You’re self-employed. Congrats.
Job security is declining, wages are stagnant, and there’s a lack of meaningful work for today’s generations. It’s no surprise that hoards of people are jumping ship from traditional employment to embrace the self-employed lifestyle — and carving out their own career paths.
Some find themselves in this position by accident or out of necessity. But many of us chose to make this our full-time careers. Maybe you craved the flexibility to perfect your work/life balance? Or to choose your own clients and project, with control over your process and outcomes?
Whatever the reason, you’re probably enjoying your career more than most people. And you may be making more money too.
But have you ever thought about how to define your business? Are you a freelancer or an entrepreneur? Does it matter?
Everyone wants to call themselves an entrepreneur. But they may, in fact, be freelancers or consultants. Knowing what form you want your business to take is vital to planning for the right kind of growth, and batting away unwanted distractions.
There are simple questions you can ask yourself to find out what flavour of self-employment you’ve created. But first, let’s define these different identities.
Freelancing means creating a job for yourself. An awesome job where you get to choose which clients and projects you do, and work on your own terms. The goal of freelancing is to be your own boss; have steady, enjoyable work; and gradually increase your value so your rates go up, and the quality of your projects increases too.
But freelancing is limited to creating a job for yourself. If you stop working that job, it has no lasting value because it relies entirely on your efforts.
- You run your own business. You are your own boss. You can work from anywhere you want.
- You have no long-term commitment to any employer. You have multiple clients whom you choose to work for.
- You exchange your time and experience for money¹. You sell a service. The better you are, the more you can charge. The more you work, the more you earn.
- You are hands-on. You perform your work yourself — you don’t hire or manage employees.
- If you run out of clients, you stop making money. If you remove yourself from your business, you stop making money. If you go on holiday, you stop making money. Your business is reliant on your time and reputation.
Contracting is also like creating a job for yourself. But instead of one continuous string of projects that all add up to a full-time career, contracting can feel more like a series of short term employments. Or, a long-term gig exclusively for one client, but without being an employee.
- You’re similar to a freelancer, in that you exchange time for money¹.
- You may work exclusively for one client — acting essentially as an employee, but without employee benefits or salaried pay. (Gig-workers like Uber drivers would generally be called contractors).
- Your contracts are usually longer-term, may span multiple projects, and you’re more likely to work on-site for your client (or on their terms).
As a consultant, you may do some of the same things as freelancers and contractors, but you’re seen as an advisor more than a doer. You share your knowledge to help other organisations thrive.
- You provide your clients with expert opinions, advice, or training. You work more on the plain of ideas.
- You are hired for a short time to evaluate an organisation, and then offer advice on how they can improve and grow.
- Your deliverables may be limited to recommendations your client implements themselves. Or you may act as a contractor to help implement some of your recommendations.
If you’re an entrepreneur, you build a business larger than yourself. You are no longer creating just a job — you’re creating an organisation that can thrive even when you’re not directly contributing to its output.
Entrepreneurs rely on skilled employees and efficient processes to build a profit machine that generates value and change.
- You build a business with the intent to create an organisation larger than yourself.
- You usually need investment to overcome start-up costs. In return, you push for growth to ensure a return on that investment.
- You may begin hands-on, but you eventually spend your time managing projects and employees rather than performing the work yourself.
- Your business earns income even when you’re not there. You make money from leveraging employee’s skills and creating efficient processes.
- You could sell your business for profit if it proves to be successful.
You’re a solopreneur if you’re an entrepreneur who wants to stay small and do almost everything yourself. This seems to go against the purpose of entrepreneurship. If it relies on your effort to do all the work, isn’t it just creating a job for yourself (the same as freelancing)?
The distinction is that a solopreneur must be using their efforts to build a product or system that earns passive income, so their business grows value beyond their personal effort.
- You’re an entrepreneur, but you run your business alone. You have no plans to grow beyond yourself, or you haven’t needed to yet.
- You don’t hire employees, but you may outsource work to freelancers as needed.
- You generally bootstrap your business without investment, and you continue to run lean with low overheads.
- Even though you run your business single-handedly, you’re building something of value beyond yourself.
- You create products or processes that generate passive income so you’re not only trading time for money¹. Your creations can earn money even if you stop working.
¹ Exchanging time for money doesn’t imply that you must bill by the hour. You may choose other pricing methods that decouple your earnings from hours worked. However, you’re still trading work for money.
Which form of self-employed are you?
“If I take myself out of the equation, does the business still work?”
If the answer is no, you’re a freelancer.
If it’s yes, you’re an entrepreneur.
Seth Godin articulated the difference well:
A freelancer is someone who gets paid for her work. 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.
If you’re a freelancer…
The trick is not falling into the trap of trying to be an entrepreneur. You can hire employees or contract other freelancers to start doing your work for you, and you feel like you’re creating something more valuable. But you aren’t.
That growth isn’t scalable. You’ve lost your ability to work hands-on, and now you spend all your time managing employees. And you’ve diluted your personal reputation that made you a successful freelancer in the first place. Did you want to make that trade-off?
If you want the perks of being a freelancer, leave the entrepreneur-envy behind. Learn how to freelance expertly. Do the best work in your field, for the best clients you can find. Build your reputation to get referral clients and trusting long-term partners. Be satisfied that your work is your work, and that’s what makes it good.
If you’re an entrepreneur…
Don’t freelance for yourself. Put your effort into building a sustainable business that thrives without you, and make peace with the fact that you’re now a manager and no longer a doer. Hire smart people, refine efficient processes, and tune your business for profit and growth. You’ve abandoned the solo business life, so you may as well go big.
Can’t I be both?
You can try to switch hats and do both at once. You can be a freelancer by day and an entrepreneur as a side-project. But it’s difficult to grow both jobs — they will only give back what you put in. If you want either to take off, at some point you have to make a commitment about what you want to be.
You can’t freelance your way to entrepreneurial success.
I’ve been in and out of this struggle for years. I’ve run an independent design business since 2001, and for most of that time I’ve focused on freelancing incredibly well and not trying to do anything else.
But my entrepreneurial mindset has been a little birdy on my shoulder, constantly questioning if there’s something else I should be doing to take the next step of growth. Or do I even need to grow?
I’ve run a small entrepreneurial side-business, which was successful. But taking that business to the next level would have required more of my time. I wasn’t willing to take that effort away from my freelancing.
That hat grew too large, and what I wanted more was to wear the other one. When I lost passion for it, I sold the side-business ($50K) to make time for other endeavours. I focused on making my freelance business better instead of trying to supplement it — and it worked. My last few years have been freelance nirvana.
Recently I’ve been doing more consulting, mentoring, training, and other offshoots of my primary freelance work. I’ve started writing as a first step towards a new potential passive-income solopreneur business. I’ve balanced these new endeavours with my freelance work, but they are growing small and slowly. Sometimes I’m frustrated they can’t move quicker, but I don’t have the balls (or enough desire) to abandon more of my freelance time to devote to these yet-unproven entrepreneurial offshoots.
I don’t ever want to stop doing hands-on design. I’ll never become a people-manager at the expense of the creative fulfilment from producing my own excellent work.
I’ll also never be fully satisfied with trading my time for money. I know building passive income is the recipe to wealth. The entrepreneur in me will never die, so I’ll be balancing this struggle all my life. I may never choose a single hat, but I suspect the freelance hat will remain my dominant accessory.
Freelancer → Solopreneur → Entrepreneur
If you’re like me, and you’re a freelancer with unsatisfied cravings for a taste of entrepreneurship, you’re already on a great path for that transition.
Freelancing is an essential step in the entrepreneur’s journey. It teaches you how to run a business, find clients, manage communication, work collaboratively, build your skills and test them in the marketplace. Freelancing teaches you most of the valuable business lessons you’ll need to thrive as an entrepreneur, with the benefit of low risk and little upfront investment required. Freelancing is where you hone your craft in preparation to build something larger than yourself.
The next step is solopreneur. It’s easy to make this leap since you’ve already used to doing everything alone. And there’s still little risk because nobody else’s livelihood is at stake. The difference is, you need to build something of value that doesn’t depend on your constant effort. (Break free from the ceiling of trading services for money). Find a side-project that kills two birds with one stone: it expands your skills as a freelancer while simultaneously laying the foundation for a passive income product.
Once you feel comfortable wearing the solopreneur hat, all you have to do is stretch it to fit some employees, and now you’re an entrepreneur. Recognise the parts of your new business that can/should operate without you, and find skilled people to take over those roles. Your business needs to be profitable enough to pay these people, otherwise you’ll require investment to get the ball rolling. As you cut more and more of yourself out of the hands-on operations, you’ll be forced to spend most of your time managing people and ideas. While that may hurt your creative mind or your ego, it should make your bank balance happy.
You may also learn that entrepreneurship isn’t right for you.
That’s OK. We don’t all need to be Gary V.
There are great things about freelancing that an entrepreneur will never enjoy. There’s no shame in being content with not scaling. Growth is satisfying, but there are many ways to do it. Find ways to grow yourself, or grow your profits, without growing your business larger than yourself.