The top 1% of Earners Are Entrepreneurs — But Not the Ones You See On TV

Pro Tip: If you want to earn a good living on your terms, first master a rare and valuable skill.

The entrepreneurs you see in Forbes and The Wall Street Journal are not representative of most top-earning business owners.

A recent study called Capitalists in the Twenty-First Century used IRS data to break down exactly how entrepreneurs in the top 1% to .1% earn their living. According to the study, almost none of these entrepreneurs look like Elon Musk, Mark Zuckerberg, or your favorite Shark Tank personality.

In many ways, the top 1% of earners among entrepreneurs are much more, well, ordinary. Their success is subtle, underplayed. They run the businesses you see around town. They are seldom in the news. They don’t spend most of their week day-trading cryptocurrencies and stocks. Their companies aren’t among the Fortune 500.

So, who are they?

What it takes to be in the top 1% income earners

According to the study, the top 1% income means that these business owners earn at least $390K per year. There are about 1.1 million entrepreneurs in the U.S. who fall into this 1% category.

Most 1% earners run what are called pass-through businesses. This means their business revenue is taxed only when it passes through to the owner as personal income (through a combination of W2 wages and distributions).

Here is what most successful entrepreneurs really look like:

1. Most successful entrepreneurs run professional service businesses

The study authors wrote, “Typical firms owned by the top 1–0.1% are single-establishment firms in professional services (e.g., consultants, lawyers, specialty tradespeople) or health services (e.g., physicians, dentists).”

I was excited to read this part. As a freelance copywriter, my business falls into this category of professional services business. It’s encouraging to see how common this path is to success — because you’d never know it by following business news.

The media limelight tends to follow more glamorous businesses: Hip ecommerce stores, consumer-facing apps, people who make a living as influencers, or the heads of Fortune 500 brands. But most successful entrepreneurs don’t run any of those businesses. They’re in the business of expertise.

Professional service entrepreneurs actively solve problems for a living. It’s the CPA who performs your taxes. It’s the consultant who implements your company’s new tech stack. It’s the freelancer who wrote your sales page copy, designed your website, or developed your web app.

Judging by the study, professional service businesses might be the most approachable path to business success. It’s also the most underrated.

2. Active vs. passive income among entrepreneurs

The researchers said, “We find that most private business profits reflect the return to owner human capital. Overall, top earners are predominantly human-capital rich, and the majority of top income accrues to the human capital of wage earners and entrepreneurs, not financial capital.”

That’s a lot of jargon. Pushing past the ominous terms, my understanding of this passage is that top earners don’t earn most of their income through passive investment. The majority of top-earning small business owners earn most of their income through distributions from their business — which tends to be tied to their own contribution and labor.

Media follows the money. A lot of business news is about markets. Is the economy moving up, down, or sideways? And on social media, all the viral content tends to gravitate toward the subject of passive income: How can I earn while I sleep?

People love to learn how they can earn without time or work. Maybe that’s why professional services receive such little attention relative to their rate of success. By definition, professional service firms require a lot of active work. Service is half the name.

When most of us think of the top earners, we imagine people who make most of their money through passive investments like we see in the media. But according to the study, most 1% income earners among entrepreneurs primarily take home active income.

3. Specialization and focus are key

“Most pass-through business income accrues to undiversified, working-age owners of mid-market firms in skill-intensive industries.”

Diversification is an important term in finance. It’s a means to hedging your investment to ensure that no single crisis can cripple you. But diversity in investments is different from diversity in income. According to the study, most successful business owners earn the majority of their income from a single source: their business.

On one hand, this isn’t very surprising. It’s their full-time venture, after all, so you might expect that most of their income is generated from a single source. Except here’s another line we’ve all heard: most millionaires have seven income streams. Where’s the disconnect?

Successful professional service firm owners are highly specialized. They made it to the top through incredible long-term focus. The catch is that you can have diversified income streams that are not evenly distributed.

Here are my six income streams as an example:

• Writing services
• Ebook sales
• Stock dividends
• Interest from savings
• Rent from a spare room
• Medium earnings

These income sources are not evenly diversified. About 95% of my yearly income is derived from writing services. The remaining 5% is generated through the combination of the other five income streams, with rent and dividends accounting for most of that.

Is my income diversified? Yes and no. Technically, I just listed six income streams. But at the end of the day, if the bottom five income streams disappeared, I wouldn’t notice. If the top income stream disappeared, I’d be scrambling.

The most straightforward path to successful entrepreneurship

Launching a professional service business is one of the most approachable paths to entrepreneurship.

Sure, the business model is not as sexy as building the next disruptive startup, launching a hip ecommerce brand, or becoming an influencer. Most entrepreneurs in this space will never see their business mentioned on the cover of Forbes or The Wall Street Journal.

But on the flip side, offering a professional service is highly underrated as an entrepreneurial path. It’s very realistic to earn a great living performing creative work (mostly) on your own terms and schedule.

You get to solve problems for a living. You master an in-demand skill and get to experience the satisfaction of continuously honing your craft. The better you become, the more you earn.

I started my freelance copywriting practice over six years ago. In that time, I have grown my income from minimum wage to over six figures — and the business continues to mature each year. Freelancing changed my life and was the best thing I ever did for my career.

Yes, entrepreneurship isn’t for everyone. It’s not easy. But if you’re passionate about a particular craft, and you’re willing to put in the work, I believe professional services is a wide open ocean. Demand for experts in most fields seems to far exceed supply.

So, what services will you offer?

—

Sign up for my newsletter, The Craft & Business of Writing, for weekly tips for building a career you love as a writer.