Why Entrepreneurship Isn't On the Rise

The difference between owning a job and owning a business

A promising headline from "The Christian Science Monitor" this week read, "Why entrepreneurship is on the rise."

The article reports on a recent report from the Kauffman Index of Startup Activity, which reports that 550,000 Americans start a new business each month. This is part of a upward trend over the last couple years.

But, as with everything, context is key. Kauffman calls these businesses "adults switching into self-employed business ownership," and as Professor Edward Roberts tells reporter Gretel Kauffman, "What Kauffman is seeing may in fact reflect the lousy state of the economy outside of the innovation sector. It may reflect the move by so many unemployed or poorly employed in desperation to start their own companies as the equivalent of second jobs, i.e. to produce a living family income."

In short, much of these new businesses aren't businesses at all. And the people starting them aren't entrepreneurs. They're desperate people who have turned to owning a job in order to survive.

In essence, these people have rushed out and start a new business, moving from being an employee to being self-employed-moving from the E quadrant to the S quadrant, the left side of the CASHFLOW® Quadrant.

The difference between owning a job and owning a business

The problem is that there is a big difference between being in the S quadrant and owning a job and being an entrepreneur in the B quadrant.

While one is not necessarily better than the other, S-type businesses and B-type businesses have different strengths, weaknesses, risks, and rewards. Many people who want to start a B-type of business wind up with an S-type of business and become stalled in their quest to move to the right side of the CASHFLOW Quadrant-the B for big business and I for investor side.

Many people attempt to move from the S quadrant to the B quadrant, but only a few who attempt it actually make it. Why? Because the technical and people skills required to be successful in each quadrant are different. You must learn the skills and mindset required by a quadrant in order to find true success there.

S-type vs. B-type business skills

If you own a B-type business, it's possible to go on vacation for a year, come back, and find your business more profitable than when you left it. In an S-type of business, if you take a one-year vacation, you'll have no business to come back to.

What's the difference?

Saying it simply, an S-type of business owns a job. A B-type of business owns a system and then hires great employees to operate that system. This is why if a B-type business owner is on vacation, income still comes in.

To be successful, a B-type business owner requires:

  • Ownership and control of a system, and
  • The ability to lead people

For S's to evolve into B's, they need to convert who they are and what they know into a system, and many people aren't able to do that...or they're often too attached to their self-contained system to let go and let other people in.

Can you make a better hamburger than McDonald's?

To illustrate my point, I'll share a technique I use to determine whether someone is an S or a B when they ask me for advice on starting a business.

Usually, these people tell me they have a great idea for a new product or idea. I listen, usually for about 10 minutes, and within that time I can tell where their focus is, whether it's a product or a system. In those 10 minutes, I usually hear words like these:

  • "This is a far better product than XYZ makes."
  • "I've looked everywhere, and nobody has this product."
  • "I'll give you the idea for this product; all I want is 25 percent of the profits."
  • "I've been working on this product for years."

At this point, I usually ask one thing: "Can you personally make a better hamburger than McDonald's?" So far, everyone has said yes. They can all prepare a better hamburger.

I then ask, "Can you personally build a better business than McDonald's?"

The burger vs. the business

Some people see the difference immediately...and some don't. The difference is whether a person is fixated on the left side of the quadrant, the E and S side, which is focused on the idea of a better burger; or on the right side of the quadrant, the B and I side, which is focused on the business system.

I do my best to explain that there are lots of entrepreneurs who offer a better product or service, just as there are billions that can make a better burger than McDonald's-but only McDonald's has created a system that has served billions.

If people begin to see this truth, I suggest to them to visit a McDonald's, buy a burger, and sit and observe the system that delivers that burger. Take note of the trucks that deliver the beef, the rancher that raised the beef, the buyer who bought it, and the TV ads that sell it. Notice the training and the employees. See the decor, the regional offices, and the whole corporation. If they can begin to understand the whole picture, then they have a chance of moving to the B-I side of the CASHFLOW Quadrant.

The reality is that there are unlimited new ideas, billions of people with products and services to offer, and only a few people who know how to build an excellent business system.

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