The United States is jam-packed with self-employed individuals.
According to the world-renowned Pew Research Center, roughly 10 percent of the entire American workforce identifies as self-employed, which ranges from small-scale, part-time freelancers who work from home to the founding fathers and leaders of the country’s largest organizations.
Many Americans associate being self-employed and wanting to start one’s own business with the so-called “American Dream.” Another word used to describe self-employed people who work for themselves is entrepreneurship.
But is being a solopreneur and an entrepreneur the same thing? Let’s define both and look at the differences.
What is an Entrepreneur?
The Merriam-Webster Dictionary, arguably the go-to authority on all things definitions, defines an entrepreneur as such:
“One who organizes manages, and assumes the risks of a business or enterprise.”
Investopedia defines an entrepreneur as follows:
“An individual who, rather than working as an employee, founds and runs a small business, assuming all the risks and rewards of the venture.”
In other words, entrepreneurship entails creating one’s own business without outside help. Most people driven by the spirit of entrepreneurship operate those businesses as general managers, chief executive officers, or managing partners. Some self-founding business owners hire others to run the operations of the businesses they own, though they almost always are directly involved in handling those operations.
You may or may not have heard of the term solopreneur. Let’s define the term and differentiate between entrepreneurship and solopreneurship.
What is a Solopreneur?
Our team at the Solopreneur Institute considers solopreneurs to have the following three traits:
- They make money online using the Internet.
- They aren’t tied to any physical locations, though they generally spend most of their working hours at home.
- They don’t employ any w-2 workers. In other words, they won’t have any expenditures related to payroll but instead, outsource work to independent contractors.
Differentiating between Entrepreneurs and Solopreneurs
Although every business expert, business publication, and source will have a different opinion on how to define the differences between these two types of business people, this is how our team differentiates between the two.
Solopreneurs Never hire W-2 Employees
Hiring w-2 employees means payroll, payroll taxes, insurance, unemployment and a huge number of other factors that cost a lot of money. Instead, solopreneurs hire independent contractors and freelancers to outsource tasks that take up most of your time.
Solopreneurs benefit from being the only actual employee and owner of the businesses they operate.
Entrepreneurs Hire Employees
A major downside of hiring employees is having to file payroll taxes and provide W-2 Forms to employees for every business year they earned income. In other words, these Internal Revenue Service (IRS) documents will have to be filed every year those businesses exist.
Once businesses grow large enough to hire employees, business owners and executives strive to keep those businesses scaled to hire even more employees. Businesses with employees often outsource their payroll and tax filing needs to accountants. Although accountants are liable to get the job done correctly, they often charge a pretty penny for their services.
Businesses can earn more as they hire more employees or independent contractors. However, the responsibilities of keeping up with contractors and employees will add a ton of headaches to doing business. Solopreneurs reap the major benefit of not having to worry about preparing IRS documents at least once every year. Further, they don’t have to worry about hiring, firing, promoting, or disciplining workers.
Solopreneurs Have Less Financial Risk
Assume a business has 10 employees and that each of them is paid just $20,000 each year. If that business fails, the owner is on the hook for $200,000 of wages that year, not to mention any other major expenses related to business overhead or cost of goods sold.
Since solopreneurs, by definition, don’t hire employees, they are liable for less financial risk than their entrepreneurial counterparts are.
Solopreneurs ideally don’t have to worry about customer acquisition
At the beginning of their business endeavors, solo-minded business owners have to acquire customers. Once their maximum work capacities are reached, however, solopreneurs don’t have to advertise to draw potential customers in or spend time communicating with them. Solopreneurs can save hours on a weekly basis by not needing to acquire new customers to generate their ideal level of income.
Solopreneurs typically aren’t preoccupied with a driving need to grow
Entrepreneurs, by definition, continually seek out business growth. This means new opportunities are always on the horizon; thinking about how to deal with these opportunities is something that entrepreneurs are constantly concerned with.
Solopreneurs have less to worry about than their entrepreneurial, growth-minded counterparts when it comes to the future of their businesses. Not having the issues of customer acquisition or growth on their minds helps them lead less stressful lives. Although they may not earn as much as their growth-minded counterparts, peace of mind is unarguably more valuable than amassing great wealth.
Solopreneurs sometimes work in teams with other like-minded individuals
Whether they sign legal documents to form partnerships or simply work closely with one another from time to time, solopreneurs often join forces with like-minded businesses and individuals in their lines of work.
In most cases, these collaborators have different skillsets than one another. When handled correctly, such collaborations can be indefinitely ongoing, as each collaborator needs help from their co-collaborators to make ends meet.
Even if solopreneurs don’t produce goods or offer services in tandem with their collaborators, such relationships can still be financially and operationally beneficial. For example, many solopreneurs in the same locale join forces to share market research with one another. This way, they can best meet the needs of their customers.
Entrepreneurs often have goals of being acquired by larger businesses
Solopreneurs don’t seek out a pot of gold at the end of the proverbial rainbow. Entrepreneurs, on the other hand, do seek out major buyouts at some point in the foreseeable future.
These buyouts can be hefty enough to allow entrepreneurs to never work again in their lives. However, considering that most business owners enter their respective lines of work because they genuinely enjoy working for themselves, meeting the specific needs of customers, and building relationships with customers, suppliers, and other partners, buyouts simply aren’t ideal for most business owners. Solopreneurs can comfortably work forever and still save up plenty of money along the way if they want to retire. Business owners who seek out buyouts can’t say the same.
Entrepreneurs usually don’t draw lines between their personal and business lives
Entrepreneurs are constantly concerned with growing their businesses. As such, they often seek out advantageous relationships with everyone they meet. Networking is very frequently at the forefront of most entrepreneurs’ minds. This can result in their personal relationships not being genuine since each party seeks out benefits from one another. If either party in such relationships retires, moves to another line of work, or becomes disinterested in activities related to their business operations, they can quickly fall apart.
Solopreneurs maintain the invaluable benefit of generally being more able to maintain meaningful, genuine relationships in their personal lives because they’re not as preoccupied with the prospects of business expansion as their entrepreneurial counterparts.
Serial entrepreneurship can be extremely stressful
The American Institute of Stress indicates that a whopping 77 percent of United States residents are regularly faced with troublesome physical symptoms as a direct result of stress. Similarly, 73 percent of people experience psychological symptoms like anxiety, depression, and irritability from stress. 76 percent of Americans claim that “money and work” are the primary causes of their overall stress levels.
Newly-founded businesses, or “startups,” as they’re often called in today’s world of business, often fail. Since serial entrepreneurs typically spend their own money in founding businesses, they can only take so many business failures before they’re filing bankruptcy or going broke. The potential of losing financial stability can unarguably be a major source of stress. Further, being preoccupied with the countless variables related to starting and growing businesses can also cause serious levels of stress.
Entrepreneurs are infinitely more likely to face physical and mental problems in their personal lives than solopreneurs are for these very reasons.
What’s the difference? Now you know
Chances have it that you’ve never thought very long or hard about the differences between solopreneurs and entrepreneurs. After all, what’s so special about slapping one of the two names on yourself?
Prospective business owners should always do their research before going through with starting businesses. They need to know whether they’re ready for large-scale business expansion and the problems it can cause or not.
Solopreneurs simply have it easier than entrepreneurs. Which do you want to be?