Time to Market

Time to Market S01 E02 – The State of B2B Entrepreneurship in 2023

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Étienne Garbugli: Hello and welcome back to this podcast. I'm joined by Sean K. Murphy of SKMurphy. And today we're gonna be discussing the state of B2B entrepreneurship in 2023. Does it still make sense to be an entrepreneur? Is it the best path after school? Is it the best path when you're more forward in your career?
Let's discuss this. Sean, how are you today?
Sean K. Murphy: Good. I'm really good. I'm happy to be here. This is a good set of topics. I think the first question to answer is, “When and why should you leave your job?” Derek Sivers answers this with his Tarzan model. When Tarzan is swinging through the jungle, grabbing vine after vine, he is very careful not to let go of the vine holding him until he knows that the new vine can support his weight. When people come to the Bootstrapper Breakfast and they have a good job, we say, just view that as your first investor and don't let go.
Étienne Garbugli: Derek Sivers is the guy who founded CD Baby, which we were using at my past company. He's a very interesting person to follow. I was reading recently about how he structured the acquisition for his company: he put everything in a trust fund that generates income for him for the rest of his life.
His Tarzan model makes a great point. A lot of founders think, "I must jump in and focus on my startup full-time." It's probably based on the fact that they were working full-time on their job before. It's interesting to take a longer view of entrepreneurship.
These founders will then leave their job and quickly start getting stressed because the money's not coming in. They're not used to not having that money coming in. I have done this in the past, so I can't completely blame people for doing that, but it's not a good idea because you end up thinking about money all day, as opposed to the best ways to move forward.
They should be thinking about the best ways to be creative, to find the right solution, and to engage casually and network with different types of actors in the industry. I also feel that it's skipping over one of the biggest benefits of being employed, which is being able to do problem discovery and to look at and evaluate different opportunities from within.
When you're working for a company, there is so much you can learn from different decision-makers. You can figure out how they think and how they evaluate different options. I encourage entrepreneurs to look at different solutions their employer is paying for: are they happy or dissatisfied? Why did they decide to go with these solutions?
Be part of decision-making for new products. Especially in a large organization, you can ask questions of different types of stakeholders and do problem discovery. There's a lot that can be done while you are still employed--beyond earning a paycheck--that will give you the flexibility to go all in at a time of your choosing.
Sean K. Murphy: You made a number of good points there, Étienne. I don't think many first-time entrepreneurs realize that getting a startup off the ground is fundamentally a set of fragmented activities. There is a longing for clarity, a desire to advance like a laser with a single pure wavelength of light in a tightly focused beam. It rarely happens that way.
The second thing they miss is how much a salary gives you peace of mind. It takes a long time to recapture that feeling after you start your own firm–and I’ll let you know when I recapture mine, but it’s only been two decades.
I also like your point about taking advantage of being inside a company. Back in 2001, I'd been at Cisco for a couple of years–this was my second tour of duty; I had worked there from 1990 to 1994–and I realized I did not want to work for a big company anymore. I realized that 90% of what I was not reacting to was not anything specific at Cisco; I just wanted to get out and do my own thing. But as you said in your remarks, I made a list of things I could do while still inside that would be much harder once I left.
I figured it would take me another two years to cover the important things on my list. I was not planning to compete against Cisco in any way, but as you said, there were things that having the badge gave you access to, and conversations you could have that you can't have as an outsider. I agree with you that entrepreneurs undervalue that access.//
Étienne Garbugli: But it's kind of a downer of an answer. If you meet an entrepreneur who is super motivated and super excited about an idea or a new concept, and they are coming up with a technology to capitalize on it, telling them to take it slow or keep their job is not what they want to hear.
It's deflating to them because they have that excitement, that passion, that it's the right time for them to start a company. This passion can create the drive to start and pursue this idea no matter what the signals tell them, which can be problematic downstream if it doesn't lead them to the right setup.
Sean K. Murphy: I run across many entrepreneurs who are on the cusp of that decision. I'm always the Dutch Uncle. Because I have met a lot of people who took the leap and are not very happy– not immediately, but nine months in.
And I have these conversations with myself at three in the morning from time to time. I wake up, go look in the mirror and say, “Hey, you got what you asked for, but you should have been more specific.”
Étienne Garbugli: I think you’ve seen these charts where you start with the leap of optimism, uninformed optimism, that everything is going to be great. .I see that often with entrepreneurs where they have a new idea and they are confident it’s going to work. I think that’s a key part of being an entrepreneur.
You must see this.
Sean K. Murphy: Sure, I do, but without thoughtful analysis and some constructive pessimism to balance the optimism and create a realistic plan, I think it kills more companies. Unbridled optimism gets you into situations where you must come up with a breakthrough or a creative solution. And if you can’t, then you’re dead.
When you talk to entrepreneurs who have made it through, they say, “Yeah, we got into a tight spot but then we figured this thing out and were able to move forward.” But the people you don’t meet are the ones who would say, “We got into a tight spot and couldn't figure out what to do.” So I think there is some survivorship bias in those “take the leap” stories.
Étienne Garbugli: For sure–in all the success stories, definitely. But often, it seems to me that entrepreneurs are starting a company that is a rejection of their past life. I will speak with an entrepreneur who is an expert in X and Y, but they want to start something completely different. I was discussing with two founders recently who are experts in a specific field where there's a lot of money, but they're looking for another type of problem that has nothing to do with what they know.

I don't know if they are looking for a new challenge or trying to emulate other entrepreneurs they admire, but they don't seem to be taking stock of what makes them special that would allow them to go faster.
Sean K. Murphy: We work with many older entrepreneurs who are in their late thirties, forties, and fifties. I always advise, "Don't set fire to your experience. Don't get rid of 10 or 15 years of hard-won insights and start from scratch.
I think there's sometimes a desire sometimes to regain their virginity. But most successful entrepreneurs find a way to build on prior experience and prior expertise. They may put a twist on it. They may invert it or look at it from a different angle. But you can rarely come to a market de novo or "blank slate" and not get outperformed by people with some experience in that field.

It's OK if many on the team come with fresh eyes, but there must be at least one person on the team who understands the market or the customer base. The team must have some domain knowledge, or you will likely suffer from a lot of negative surprise.

Étienne Garbugli: It's still feasible, but it's definitely a longer path when you need to learn what other people already know to be able to put your own spin on your product.
You can see startups succeed like that, but they have raised the degree of difficulty level a few notches. Entrepreneurship is not about pursuing the most difficult path you can find.
You want to be able to walk, then be able to run, then be able to scale something. But if you don't have something that generates income within X amount of time, it will be very difficult to sustain or find a viable model. There are a lot of entrepreneurs whose success is partially based on the fact that they just kept going longer than others.
Sean K. Murphy: Because they had the ability to sustain. We tell people, let's crawl and then walk really fast and wave our arms before we strap on the jet pack.
Étienne Garbugli: But that's, that's not exciting, Sean, that's not exciting.
Sean K. Murphy: I understand. But I normally work intake at the entrepreneur trauma ward, so my perspective on startup failure is that it’s more than a remote possibility.
I'm a huge believer in entrepreneurship. I've dedicated the last 20 years of my life to working with entrepreneurs. I love working with entrepreneurs, but bootstrapping is like going on a wilderness hike. You should have three ways you can get water: carry some water, some purifier tablets, and one of those handy purifier straws.
When things go wrong, which they do from time to time in the wild, you want to be able to get back to civilization. I don’t know if doing a startup is making a journey in a hostile landscape, but it’s certainly a high-hazard environment.
Étienne Garbugli: For sure. Even the way you fund your startup can be problematic: I meet entrepreneurs who have been saving up for years and they have fifty to hundred thousand in the bank that they are able to use to start their startup.
Oftentimes it just changes their way of thinking: the next step or the next phase can be much further along. They can start out walking instead of crawling. It changes their way of approaching the startup.
Sean K. Murphy: I forget who said it, but one of the reasons why you see many, many fewer gas stations fail than restaurants is that a restaurant is often an aspirational good. But when you start a gas station, you're looking at it as a business. I think you have to be careful not to confuse your aspirations with what it's gonna take to build a business.
Étienne Garbugli: Anthony Bourdain writes about why you should not start a restaurant in “Kitchen Confidential.” He talks about all the people he has worked with who were not restaurant experts who started one out of passion. They tell themselves, “I'm good at inviting people to my home and making food for them. We have good evenings, so I am going to create a restaurant based on that.”
But they skip over the fact that starting a restaurant will cost $500,000 up front. You need to find a cook and work long hours. It's more than inviting friends over and bringing out the food you prepared—a lot more.
Anyone considering starting a restaurant should read Anthony Bourdain's book "Kitchen Confidential."
Sean K. Murphy: I am having enough trouble mastering this little consulting business I started 20 years ago.
As we talk about this, I think looking at entrepreneurship as a career or a calling is helpful. When you are in the grip of one idea, it's hard not to believe that you are almost there, "This is the idea that's going to do it!"
But the reality is it will take a while, and you need to understand who you want to serve and what technologies and skills you need to master?"
Don't assume there is a clear and short path to success; plan for a sustained effort.
Étienne Garbugli: Yes, be strategic. Consider what industries you want to understand. It’s a rare pattern where you see entrepreneurs starting out who are strategic about building their career towards entrepreneurship.
I have spoken with a few people who decided to offer certain kinds of consulting or to work with specific types of companies so they could gather information for a longer-term plan. For example, one entrepreneur I spoke with focused on consulting in analytics to determine the best solution for a particular market.
So they layered different initiatives that generated money on top careers that gave them the experience they needed to reach their goal of being successful entrepreneurs.
I've done the same thing. For example, I was running out of cash in a past startup and had to stop because I had no way to sustain myself. After that, I built products that gave me enough income for ramen profitability, which gave me a baseline to explore more and be more flexible in how I approach starting businesses.
I'm still exploring but in the context of a longer-term plan that allows me the freedom to investigate new products, solutions, or businesses.
Sean K. Murphy: I think that most entrepreneurs arrive at this approach after they fail three or four times–speaking for myself. If you keep your failures small they are manageable. It’s hard to take a longer view when you have the sensation you have the key in your hand, but it’s safer and more robust to assume it will take several more iterations and refinements.
Étienne Garbugli: But isn't that part of the problem that we focus on the Eureka! The moment where we discover the idea? The idea is incorrectly perceived as the starting point for a business. People say, "I don't have an idea for my business yet," or "I haven't come up with an idea."
It might be more valuable to start with an audience or with some consulting work that allows you to explore the boundaries of a particular problem or situation. Start with something else that helps you build towards becoming a successful entrepreneur in B2B.

Sean K. Murphy: I like your idea of building an exploration vehicle that allows you to gather more information on a break-even basis. For example, when you see the early stage of a construction site, you don’t say, “I don’t understand why they are wasting all that time on scaffolding when they are only going to tear it down later,” because the scaffolding is what enables the construction of the building.
I agree that you're much better off starting with services and looking at no-code or low-code options for your first product. As a rule of thumb, if there's demand for a product, there's demand for a service that delivers the same result as the product does.
Another thing about services–especially when you're in a market exploration mode–is that they're an order of magnitude easier to adjust and refine. Entrepreneurs tend to look down on services, but it's a better way to start. Both for flexibility in modifying features and in getting some revenue coming in. A service allows you to ask, "Will you pay for this result if I deliver it?" Which is a very different question from, "Would you pay for this product if we develop it?"
That revenue offers undeniable proof that somebody will pay to solve this need. This is essential to verify because another common failure mode is that people love your idea, but not for their own use, for other people.
It feels like encouragement when they say, "This is fantastic! You should go talk to those guys." But it's actually a no, a hard no.
Étienne Garbugli: They are really saying, “Let me pass you on to someone else and hopefully you figure it out.”
Pieter Levels is the founder of Nomad List. He wrote a book called “Make” that made him one of the stars of the Indie Startups movement. He gave an insightful talk where he said that people need to be more interesting to be able to find their opportunities.
Because many entrepreneurs have a tech background, either as programmers, marketers, or salespeople, there are many markets that they may not pursue. It would be interesting to see more farmers joining startups.
Entrepreneurs from diverse backgrounds and mindsets might see more varied opportunities uncovered than the current big shiny objects like AI. It might be interesting to try to become an expert in a Blue Ocean area compared to a Red Ocean. The less sexy areas might offer many opportunities people are not looking at. Many areas are not well covered and are ripe for at least incremental innovation if not a breakthrough. Levels’ point was that the more you do to keep your mind open to new things, the more likely you are to spot new opportunities.
You and I have talked about how Twitter is often an echo chamber. I think that’s happened to some entrepreneurship ventures where they believe they are discussing different ways of doing things. But they are only looking at a subset of the options and missing a broader spectrum of opportunities.
Sean K. Murphy: I always want to be different. It’s easy to see what’s there and hard to see what’s missing. One analogy I use is planting trees. An entrepreneur walks through the forest and sees this huge oak–maybe it’s got a sign on it that says "Atlassian" (or pick your favorite huge successful tech company.) And the entrepreneur says, “Wow, look at that, that’s a great place for a tree.” And they walk up to the trunk, plant their acorn–their little startup–about a foot from the base, and say, “This will be a great place for my tree.”
But when you see a fully-fledged ecosystem, it often means there is very little, if any, opportunity. It’s what you are calling a Red Ocean. But it’s hard to aim for the open spaces.
I can remember teaching my daughter to drive. We went out early on Sunday before church to a big empty parking lot at a shopping center. I say empty, but a couple of light poles are spaced out over the asphalt's expanse. She starts driving, and it’s as if there were a massive electromagnet underneath those poles. She drove right at one of the poles. I said, “aim between the poles, aim for the open spaces.” But it wasn't easy because aiming for the gaps is hard. Just like it's hard to target underserved or unserved markets, so they end up being the 17th player in an established market, and they languish.
Étienne Garbugli: Yeah. I hope we can dig into this in a future episode. But right now, let’s take a step back and look at it from 10,000 feet. Does it still make sense to start a business in B2B in 2023?
Sean K. Murphy: Oh, absolutely. Absolutely. You have to build on your own expertise and experience. It's easier when you can assemble a team of at least one or two other people with shared values but complementary skills and experience who can help you. I think there's a lot of opportunity in addressing underserved and unserved markets as new technologies come to the fore and enable new possibilities.
But you have to be strategic about it and do things in a way that allows you to tolerate a high rate of failure. For example, assume that trying something new will only work about one-third of the time. I think that’s a good model for planning incremental steps, iterations, and refinements that will ultimately work. But anything new takes at least three tries. But when you're in the grip of that idea, that's a hard rule to internalize.
Étienne Garbugli: Do you feel like the opportunities are shifting or have they already shifted?
Sean K. Murphy: Yes to both: the future arrived yesterday and remains in motion. The future is constantly shifting. But I try to bear in mind this quote by Marcelo Rinesi when talking about the future: “The future is an illusion; all change is happening now.”
I like the pacing layers model that Stewart Brand describes in “How Buildings Learn.” Different aspects of a building change at different rates. Once someone has picked a site and built on it, if it’s more than two stories, it’s unlikely they will move that building to a new site. But the wall coverings and the furniture changes much more frequently, the exterior more slowly, services like plumbing and electrical more slowly, and the load-bearing structure rarely changes.
So many technologies will change very slowly because they have been incorporated into mission-critical infrastructure. I think we will be using electricity and web browsers for a while longer.
There is another aspect of his that Paul David addresses in “The Dynamo and the Computer.” All the pieces were in place for a modern factory, for example, electrical power vs. hydropower that produces mechanical power, and quarter horsepower motors that allowed you to run very long assembly lines compared to belt and pulley systems from a central water wheel. But it took 20 years because the factories were paid for, and people knew how to operate them. So there is always a lot of inertia in successful systems. And it’s sometimes the case that innovators don’t fully comprehend that some traditions solve problems that we forgot we had.
Étienne Garbugli: I feel like it's been shifting to some extent because it's no longer about building the product. Entrepreneurs often use no code tools now. We will talk about ChatGPT in an upcoming episode which is another shift. These tools, and others, provide value out of the box, which can be turned into more value.
Sometimes it's more about assembling different elements of value and creating new gaps that can be repackaged as a new solution to address other needs.
It's more about being able to gain distribution. It's more about being able to find the right opening to be able to innovate, to build relationships and to work with stakeholders. I'm very excited about this because I think it will attract new and different innovators who never considered themselves entrepreneurs and never planned or aspired to be entrepreneurs.
But we now have all of these new Legos, and people realize they can create a solution for themselves. Once they do that, they try to share or sell it to others like them who may have the same needs. So the “lead user” role from Ev Rogers’ “Diffusion of Innovation” can now be embraced by many more people. In traditional or industrial innovation, a lead user with a specific problem often adapts existing products to make a better solution for it. They would then push the manufacturers to commercialize it.
I think we might be in a situation where people who were not planning to be entrepreneurs gain access to these new technologies and expand the spectrum of what is being considered in terms of B2B entrepreneurship.
Sean K. Murphy: I think you make a very good point: there are intrapreneurs who work inside of companies to bring change. I think successful entrepreneurs are able to listen to customers who are lead users or intrapreneurs. They don’t say, “No, no, no. Let me explain my vision to you again.”
They step across the table and look at how these customers are deploying, using, and modifying their product.
Étienne Garbugli: We reached the end of another episode. Feel free to share any feedback you have. You can message us on Twitter. I'm at @egarbugli, and you're at @skmurphy. Thank you, Sean.
Sean K. Murphy: Thank you, Étienne.

Sidebar
Excerpts from the "Owner's Syndrome" Chapter in Anthony Bourdain's "Kitchen Confidential"
TO WANT TO OWN a restaurant can be a strange and terrible affliction. What causes such a destructive urge in so many otherwise sensible people? Why would anyone who has worked hard, saved money, and often been successful in other fields want to pump his hard-earned cash down a hole that statistically, at least, will almost surely prove dry? Why venture into an industry with enormous fixed expenses (rent, electricity, gas, water, linen, maintenance, insurance, license fees, trash removal, etc.), with a notoriously transient and unstable workforce and a highly perishable inventory of assets? The chances of ever seeing a return on your investment are about one in five.
After all these years in the business, I still don’t know. The easy answer, of course, is ego. The classic example is the retired dentist who was always told he threw a great dinner party. 'You should open a restaurant,' his friends tell him. And our dentist believes them. He wants to get into the business not to make money, not really, but for the lifestyle.
A successful restaurant demands that you live on the premises for the first few years, working seventeen-hour days, with total involvement in every aspect of a complicated, cruel, and very fickle trade. You must be fluent in not only Spanish but the Kabbala-like intricacies of health codes, tax law, fire department regulations, environmental protection laws, building codes, occupational safety and health regs, fair hiring practices, zoning, insurance, the vagaries and back-alley back-scratching of liquor licenses, the netherworld of trash removal, linen, grease disposal. And every dime you've got is tied up in your place.

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https://en.wikipedia.org/wiki/Kitchen_Confidential_(book)
https://www.amazon.com/dp/0060899220
https://archive.org/details/kitchenconfident0000bour_e6p5/page/84/mode/2up?q=%22terrible+affliction%22
https://archive.org/details/Anthony_Bourdain_Kitchen_Confidential/page/n41/mode/2up?q=%22own+a+restaurant%22