Assessing where you are on the business spectrum and why you should care
Two of the most over-used words are business and entrepreneur (and all the various derivations of them). While there are millions upon millions of corporate entities set up in the US alone, only a small percentage of them are businesses: the rest are hobbies, jobbies and jobs. Here is my quick definition of the business spectrum:
On the far right of the spectrum is a bona fide business. This is an entity that sells goods or services that is not dependent upon any one person for its existence (if the owner gets hit by a bus in a business, it may take a toll but the business still exists). This is good for all sorts of reasons, ranging from allowing the entrepreneur (in the famous words of E-Myth author Michael E. Gerber) to work “on the business” rather than in the business. This means the owner can take a vacation, can scale the business and may eventually be able to get a return on everything he has invested in the business by selling it.
21 million+ entities in the U.S. call themselves businesses, but don’t fit the above definition. These are jobbies and job-businesses.
The Jobbie: At the far left of the business spectrum is the jobbie. I have coined jobbie as the term for a hobby disguised as a job or business. Let me be clear, there is nothing wrong with a hobby that makes money. I personally find it preferable to a hobby that sucks up all of your money like golf, collecting Disney figurines or shopping. However, even if iyou have a business entity like a corporation, if you are doing it on the side, making less than the minimum wage on an hourly basis or less than 5-figures a year and there is not a great chance of that changing any time in the future, you have a jobbie. So what’s the problem? Nothing, if you know it is a jobbie. If you think that it is a business, you may be tricked into investing tons of money in inventory, services, websites, etc. that you will have no chance in recouping, let alone making a return on them. You will also not be able to sustain yourself or a family with a jobbie, even if it brings in some pocket money.
If you take your jobbie to the next level, then you may have a job-business (really just a job that you call a business).
The Job Business: Smack in the middle of the business spectrum is a job business. A job business is just that- a business that is really just a job. Self-employed people and small businesses with few employees can fall into this category. You may be earning a legitimate salary each year (or you may not, 60% of business entities don’t earn a profit over their lifetime), but you are the business. If you get hit by a bus as noted above, the business doesn’t exist anymore. While this may be an ok option for some people, in many cases it doesn’t justify the risk of giving up a salary PLUS investing your own money. Think of it this way, you are investing your money for the hope of earning a profit. That profit better be significantly more than what you can earn working for someone else or the risk/reward trade-off isn’t going to make a lot of sense. Would you risk a $50,000 salary plus $40,000 of your savings for the chance to earn $55,000 a year? You probably shouldn’t, but many job business owners do just that. Plus, you may be working more hours, having even more stress and doing less of what you love (and more of things you don’t like so much, like marketing and bookkeeping) for virtually the same financial outcome.
So, to make the trade-off pay off, you need to take your job-business to the far end of the spectrum, the bona-fide business. This is no easy task, given that so many businesses fail and which is probably why only 20% of small businesses fall in this category. Creating a bona fide business means that you are creating an entity that has value apart from you, providing you with a means to actually capture a financial return on the investment you made in creating the business in the first place.
Knowing where you are on the business spectrum is the first step in you assessing your business goals for the future. This is the most important step a small business owner can take right now to decide what will give you the best chance of success in the future. You can’t stock your tool box with the right tools for success if you don’t know what type of business you want and need to build.
