When I first started exploring freelancing, I was inspired by different entrepreneurs' stories of startup life, travel, flexibility, and freedom. Once I moved into freelancing, I started to explore how to move in a direction that would lead to the outcomes of the stories that inspired me. I quickly came to realize that not all flavors of starting your own business are the same.
This article briefly highlights the 3 common categories of starting your own business, as well as the pros and cons of each lifestyle and how to begin your journey into a workstyle that suits you.
The Three Lifestyles
During an online webinar hosted by Tara Reed (entrepreneur, App Without Code) on developing a mobile app without code, she made a point that resonated deeply with me, stated in words that I knew, but hadn’t quite put together yet.
Tara identified three lifestyles: the big business CEO, the small business CEO, and the Moonlighter (also known as the side hustler).
I came to realize that my startup dream would equate to the lifestyle demands of the big business CEO (i.e. long hours, investor and shareholder demands, etc.). A startup is defined by growth and profitability (to earn investors their money back). Every action is a sprint to the next moonshot goal in order to blitzscale and become the next unicorn. Executives are expected to not only manage their company, but also align the company's future growth strategy with the shareholders' interest who expect a 10X return or more. Stereotypically, this comes with long hours, lots of meetings, and limited work-life balance. While I believe it is possible to grow a company with a great work-life balance and positive company culture, it takes a great leader with a clear vision and path to execution.
I have several entrepreneurial friends who are currently pursuing this journey, and I admire all of them. It takes passion, perseverance, grit, hard work, and mental fortitude to pursue this path. Succeed or fail, you will learn invaluable lessons that serve a lifetime.
The small business CEO, on the other hand, has not quite reached the growth stage that startups either seek or are experiencing. This allows them more flexibility to guide the direction of their company and choose sustainability over growth, if they so desire. Paul Jarvis' book, Company of One, does a great job in describing a possible business model that may suit current or aspiring business owners reading this blog. Like the big business CEO, the small business CEO must also oversee all aspects of the business, from HR, marketing, sales, operations, etc. It may ultimately allow a path for more work-life balance in place of higher profits and increased revenue.
The moonlighter, on the other hand, has the safety net of staying in a full-time job while working part-time on another endeavour. This is a great way to get started exploring a business venture. It limits the risk of an unstable income and offers the flexibility of working as little or as much as you have the time for. The downside is the inability to devote as much time as you would to a full-time job in order to scale your business to a level that would match an annual salary. Nevertheless, this is a great option for businesses that do not need to scale right away - blogging, developing a product, etc.
So, what lifestyle defines you?
Freelance vs. Small Business CEO
Is a small business CEO and a freelancer the same? I would argue, yes, they are. As of now, definitions still vary. According to Merriam-Webster, a freelancer is:
DEFINITION—NOUN: a person who pursues a profession without a long- term commitment to any one employer
A business owner carries this definition, from businessdictionary.com:
DEFINITION—NOUN: Individual or entity who owns a business entity in an attempt to profit from the successful operations of the company. Generally has decision making abilities and first right to profit.
Read more: http://www.businessdictionary.com/definition/business-owner.html
No client or work lasts forever—relationships may, but the work may not. In today’s work environment filled with diverse opportunities, even those in the traditional salaried jobs are not expected to stay with a single employer for decades. The way we work has changed. To be a successful freelancer, you must also be a successful small business CEO. Your company is your brand, and you are the sole beneficiary of the profits derived from your services.
That being said, there are different flavors of freelancing. You can freelance as an individual (sole proprietor) or as a business. As an individual, there are lower administrative costs. You'll also be able to keep your rates competitive. This ultimately offers more flexibility if you’re thinking of moving around (i.e. digital nomad). You can also opt to go on long vacations after a contract ends if you so choose. Positions available in this manner typically are a result of contracts that are part of a larger project. Budgets are already allocated for these roles and set at market rates. Time is saved in finding new opportunities by working with staffing companies or agencies. With all these benefits, there ultimately is an "income cap". However, this option is great for those who dislike administrative duties, project management, and sales.
Within web development, from personal experience, these contract roles tend to be less desirable, as they are either 1) the work that no one on the current team wants to take on or 2) the work no one has the skills to complete. If it is the former, I hope the budget for the project is good. If it is the latter, the work tends to be narrowly scoped. Companies seeking the latter tend to be smaller companies or startups with smaller budgets. They also tend to seek highly specialized freelancers to fill this gap. Most companies with budgets to hire a market-rate developer tend to be companies in the growth stages interested in building a permanent team and thus less inclined to hire a contractor. There are certainly exceptions to these patterns, and there are rare opportunities that are gems for contractors, but they are not as easy to find, and often times fairly competitive.
Alternately, you can work as a business, structured with a company to protect your personal assets. While it will come with more administrative overhead, it’s the smart thing to do for any income stream. This extra overhead, however, will require higher rates and possibly less flexibility or higher overhead costs when you expand business operations. This mode of operation may require writing more business proposals and seeking new leads for paying clients. You may need to find additional staff to support your skills gaps on larger projects. Nevertheless, it may yield higher returns as you can bid on projects at higher rates. Potential clients also tend to expect higher rates as a result of being a business as well. If you can limit your expenses, then you'll be able to maximize profits.
Another way I’ve heard this described for web developers is the “contractor” (i.e. freelancer) vs. a “consultancy” (i.e. the business). The unspoken differentiator is the level of client/customer support provided. The “contractor” is just another developer for hire (i.e. replaceable). A consultant is not only “tech” savvy, but also “business” savvy, and provides the client more guidance from a business and/or product standpoint, as well as from a technical/subject matter expertise standpoint. This option is great if you enjoy customer relationship management and sales.
While this breakdown is an "extreme" description of the two flavors of freelancing, your journey may be somewhere in the middle or some combination of the above. At the end of the day, do what makes you comfortable and stay true to your lifestyle.
Consider these workstyles and find one (or several) that work(s) for your lifestyle. Where do you see yourself in 3–5 years? Who will you be working for—investors and shareholders, yourself, or another manager/executive?
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