and exchange your time for money.
This level of entrepreneurship is the smallest one because the business is YOU. You are the brand and company hire you to get the job done. For that reason your business is not scalable at all.
Because there is no scaleability aspect, the level of income is limited to the amount of time you spent. Surely freelancers can raise their fees to increase their income, but that can happen only to a certain amount and otherwise the only possibility to increase income is by increasing productivity -> working more.
Freelance businesses offer the advantage of high flexibility. You can always decide if you want to take a job or not and you can take a long vacation if you feel like it but need to consider that there will be no income during that time.
Also if you are a freelancer you will have more control over your business because dependencies are lower. You don’t rely on partners or resources and the only dependencies are the market condition and your skill set.
2. Small & Micro Businesses
The second level of entrepreneurship are small or micro businesses.
Small or micro businesses typically offer a product or a service to a customer and are mostly not employing more than 10 people.
These types of business can range from a small shops, to restaurants, or to service agencies and are therefore location dependent and can only scale to a certain size.
Furthermore they are very similar to a freelance business because time is exchanged for money which sets an upper limit to the income.
If the restaurant or company is closed, there is no income.
The primary goal of a small or micro businesses is to generate enough revenue to support the costs of living for business owners and their families.
3. Lifestyle Business
This level of entrepreneurship is the focus of this blog.
A lifestyle business is a business created to sustain or exceed a certain level of passive income to provide a particular lifestyle for its founders.
The magic word here is passive income. The goal of a lifestyle business is not to get investors in, grow and sell the company, but rather building products, get exposed to a bigger audience by having a scaleable business model and leveraging automation in order to reduce the amount of time spent in the long run.
Don’t mistaken a lifestyle business with a small or micro business because a lifestyle business doesn’t have to be small at all and can have revenues of a couple of millions by having a scalable business modal. Many lifestyle business involve information technology and are therefore not location independent which gives them high points for scaleability.
Lifestyle businesses can be online stores that offers products such as ebooks, physical products or educational materials.
Sounds too good to be true? Correct, building profitable lifestyle business requires a lot of time and the success rate is usually very low.
The last level of entrepreneurship is probably the one most people are familiar with. When it comes to the definition what a startup is, most people have different opinion but for the sake of this post I will define a startup as follows:
A small newly setup business that tries to fill a gap in the market by providing an innovative product or service
Typically a startup leverages new types of technologies to create new innovative products but they don’t necessarily need to be a silicon tech company like many people think.
Compared to the other types of businesses startups usually aim for fast growth by raising money through investors with the end goal of going IPO, an Initial Public Offering. An IPO transforms a privately owned company to a public one which allows them to grow even faster by selling shares to the public.
The biggest disadvantage of startups is the extremely high failure rate. 9 out of 10 business don’t survive the first 5 years and 9 out of these 10 survivors will not be able to celebrate their 10th birthday.
Nevertheless startups offer huge growth potential because most of the startups nowadays offer services using information technology and are therefore not location dependent. The revenue can range from 0 to billions of dollars.
I very much hope that you have a clearer picture now about the different levels of entrepreneurship and hopefully I could help you to figure out which one is best for you.
As always feel free to share the article if you liked it and leave a comment if you have any thoughts.