Are You a Freelancer or an Entrepreneur?

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Why This Episode Exists + Nerdy Stuff Not In The Pod 💡

Today’s episode exists because I’ve seen a whole bunch of semi-successful, pretty unhappy entrepreneurs. This all stems from a critical misunderstanding - they don’t know if they’re a freelancer or an entrepreneur. Both are totally fine, but not knowing which type of business you’re building can make either miserable.

This concept isn’t new. Seth Godin touched on it in our conversation, but the implications run deep so I made it a full episode. It’s not just business structure - it’s aligning your work, life, and expectations.

Some other nerdy stuff that didn’t make it in, if you like that sort of thing:

1. The Dunbar Number and Business Models: Anthropologist Robin Dunbar suggests humans can maintain about 150 stable relationships. This limit weirdly aligns with the freelancer vs. entrepreneur divide. Freelancers often thrive within this 150-person network, while entrepreneurs have to build systems to scale beyond it.

2. Pareto Principle Flip: The 80/20 rule applies strongly here. For entrepreneurs, 80% of value often comes from 20% of features or customers. For freelancers, it's about identifying the 20% of clients that bring 80% of revenue or satisfaction.

3. Cognitive Load Theory: This psychological theory explains why juggling multiple client needs (freelancing) feels different from focusing on a single, scalable solution (entrepreneurship). It's not just about workload, but about the type of mental effort required.

4. The Hedonic Treadmill: This concept in psychology suggests we quickly return to a baseline level of happiness after major positive or negative events. It's crucial for both freelancers and entrepreneurs to understand this when setting goals and measuring success.

5. Network Effects vs. Relationship Depth: Entrepreneurs often aim for network effects, where the value of their product increases with more users. Freelancers, conversely, often benefit more from deepening individual relationships.

That’s the nerd deep dive. Hope you enjoyed 🤓

Pod References

• Tacklebox

• Seth Godin Conversation

• Kurt Vonnegut

• No Lunging

Timestamps:

0:30 Why Entrepreneurs are unhappy
01:14 Do you want to be a freelancer or entrepreneur?
04:12 Seth Godin Conversation
04:58 Our definition of a freelancer
07:28 Our definition of entrepreneurs
09:07 Cuban’s Definition of Entrepreneurship
11:24 BYLDD
12:25 The Restaurant Startup
15:15 Rivers and Dams
19:19 No Lunging
22:44 Don’t Pretend
23:10 How do you want to spend your days?

Transcript - Feel Free to Read it Like a Long-form Article:

Today, I want to talk about why so many entrepreneurs are overwhelmed. And maybe I’ve got kid gloves on with the word choice in the first sentence because I don’t want to start this pod too negatively, but, the word I really want to use is unhappy.

Why are so many people starting and running businesses unhappy?

There are probably a whole bunch of reasons but I think that one mistake is responsible for a disproportionate number of unhappy founders.

These founders don’t organize their businesses around the right fundamental question. Or, more likely, they don’t even know they should be asking it.

Which is what today’s pod is about.

At the end, you’ll understand the clear choice - the fork in the road created by the question early stage founders need to answer:

Do you want to be a freelancer or an entrepreneur.

Every decision and metric you track and second of time you spend working on your business needs to be nestled under the answer to that question.

If deciding between freelancer and entrepreneur sounds easy, it isn’t. It’s counterintuitive and counter-instinctual. And, if you’re unhappy working on your business, the question is probably worth another look.

I get intro’d to frustrated people running small businesses all the time who are tearing their hair out by the fistful because they’re treating their freelancing business like a startup or their startup like a freelancing business and that’s about as successful as trying to keep travis kelce and taylor swift out of the news. And, for the record, I know that joke probably has a shelf life about as long as store bought hummus. But maybe it doesn’t. Maybe this time it’s for real. Maybe it’s time for us all to believe in love.

Anyway, first, I want to address the unhappy entrepreneur thing because it upsets me.

Probably 75% of people running businesses I speak with seem like they’re having a terrible time. And I know startups are hard and overwhelming and require sacrifice and probably won’t work. But, you knew all those things going in. And, the reason you chose to move ahead anyway was because starting a business was, theoretically, going to make you happier than anything else you could do would. For whatever reason. Maybe you got to work on something you were passionate about or be your own boss or get the most out of your skillset or maybe you thought it was the best way to make a big pile of money and that’s what you’re after.

If you aren’t happy, there’s likely a systemic reason for it, and it’s worth investigating. You’re doing something wrong or you misread what you want. There’s a really good chance it’s the entrepreneur vs. freelancer thing we’ll talk about today.

It could also be that the problem you chose doesn’t matter and you’re spending your days desperately trying to convince someone to care about something they don’t care about. That’s no fun. Or, it could be that you haven’t been ambitious enough. Counterintuitively, ambitious startups are easier than unambitious ones - humans leap out of bed for hard things they aren’t sure they’ll be able to do, not for easy things they know for sure they can. The Happiness of Excellence, the name for the type of happiness you get from trying to do really hard things that matter, is the highest on maslows hierarchy.

The broader point is, if you’re unhappy, something’s probably off, because chasing down something that matters, even if it’s hard, should be rewarding. Take stock of where you are and what you’ve learned, and move towards the consequential problems with huge impact for customers that are aware of them and already trying to solve them. Move towards the delta 4 stuff - don’t build something if the current process is a 7 out of 10 and don’t build something that’ll be a nice to have. And, most importantly, make sure you know what you actually want our of life, and align your business accordingly.

Unhappy founders aren’t founders for long and we need you in the game.

A great place to start is with the question from today.

Are you an entrepreneur or freelancer?

This framing first popped into my head back in January when Seth Godin was on the pod and mentioned it. I’ll link to our convo in the show notes. As he said it in real-time, the lights turned on. I’d been searching for this type of distinction since 2015 and here it was. I’ve been thinking about it since.

So, today, we’ll start with a high level description of freelancers and entrepreneurs as I see them. Then, we’ll dive into why choosing one or the other is hard and messy through an example of a restaurant startup. Finally, we’ll help you get to the bottom of the real reason most people screw up the freelancers and entrepreneurs problem - they don’t know what they want.

We’ll start with freelancers:

If you’re a freelancer, you’re hiring yourself for a job. What you create is the output of the business. If you’re a coach, your 1x1 experience with clients is the business. If you’re launching a design agency, the designs you create for clients is the business. When you eventually hire a bunch of designers to work underneath you, even if there are hundreds of them and they share templates and create some economies of scale, you’re still a freelancer and your business is the output you create for clients. You trade some number of finite hours for some amount of money from clients. Then you do it again.

Freelancing businesses don’t actually get sold. Someone might buy your freelancing business, but that’s just semantics. You’ll just start doing the same job you did before with a different name on the paycheck, because if you’re a freelancer you are the business. If someone buys the business, they’re buying you, too. They’ll require it. That’s great if you like what you’re doing, but it isn’t an exit strategy if you want to move on to something else.

Freelancing businesses don’t raise venture money - at least not from any VC that, as my dad says, knows their ass from a hole in the ground - because freelancing businesses don’t scale. There’s a 0% chance they’ll ever return the fund.

But, freelancing businesses do afford the founder the chance to work with lots of interesting clients solving lots of diverse problems, to create relationships, to get their hands dirty, to - very often - do what they love. Freelancers can also make a ton of money based on how differentiated their offering is and how they’re positioned, and freelancing businesses are usually profitable from day one. You aren’t able to raise venture money, as I said, but that’s just another way of saying you don’t have to deal with investors.

The job of a freelancer is to get great clients. That’s why you exist. To find the people who you can make the largest impact for - the people you can help be wildly successful - and to charge them a premium for it. A good freelancer needs to drop bad clients quickly and always be working on finding better ones.

Better, though, is defined by the founder - a huge perk. Better can be clients that maximize environmental impact or clients that are influential and help you get other clients or simply clients that’ll pay you the highest number of dollars per hour. Freelancers get to choose, and, to be effective, they have to.

Lots and lots of people who think they’re entrepreneurs are actually starting freelancing businesses in disguise.

Entrepreneurs, on the other hand, are not hiring themselves for a job. They are aggressively removing themselves from every practical function of the business as fast as possible. Every second an entrepreneur spends doing something that someone else can do 80% as well is a second wasted.

Entrepreneurs can’t work with lots of different types of customers - they have to work with one very specific type of customer, and choosing that customer is tedious and ridiculously important.

Entrepreneurs solve a high value problem in a way that can scale. They build one solution and find all the customers who will get enormous value from it. Really, they find the customers that get value first, then build the thing. Once that works, they build the system to drop their product into an adjacent customer segment with as few tweaks as possible. The goal is to build a playbook for horizontal expansion. To continually reduce marginal cost. But, for a long time, the job is to solve one specific problem for one specific customer really, really well. Straying from that equation is a disaster.

Entrepreneurs can, if necessary, raise money from VCs and they can absolutely sell their business. Selling doesn’t have to be the goal, but the ability to sell, should be. Meaning, the founder should be constantly trying to separate themselves from the systems that drive the business to the point that it feels like a thing they can hold in their hands and say here, you buy this and you get all of it and we’ll go our separate ways. An entrepreneur builds a collection of systems that don’t rely on any one person for differentiated output.

The best way to think about entrepreneurs is to think of one specific exchange from Marc Cuban on Shark Tank. I know that’s kind of a silly thing to say, but one night I was watching shark tank with my in-laws - side note, everyone just assumes I love shark tank and they look at me for some insight or something during the show, but I’m just as surprised as they are when someone making sun shaped sponges gets 300 grand from Robert.

Anyway, we’re watching after dinner and a tan and fit father and son combo with matching shoulder length blonde hair had made a skateboard that was the size of a surfboard. They were explaining how the board worked in a bunch of California surfer terms I couldn’t dream of remembering in what was basically a California parody SNL skit, when, to the sharks clear surprise, they mentioned their sales numbers. Which were great. They’d sold a bunch.

And, the father proudly said, every board was hand made in Hungtington Beach, california.

When it was Cuban’s turn to talk, he said something like “what’s the plan to move production out of one of the most expensive real estate markets on earth? When do we start making these in Ohio?”

The father reacted to this like he’d just been told that california didn’t have 6 syllables - “oh no” he said “every board will always be finished by me. That’s the only way the action will be right. No one else can do it.”

Cuban was immediately out, saying that he’d never met a billionaire who was a perfectionist.

An entrepreneur needs to know that they don’t matter for the product. They can’t. That’s the only way it’ll scale.

If you matter, you’re a freelancer.

Most of the people I speak with instinctively lean towards entrepreneur over freelancer. It seems like that’s what ambitious people should do, right? And if you’re listening to this, you almost certainly see yourself as ambitious.

Freelancing is putting a ceiling on your upside, kneecapping your impact? Right? Right?

We’ll see.

Keep your mind open for the rest of the episode - At this point, I’m pretty sure our first instincts aren’t always right on this one.

And we’ll get to the rest of the episode…after…. a little… nope, no jazz today. Instead, a message from our friends at byldd. See you in a second.

Rivers and Dams

Maybe a year before covid a company came through Tacklebox that wanted to help restaurants make money. There’s an old saying - if you want to make a small fortune, take a big fortune and open a restaurant - and according to this founder, it was true.

He’d had experience - he’d started a number of restaurant concepts and grown them to 3, 5, 7 locations and then sold them. In an industry full of people losing money, he was making it.

He said there were two problems with most people starting restaurants -

first, the restaurant owner thought the business was about them. About the chef they brought in or the wine list or the name or the decor. In reality, our founder said, the restaurant is about the customer. Which is seemingly obvious, but, apparently, ignored. It’s about the job customers would hire the restaurant to do, and then the restaurant reactively piecing together a chef and decor and a location that did that job well, and profitably.

Our founder used to spend 2-3 months interviewing customers at local restaurants before even considering a concept - understanding how many nights a week they ate out, what their weekly food budget was, how they thought about diet, and on and on. He made sure his concept would be hired for a job that would get repeat business, word of mouth, and push high profit staples.

The second thing restaurant owners screwed up, he said, were the finances themselves.

“Very few restauranteurs, especially first-timers, have any clue how a restaurant makes money. Or - more accurately - where they lose it. If you think buying a home has hidden costs - holy cow, open a restaurant. The maintenance on the equipment, the food waste, the fines and violations, the waiter turnover, the food price variability - there are only variables. And, with such thin margins, those variables sink you. This can be reduced if you’re thoughtful from day one, but new owners aren’t - they just want to open up an oyster joint and assume because their friends say they love oysters it’ll work.”

So, our founder started consulting, helping people launch new restaurant concepts profitably. Each gig got him clearer on an ethos - a playbook - and he came to us at Tacklebox to make that a scalable product.

“I don’t want to be a consultant any more” he said - “I want a business that runs while I sit on the beach.”

Great. So we went for it.

And now’s a nice little natural break in the story for a quick google to make sure Travis Kelce and Taylor Swift haven’t broken up in the past 90 minutes since I wrote the first joke and…. they haven’t! We are good. Love is alive and well, and so is this story, which needs another sidebar.

And that sidebar is about rivers and dams.

There are two types of problems that deserve solutions.

The first I call Man in a Hole, though, in the words of kurt vonnegut in his amazing speech on the shape of stories which I’ll pop in the show notes, the problem needn’t be about a man and it needn’t be about a hole. Basically, someone is in a lot of trouble. Our business is a rope that helps them get out of it.

My old boss used to say, over and over, that people always pay to get themselves out of trouble and never pay to avoid that trouble in the first place. Humans need to touch the hot stove before we stay away from it.

In the case of the man in a hole problem, your solution is a rope.

The second is what I call the painful step. We find a process that is integral to someone’s business or life, something they do every day, something that helps them move towards their ideal version of themselves and… we find the most painful step, and remove it for them.

In the painful step case, your solution is a shortcut.

Where rivers and dams come in here is with the customer. Picture your customer cruising down a river to some destination they really want to reach. There are dams in the river that are keeping them from this eventual goal. Problems they encounter along the way.

Your job as a founder is to pick - to pick a customer on a specific river, and to pick a dam for that customer, and focus on it. To help your customer navigate the dam and move further down the river towards their goal.

Now, back to our savvy restaurant friend.

While doing all of his consulting, he realized there were a few 80/20 type of improvements for restaurants. Things they all really seemed to need. Two leapt out.

First, they needed a menu audit. The goal is to have as little equipment as possible in the kitchen, and to have the menu work progressively with that gear - so, for example, if you have a pizza oven, you can slow cook meat in it while it heats up and cook bread in it overnight as it cools down. Or something.

Restaurants weren’t thinking about their space and the equipment they’d need holistically with their menu.

Second, they needed a financial system. Not just software, but a way to make sense of what the data the software gave them and the ability to make decisions on it. And, to share that with the rest of the staff, so they knew that not storing something properly tied directly to an X% drop in profit.

There were also a bunch of other side problems that popped up in some restaurants that he really wanted to solve for. Every restaurant, he said, has 3-5 things he could do that would dramatically improve their business.

As you start to internalize the rivers and dams and freelancer vs entrepreneur thing, I’m sure you’re getting some prickly spidey sense on the back of your neck telling you that this isn’t an entrepreneur, it’s a freelancer.

But, we spoke with customers about to open a restaurant anyway. The hope would be that they realized they needed a menu audit or understood the connection between kitchen and menu and flow, or that they knew they needed a way to translate financials into learnings for their staff. Not surprisingly, no one did. They hadn’t fallen in a hole yet. What did they need a rope for?

So, our founder tried a different customer- restaurants that were struggling. And, they were excited. But not in a product. They wanted our founder to come in and watch the restaurant operate for a month. To tell them what to do. They didn’t want a product, but sure, they’d pay for one if it came with a month of the founder’s time.

This got him excited -

“Maybe,” he said, “I can do the audit then convince them to use the product after. A little combo entrepreneur and freelancer? And I can learn how to scale the audit so someday it doesn’t need to be me?”

Nope, I told him. Doesn’t work like that.

He looked at me with the face I’ve seen so often- the one where the entrepreneur realizes what they want has nothing to do with what the customer wants.

“But, what if I just do this for a while….”

And here is why entrepreneur vs. freelancer is so hard.

Because it’s always tempting to lunge.

There’s a blog by seth godin - didn’t mean to bring him up twice today but I guess that’s how it goes - where he talks about juggling. When you learn to juggle, he says, it’s tempting to lunge after every bad throw to try to make it work. But, juggling is about throwing, not lunging.

If you really want to juggle, you need to let every ball you would’ve needed to lunge for, drop. You need to get good at throwing - because that’s what juggling is.

Freelancers can lunge. You can go after customers on different rivers with different dams. You can spend time with them to figure out what they need, then give it to them. Their “service” is.. service… and it can take a bunch of different forms. And your job is picking which customers are worth lunging for.

If you’ve got four different customers on four different rivers with four different dams, you can make it work.

Entrepreneurs can never lunge. Entrepreneurs need to go after one type of customer on one river with one specific dam. They need to build one product that is flat across all customers, and creates a ton of value for each. Otherwise, the business won’t work.

Freelancing is often easier than entrepreneurship. It certainly let’s us close feedback loops faster and feel better about ourselves - someone wants us, someone is going to pay for us, that must mean we’re on the right track. But, only if you’re on the freelancer track.

And there’s no blending the two, despite countless founders trying. As soon as you have any freelancer in your product, you’re not an entrepreneur because you aren’t removing the person part of the service. The dollar per hour bit.

It’s much better to take your lumps as an entrepreneur, to navigate your way to the right customer on the right river with the right dam, the one who will pay for something that has nothing to do with you. That search should be fun. It’s an investigation and it’s moving you towards the type of business you want.

The one caveat is that freelancing - or consulting - for customers is a wonderful way to flesh out how they solve a specific problem. It’ll help you understand what they prioritize and get promoted for and the type of company they’d like to see themselves as.

If you’re consulting, timebox it. Try to sell products during and after. Never forget that this is for learning purposes.

And on the freelancer side, just because you are part of your product doesn’t mean you shouldn’t build systems to amplify yourself.

For example, communication is the thing that gets dropped as freelancers grow, which is awful because the customer hired you because they thought you could help them. That’s a vulnerable place. Bad communication shows you don’t care. So, build systems for it. Make sure you over communicate what you’re doing and why, how long it’ll take, what you need from the client. Build durable assets that you can plug in to support your freelancing - content to reference, templates.

Build systems for the uncomfortable stuff. Great freelancers drop clients constantly. You have to. The business is your client roster. So, build systems for that - offboarding is emotionally taxing and tricky. Don’t leave it to chance or force it to require willpower.

On the other hand, just because entrepreneurs are building something scalable doesn’t mean they never talk to customers. They do, constantly. But, they do it through the lens of building something and learning process, not charging for their time.

Don’t Pretend.

This is all fairly straightforward.

You definitely understand what a freelancer is vs. an entrepreneur. One hard part is executing on it - staying disciplined.

The harder part is figuring out what you actually want in the first place.

For this, I have one question.

How do you want to spend your days?

And, really think about the question. It’s how do you want to spend your days, separate from what you think other people might want from you or what you think might help you reach a certain status or what you think you should want.

There’s a quote from Kurt Vonnegut I love - his second mention of the day, too - that goes:

“We are what we pretend to be, so we must be careful what we pretend to be.”

Don’t pretend to want something because you think you’re supposed to. Think about how you want to spend the precious few days of your life, and back into the business that fits that. If you want to coach entrepreneurs and apply frameworks to help them tackle unique, high stakes scenarios, be an unapologetic freelancer and do that. Help your first customers be wildly successful and build systems to make sure your time is spent almost solely with clients. You don’t need a scalable text messaging service that some people kind of get some value from maybe for a week or two until they cancel because they can’t get you just because you want to leave the option for something scalable open. You don’t need to tell people you’re trying to figure out how to build a bigger business or get acquired or whatever else. Be a freelancer.

And if you want to build something that grows fast, to raise money for it, to manage and hire - be an entrepreneur. Don’t lunge. Don’t compromise. Don’t build for multiple customers on multiple rivers. Focus on one river and one dam. And realize that you don’t matter nearly as much as you think you do - your job is to create the conditions for your customers and employees to be successful.

Whichever you choose, do that one.

And know how hard it was for me to not end with a taylor swift joke. I had one written, but I deleted it. Now there’s just a blank space.

Sorry.