Many people confuse entrepreneurship with self-employment. Are they the same? The answer is: sometimes. Let’s start by defining self-employment.

Self-employment refers to individuals who work for profit or fees in their own business, profession, trade, or farm.4 This arrangement focuses on established professions such as electricians, bookkeepers, or insurance agents. Recall our definition of entrepreneurship as a process of capitalizing on opportunities by starting new businesses for the purposes of changing, revolutionizing, transforming, or introducing new products or services. Now let’s look at three points of comparison of the two.

First, both entrepreneurs and self-employed individuals understand market needs. For instance, Hector recognizes a demand for house-cleaning services, and he decides to start a business cleaning houses for a fee. There is nothing revolutionary about cleaning houses (though it is a worthy endeavor). Hector is self-employed. In contrast, Valentin Stalf, CEO of German financial services startup N26, is an entrepreneur. He created a service that combines all an individual’s financial life—with accounts and cards from numerous companies—into a single, simplified financial services platform using cross-service partnerships and alliances.5 He saw an opportunity to make financial services more efficient and useful for customers. Serving market needs provides both Hector and Valentin the opportunity to provide services or products at a profit.

Second, entrepreneurs may be self-employed or they become employees of the company they have started. For instance, Alfred co-founders, CEO Marcela Sapone and COO Jessica Beck, turned their idea for an app-based, on-demand personal concierge service into a thriving business, where they’re now employees . . . the highest level employees!6 Self-employed individuals always work for themselves. They are not paid employees of another company, and they rely on their own initiative to ensure they’re generating income. Also, self-employed individuals make all the decisions about how the work gets done. Finally, self-employment does not preclude having one or more employees. For example, Hector’s cleaning business took off and he realized he couldn’t handle everything himself. So he hired two individuals to help him better meet clients’ needs.

Third, tax requirements and certain laws require that both entrepreneurs and self-employed individuals create a legally recognized organization. There are several types, which we’ll discuss later in this chapter. Hector may set up a sole proprietorship, while Valentin’s company may be registered as a corporation.