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

Heidi Thorne is an author and business speaker specializing in sales and marketing topics for coaches, consultants, and solopreneurs.

Compare and contrast small business owners and entrepreneurs.

Compare and contrast small business owners and entrepreneurs.

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, the number of employees, and the revenue volume still determine how it is classified.

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!).

Famous Entrepreneurs and Their Willingness to Take Risks

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

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!

What Would You Risk?

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2013 Heidi Thorne


Heidi Thorne (author) from Chicago Area on October 08, 2014:

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

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Dani Jackson from Florida on October 08, 2014:

Thanks so. Much for sharing! Great article!

Heidi Thorne (author) from Chicago Area on July 11, 2014:

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

Sandy Mertens from Wisconsin, USA on July 11, 2014:

Good advice and explaining the difference.

Heidi Thorne (author) from Chicago Area on December 27, 2013:

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!

Beth Worthy from Tustin on December 26, 2013:

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.

Heidi Thorne (author) from Chicago Area on December 19, 2013:

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

Heidi Thorne (author) from Chicago Area on December 19, 2013:

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

torrilynn on December 19, 2013:

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

iguidenetwork from Austin, TX on December 18, 2013:

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 :)

Heidi Thorne (author) from Chicago Area on December 18, 2013:

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 from New Mexico & Arizona on December 18, 2013:

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!

Heidi Thorne (author) from Chicago Area on December 18, 2013:

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!

Bill Holland from Olympia, WA on December 18, 2013:

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.

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