Freelancer, entrepreneur—aren’t they the same thing? Some say freelancing is a step on the road to entrepreneurship. Others say they are two different paths with distinct outcomes. So why does it matter? If you want to be a successful entrepreneur, it’s important to understand the difference so you can focus on the right activities to reach your goal.

Different Fuel, Different Machines

The key difference between a freelancer and an entrepreneur is how they fuel their business. Marketing guru Seth Godin explains that freelancers rely on their own work to generate income. They are the machine. If they aren’t working, they don’t get paid. But an entrepreneur builds a business using others’ resources. They create the machine. If it’s successful, the business still generates an income even if they take themselves out of the picture.

That means a freelancer focuses on marketing a specific skill to prospective clients. For example, a web designer helps build great websites. The sharper their skill, the more demand they can snap up. They might seek additional training to increase the value of their service. Or they might specialize in a specific market segment, then work to develop relationships within that group. It’s a great way to start a business but to generate more income, they have to work more hours.

In contrast, an entrepreneur focuses on building a structure. To create more income, that structure needs to generate more activity. They might do that by automating day-to-day tasks or hiring employees to operate the business. The skills of a freelancer might provide valuable insight but the entrepreneur’s job is directing rather than doing the work.

While there are differences between freelance and entrepreneurship, the two aren’t mutually exclusive. Some entrepreneurs start a freelance business based on a skill they’re passionate about. But as their business develops, they reach a plateau and need to shift to grow. They switch to an entrepreneurial model to create a more sustainable business. Now they run an enterprise where others perform that skill and they direct the overarching machine.

Are You Camp Freelancer or Entrepreneur?

Not sure which you fall into? Ask yourself these questions, adapted from Inc. magazine. They’ll help you decide which direction appeals to you.

• How do you get paid? – If you get paid by the hour or the project, you’re probably a freelancer. You have a guaranteed cash-flow, assuming you find clients and they pay on time. If you’re paid from the profits generated by the business, you’re an entrepreneur. It’s not an iron-clad source of income but could be even more rewarding if the business does well.
• Who directs your work? – Freelancers might work on their own schedule but deadlines and deliverables are determined by the client.  That provides clear direction. Entrepreneurs set their own deadlines, requirements and assign tasks and responsibilities. That provides greater freedom, but carries more responsibility.
• Do you make a living from skills or ideas? – Freelancers earn income from a skill or expertise. They write, code, train dogs or prepare gourmet meals. Entrepreneurs make money from their ideas.  Steve Jobs didn’t know how to code but he had a vision for ground-breaking technology that would fundamentally change the way people communicate. His focus was on design, manufacturing and marketing. And his income was largely based on how well Apple performed.
• What’s your risk tolerance? – Freelancers want a steady stream of income from a successful business they manage. Success comes from building a predictable client base that generates challenging and rewarding work. Entrepreneurs hope to build a long-term profit machine but the approach is riskier. It’s all on them to come up with ground-breaking ideas and steer their vision into reality.

Which is better—freelancers or entrepreneurs? It depends on your goal. Freelancers offer the satisfaction of honing your craft while entrepreneurs aim for more self-sustaining pursuits. Use these question to help discover your path.