Entrepreneurship isn’t Self-Employment

Entrepreneurship isn’t about “freedom”, “lifestyle” or “being your own boss”. Entrepreneurship is about creating wealth quickly.

The above is a reply that I give very frequently to young entrepreneurs. The question usually relates to raising money, adding partners into their first venture, stepping down as the founding CEO, or any other step that appears to push them back into the dreaded framework of “employment”. Guess what, if you are afraid of that step then you fundamentally misunderstand the concept of entrepreneurship (or at least my definition thereof):

Entrepreneurship is the rapid conversion of skills, products and capital into substantially more capital under conditions of risk.

Skills come from people and are usually fairly static (except for some extremely rapidly growing ventures). Products can be physical items, services or technology concepts. Unlike skills, your product is the dynamic part of the venture and can undergo change very quickly. When people talk about “execution” they generally refer to those fast adjustments of your product. Finally, capital is usually just money but can also be social capital. In open and free markets this entrepreneurial conversion requires taking a lot of risk. It also requires substantial scaling.

This might sound like a very obvious definition, but consider what it eliminates: Operating your own grocery store isn’t entrepreneurship as defined above, nor is any other form of life-style self-employment (e.g. contractor work). You might be self-employed but that’s really just a description of your operating mode and has nothing to do with wealth generation. Conversely, under this definition it is perfectly possible to be an entrepreneur while being employed, as long as your role allows you to rapidly build substantial wealth. For example, Evan Williams, co-founder of Twitter, isn’t just employed by Twitter but also has a boss within the company. Nor is he the controlling shareholder of Twitter or in any other definition “self-employed”. Yet, I doubt that anybody would consider him anything but an entrepreneur.

So why do so many websites proudly proclaim that the first step towards entrepreneurship is to quit your job? The affiliate schemes or books sold on those same sites certainly is one of the reasons (every human being is capable of quitting, very few can build a scaling business, so sites focus on the larger addressable market). But quitting your job isn’t, by itself, going to magically transform you into an entrepreneur. Conversely, staying employed doesn’t prevent you from being a very successful entrepreneur.

Your entrepreneurial qualification is really a question of the match between skill set and environment. The value of your skills is contextual so this isn’t an easy assessment. Some skills are highly valuable in large corporations, others in smaller companies or even self-employment. Honestly assess your skills and then aim for the employment structure best suited to it. If your skill set doesn’t include self-organisation then self-employment will likely be a dead end for you.

Next, you need to find an environment with sufficient headroom for your entrepreneurial growth. Some large companies provide plenty of headroom for most people; others might be too restrictive in their staff development attitude. In the context of smaller businesses you usually have the opposite problem of too much headroom. Any headroom that you cannot quickly scale into just becomes a liability for your business in the form of a skill gap. If this happens then you need to bring in additional people next and above you in the organisation until the headroom is contained again. Finding the balance between room for growth and risk-reducing assistance will probably be your biggest professional decision

These assessments will lead you to the best operating structure for your entrepreneurial adventures. Self-employment, small start-up, big company or something else. Just don’t confuse your choice of structure with entrepreneurship itself. That’s about creating wealth quickly, not doing it in one particular structure.