4-types-of-entrepreneurs

The 4 Types of Entrepreneurs and Which Type You Should Be

IntroductionCharlie Munger

Success in any endeavor is never guaranteed. But when it comes to internet business, you can stack the odds in your favor.

How?

By studying how successful businesses work.

In fact, I think it all starts with the graph below.

4-types-of-entrepreneurs

On this graph there are four extremes and infinite in-betweens.

I’m going to focus on the four extremes so you can evaluate where any business model falls on the graph and whether it’s worth pursuing.

Though this blog is all about internet businesses, you can use this model to evaluate any type of business, so I’ve also included some non-internet businesses in the examples below for illustrative purposes.

The Brick and Mortar Entrepreneur: Adding Limited Value to a Small Number of People

Brick and Mortar Entrepreneur

Consider an entrepreneur who starts a retail clothing store, a restaurant, or a furniture shop.

They may help a handful of customers on any given day, but they typically provide a small amount of value to a small number of customers.

In fact, the amount of value added here is so small that most retail positions are commodity jobs filled by unskilled laborers.

Likewise, these employees (and usually their bosses too – the entrepreneurs) don’t make much money because money follows value.

Entrepreneurs pursuing this path have significant overhead requiring a physical space with rent, at least a handful of employees, and products to sell.

These sorts of companies also require constant people management where managers or owners must make sure employees do their jobs well, arrive on time, are honest, etc.

As billionaire entrepreneur and investor, Peter Thiel, says of the restaurant industry (which applies to any startup brick and mortar), “margins are thin, wages are low, growth is slow, and investment in innovation is difficult to recoup.” 

Are there wildly successful restaurants and other brick and mortars that beat these odds?

Absolutely. (though the most successful restaurants franchise and become fast-food chains that add value to an ever increasing number of people)

But like I said, this blog post is about how to stack the odds of business success in your favor.

Starting a brick and mortar does not stack the odds in your favor.

The Higher Education Entrepreneur: Adding a Large Amount of Value to a Small Number of People

Higher-Ed-Entrepreneur

Imagine a portfolio manager of a hedge fund with his investors, a lawyer with a handful of clients, or a brain surgeon and his patients.

These people add a massive amount of value to a small group of people.

While these professions pay very well, you’ll also notice on the graph that as the value added increases, so does the stress.

From a purely financial perspective, stress doesn’t have any significance, but for the aspiring lifestyle entrepreneur, it’s a deal-breaker.

Imagine the level of stress a neurosurgeon experiences in the operating room knowing that one wrong move could kill their patient, the anxiety lawyers battle knowing they could be sued for malpractice, or the sleepless nights investment managers deal with when they have millions or even billions of dollars on the line.

But this isn’t the only stress higher-education entrepreneurs experience.

The astronomical increase in higher education costs make this path more and more stressful for the one having to pay back these loans and less and less attractive from an investment perspective.

Think about it this way.

Say you want to buy a high-quality car.

It gets great gas mileage, has excellent safety ratings, looks just the way you want it, and costs $40,000.

Maybe $40,000 is in your budget, but what if the car cost $80,000 or $150,000? At some point the car just isn’t going to be worth buying and won’t be a good deal.

This is also the case with higher education.

While it was a great investment for those of the baby-boomer generation, it’s becoming less and less of a good deal as its price skyrockets.

So while you can certainly build a profitable business by adding a large amount of value to a small number of people, I think there are better ways to make a living by taking advantage of the web.

The higher-education entrepreneurship path isn’t conducive to a lifestyle business, let alone one built on passive income.

The World-Changing Entrepreneur: Adding a Large Amount of Value to a Large Number of People

world changing entrepreneur

In the upper portion of the graph, internet businesses thrive because of their ability to add a lot of value to an unlimited number of people at scale.

Here, the income potential is massive.

That said, not all internet businesses make great lifestyle businesses.

Consider Facebook.

The platform has over 1 billion users, which means more than 1 billion people receive value from Facebook.

As a result, CEO Mark Zuckerberg is paid handsomely.

In this category, you’ll also find many of the world’s billionaires like Bill Gates, Larry Ellison, and Jeff Bezos.

All have added an enormous amount of value to an enormous number of people, often changing the world in the process.

I have immense respect for entrepreneurs like these, but I don’t aspire to build businesses like theirs.

The reason is simple: the stress in these positions is high and in our opinion, not worth the money, even if you could build a business with this magnitude of success.

Businesses like these typically have venture capital funding, an all-star team, and grow at break-neck speed all of which aren’t conducive to prioritizing lifestyle over work.

Also, the aspirations of those who start these businesses are typically world-changing whereas the aspiring lifestyle entrepreneur’s goals are more humble.

For instance, my goal with this blog is to prioritize relationships over profit, pay off my student debt, and provide for me family while helping people make money on the web. 

I’m not looking to change the world.

I just want to help people while accomplishing my entrepreneurship goals.

The Internet Lifestyle Entrepreneur: Adding a Small Amount of Value to a Large Number of People

lifestyle-entrepreneur

This is my favorite category, the one most conducive to lifestyle businesses, and the portion of the spectrum where I’m focusing my efforts.

Professionals who fall into this category include bloggers, authors, actors, musicians, and all sorts of internet-based artists.

This end of the spectrum is typically forgotten or misunderstood.

The idea of adding a small amount of value is confusing for many, since entrepreneurs are encouraged to add as much value to their target audience as possible.

Don’t get me wrong.

I believe you should maximize value added to your audience and I acknowledge the fact that products and information can radically improve lives.

Nevertheless, the mentality in this category is very different.

Think about this juxtaposition: Imagine a personal trainer who has a handful of clients.

Maybe he’s an excellent trainer, his clients pay him quite well, and he decides he wants to make a million dollars this year with his personal training business.

He realizes that, to pull off this goal he needs to train 1,000 clients and charge them each $1,000 over the course of the year.

In order to train all of his clients just once a week, he needs to meet with 20 per week or 5 per work day.

The trainer probably feels immense pressure to perform given the high premium he’s charging.

His clients likely also pressure him, wanting to get their money’s worth.

Now instead imagine this personal trainer who wants to make one million dollars this year starting a blog.

On his blog, he sells an information product worth ~$50 meaning he must make 20,000 sales in a year to bring in $1 million in revenue.

With the number of people you can reach via the internet, convincing 20,000 people to give you $50 is much easier than convincing 1,000 people to give you $1,000.

This latter example is exactly what happened with Mike Geary, the creator of “The Truth About Abs,” an informational product that teaches you how to get a six-pack which generates between $5,000,000 to $10,000,000 in revenue every year.

His product sells for $47.

Instead of personally training a few clients and charging them significantly more, he has instead opted to provide an information product to as many people as he can, and this strategy has paid off for him big time.

He enjoys an incredible lifestyle of relative ease, working wherever he wants, whenever he wants and has the immense joy knowing that he is helping countless people achieve their fitness goals.

Contrary to popular belief, entrepreneurs in this category can make just as much, if not much more, than the higher-education entrepreneurs. 

More importantly, they can have the flexibility and low stress lifestyle that is hard to obtain in other categories.

Conclusion

I think this graph can help you classify businesses and help you refocus your business goals if you have drifted from your target.

What sort of entrepreneur are you or what sort do you want to be?

Let me know in the comments!