Printed on April 1 2011 in The Economist

1. The Babson Entrepreneurship Ecosystem Project
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Entrepreneurship ≠ Self-employment
Why policy makers must separate programs for entrepreneurship and self-employment
Daniel Isenberg, Ph.D., Professor of Management Practice, Babson Global
Executive Director, the Babson Entrepreneurship Ecosystem Project
April 1, 2011
In the 1970s the economist E. F. Schumacher set the scene for environmental sustainability with Small is
Beautiful. But small is not beautiful for entrepreneurs: small is a stigma. Small connotes selfemployment and stagnation, which is not only different from entrepreneurship; it is fundamentally its
opposite. In the words of Abhi Shah, an award winning entrepreneur from Ahmedabad: “Thing big!
Thinking small is a crime!”
Entrepreneurship vs. self-employment. A century ago, with his third-grade education and as a WWI
veteran, my immigrant grandfather became a wallpaper hanger in Philadelphia. He
eventually owned a wallpaper store, but he never imagined becoming a Wal-(Paper)Mart. He did not respond to or create opportunities to grow; to the contrary, for his
children he wanted respectable, salaried jobs. Not self-employment.
Three generations later, my son is working 24x7 to set up a novel nightclub concept. He
wants to creatively conquer a new market, and another, and another. He will make a
good—maybe great—living, but he will not be satisfied. My grandfather was selfemployed in a small business; my son is an entrepreneur.
Small businesses in Abu Dhabi
Entrepreneurs have aspiration. Aspiration is the continental divide between the entrepreneur and the
self-employed. We have many terms for entrepreneurs; “high impact,” “high potential,” “high
aspiration,” “transformational,” “gazelle,” and “opportunity-driven”. But these terms all refer
to more or less the same thing: the people creating these ventures are driven to
accomplishment. To them, thinking small is indeed a crime.
Entrepreneurs continually respond to opportunity. In the 1930s two young Saudis, Saleh and Sulaiman
Abdul Aziz Al-Rajhi, began exchanging Hajj pilgrims’ foreign currency from outdoor canvas mats. Modest
in demeanor but ambitious in scope, these young brothers won the trust of Muslims looking for a safe,
sharia-compliant haven for their cash. It soon turned out that the Al-Rajhi brothers were quick decisionmakers with a sharp sense of opportunity, and they used their by-then-substantial cash deposits to
invest in various ventures. Ultimately the Al-Rajhi Bank was formed, and today the Al-Rajhi’s are one of
the wealthiest non-royal Saudi families, and their eponymous institution is the world’s largest Islamic
bank.
Even while operating from their canvas mat, the Al-Rajhi brothers were entrepreneurs, not smallbusiness owners. This distinction is an important one for policy makers, who believe, implicitly or
otherwise, that some unspecified percentage of self-employed will naturally transform themselves into
entrepreneurs. This is a complex issue, but the best research suggests that this transformation is very
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revolution@babson.edu
+1 (781) 239-6290

2. The Babson Entrepreneurship Ecosystem Project
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rare, a conclusion that is supported by realizing the inherent differences between the two: If my
grandfather thinks that self-employment is a fate to be avoided, why would he suddenly develop
entrepreneurial aspirations?
Entrepreneurs require different resources. To oversimplify a bit, high aspiration entrepreneurs need
customers, risk capital, less red-tape, government non-interference, and global access. They thrive in
uncertainty and chaos. The self-employed and small business owners require bank credit and microloans, skills training, stricter regulation in many cases, and heavier overall government support. They
require predictability and stability.
Some policy leaders are getting the message. Canada has recently commissioned a special policy study
for high-potential entrepreneurs. Scottish Enterprise has the following on its home page: We want the
companies we work with to be inspired to raise their sights and ambitions and consider their business
from a global perspective. Enterprise Ireland has a program for “high potential start-up companies.”
Startup Chile is attracting high aspiration entrepreneurs from all over the world. But even in venturefriendly America, the confusion is deeply embedded in the Small Business Administration, which tries,
haltingly and confusingly, to capture both entrepreneurship and self-employment in one big net. This is
a mistake, and separate organizations are required.
And every non-US government has its “SME” [small and medium enterprise] policy or program. But
these terms simply don’t appeal to entrepreneurs, who see themselves as becoming big by impacting
their markets. In the language of SMEs, entrepreneurs are “S”s becoming “M”s and “M”s becoming “L”s.
The last thing an entrepreneur wants to do is to remain an “S”. So let’s reorganize government policy to
support these ambitious, entrepreneurial engines of economic growth.
Daniel Isenberg is the founding Executive Director of the Babson Entrepreneurship Ecosystem Project and Professor
of Management Practice at Babson Global. Professor Isenberg has taught at Harvard, Columbia, INSEAD, Technion,
and Reykjavik. From 1987-2004 he lived in Israel and contributed to the entrepreneurial revolution there as an
entrepreneur, venture capitalist, consultant, and educator. A frequent Harvard Business Review contributor, in
June, 2010 Harvard Business Review featured Professor Isenberg’s “How to Start an Entrepreneurial Revolution” as
the “Big Idea” lead article. His popular blogs have appeared in Forbes, Huffington Post, Economist, and Harvard
Business Review Online.
________________________________________________________________________
revolution@babson.edu
+1 (781) 239-6290