If you’ve read other tips for freelancers, one of the things that gets repeated often is “consider yourself a small business.” The idea is to treat all your freelance work as important as work attached to a business, and it has helped many a freelancer prioritize their time and gigs.

But there’s another word for people who start small businesses: entrepreneur.

Is there a difference between a freelancer and an entrepreneur? And if there is, how do you know which one you are?

Defining terms

Let’s start with a quick recap of what a freelancer is, and then we’ll dive into the definition of an entrepreneur.

In a recent post, we defined a freelancer as someone who works for different companies at different times. This person can work for multiple companies at once, dividing their time between jobs, or they may choose to focus on their job for a single company before moving on to the next one.

In short, a freelancer is defined by an ability to self-direct her career, work for multiple employers, and thereby increase her personal wealth through the quality of gigs she chooses to take on.

Entrepreneurs are defined completely differently. Merriam-Webster defines an entrepreneur as “a person who starts a business and is willing to risk loss in order to make money.” However, the true definition may be a bit more complex than that.

Entrepreneur.com says that entrepreneurs are not people who have “jobs”. Rather, they consider entrepreneurs to be a part of the equation that creates a business. A business starts with an entrepreneur, capital, products, and customers. Entrepreneurs are not trying to create a steady job for themselves, or to pursue a specific type of job or gig that fulfills them personally; rather, their goals are to eventually sell their interest in the business for a profit, or to create a steady stream of passive income by growing a business that eventually becomes self-sustaining without their input. Then they are free to move on to the next solution and risk.

Workflow differences

One of the key differences between freelancers and entrepreneurs is the way that they work. Through this difference, more than any other, you can truly see that freelancers and entrepreneurs are two different paths to creating independent wealth.

Freelancers generally work alone. They seek out jobs, or jobs are offered to them, and they complete those jobs themselves. Freelancers are paid either for their hourly time, or based on what they produce (for example, freelance writers are most often paid by the word or the page, rather than the hour).

Entrepreneurs, on the other hand, can almost never work alone. The types of projects that they take on are meant to eventually be out of their hands; therefore, they must begin with partners. The business needs day-to-day employees running the immediate sales or services; those employees need managers, bookkeepers, and other support staff.

The CEO of a company may be someone entirely apart from the entrepreneur who began the project – ideally, for most entrepreneurs, this would be the case. Entrepreneurs are the driving force behind job creation, not job fillers themselves. In fact, over 60% of entrepreneurs went into the business of starting businesses specifically because they don’t find any appeal in being an employee in a standard work environment.

Entrepreneurs are generally not paid by the hour, or by any quota schemes. Instead, they make their money by getting returns on their investments when the business succeeds. This is where the risk of entrepreneurship comes in; it is possible to quickly fail as an entrepreneur, and place yourself in a worse financial position than you were in before. Freelancers may eventually find that their jobs aren’t as lucrative as they’d hoped, but they usually don’t have a major amount of capital or sweat equity sunk into their freelancing that would lead to major debt if their freelancing didn’t work out.

Similarities between freelancers and entrepreneurs

Despite being two different paths, there are some similarities between being a freelancer and an entrepreneur. And this is important to understand because it is possible to be both a freelancer and an entrepreneur.

For example, let’s say that Sally started off as a freelance graphic designer. But during her time as a designer, she discovers that there are several major issues with a popular software used by many other designers. So, Sally decides that in addition to running her freelancing “business”, she also wants to partner with a software developer to create a new graphic design software.

This is a great example of how freelancers can become entrepreneurs in their own industries. It also goes the other way; perhaps as an entrepreneur who took on the risk of developing this software business, Sally rekindled a love of graphic design, and decided to take on a few freelance projects to demonstrate how well the new software works. Now we have an entrepreneur who became a freelancer.

The two paths complement each other very well, and here’s why:

  • Both are focused on succeeding through a non-traditional work setting.

  • Neither introduces a “boss” into the mix; rather, both freelancers and entrepreneurs are their own bosses, and they work with clients or partners.

  • Both freelancers and entrepreneurs claim “business income” on their taxes, meaning it’s very easy to combine your income from both under one category.

  • Both rely heavily on networking within an industry.

  • While freelancing is far more focused, both paths allow a person to pursue something they are interested in or passionate about.

  • As you can see, freelancing and entrepreneurship can go hand-in-hand in many cases.

Is “Entrepreneur” the next step from freelancing?

Because the two paths are so complementary, sometimes there is an expectation that freelancers will eventually become entrepreneurs. As a freelancer’s work grows, they may begin to consider hiring other freelancers to handle the workload, and take a step back into a more managerial role. At that point, could a freelancer be considered an entrepreneur?

It depends. Entrepreneurship typically means eventually allowing a business to become self-sustaining. A freelancer with a growing business could become more selective about the gigs they accept, partner with other freelancers, or being a freelance business without necessarily becoming an entrepreneur.

But what if you do want to make that transition? What if you just aren’t sure where you can begin calling yourself an entrepreneur rather than a freelancer?

TNW has several great tips for understanding the transition, but the key characteristic of an entrepreneur is someone who has started to find ways to make passive income. This is how an entrepreneur thinks, and can lead to a great extra stream of revenue that you don’t have to put much time in once the initial work is done.

Which path will you choose?

One of the great things about being either, or both, a freelancer and/or an entrepreneur is that you don’t have to choose one or the other forever. If you know the traditional work environment isn’t for you, start with one and proceed from there.