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Entrepreneur vs. Small Business Owner: What's the Difference?

Updated on November 23, 2014
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Heidi Thorne is an author and business speaker specializing in sales and marketing topics for coaches, consultants, and solopreneurs.

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In everyday conversation, the terms entrepreneur and small business owner are often used reflexively. But there are primary differences between them. Interestingly, the same person could be both at the same time!

According to the Merriam-Webster dictionary website, an entrepreneur is someone "who starts a business and is willing to risk loss in order to make money." So the term really does not reflect anything about the size of the company. It's more about the size of the loss a person is willing to absorb to pursue a business venture. An entrepreneur's organization could consist of one person or even hundreds of employees, generating hundreds or even hundreds of millions of dollars.

On the other hand, small business owners are completely defined by the size of their organization in terms of revenues and labor force. Though standards vary widely by industry, according to the Small Business Administration (SBA), a small business has less than a specified number of employees (a limit of 500 employees is common for many classifications) and under a certain revenue level (as of this writing, $7 million, with higher limits for several industries).

Indeed, a small business owner may make a sizable financial investment to start a business and may incur losses in the early going. At that point, they could be considered both a small business owner and an entrepreneur.

Of Kitchen Tables, Garages and Basements

The stories of gigantic companies that start from someone's kitchen table, garage or basement are appealing and inspirational to many wannabe business owners and entrepreneurs. But these humble home-based beginnings have little bearing on whether a business is considered a small business or an entrepreneurship.

Though an organization may start—or even continue to operate—as a home-based business, the willingness of the owner(s) to accept risk in exchange for potential rewards, number of employees and revenue volume still determine how it is classified.

Would you be willing to lose 100% or more of your business investment to be an entrepreneur?

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Playing the Game of Risk

The aspect of "willing to risk loss" truly differentiates entrepreneurs from those who simply want to be self-employed or small business owners. Self-employed and small business owners may be more likely to latch onto business opportunities that are more sure bets since they are often seeking personal income as opposed to merely profits.

A perfect example of a more sure business bet is investing in a franchise (e.g., Subway restaurants, UPS stores). The franchisee does not have to build the business from scratch. Often, the franchisor has done extensive location and market research, frequently offering sales territory protection along with turnkey marketing and operational programs. These benefits have been built on the franchisor's success and experience, lowering the level of business risk. Therefore, franchisees are less likely to be considered entrepreneurs (although the franchisor might be!).

On the other hand, entrepreneurs are driven by their passions, their desire to build empires or their wish to change the world. Famous entrepreneurs include:

  • Richard Branson, founder of the extensive Virgin empire.
  • Bill Gates, founder of Microsoft.
  • Mark Cuban, owner of the Dallas Mavericks professional basketball team, as well as star of the reality show, Shark Tank.
  • Jeff Bezos, founder of ecommerce giant Amazon.com.

What unites these iconic entrepreneurial leaders is their willingness to attempt new ventures which capitalize on their visions, knowledge, experience, connections, convictions and interests... even if there is a high degree of risk involved. For example, take Branson's Virgin Galactic commercial space travel venture. That certainly qualifies as a high risk and high investment venture at every turn!

Though they have a high tolerance for risk, successful entrepreneurs are very unlikely to enter into any venture without sound research, analysis and advice. Risky does not equal reckless.

Limit of Loss for Entrepreneurs (and Small Businesses, too!)

Sure, entrepreneurs are willing to accept loss, sometimes for an extended period of time. But this isn't a free pass to claim losses on tax returns indefinitely. The United States' Internal Revenue Service has established limits for how many years a business loss can be claimed on tax returns. These limits apply whether the organization is a small business or entrepreneurship. Consult a CPA or other tax professional for current limits and reporting requirements.

Also, willingness to accept loss does not mean that a loss must be incurred. While entrepreneurs are willing to tolerate negative financial situations to pursue their goals, they ultimately want—as the entrepreneur definition notes—to make money!

Disclaimer: Any examples used are for illustrative purposes only and do not suggest affiliation or endorsement. The author/publisher has used best efforts in preparation of this article. No representations or warranties for its contents, either expressed or implied, are offered or allowed and all parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice, strategies and recommendations presented herein may not be suitable for you, your situation or business. Consult with a professional adviser where and when appropriate. The author/publisher shall not be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential, or other damages. So by reading and using this information, you accept this risk.

© 2013 Heidi Thorne

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    • heidithorne profile image
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      Heidi Thorne 2 years ago from Chicago Area

      Hi Dani! Glad you enjoyed it. Have a great day!

    • Dani Jackson profile image

      Dani Jackson 2 years ago from Florida

      Thanks so. Much for sharing! Great article!

    • heidithorne profile image
      Author

      Heidi Thorne 3 years ago from Chicago Area

      Hi Sandyspider! Thanks for reading and the kind comments. Have a wonderful weekend!

    • Sandyspider profile image

      Sandy Mertens 3 years ago from Wisconsin, USA

      Good advice and explaining the difference.

    • heidithorne profile image
      Author

      Heidi Thorne 3 years ago from Chicago Area

      So right, BethWorthy! There is a definite difference in mindset between entrepreneurs and small biz. Although many are enamored with having the title of "serial entrepreneur," it can lead to a lot of fragmented effort, whereas small business folks are in it for the long haul. Great addition to the conversation. Thank you & Happy New Year!

    • BethWorthy profile image

      Jack 3 years ago from Levis

      Thanks for sharing such a great insight. But what I think is that entrepreneurs hold bunch of little ventures and run them all at the same time. While this is not the case with small business owners. Unlike entrepreneurs, small business owners don't have the risk taking inclination in them.

    • heidithorne profile image
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      Heidi Thorne 3 years ago from Chicago Area

      Hi torrilynn! Agreed. Lots of small biz folk think they're entrepreneurs, but have zero tolerance for loss. Thanks for your kind comments!

    • heidithorne profile image
      Author

      Heidi Thorne 3 years ago from Chicago Area

      Thanks, iguidenetwork! Best wishes for your entrepreneurial success... and the holidays, too!

    • torrilynn profile image

      torrilynn 3 years ago

      It always a good idea to know the differences and similarities between the two. Thanks for this hub. Useful, indeed.

    • iguidenetwork profile image

      iguidenetwork 3 years ago from Austin, TX

      Clearly well explained, Heidi! Now I learn how to be a really successful entrepreneur. Do a lot research and look for sound financial advice. I'll keep that in mind. Thank you :)

    • heidithorne profile image
      Author

      Heidi Thorne 3 years ago from Chicago Area

      Good point, NMLady! And hopefully the entrepreneurs are so successful that they can hire excellent managers to make their vision a reality. Appreciate you stopping by and jumping in on the conversation!

    • NMLady profile image

      NMLady 3 years ago from New Mexico & Arizona

      My experience is that an entrepreneur usually is NOT a good business manager! They innovate well but have no idea how to manage. Both are needed for most biz to be successful! Although, a good manager can take a good biz model and make it sing!

    • heidithorne profile image
      Author

      Heidi Thorne 3 years ago from Chicago Area

      Hi, billybuc! I've been (am?) on both sides of this question at various times. I'm content being a small business owner who just tries new ideas. ;) Thanks for stopping by and have a good one!

    • billybuc profile image

      Bill Holland 3 years ago from Olympia, WA

      Been there, done that, and I doubt I'll be returning anytime soon. :) Nobody explains this stuff as clearly as you, Heidi. Excellent job once again.