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 the business? Can directions be changed quickly or can the business owner walk away without the business suffering?
Does the business depend on other aspects such as partners or external resources?
How scaleable is the business? How many customers can the business serve at the same time?
4. Success rate
How likely is the business able to generate revenue from day one? At what speed is the business going to grow?
5. Income level
How much revenue can the business generate? 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. Freelancers are people who offer their services to others in exchange for money.
This level of entrepreneurship is the smallest one because the business is basically just one individual.
In many cases freelancers have a certain skill that business lack or are in need of at a specific time. They hire these individuals to fill the gap for short or mid-term.
Because these freelancers are exchanging their skillset for money, the business model is practically speaking not scaleable because they only have a limited capacity.
Because there is no scaleability aspect, the level of income is limited to the amount of time worked.
Yes, compared to employees, freelancers have the possibility to raise their fees in order to increase their income. However, this can happen only to a certain level.
Freelance businesses offer the advantage of high flexibility. People can always decide if they want to take a job or not. Furthermore they can decide to take a longer vacation to recharge when they feel like it. The only downside with that is there is no income during that time.
A freelancer has full control over his business because there are no dependencies to others. The only dependency is the market in which the freelancer operates.
2. Small Businesses
The second level of entrepreneurship are small businesses.
Small businesses typically offer a product or a service to a customer and are typically not employing more than 10 people.
These types of business can range from small shops or restaurants.
Furthermore they are very similar to a freelance business because time is exchanged for money which sets a natural upper limit to the revenue. For instance, if a restaurant closes during public holiday, there is no income.
The primary goal of a small business is to generate enough revenue to support the costs of living for the business owners.
Nevertheless, small businesses can have the potential for expansion and the ability to become bigger enterprises or franchise systems.
The upside of a small business compared to a freelance business is leverage. Business owners can hire people to maintain the daily business while it frees up their time to focus on growth.
3. Lifestyle Business
The third 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.
While a lifestyle business can certainly be a small business at the beginning, it plays it strength in the long run by having a scaleable business model. Many lifestyle businesses involve information technology and are therefore not location dependent (like small businesses) which gives them a higher advantage when it comes to revenue generation.
Contrary to a startup, the goal of a lifestyle business is not to get investors in, grow and go IPO, but rather creating a massive catalog of products and a diverse revenue stream.
Very typical for lifestyle businesses is automation to increase scalability. Therefore a lifestyle business doesn’t have to stay small at all and can reach revenues of couple of millions.
The last level of entrepreneurship is probably the one most people are familiar with.
When it comes to the definition of a startup, most people have a 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 innovative products.
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 into a public one which allows them to grow faster by using other peoples money, OPM.
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.