What Type of Business Owner Are You?

There are three types of business owners – The Professional Hobbyist, the Job Owner, and the Businessman.  Recognizing these types, and setting your expectations accordingly, can have a dramatic effect on the level of success you achieve in business.

The Professional Hobbyist: This person started out doing something they love as a hobby, and then they opened a business so they could get paid to do it.  They take great pride in their work.  You can recognize this person because they have all the newest and best tools and materials, and they love to show you.  They have invested quite a bit of money into their operation, and anytime the business has extra cash that could be profit, they use it to buy even newer and better stuff, even though they’re not using half the equipment they already own.  After all, they think that the capacity to do even more and even better work will eventually lead to bigger and better profits.  However, no matter how long they have been at it, their business has never shown a profit.

The Professional Hobbyist will tell me “But Dan, look at all this great, expensive equipment I own!”  Yeah, that’s great.  If the purpose of your business is to own a bunch of equipment that hardly gets used and declines in value year after year, then you’re quite a success.  If the purpose of your business is to make a profit, and it should be, then something needs to change.

The Job Owner: The Job Owner used to work for somebody else, and is now self-employed.  They usually keep costs down, have few employees, and buy equipment only when it is really needed.  Unlike the Professional Hobbyist, anytime the business has extra cash, the Job Owner takes it home, usually in the form of a paycheck.  Successful Job Owners make a fair wage for the type of work they do, but rarely, if ever, make much more than that.  The Job Owner and the business are inseparable.  If the Job Owner left the company, even for a month or two, there is no way for the business to survive.  In addition, if the Job Owner hired somebody else to do his or her work, there would be no money left for the Job Owner to take home.  The major difference between the successful Job Owner and an employee is the Job Owner takes on all the risk and all the stress with no additional compensation, and when things get tight, the Job Owner stops paying himself, while most employees would not tolerate being treated like that.

The Businessman: The businessman (male or female) understands that business is all about producing profit.  The business simply cannot survive without making a profit.  They also understand that the business owner gets paid for taking the risks, investing in the business, and being the creative force behind the business.  The business has work that needs to be done, and therefore, the business must hire people and pay them a fair wage to do that work.  If the business owner works as an employee of the business, as is the case in most small businesses and many larger ones, the businessman deserves to get paid a fair wage for the work he or she produces.  This is a necessary business expense that needs to be paid to somebody, and has nothing to do with the profits the businessman earns for owning the business.

Now, I’m not talking about how money is taken out of the business.  For example, assume that the businessman makes $75,000 per year, which is a fair wage for a certain type of work, and the business produces a $50,000 profit each year.  If the business is incorporated, the businessman could choose to take home the $75,000 through payroll, and the $50,000 through profit distributions, or she could choose to take the entire $125,000 via payroll.  Either way, the owner makes $125,000 per year, but the business only makes $50,000.  If the owner makes a fair salary, with no profits above that, then the owner is not a successful businessman at all – they are just a Job Owner, and they’re taking all the risks that go along with owning a business without being paid any more than an employee with zero risks.

So, what type of business owner are you?  Whichever type you currently fall into, the first and most important step to becoming a successful Businessman is getting crystal clear on your expectations.  Decide exactly what you want out of your business, decide that you deserve it, and fully expect it to happen.  Only then will you be in a position to make it happen.