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Why an entrepreneur is not a self-employed?

Why an entrepreneur is not a self-employed?

High Quality Financial Education Made Simple

Master Investor
June 12, 2023

What we mean by "entrepreneur" will determine whether the gig economy is appropriate for starting a business

Many people conflate being an entrepreneur with being self-employed.
True business knowledge is necessary for success as an entrepreneur.
By implementing a system, you go from the E (employee) cash-flow circle to the S(self-employed) side of the cash-flow circle.

The logistics of launching our own business can be very intimidating if we have been considering it. Nothing is more exhilarating than the decision to start a business, follow a passion, or take control of one's financial future.

But as the gig economy has grown, the nature of labor has drastically changed during the last 15 years or so. These days, it seems like there are always Instacart employees at the grocery store loading up carts for customers who have more important things to do than shop for themselves.

Or try to envision what it would be like to actually need to call a taxi today.

Why an entrepreneur is not a self-employed?

Jobs in the gig economy are dominating?

The gig economy is taking over the jobs sector, claims Marcin Zgola, owner of a Wage, a website that links freelancers and people in need of their services.

The gig economy grew by 33% in 2020 and is now growing far more quickly than the US economy as a whole. There are 1.1 billion on-demand gig workers globally, and 2 million new gig workers entered the market in the United States in just 2020. According to Statista, by 2027, about half of all Americans will have worked gigs. Today, the on-demand gig economy employs 35% of American employees.

Obviously, a freelancing platform owner would want a research to indicate that, but the growth is there.

Of course, a freelancing platform owner would want a research to show that, but the growth is still significant.

For "The Atlantic," Annie Lowrey offers a significantly different perspective. The size of the alternative workforce, which includes those in temporary, on-call, contract, or freelancing roles, was recently revised downward by two prominent labor economists. In their first research, Lawrence Katz of Harvard and Alan Krueger of Princeton discovered that this workforce had increased by five percentage points in the ten years leading up to 2015, accounting for nearly all job growth during that time. They now believe it to be closer to one or two points. Their correction follows a significant government survey that revealed, to the amazement of many labor and workforce specialists, that, as of 2017, 3.8 percent of workers held "contingent" jobs—roughly the same number as in 2005.

According to Lowrey, gig economy jobs are contingent (or side) jobs meant to supplement an existing full-time job's income rather than real jobs in the traditional sense of full-time employment, even though they are expanding strongly even at 1 to 2 percent. They represent a fresh approach to doing a second job.

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Why people choose to work in the gig economy

Apart from the necessity for a second source of income, there are additional factors that may be driving people to the gig economy.

People are concerned about inflation, to start. As "The New York Times" notes, "and recently, inflation has given a another incentive. Gig work can supplement primary occupations that don't pay enough to live on or are otherwise unsatisfying when the cost of rent and food rises.

Others are concerned about the possibility of finding employment in the near future with their skills. Automation poses a threat to many occupations, even when unemployment is at a low level, according to an Oxford research quoted by Wonolo.com. Nearly half of American jobs, according to a new Oxford University study, may be at risk from automation over the next two decades.

From their own study, Wonolo.com also lists a few reasons why people take on gig economy jobs:

More trustworthy than a single employer is a portfolio of clients: 63%
Increase revenue and add to it: 57%
They establish and manage their own work and schedules: 46%
Improved work-life balance: 35%
One percent of the respondents who are independent contractors claimed they work a regular job in addition to their freelancing work.

Finally, some people are just focused on living their lives the way they want to after the epidemic changed the way they viewed their jobs.

Cost of jobs in the gig economy

These occupations come with a hidden price, primarily the customary advantages that employees receive from their employers. "The New York Times" notes that "labor advocates have long been concerned about businesses that depend on independent contractors, since those workers aren't entitled to the rights and benefits that come with employee status, like employer contributions to payroll taxes and unemployment insurance."

The problem is that employees, who already hold some of the most precarious jobs in the economy because their employers have the right to dismiss them at any moment, are pursuing what appears to be entrepreneurship but is actually owning a job that is even more precarious than when they were employees.

Who qualifies for a gig economy position?

But if we are wondering if the gig economy is a good fit for anyone, the response is always, "It depends."

Depending on what a person wants to achieve. It can be suitable for a person if he or she desires some extra cash for investing while maintaining a full-time job. Possibly, if they desire the flexibility of an entrepreneur.

In a recent report, Prudential Financial Inc. stated:

Only 7% of "gig-only workers," or those who only work in the gig economy, received long-term disability insurance. It was 21% for "gig-plus workers," or those with both gig employment and a regular full- or part-time job.
Life insurance is only held by 20% of gig-only employees and 37% of gig-plus employees.
Additionally, compared to 52% of those with typical full-time positions, only 16% of gig-only workers and 25% of gig-plus workers had assets in an employer-sponsored retirement plan.

Additionally, people who only work in the gig economy make $36,500 year compared to full-time employees who make $62,700.

The ability to choose their own hours is really the only perk of the gig economy, but they have to work so much that they don't get to enjoy it.

The distinction between business owners and employees

We need to alter the way we view earning money in the first place if we want to escape the rat race—the very rat race that permits employers to decide how much money we will make in the future.

In the end, that is what distinguishes business owners from employees. Instead of becoming upset about how unjust the system is, focus on learning how to take advantage of it.

Switching to self-employed from employee

Doing our own thing, in the opinion of many, is the best path to happiness and financial stability. So, it is possible to understand why someone would desire to work in the gig economy. It appears that we are acting independently.

We aren't really doing our own thing in the Self-employed side. Instead, the person is donating the time and services to someone else who is pursuing their own interests. Even worse, the S quadrant is extremely dangerous, as the Prudential research notes. We don't get the standard benefits that at least employees have, and contractors are the first to go when costs need to be cut.

Business Skills: S-type vs. B-type

Businesses of type Self-employed and Business Owner differ in terms of their strengths, weaknesses, risks, and benefits. Many people who wish to start a B (Business Owner) type of business end up with an S (self-employed) type of job, which causes them to become stuck in their efforts to move to the Business Owner side for major business and I (inside investor) side of the Cash-Flow Circle.

Only a small percentage of persons who try to transfer from the Self-employed to the Business Owner side actually succeed. Why? because each side and player of the Cash-Flow Circle has different technical and interpersonal requirements for success. To truly succeed in a side of the Cash-Flow Circle, we must acquire the knowledge and attitude needed there.

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What's the distinction?

To put it plainly once more, an S-type of business owns a job. A B-type company acquires a system and then employs excellent personnel to manage it. Because of this, income still comes in even while a B-type business owner is on vacation. A B-type business owner needs the following things to succeed:

The possession and management of a system, and
The capacity to guide others

Many people—especially in the gig economy—cannot transform who they are and what they know into a system in order for Ss to progress into Bs. For instance, it's quite challenging to transition from driving for Uber to running your own driving business where you hire other drivers. Uber has invested billions in creating the infrastructure and procedures necessary to scale a business like that.

Can we create a hamburger that is superior to McDonald's?

Here is a method Master Investor employs to identify whether a potential client is a B or a S when they inquire for company startup guidance to demonstrate the thesis.

These people frequently claim to have a brilliant idea for a brand-new service or concept. It's clear where their concentration lies after approximately 10 minutes, whether it's on a system or a product. During those ten minutes, they typically say something like:

This is a much superior product that what XYZ produces.

We have searched all over, but nobody has this stuff.

We will give us the concept for this product in exchange for a 25 percent cut of the revenue.

We have spent years developing this product.

We can ask a single question at this point: "Can we personally make a better hamburger than McDonald's?"

Everybody affirms that they can each make a better hamburger.

The last query is, "Can we personally create a superior company to McDonald's?"

The business vs the hamburger

Some people notice the difference right away, while others don't. The distinction is whether a person is obsessed on the E and S side of the cash-flow circle, which is focused on the concept of a better burger, or the B and I side, which is focused on the business system.

There are many business owners who provide a superior good or service, much as there are many people who can prepare a hamburger that is superior to McDonald's, but only McDonald's has developed a system that has catered to billions of people.

If individuals start to realize this, we advise anyone to go to a McDonald's, buy something, and then sit and watch the process of getting the item. Take note of the delivery vehicles, the rancher who raised the beef, the purchaser who purchased it, and the TV commercials that promote it. Take note of the personnel and the training. View the furnishings, the regional offices, and the entire company. They have a potential of migrating to the B-I side of the Cash-Flow Circle if they can start to see the big picture.

Better systems versus novel ideas

Many would-be entrepreneurs nowadays fall into the trap of believing they require a creative or novel idea that the market has never seen. There are many people who are constrained by this incorrect belief.

Great ideas don't have to be original or brand-new. Simply put, they need to improve. Many of the richest people are not necessarily those with the most original ideas. Many of them just steal the ideas of others and profit handsomely, making millions or even billions of dollars. You don't need a better burger if you actually want to own a wealthy company. The burger delivery mechanism has to be improved. There are many business owners who provide a superior good or service, much as there are many people who can prepare a hamburger that is superior to McDonald's, but only McDonald's has developed a system that has catered to billions of people.

If individuals start to realize this, we advise them to go to a McDonald's, buy a burger, and then sit and watch the process of getting that burger. Take note of the delivery vehicles, the rancher who raised the beef, the purchaser who purchased it, and the TV commercials that promote it. Take note of the personnel and the training. View the furnishings, the regional offices, and the entire company. They have a potential of migrating to the B-I side of the Cash-flow Circle if they can start to see the big picture.

Better systems versus novel ideas

Making money off of others' ideas

Here are a few instances of how people in the B side of the Cash-Flow Circle profit from the ideas of others.

Thomas Edison presented the incandescent light bulb to the public for the first time on December 31, 1879. But in actuality, Edison didn't come up with the idea for the light bulb. Incandescent lamps were created by several earlier inventors, according to Wikipedia. Numerous of these early light bulbs were unfit for use in commercial settings. The commercial use of the light bulb for the general public was discovered by Edison, and he also figured out how to make the light bulb economically viable.

The latest trends are observed by fashion designers in young children, who then mass-produce those trends.

The operating system that made Bill Gates one of the richest people in the world was not his invention. He merely purchased the system from the software developers who had actually created it, then licensed the thing to IBM.

Sam Walton's concept for Walmart was simply taken by Amazon.com and implemented online. Sam took much longer to become wealthy than Jeff Bezos.

In other words, who says being wealthy requires having original ideas? Typically, only those who remain in poverty.

What then is the formula for these businesspeople who profit handsomely off the good ideas of others? What distinguishes them from the individuals who originally came up with the clever ideas? Simply simply, they were aware of how business functions. They get inventive with ideas rather than actually coming up with any.

Systematic wealth creation

We need the insight into how to use the proper framework to turn any notion into a strength. The Business Owner and Inside Investor Cash-Flow Triangle is the name of this framework.

The smallest elements of the B-I Cash-Flow Triangle, which serves as a system and a model for creating a successful business, are products or ideas. Almost any idea or product can be successful when all of the triangle's elements are solid and functioning cohesively.

Therefore, if we want to create a successful business but have been searching for the elusive brilliant idea, stop searching and start concentrating on gathering as much knowledge as you can about the elements of the B-I Cash-Flow Triangle. Then, we won't need a lightbulb of our own; all we will need to do is recognize the chances that other people's brilliant ideas present.

The truth is that there are countless new ideas, billions of people have goods and services to give, but there are only a select few who are knowledgeable.

There are countless new ideas and billions of people with goods and services to sell, but very few people have the skills necessary to create a successful business system. Instead of working in the gig economy, start investing in creating a system that may one day be able to offer jobs to others if our ultimate objective in life is to be independent and run a successful business.

Which side of the Cash-Flow Circle do we want to be on is the ultimate question, as it always is.

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