Self-employed vs business owner: the two kinds.
Self-employed vs business owner is the difference between selling your own hours and owning something that runs without you. Both count as self-employment, but research found that only the second kind earns more per hour than employees do.
One word, two different animals.
We use one label for two very different lives. The first person left a job to sell their own time. Think of the consultant, the designer or the plumber with a name on the van. On paper they own a business. In practice they own a job, because the money stops the day they stop.
The second person built something that keeps going when they step away. Other people do the work, and customers buy from the company. Therefore the income does not come from the owner's hours. Instead, it comes from the gap between what the team produces and what it costs.
Self-employed vs business owner: what each one earns.
Ross Levine and Yona Rubinstein looked for this split in the data. They found that the second group earns much more per hour than the first. It also earns more than the employees it left behind. However, they could not see whether a business runs without its owner. So they used incorporation as the clue, because people building something bigger than their hours nearly always register a company.
The first group is where James Hamilton's famous result lives. In his study, the typical person who left a wage earned about 35% less ten years later.
Which one is your plan?.
Most people picture the second kind while quietly building the first. That is not a crime, and the first kind can be a good life. But you should choose it on purpose, with the numbers in front of you.
Self-employed vs business owner: a ten-minute test.
Write your business in one sentence. Then ask: if I were ill for three months, what happens to the money?
If it stops, you are planning the first kind. If it keeps arriving, write down who does the work and what you would pay them.
From the book.
Josh Kopel opened a restaurant and wrote about what he found in there, on his own website, and it is the most honest sentence written on this subject in years. "I was not a restaurateur," he wrote. "I was a restaurant manager with equity." Twelve to fifteen hour days, comfortably the worst-paid person in the building, running on fear. His phrase for it was that he had bought himself a job.
I Want to Start a Business but I Can't Quit My Job, chapter 1: Only one kind of self-employment pays
Questions about self-employed vs business owner.
Is a freelancer self-employed or a business owner?
In the sense that matters for income, a freelancer is self-employed, because the money depends on their own hours. A freelancer becomes a business owner when other people can do the work and clients buy from the company.
Is self-employed vs business owner a legal difference?
Not exactly. The legal form is only a shadow of the real question, which is whether the business keeps earning when you stop. Incorporation is a good clue, but it does not settle it.
Can I start self-employed and become a business owner later?
You can, but it is the rare path. Fewer than four in a hundred unincorporated businesses switch within four years, because the business gets built around you in the first weeks.
Read the whole chapter.
This lesson covers one section of chapter 1, “Only one kind of self-employment pays”. The book goes further, with the full evidence, the stories and every exercise.
