Time to Market S01 E01 – B2B? But Why?
- How Sean and I got into B2B,
- Why we stayed in B2B,
- Why the idea that organizations are always rational is not always a reality–although you need to sell within an organization,
- What has changed in B2B, and
- What will be changing in B2B moving forward.
Enjoy this first episode.
This is the first podcast of the Time to Market series and we are very interested in feedback or comments.
Edited transcript of Time to Market Podcast S01 E01
Sean K. Murphy: We will talk about B2B: businesses and startups that sell to businesses. Our goal is to offer actionable insights, principles, and rules of thumb for entrepreneurs who want to develop and launch B2B products and B2B startups.
Étienne Garbugli: Yeah. So we’re gonna be focusing on short, actionable content. We’re gonna be looking past the history of entrepreneurship. We’re gonna be looking at its evolution and try to understand and make sense of what it is to be an entrepreneur today,
Sean K. Murphy: Étienne and I have both started a couple of businesses. I would characterize both of us as–in all humility–thoughtful practitioners.
Étienne Garbugli: I think that’s a good way to put it.
Sean K. Murphy: So Étienne the name of your firm is Lean B2B, so you have baked in your commitment to B2B from the beginning.
Étienne Garbugli: Well, you gotta commit, right?
Sean K. Murphy: Absolutely. Although our choice was not conscious. We just never worked with firms who sold to consumers. So I’ll explain how we started and then I will ask you to explain why you picked B2B.
We just started working with Bootstrapers back in 2003. It was nuclear winner in Silicon Valley. The DotCom crash had left the ground covered with snow, and we helped bootstrapping startups sell to businesses because our early clients had developed products intended for businesses. They were all bootstrapping and the deal sizes when selling to a business were 10 to 100X what a consumer transaction would look like. So that was a plus. Also businesses wanted support and long term working relationships so that led to recurring revenue or subscription deals that were even more valuable. So I’ll turn it over to you.
How did you pick B2B?
Étienne Garbugli: So was it the conscious decision then, or it just kind of happened to some extent?
Sean K. Murphy: It was all I knew. I had never sold consumer products. I didn’t understand the physics of those markets. There were freemium models–we had shareware since the 1980’s–and open source had emerged. The first OSCON was 1999. But I had worked inside of large firms both on the buy side and on the marketing and sales side, so it was what I knew.
Étienne Garbugli: Yeah for me it’s similar except what I knew was consumer. All of my jobs were in B2C: fashion, mobile marketing, and consumer loyalty programs. So when I was thinking about starting a business, I based it on the things that I knew, because that was where I saw opportunities.
My first startup was a feedback app called Flagback. It came out of work that I was doing. So I didn’t really see it necessarily as a split between B2C and B2B. It was just something that I had been thinking about every day.
So there was no consideration of what you mentioned, like deal size or the way companies think or any of those things. I discovered them later once I started digging into B2B. You were in B2B and I stumbled into it. I think that represents how many entrepreneurs choose B2B
Sean K. Murphy: I started a photography business in high school because I had an interest in photography. I had a darkroom in my basement and was bulk loading my own film. I would do portraits, family photos, and shoot couples at prom. I did this from 16 to 18 and that was my last consumer business. Then I went away to college where after a few years I worked with David Woodruff on Woodruff and Murphy Decision Systems Associates. We sold contract programming services to businesses.
Étienne Garbugli: Well, to be fair, I did start a hockey League, as Canadians would do. And that was marketing to consumers. But I never really perceived it as entrepreneurship. I think that’s a different discussion though: how do people get into entrepreneurship. This is the story of how I got into B2B and how you got into B2B.
What are the core things that make B2B attractive? You mentioned you got into B2B 20 years ago, why are you still in B2B? You have had chances to start your own photo app or work on viral games. Why not change?
Sean K. Murphy: Well, there’s a couple questions in there. You mention games, I find it interesting that there is no comparison between the user interfaces that enterprise software ships with compared to what’s available games. The information density and the cleverness in the game interfaces is well beyond most enterprise software. Look at any of the Sim City or Civilization games: there is much more information on the screen to enable immediate action or well-informed decisions.
I just have not seen that in an enterprise app. We have periodically approached folks who do different kinds of Flash and SVG games to try to lure them into enterprise. But they just want to write games.
I think there are three levels to B2B.
- At the low end you are selling to freelancers–a single person firm or companies that are a team of two or three people. But they’re evaluating the purchase in the context of their business. I personally find that decision making process a lot easier to understand and to frame. It is typically about saving costs, saving time, or generating more revenue. With consumer decisions other preferences and factors can come into play.
- The next level up is a business with more than six but less than 25 to 50 people. There is more structure to the buying process than the first level. While strong personalities may come into play, there usually is very little politics because almost everyone has some customer contact.
- The top level is more of an enterprise orientation where you have to have a lot of fingerprints on the decision. So there is almost always a committee that is a mix of people who can say yes or no–end users, managers, and executives–and some gatekeepers who can say no or agree to go along. But I can understand this process because I have been part of enterprise buying decisions for two decades.
Étienne Garbugli: Would you kind of say that B2B or enterprise has become a key part of your domain knowledge? Beyond the specifics of what you were working on at Cisco, it seems like you had a more general appreciation for how business works.
Sean K. Murphy: So in 2003, I had already been working for 22 years, eight of those were at Cisco. I had worked on both sides of the table as an engineer, engineering manager, an application engineer, in marketing and in business development. Most of this was supporting, selling, specifying, or buying and integrating engineering applications. I had a lot of different B2B Legos in my toolkit with the experience I had accumulated. So it was natural for me to continue in B2B.
Étienne Garbugli: Would you say that in B2B if there is a need or a problem it’s more likely to lead to a purchase. It seems like there is a greater likelihood that an opportunity leads to a purchase, and that purchase can be built upon. That seems to me to be a positive side of B2B. In B2C you can come up with something that people like=, but monetizing it can be much more challenging.
Whereas in B2B, if there is a need or if there’s a market or there’s an opportunity that you identify, then most of the time there’s demand you can satisfy for revenue. Is this what you mean by more predictable?
Sean K. Murphy: I’m saying that for me personally, I find B2B more comprehensible and predictable. There are certainly people who are more skilled at consumer than I am. So for them, the reverse may be true: B2C is more understandable than B2B. I personally find it easier to decode business decisions than consumer decisions.
When I am framing an offer or a proposal, I find it easier to step across the table and put myself in the business owner’s head than I do to understand how people make personal buying decisions–consumer decisions.
Étienne Garbugli: Is there necessarily a distinction between B2B and consumer. You mentioned freelancers: when I was discussing this with Alex Hillman and the team at Stacking the Bricks they made a distinction between freelancers that consider themselves businesses versus those who might be pursuing passion projects or lifestyle businesses.
They may make decisions around drivers like saving time, saving cost, or investing in different kinds of opportunities. Is it the way the decision maker is wired or more about the way the organization is structured?
Sean K. Murphy: So I think that’s a really good question. I have two observations.
- We see many more artists starting companies these days. I think in part because a lot of the content and media editing software has become commoditized. People can follow a digital artist path today without becoming as deeply technical as they would have been ten or twenty years ago. Also, they grew up with tools that were novel and unfamiliar to an earlier generation.
I think with artists you get a lot more focus on identity and self-discovery, so selling to freelance artists looks a little different than to freelancers who view themselves as entrepreneurs building a business. But that’s not something we typically do.
- In larger companies you get into politics. A decision may not always be crafted in terms of what’s best for the organization but what’s best for the decision maker. Most of the time, larger firms are functional, and politics is minimized because people are more concerned with survival. When times have been good for a long time, more political decisions spring up. But as the economy gets more challenging and revenue is at risk, people tend to collaborate to survive.
At least for me, enterprise decisions are easier to understand and predict. So the Stacking of Bricks team has identified a helpful distinction between business-oriented and identity-oriented entrepreneurs.
Étienne Garbugli: For sure: I would worry if I were selling to small restaurants, for example, that the owner’s decisions may be based more on artistic choices than what we typically associate with B2B decision-making. But you made an interesting point, an interesting distinction. You said when a company is well-functioning, it’s normally rational. I completely agree.
A well-functioning company has objectives defined by the board and executives that drive priorities. And these priorities provide a framework for decision-making in the organization.
What percentage of companies have you worked with, interacted with, or had customer development conversations with that fit the pattern of a rational organization? How many are addressing the right needs or pursuing the right approach to opportunities to help them achieve the goals they have clearly stated for the organization?
Sean K. Murphy: It’s a tough question. I work with startups that sell to larger firms. We look for the buy decision to get made as low as possible in the organization so we can land and expand. Larger firms may approach this differently, but we look for a department manager or a second level manager who has a problem. Because that person normally has the need, the budget and can make the buy decision. They rely on the team or key department members to do the evaluation and say, “We can use this, it will help us move forward” or “This won’t work.”
Étienne Garbugli: You’re trying to avoid that complexity of multi-stakeholder decision-making or a group decision where more people can weigh in with different perspectives or bring other alternatives to the table. You’re trying to minimize the number of decision steps or the number of actors within the decision-making process in the organization.
Sean K. Murphy: Those are certainly factors, but it’s more about aligning incentives. Everyone on a team or department has a stake in shared success. There may be many voices or points of view–there is often what we call “a full and frank exchange of views”–but at that level, the stakeholders are interdependent for success. That may not be true in a multidivisional or enterprise-wide deal.
This “land and expand” approach is very different from the standard approach 20 or 30 years ago. The startups I worked for then always wanted the largest deal possible based on a perpetual license involving a sizeable upfront payment and then annual maintenance or a three-year contract.
Now buyers want to start small. They have become more sophisticated consumers of technology. SaaS and containers have changed how software is packaged and delivered compared to older on-premises models.
What changes have you seen?
Étienne Garbugli: I think everyone wants to cut out the complexity. One trend I would add is product-led growth. Atlassian has been very smart in terms of land and expand and harnessing energy within the organization to help them propagate their solutions. So they expand over time and capture all the potential buyers in an organization.
I think it’s still important to find the right stakeholders in the organization. I believe companies now tolerate more diversity in the solutions they will use. They seem willing to rely on multiple technologies for different specific benefits and advantages. This has driven the adoption of tools to track what licenses are used and how often. There is always a tension between local decisions tailored for specific needs and centralized control that enables standardization and cost containment.
Sean K. Murphy: Some of the factors–like politics and rivalries–are invariant. Any time you build an organization out of the crooked timber of humanity, you will see politics and rivalries at some point. I don’t think that’s getting any better or any worse.
The department managers are often responding to local challenges but have to fit their response into a strategic context that has been defined top down. But I don’t see a lot of executive teams setting technology directions. IT folks often have strong opinions, but their concerns seem to me to be more parochial than strategic. I find that IT is rarely a champion for startup solutions.
I read a lot about “digital business” initiatives. Still, most department managers seem more concerned with improving their value streams–they focus on improving the quality, timeliness, and cost of products and services their customers are paying for.
Étienne Garbugli: Yes, the buzzwords often obfuscate what needs to get done. Also, the buyer may not be looking at the channels you are using or cannot buy the way you are selling. You may be using strategies that won’t work with your ideal customer profile (ICP).
B2B has become more popular for the reasons we discussed in terms of being more predictable and more likely to generate a financial outcome. As a result, you can be more certain there will be customers before you start your search for a specific product-market fit.
So there are ways to find a niche. And many B2C people have transitioned to B2B: it’s been interesting to see some of the strategies they brought in for marketing and product design. It’s led to many improvements that have moved things forward.
So there has been a lot that has changed. Let me flip this back to you. You’ve been in B2B for several years. How do you see B2B entrepreneurship evolving in the next year? What will remain true? What will change? What will the next five to ten years bring?
Sean K. Murphy: That’s an important question. I wish I had a well-worked-out answer. I think we’re coming to the end of several trends, and we can’t necessarily see what’s emerging. At least, I can’t. I grew up in St. Louis, and I remember meteorologists presenting a weather map and a five-day forecast. Tomorrow’s weather could come from any direction. The future feels the same way to me: it’s hard for me to net out the sum of forces. Here are two guesses:
- Economic conditions are going to get more challenging. And that’s going to change a lot of decision-making and a lot of behavior. For example, it seems obligatory now if you are a Silicon Valley tech company to have a 10-20% layoff. Which three years ago would have been hard to foresee.
- We will see a continued trend to push decision-making and autonomy lower in the organization. Cost cutting may encourage a certain amount of centralization, but local intelligence and responsiveness are hard for headquarters to beat. Covid-driven supply chain disruptions have sensitized people to the risk of too much cost reduction leading to fragility.
Étienne Garbugli: I see a drive for “more” or even “more, more, more.” Everyone wants their tools tailored to their needs and the decisions they need to make. At the same time, a focus on cost control is reducing purchase authority significantly. Unfortunately, that will work against users acquiring the latest tools or tools that satisfy their unique needs.
But people in different roles have unique domain knowledge that can benefit from niche tools. So I find it possible–and exciting–that we will see more indie creators or many more startups formed to address those needs. These tools may be “smaller” or even “micro but will fit into an overall holistic perception. There may be “mico SaaS,” but it will be competing for the same shrinking budget.
We will also see new service offerings aimed less at customer acquisition and more at retention, new hardware technologies, and more complex ecosystems. I have observed these trends for the past few years.
Sean K. Murphy: I agree with the increasing specialization, and I think that will continue. I may take exception because I still believe that the team manager, department manager, second-level group, or department manager is where a lot of the decision-making will take place.
I’m not sure the individual knowledge worker will have more autonomy for tool selection because most work is in groups, teams, workflows, and value streams. There has to be a working consensus on what you’ll get from upstream folks and what you are on the hook to deliver downstream.
So it’s normally a manager who is one, two, or three levels up who is responsible for getting that workflow to work. I don’t think the “Consumerization of IT” folks will be able to change that.
If you’ve got a highly specialized job in the company, if you’re a “one of, ” then they’ll let you pick what tools you need for your specialized role. If you’re one of two mechanical engineers working in a company, they will let you pick whatever you two can agree on.
But I agree with you on the increasing specialization of solutions.
Étienne Garbugli: Thanks. I think that’s probably a good point to cut off for the episode.
This is the first podcast of this series and we are very interested in feedback or comments.
This is the first podcast of this series and we are very interested in feedback or comments.