Entrepreneurs make Money Differently.

When it comes to entrepreneurship often I find people discussing, "hard work, vision and luck." Does this mean that a CEO, a cricketer or an artist needs lesser hard work, vision or luck? While Prof.Saras in another article in this issue of Businessgyan Digest talks about how entrepreneurial decision making is different from that of managers, I would like to focus on how an Entrepreneur's way of making money is different from that of a manager. The focus is not really on who makes more money but in the manner in which it is made.

Putting together less to create more, is how an entrepreneur creates value and his wealth. The entrepreneur makes his money from this process of thinking up new ways of putting together resources, identifying opportunities and in this process sets up a value generating system. Robert T Keyosaki in his book ‘Rich Dad Poor Dad' calls this an "Asset".

A manager on the other hand earns his money based on his time. So he works for a month; he earns his salary for the month. This is no reflection on the amount of money he earns; Jeff Immelt CEO of GE earns more money than most entrepreneurs. The amount of money the Manger earns depends on his competence, his skills and his social network within and outside his organization. Yet it is linked to time. The amount of money the entrepreneur earns depends on the value his asset produces, he could have spent years building it, but the value the asset produces could be negative or it could be a Youtube getting bought for US$1.65 billion in less than two years.

Hard work, vision and specially luck are all required whether one is an Entrepreneur or a Manager. Based on whether the asset is producing the cash flow or ones time is being spent to generate the cash flow we could think of  this The Money Making Spectrum:-

Steve Jobs understands this difference between getting paid as a manager and getting rewarded as an entrepreneur. In his second avatar at the helm of Apple when he got the board of the company to invite him back to rescue Apple, he asked for a One Dollar Salary and at the appropriate time the Board rewarded his efforts with shares in the company. After Ipod's success these shares were worth a lot. What Steve Jobs did at Apple is indeed entrepreneurial. Since he got the company to focus on a totally new market while leveraging Apple's existing equity as an iconic brand. So much so that now Apple is changing its name from Apple Computers Inc. to just Apple Inc. Imagine if this turn around had not happened Steve Jobs would have a lot of one dollar notes for his efforts.

At the very core of the entrepreneurial behavior is this understanding that the reward is in the creation of something valuable, and that the reward is there not at the end of the month but much later. This leads to a lot of differences in the way one approaches issues. Entrepreneurs have a much longer term view of what they are doing. As owners of the Business since they get rewarded only if the business performs their quality of thinking towards their business and attachment to it is far greater.

When one is creating an Asset it implies that it should produce cash flows without the creator. The most expensive yet undervalued resource that the entrepreneur has is his own time. One of the things that the entrepreneur must keep doing is to eliminate his time required from the asset. The effort should be to create a process, automate things and get managers to manage it.

The Entrepreneur needs to spend time in the business only when a suitable talent is not available or till the time he can afford one. His time is needed to create more assets and reorganize assets so they can produce more.

The entrepreneur's role is to make it happen. In the end the entrepreneur creates value not only for himself but for society. As Ross Perot puts it, "Most new jobs won't come from our biggest employers. They will come from our smallest. We've got to do everything we can to make entrepreneurial dreams a reality."     

The author is Chief Catalyst of Businessgyan. He is an alumni of IIT-M, IIM-B. His areas of interest include business strategy & innovation. E mail: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Issue BG71 Feb07

Related Items:

---

Be first to comment this article

Only registered users can write comments.
Please login or register.