If you subscribe to Inc. or Entrepreneur magazine, or just keep up with web startups and tech companies, you know the particular sort of feeling you get when you see a handful of grinning 20-somethings talking about how they made their first ten million. It seems like these groups of skinny young technologists belong to a secret cult of success, blessed by an unseen god of web wealth. While regular business owners fight to pay their health insurance and rent, this special class seems above business gravity. These entrepreneurs rise weightless as the effervescence of the new economy.
Especially if you are in recruiting or another highly service-oriented business, you understand the incredible attention required for each dollar of revenue. The idea of “quick wealth” seems an impossibility – a fairy-tale reserved for people above us or somehow “in the know.” It’s easy to feel envious of these entrepreneurs that seem to have the world handed to them. That feeling of envy is often accompanied with self-doubt: Do these people have an intelligence that we don’t? Do they understand what society needs better than us? Are they better networkers, better-looking, and more fashionable?
Before you get too bent out of shape, here’s a secret: most entrepreneurs really aren’t entrepreneurs. Far from being angels of capitalism and/or super-humans, these entrepreneurs need to be understood in context.
- They play with other people’s money: The technology companies that you read about are usually funded by angel or venture capital investors. What this means is that the founders of web startups are many times figureheads. Yes, they are hands-on technologists and work hard. However, they are often drawing a salary. We often incorrectly assume that the entrepreneur is taking risk. However, more often than not the “entrepreneur” is essentially just a salaried employee playing with other people’s money.
- They are often just great pitchmen: You will often hear the term “serial entrepreneur.” People use this term to describe themselves (in a very positive light) as people who continually innovate and start new companies. Many of these “entrepreneurs” have perfected the art of raising money – they know how to pitch venture capitalists with a business idea or they simply have a group of rich friends. Know that their business plans often include (of course) salaries for themselves. They might own part of the company that employs them, but they are still reliant on salary, not regular profit and loss. Many “serial entrepreneurs” are more serial pitchmen than professional business-creators.
- They don’t own their company: By the time most companies are sold or simply become successful enough to read about in a magazine, the original entrepreneurs often own very little of their own companies. Web founders often own a few percent of their company and even this equity is tied up with performance expectations. When you hear about “rounds of founding,” most think of the founders as winning a lottery ticket. However, the reality is much more akin to simply taking a second mortgage.
- They work in an ivory tower: If you own your own business, you most likely have your hand in everything it takes to run the business. You don’t have a job function, you have broad responsibilities. Most small business owners manage or at least control payroll, taxes, accounting, sales, marketing, HR – in short, every function of the business. The model for web startups is quite different. The venture capital firm often acts as a quasi-incubator, providing every basic need of the company except for product development. The founders of the company develop software and do little else. The venture capital firm provides all of the essential business functions and shields the founders from a lot of the usual headaches. It’s a good model, but one that does not develop the same type of business acumen that pure entrepreneurship and self-funded companies develop naturally.
Who are the real entrepreneurs? Most are called by another name – small business owners. What do they do?
- They live on risk.
- They don’t take salaries.
- They do everything it takes for the company to grow.
- They create jobs for other people.
Of course, many super tech-entrepreneurs are real entrepreneurs. However, the majority need to be understood within the context of the capital structure of our society. They aren’t better than anyone else, and many times, these young webby “entrepreneurs” can’t hold a candle to the business sense of most small business owners.
The next time you read about or talk to one of these types, ask yourself if they are a real entrepreneur or if it’s just a label. Also, for yourself, are you an entrepreneur or a small business owner? Which is better? Should there really be any difference?