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What the Heck Does an Entrepreneur Actually Do?

MANY PEOPLE, at some point in their lives, are struck with what they believe is an outstanding business idea. A portion of that number actually decide that they want to pursue that idea by starting a business. Their motivations may be influenced by their desire to solve an existing problem in their career or life, to pursue a dream, or perhaps a little of both. Common reasons that aspiring entrepreneurs and business owners give for starting a business include one or more of the following:
 

• Their idea will get them rich;
• Their idea will get them rich quickly;
• They can escape the corporate grind;
• They can do more of what they love to do;
• They can be their own boss and have the freedom to do what they want, when they want;
• They can work shorter hours and have more free time for their hobbies, families, and other passions;
• They can “do it better” if they were running the business;
• They can leave their mark on the world; and/or
• They can be in control of their career path or their own destiny.

These motivations are often based on a gross misunderstanding of what it takes to start and run a business. In fact, the words “business” and “entrepreneur” are two of the most overused and misused words in the English language.

If you don’t know what game you are playing, you won’t understand the rules, you won’t know how to keep score, you won’t know what tools to use (e.g., you can’t use a baseball bat in a football game), and you won’t be able to choose the appropriate uniform to wear. So, let’s explore a bit about what the game of entrepreneurship means today.

In the most basic terms, an entrepreneur is someone who starts or runs a business, putting his or her resources (financial, time, emotional, or otherwise) at risk. This can be through a brand-new venture, franchising a business, or buying an existing business. These different paths to entrepreneurship come with different profiles in terms of risk, possible future financial rewards, capital requirements, experience, and other benchmarks. There are, however, characteristics that tie them all together, the most important of which is that there is actually a business involved. However, regardless of whether you are starting, buying, or franchising a business, they all require you to run a business.

What Is a Business, and What Is Just a Job That You Pay for the Privilege of Doing (a “Job-Business”)?

In simple terms, a business is an entity that sells goods or services to customers in exchange for money. However, I would like to make a case that the definition of a business should be changed to: a business is an entity that sells goods or services to customers in exchange for money and whose existence is not dependent upon any one person or small subset of employees. If you take a business like Walmart, any person within that organization could leave, and the business would still exist and probably not feel any impact. The CEO could leave, the head of the marketing department could leave, the cashier at any given store could leave; yes, any of the employees could leave and Walmart would still be Walmart. It would still have value, and its shareholders would still have the opportunity to make a return on their investment.

There are a lot of entities labeled as businesses when this is really not the case. Take Tommy’s Massage Therapy Inc. Tommy provides a service—massage therapy—in exchange for money. There are no other employees in this business; it’s just Tommy and his clients. However, if Tommy doesn’t want to do massage therapy anymore, or if he is hit by a bus, then Tommy’s Massage Therapy service has absolutely no value. In fact, it ceases to exist. So, regardless of whether or not there is a corporate “business” entity around it, Tommy doesn’t really have a business, Tommy has a job.

This is a job that is unlike any other. At a regular job, Tommy doesn’t have much at risk. He may have to pay for a uniform or put gas in his car to get to his place of work, but basically that is all he is risking. The worst thing that can happen, the extent of the risk that Tommy bears, is that he gets fired and has to look for another job.

But at Tommy’s job-business, he has to pay for the privilege of having a job (plus he has to deal with all of the other issues that come along with running a business, which we will be discussing later). He actually risks his own money to be able to have his own job-business.

In addition to spending money, time, and effort to create a job, with a job-business you are not building equity value, which I believe is the really compelling reason to create a business. In a true business, you as the owner have an entity with value that is separate from you. This is the value that you create for the business as a going concern, above and beyond the strict value of your assets minus your liabilities, which makes owning a business worthwhile. That means you can eventually leave the business (down the road, after many years of hard work) or sell the business (again, after many years of hard work) and get value for it. That is how most successful entrepreneurs make the “big bucks,” by capitalizing upon the value of their business entity.

In order for you to sell your business in the future, you need to have a business that is saleable. This means that you can’t do everything yourself. If you are the one-man band and the only reason the business exists is because of your relationships and your personal flair of doing things, nobody is going to buy the business down the road. How could they? Without you, the business isn’t worth anything—you are the business, like Tommy is at Tommy’s Massage Therapy service. This one-man-band thing may seem great for your ego, but it has the potential to wreak havoc upon your pocketbook, cause you a lot of stress, and may not make sense in the grand scheme of risks and rewards.

If you are not creating equity value, then you are not creating a valuable business. If you are just creating a job for yourself, you not only forgo equity value, but you now have a job that takes more time and energy and risk than any job you could otherwise get.

A whole lot of entrepreneurs don’t realize this until they are deep in the middle of it. Of the approximately 28 million small businesses in the United States, it is estimated that a staggering 21.7 million of those are sole proprietorships with only one employee—the owner. Per the aforementioned statistics, many of these job-businesses are not really succeeding. Often, the entrepreneurs don’t realize the difference between a job and a business (or don’t realize it until it’s too late). This is probably because they didn’t realize what entrepreneurs actually do.

To help you understand what game you are playing (and how that impacts the risks and rewards you will be evaluating) I have created the Job to Business Spectrum, where equity value and upside potential increase as you move toward the right (see next page).

Now that you know what game you are playing, you have to learn about what is required to play and win the game. And now that you understand each game’s respective risks and rewards, you may ultimately want to consider playing a different game altogether.

So . . . What Do Entrepreneurs Do?

This seems like another silly question with an obvious answer, but it is frequently the crux of entrepreneurial misunderstanding. Most people think that entrepreneurship means that you get to spend most of your time doing what you love or want to do. Entrepreneurship is viewed as a focused endeavor; if you are interested in making custom jewelry, you should open a jewelry business. Being an entrepreneur is actually the opposite; it is very broad in its scope.

Basically, being an entrepreneur means that you have to wear lots of hats. You don’t get to pick those hats, and even if you don’t like those hats, or think that you look good in those hats, you still have to wear them part of the time. Being talented at making goods or performing services does not mean you will be talented at running a business that makes those same goods or performs those same services. Again referencing The E-Myth Revisited, Michael E. Gerber describes this as the “Fatal Assumption.” This is the misconception, in Gerber’s words, that “if you understand the technical work of a business, you understand a business that does technical work.”

Let’s start with a couple of very basic examples. Imagine you are a hairdresser and work in a nice hair salon. You love cutting, coloring, and styling hair, but you think the salon is taking too much of a cut (pun intended) out of your pay. You think that if you open your own salon, you can do what you love to do, not have to answer to anyone, keep 100 percent of what you earn, and have other people work for you that you can earn money from as well!

Or perhaps you are a copywriter for a large company. You see what your firm charges for your services, and you are not even earning half. You can just open your own copywriting business, continue to write, and make even more money.

Insert the sound of a buzzer here, because this is far from reality.

In each of the above examples, there is the same incorrect assumption. These workers believe that when they open their business, their jobs won’t change—they will do what they love to do, just for themselves, and for higher pay. This is dead wrong. The reality is that if you open a business, your job is now to run a business.

Running a business means marketing to find paying customers, providing customer service to disgruntled clients, managing employees, overseeing payroll, managing professional service providers, dealing with vendors and suppliers, and much more. This often leads to entrepreneurs doing less of what they love to do.

Take Stella Inserra, a wedding and event planner and owner of Simply Dazzling Events in New York City. Over the past five years, she has been featured on the Style Network’s hit shows Whose Wedding Is It Anyway? and Married Away, in addition to planning and designing events. Despite her recognition and acclaim, she is not doing what she expected she would be doing when she started a business.

She says, “My mom was right when she warned me that the grass isn’t always greener on the other side! It may be cliché, but it is true. While I am considered successful in the wedding industry, it hasn’t been, nor is it, currently easy. People think that wedding planning is so glamorous, but it is not what everyone thinks it is. I spend 90 percent of my time handling administration, marketing, blogging, networking, selling, bookkeeping and other tasks. And I spend 10 percent of my time using my creative event design skills. This is the reality of operating your own business. Aspiring planners are so in love with the pretty things of the wedding industry—the linens and invitations and flowers—but the truth of the matter is that it is a ‘touch’ business, business being the key word here.”

So, like Stella, the hairdresser takes on fewer clients, because she is busy marketing to find new clients for the salon, ordering supplies, hiring hairdressers to fill empty chairs, and doing everyone’s favorite job, accounting (or as most people call it, “the books”). When the person assigned to open the salon gets sick or is late, she has to go in and do it herself. When a customer is unhappy, it is up to her to solve the problem. Even if she has managerial help, she needs to make sure that everything is done correctly—she can’t just pass the buck and assume each job function will be taken care of. If she hires too many helpers, it eats into her profit. If she hires too few helpers, she is working longer and harder at keeping the salon open. If she wants to take a vacation, she scrambles to see if there is anyone trustworthy enough to oversee the salon in her absence. At the end of the day, the hairdresser is doing much less of what she loves (working with clients on their hair) and spending more time running a business. This is what it means to be an entrepreneur. Oh, and not to mention she may be working many more hours for similar, or even less, pay.

Stella Inserra figured she would make at least the same, or possibly even more, money having her own events business than she did when she was a catering manager for a large facility. However, she says, “That’s not true; it takes a long time to get to that place. I may make more in sales, but I also have more expenses, so less is going into my pocket.” While she is considered successful, she confirms that she is working more hours and making less money now as an entrepreneur than when she was employed.

What about the copywriter? The story is much the same. He has to spend a lot of time marketing to find clients (who may be less willing to hire a one-person copywriter than a big fancy firm, even if the same person is doing the job at the end of the day). And when I say a lot of time marketing, I mean a whole lot of time marketing, because without clients, he doesn’t make money. If he hires a salesperson, it eats into his profit. And he has to update his website frequently, do the books in a timely fashion, submit quarterly tax filings, design and assemble brochures, and manage any additional personnel he has hired. So again, less time is devoted to copywriting and much more time to running the business. If he goes solo for a while, he won’t have paid time off like he did at his old job. If he wants to go on “vacay”, while he is sipping margaritas at the beach, nobody is doing the work, and therefore there isn’t any money coming in. Did I mention the stress and difficulty of setting up benefits (health care, etc.)? This is no cakewalk, folks.

So, the bottom line is that if you love doing something (cutting hair, writing, fixing cars, etc.), you will likely maximize your happiness (and potentially, your wallet) by spending the most amount of time actually doing that something. If you love the idea of running a business entity, that is the job of the entrepreneur. It is not to cut hair, sell shoes, write copy or anything else—an entrepreneur’s job is, again, to run a business.

So, back to your fantastic business idea. The way you are going to really make money from this idea is to create an entity and create systems and procedures so that it can be run by anyone. But the creation is all on you, which is not easy to do (have you ever tried to teach someone how to do something that you are good at in the same way you do it?). And in doing this, you are not necessarily doing what you love— you are doing everything else you can think of and hundreds of things you have never imagined.

Is starting, buying, or franchising a business the answer to your problems, or does it create a set of new ones? Only you will be able to answer that for yourself.

EXERCISE 1

TARGET FOCUS—MOTIVATIONS:

Defining Your Baseline Motivations List (Part 1)

Begin to think about your reasons for wanting to start a business using the chart directly below for guidance.

1. As you read the columns, circle the reasons that are most consistent with why you want to start a business.

COLUMN A	COLUMN B
I want to get rich quickly	The risk/reward potential makes sense for me. Even with what I am risking, I have the opportunity to make significantly more (100%, 200%, 300%+) each year
I am bored at my current job and feel unfulfilled	There is a gap in the market that customers are desperate for a solution to and willing to pay for
I will get to do even more of what I love to do each day	I love to wear multiple hats and the idea of managing all aspects of a business is a good fit for my skills and experience
I have always wanted to do "x"	I have unparalleled industry experience, knowledge and/or contacts that make me the ultimate candidate to make a difference in this market
I want more free time	I want to do whatever it takes to make this endeavor succeed
I want to be known for something great	I want to make a positive impact on and for others
I can be my own boss	I will enjoy servicing my customers; I want to provide outstanding service to my customers to make their lives better and create loyalty to my business
I want to grab a piece of this hot new area where everyone is making money	I want to compete in an area in which I have a unique competitive advantage
I have an amazing idea	I have a very solid business model that can generate a significant return on my investment
Everyone tells me that I would be a great business owner	People that have lots of relevant business experience have evaluated my business plan and are investing their money because of their belief in my ability to execute

2. Looking back at the motivations you circled, ask yourself:

• Are your reasons for wanting to start a business mostly in Column A of the chart or Column B?
• Do you think your desire is driven by a market need or by something lacking in your life?

Column A represents suspect motivations to start a business, while Column B represents good reasons to start a business. The more circles you have in Column A, the higher the likelihood that you are driven by unrealistic assumptions and setting yourself up for failure.

3. Take any remaining realistic motivations and write them, plus any others that you come up with on a piece of paper. This will be the beginning of your baseline motivations list.

Keep this list handy, and as you read on, continue to evaluate whether your assumptions are realistic, and if your new business is the best way to achieve your objectives, crossing out any motivations that you find unrealistic along the way.