Start Up: What’s the real difference between Small Business Owners and Entrepreneurs?

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In my Introduction to Business class at Western Nevada College, we’ve recently completed our module on Entrepreneurship. Every time I cover this topic, the same question arises: Aren’t entrepreneurs and small business owners the same? The truth is, though most entrepreneurial ventures begin as small businesses, not all small business owners are entrepreneurs.

Before diving into this subject further, I will note that there are approximately 28 million small businesses in our country; 22 million of these businesses are sole proprietor; and since 1995, small businesses have provided 65 percent of the net new jobs. Small business is the lifeblood of the U.S. economy. With that said, it is important to understand the difference between small business owners and entrepreneurs.

Entrepreneurs are innovators who start companies to create new or improved products. They strive to meet a need that’s not being met, and their goal is to grow the business and eventually expand into other markets.

In contrast, many people either start or buy small businesses for the sole purpose of providing an income for themselves and their families. They do not intend to be particularly innovative, nor do they plan to expand significantly. This desire to operate is what’s sometimes called a “lifestyle business.” The neighborhood pizza parlor or beauty shop, the self-employed consultant who works out of the home, and even a local printing company—all of these are typical lifestyle businesses.

Entrepreneur.com posted a great article by Melanie Spring entitled "Are You a Small-Business Owner or an Entrepreneur? The Difference Is Important". Here are some of the differences:

Small-business owners have a great idea. They solve a problem in their community. They know their business and target audience. They know what will make their customers happy. They serve their customers.

Entrepreneurs have big ideas. They dream big. They think big. They come up with ideas that haven’t been tested, diagnosed, or worked through. A lot of times they don’t even know if their ideas are possible, which gets them even more excited.

Small-business owners hold steady. They like to know what’s coming next and where it’s coming from. They make calculated decisions where the outcome is clear. The result may not be huge, but it will typically keep them moving forward.

Entrepreneurs love risk. They step out on a ledge more often than not. They jump in with both feet knowing that if they put in their full effort, the risk will be worth it more often than not.

Small-business owners think about the things they need to finish this week.
They have daily and weekly to do lists. They manage employees, work with customers, network with new customers, and keep everything rocking and rolling.

Entrepreneurs are thinking ahead six months. While their team is thinking about what they’re doing that week, they tend to skip the now and focus on the future of the company. They have people to manage the business, and if they don’t, they soon will.

Small-businesses owners are sentimental with their businesses.
They never plan on selling or handing their business off to someone else unless it's family. They like making the decisions and running the day-to-day operations.

Entrepreneurs focus on scaling. They want to grow and grow they will. Although they may not focus on selling the business, they set it up to run without them. They surround themselves with experts while they end up being the rainmaker.

Source: Entrepreneur.com: Melanie Spring. Are You a Small-Business Owner or an Entrepreneur? The Difference Is Important. Accessed May 15, 2014.

Both small business owners and entrepreneurs have ideas on how to meet needs in their respective markets. Both seek to be profitable. The major differences are the degree of innovation and risk that each takes.

By definition, an entrepreneur is someone who identifies a business opportunity and assumes the risk of creating and running a business to take advantage of it. The unique characteristics of entrepreneurial activity are innovation and risk taking.

Innovation is the work of knowing rather than doing. According to management guru Peter Drucker, innovative business ideas come from reviewing internal business factors and external market opportunities. Many managers will recognize this process as a “SWOT” analysis -- analyzing the Strengths, Weaknesses, Opportunities and Threats that face the business. To marketers, we see a market need and a new product or service to satisfy that need. This may mean offering a new product, applying a new technique or technology, opening a new market, or developing a new form of organization for the purpose of producing or enhancing a product.

Risk comes to the entrepreneur since the outcome of the new venture can’t be known. Entrepreneurs, therefore, are always working under a certain degree of uncertainty, and they can’t know the outcomes of many of the decisions that they have to make. Consequently, many of the steps they take are motivated mainly by their confidence in the innovation and in their understanding of the business environment in which they’re operating.

By no means am I suggesting that small business owners don’t innovate or take risks. My point is that entrepreneurs see their world through innovation and risk taking. It is their bias for action.

Dr. Robert Whitcomb is an Instructor of Business, Management and Marketing at Western Nevada College. His contact information is robert.whitcomb@wnc.edu, phone 775-445-4269.