There are two types of entrepreneurs. Type A entrepreneurs are born as entrepreneurs. They are the naturals. They have to go after rewards and maximize the value they create all the time. It’s a 24/7 lifestyle for them. They are unemployable. They would get bored to death if they have to work as an employee.

Then there are type B entrepreneurs. These are the people drawn to entrepreneurship because of the rewards, money, fame, and/or “freedom.” There’s nothing wrong with being a type B entrepreneur. If you aspire to become an entrepreneur, more power to you.

Working towards greater rewards in an ethical way is a virtue. People pay you more rewards only if they perceive that you provide them more value. By pursuing entrepreneurial goals, you are providing more value to the world. That is something to be acknowledged.

Pitfalls for Type B Entrepreneurs

There are a few pitfalls that the type B entrepreneurs need to be aware of. These are the habits that we develop as employees. Once those habits are developed, it’s not easy to quit them when you make the switch. Most of the time, you won’t even be aware of them.

You’ll be looking at your results and you’ll wonder why they aren’t as good as you want them to be. The reason is the habits that you have developed as an employee. If you’re an employee and you haven’t made the switch yet, you might also read this post carefully, because you have the chance to update your programming, while you’re still an employee.

The main difference between an employee and an entrepreneur is how they are paid. An employee is paid by time. An entrepreneur is paid by results.

The difference in incentives results in a huge difference between the employee mindset and the entrepreneur mindset over time.

Risk Aversion

Humans have a loss aversion bias. Losing $100 hurts us more than winning $100 pleases us. Like all biases, loss aversion has its evolutionary roots.

An employee does not have to take any risk at all to get paid at the end of the month. Most of the employees won’t receive a bonus if they take a risk and succeed. On the contrary, if they take a risk and fail, they’ll be reprimanded and in worse case, they’ll lose their job.

If the best case scenario is to stay put and the worst case scenario is to lose their job, why would an employee take a risk?

In order to produce results, an entrepreneur has to take emotional and/or financial risks. They have to take the risk of losing money, losing time, getting rejected, the humiliation of public failure, and so on.

Risk taking is a muscle that atrophies if you don’t exercise it. If you develop a high level of risk aversion as an employee, you might fail as an entrepreneur, because you won’t be able to take sufficient levels of risk.

Luckily, you don’t need to wait until you start on your own to exercise your risk taking muscles. You can already start exercising your courage muscle when you’re still working as an employee.

Which risks can you take in your current job?

Need for Status

This is really subtle. Even entrepreneurs are not immune to this. Only top entrepreneurs can let go of this. This is the need to look good. This is the need to be approved by others. This is the need to have a fancy title.

Real entrepreneurs know the need for status and take advantage of it. Nowadays, promotions come with major title changes and minuscule, if any, raises. You can see that trend in fancy LinkedIn job titles.

Even the kids fresh out of college start with a title that includes a manager. By including the word manager in a job title, you draw relatively good employees without having to pay them as a real manager.

Even entrepreneurs have the need for status. You’ll encounter a lot of self-employed people that don’t have a single employee calling themselves a CEO. There are parents offering to pay their children to pick up an academic career, because of the status a professor title would bring.

• Do you prefer to own a successful waste management business or a barely surviving IT business?
• Do you prefer to own a thriving hardware store or a struggling healthcare practice?
• Do you prefer to be a bestselling author or a Nobel Prize winner?

Your answers to the questions above are a good indicator whether you have the need for status or not. If you want to be successful as an entrepreneur, you need to let go of your need for status and looking good.

Coasting

When you’re an employee, you’re paid for your time. You’re paid for being physically present in an office from 9-to-5. That doesn’t incentivize you to provide the most value, does it? You can check your mails, your social media feed, chat with friends and family, and if you feel like it, you might do some busy work for an hour or two in the afternoon. That is a recipe for disaster for an entrepreneur who is paid for the results they produce.

Entrepreneurs need to cultivate bias for action and not only any action, but the most valuable action they can think of.

How can you maximize the value that you produce per unit time?

Which activities would produce the highest value per unit time?

Focusing on the Primary Benefits

The primary benefits are the material benefits that you can quantify such as your wage, number of paid leave days, healthcare package, and so on. Employees are focused on their primary benefits, because they think that the primary benefits are their only benefits.

Entrepreneurs have to think about the secondary benefits as well. Secondary benefits are exposure, experience, track record, connections, relationships, skills, new opportunities, and so on. They don’t have a price tag on them and therefore easily missed by people with the employee mindset.

Entrepreneurs need to be engaged in activities that don’t result in immediate benefits, which may seem ridiculous to employees. However, entrepreneurs know the importance of building tax-free equity today for future benefits.

Making Things More Complicated than Necessary

An employee is paid by time. That means the more an employee works on a task, the more they are going to get paid for that task. Therefore, employees work on a task until they are bored of it or being warned by their supervisor to complete it. As a result, employees don’t have the incentive to keep things simple.

Employees can go into as much detail as they want. They can make things as complicated as they wish. Employees think that the more complicated they make things, the more work they have done. Entrepreneurs know this is not the case. They know the simpler, the faster a solution, the better it is.

Employees think that the more complicated they make things, the more work they have done. Entrepreneurs know the simpler, the faster a solution, the better it is.

The complicated solutions developed by employees don’t solve the problem at hand. Worse than that, these solutions produce even greater problems down the road. In some cases, paying an employee their full wage and telling them to stay at home and to not touch a single task is way more profitable for the company on the long term than letting them work on a task and mess up the whole business.

Limiting Beliefs

Employees are paid by time. They are not incentivized to produce results. Another result of that fact is that they have all kinds of reasons why a task can’t be done. The more limiting beliefs an employee has, the less they have to do. It doesn’t matter for them, because they will get paid at the end of the month anyway. Not the same for entrepreneurs.

Entrepreneurs have to produce results in order to make a living. Therefore, they have to find ways to overcome their limiting beliefs. We humans are extremely capable beings, but we have to be incentivized to get certain tasks done.

When you think that a task cannot be done, a goal cannot be reached, a problem cannot be solved, think about someone putting a gun to your head. Would you find a way to do the task, reach the goal, and solve the problem? My hunch is you would. Why are you not doing it in the first place then? The answer is limiting beliefs and/or lack of self-motivation.

If you want to make it as an entrepreneur, you need to find a way to overcome your limiting beliefs and to cultivate self-motivation.

Summary

Employees are paid by time and entrepreneurs are paid by their results. As a result, employees and entrepreneurs develop different mindsets. The problem with the employee mindset is that you can’t get rid of it overnight when you make your switch from employee to entrepreneur. You need to start working on developing your entrepreneur mindset way before quitting your job and starting your own business.

What are the manifestations of the employee mindset that you recognize in yourself? How can you overcome them?