[ Interview ] Customer Development Expert Sean K Murphy on the 3 Capitals Driving Business Success

A few weeks back, I spoke to Sean Murphy for The Lean B2B Podcast. We talked about entrepreneurship, customer development, the importance of social capital, and the best time to start a business.

You can watch the full interview below, or access it on iTunes, Google, or Spotify.

Interview Transcript

Customer Development Expert Sean K Murphy

Etienne Garbugli: My guest today is Sean Murphy. Sean is the CEO and founder of SKMurphy, a consultancy helping clients find early customers build early revenue. Sean is a sales and customer development expert focused on B2B. Recently, Sean also published a new book, part of a series of three, called Working Capital: It takes more than money.

Sean, welcome to the podcast.

Sean K Murphy: Thanks for inviting me.

Etienne Garbugli: Maybe as a first question, I read your book over the weekend. What was your goal in writing Working Capital?

Sean K Murphy: Well, I wanted entrepreneurs to get a better understanding of how the three types of working capital operate so that they can use them to established and scale a viable business. In addition to financial capital, there is also intellectual capital and social capital.

Etienne Garbugli: Specifically, I really liked your analogy for these capitals. They’re a little bit like three legs of a stool: they’re all important in order to achieve success in business. So, if we were to zoom out a bit, thinking through this, when would you say someone is ready to be an entrepreneur? Is there even such a thing?

Sean K Murphy: I’ll give you the flip answer, which is you’re ready to be it after you’ve had your second business failure. Then you’re really ready. In my experience, entrepreneurship is very hard. I believe that people are either born that way or they’re forced into it.

If you’re starting out, I think you’re much better served to work with a firm with a successful system that you can learn from. And I would learn as much as you could before you go out on your own because learning on somebody else’s nickel is substantially cheaper than making your own mistakes.

I would also try and pick an industry or pick an area with customers that you want to work with. Now, this may take much of your twenties to figure out or even some of your thirties. I don’t think you necessarily have to go right out there and fail on your own right away.

Etienne Garbugli: So, should people who aspire to be entrepreneurs kind of decide on their career earlier on, based on their ambitions to be entrepreneurs, or should they consider that?

Sean K Murphy: That’s a good question. I think two things: one, I think it’s a mindset that can be applied to a variety of domains. So, I think we need to develop domain expertise, intellectual capital, whatever you want to call it. And I think you’ve got to develop some understanding of the customers you’re going to serve before you go do it. So, it’s both of those. I think it’s an orientation or a mindset.

I think you can be entrepreneurial inside of companies as well. You can look for ways to improve services, improve group processes that create more value for the customer. That’s another way to experiment or move down the learning curve in terms of what it takes to learn how to introduce and sell change.

Etienne Garbugli: So, say someone has failed a few times, has built some form of career, what kinds of business approaches do you feel that they should be prioritizing?

Sean K Murphy: To me, you’ve got to look for places where your know-how and your existing business relationships provide you with a significant competitive advantage. It’s not just energy and enthusiasm. You’ve got to bring distinctive competence, the ability to deliver results, and preferably some knowledge of and affinity for the people you’re going to serve.

Etienne Garbugli: Is there one of these facets that’s more important or more critical? Is there one that’s fully essential, like, you can’t start without?

Sean K Murphy: We like to see teams come together. So, I think that on a team, there has to be at least one person that’s worked with or understands what it’s like to be the customer or the people you’re trying to sell to. It doesn’t have to be everybody on the team.

And there are advantages to having some people without direct industry experience. They tend to bring new ideas from adjacent fields; they’ve got something to prove. And you’ve got to have some insights and some ability to solve a problem in a better way than what’s already out there.

Etienne Garbugli: So, in a way, one person that has a profile, at least partly a domain expert or at least has some domain expertise?

Sean K Murphy: Right. I think without that, you can achieve what’s called the negative strategic surprise. You just don’t know something about the domain that turns out to be fairly essential. There’s a category of information that’s not written down, and if you haven’t worked in the industry or worked with people and supported them or been part of that, it’s hard to get that.

I mean, I can read 10 books on the Apollo Program or what it’s like to be an astronaut, but that’s very different from the guy who’s sitting at mission control in front of the panel or the guy who’s sitting in the pilot chair of the shuttle or whatever. But I can have read a lot of books about it. It’s two different kinds of knowledge.

Etienne Garbugli: So, what you’re saying a little bit is that this might mean that you run into a challenge that you didn’t anticipate, but that actually may be deadly to your business?

Sean K Murphy: There’s this guy, Albert Hirschman who says creativity is the result of finding yourself in a very challenging situation. So I think that it’s fine to bring people from the outside. It’s good to have a diverse team that is coming from different places. But if you don’t have anybody, if you don’t have Tonto, you don’t have somebody that knows what it’s like to travel the Badlands or get through the desert, then, yeah, you may discover some things that you wish you had known before you started.

Etienne Garbugli: So, in that sense, like I have this experience, I’m an entrepreneur, I’ve had certain domain expertise. I’ve worked in different types of organizations. How would you recommend that that person starts thinking about markets, audiences? Like, what kind of entry market should that person be looking for?

Sean K Murphy: I really liked Peter Thiel’s formulation of secrets: you should have determined something that you believe is true or you confirmed is true, which is contrary to commonly accepted wisdom. So, you can be early, you can be different, but if you’re proceeding just based on common sense and the ability to execute, it’s really hard to outperform incumbents unless you’ve got some kind of geographic separation or there’s some other kind of separation from people that have been in that industry for a while.

I think you’ve got to have something which is going to give you an unfair advantage. It’s okay to study and definitely not quit your day job until you’ve got a very clear idea of what’s going to make you different.

Etienne Garbugli: How sustainable should that distinction or is that difference or that ability to differentiate on the market be? How long-lasting should it be?

Sean K Murphy: I think it’s got to be at least three to five years. I think it takes a while for you to figure that out. I remember talking to a friend of mine who was working at Arthur Andersen in like 1998 at that point.

There was thing back then called Y2K. And I asked him how it was going. And he said, “Well, we’re not really hunting for any more Y2K problems. That’s now off strategy for us.” I said, “Well, that’s amazing. It seems like there are tremendous opportunities.” He goes, “Yes, but they’re all only going to last another 18 months.” I hope that helps.

Etienne Garbugli: In that case, what types of problems should those businesses be considering within the market and how should they best frame those problems to be able to align their business?

Sean K Murphy: Most people that we work with don’t ask me these questions. So, I’m just being candid. Most people that we work with have a burning desire to solve this particular problem, or to take this technology, which they believe is going to make a difference and find a place to apply it.

I think larger firms ask the kind of questions that you’re asking, where we’ve got these resources, what’s the best way to deploy it? But for the early-stage entrepreneurs I work with, they want to go do it. We’re trying to help them make it succeed. So, it’s a little different.

The people we try and deter would be somebody who says, “I’ve never worked in cleantech, but I hear they’re huge opportunities. I’d like to go do something there.” It’s like, “Well, you better find somebody then that knows a lot about cleantech or biotech or pick your favorite domain because a strong desire in and of itself is not enough.”

Etienne Garbugli: So, let me put some meter on that then. I do feel personally, that the concept of a problem is quite subjective, both in the way it’s understood as well as in the way it’s expressed between people.

So, what do you feel is the relationship between, for example, the problem that a company that comes to you guys is addressing versus the job to be done behind it? What’s the relationship between jobs to be done and problems specifically?

Sean K Murphy: I really liked the jobs to be done formulation. I like the idea that you’re hiring a product to solve a problem. So, I think there’s a couple of things. Let me unpack a little bit of what you’re talking about. I think there’s a couple of things going on here.

The first is that it’s much better if the people you’re calling on realize they have a problem or at least acknowledged that they have symptoms, and better, that they have a problem. If you’ve got to convince them they’ve got the problem, it’s a much harder path to proceed.

So, it has to be a recognized problem.

And your solution, our rule of thumb is I have to be able to come in and within two hours, working from information that’s readily available to you, tell you something that’s relevant to your business you didn’t know. So, the best case is in one demo, I could show you something that says I can make that problem better.

The backup step is, “Okay. You’ll agree to let me take some data away or some aspect of this problem away, and I’ll come back within five working days. I’ll come back a week later and I’ll be able to demonstrate something to you. So, if you don’t have that level of kind of time to value, I think it gets much harder to sell.

I think, as a startup where you’re already in kind of a one-down position with not much credibility, you have to offer, not only a compelling before and after, but a fairly quick time to solution. Maybe not time to fully deploy throughout the enterprise, but you’ve got to show them something that says, “We can solve this problem. We can solve your problem working from your particular information data, your situation. We can make it better.”

Etienne Garbugli: So, you’re trying to sell the relationship between what things are today and what they could be tomorrow with a clear time horizon of how you actually get from A to B?

Sean K Murphy: I’m trying to demo to them the solution or an aspect of a solution that they’re going to find compelling. It has to be a business-critical issue. It has to be a problem that the customer is willing to spend money to solve — some kind of goal or objective or career is at risk.

People who are in a lot of pain will accept partial solutions. You don’t have to make the problem go away, but you’ve got to deliver some significant quantum of benefit that makes it noticeably better.

Etienne Garbugli: How do you make sure that both your understanding and the prospect’s or the customer’s understanding of the problem and maybe your team members’ understanding of the problem all sync up so you’re sure that you’re all solving the same problem?

Sean K Murphy: This is very hard and it involves a fair amount of trial and error. So, Batman’s got the Batcave where he develops all of his tools and all of his techniques, but he has to leave the Batcave to fight crime. I mean, without the Batcave, he’s not as effective as a crime fighter, but you actually have to get out of the Batcave and you have to go engage with customers.

And many times, it’s kind of like the “dogs watching television” effect. They look at you and they go, “Yeah, I don’t have that problem.” Sometimes you propose a solution and they’re like, “Well, I’ve got these constraints or these requirements that mean that your solution is completely unsatisfactory.” You have to engage and it’s somewhat of a trial and error process.

Etienne Garbugli: So, coming back to the previous question; would it make sense to first define the job to be done, then figure out what the problems are or can you do the reverse?

Sean K Murphy: We have people that have a technology that has uses in many areas. And sometimes you explore multiple areas in parallel and they get traction at a particular place. They’re typically all related in some overall industry over here, but you don’t always know where it’s going to work best.

Sometimes you’ve got a problem and it turns out that you bring together three or four existing techniques in a novel methodology or a novel way to solve it in a way that’s much better than what’s out there.

So, I’ve seen it work both ways. Sometimes you start with a technology or solution; sometimes you start with a problem. I don’t have a dog in that fight. There’s a whole bunch of jobs to be done. Guys are all… it’s a very quarrelsome church.

Etienne Garbugli: Yes. I think that’s something that most people can agree on. So, in the book, you talk about the importance of time to revenue. I’ve seen this framed as well as time to product-market fit. I think it’s a really interesting concept. So, how do you feel time to revenue should impact a business or a founder’s decision-making process?

Sean K Murphy: I say time to revenue and I have to be careful because when many people hear that, they think about how long does it take to get paid once you bill them. And that’s a consideration, but what I’m really talking about is how long does it take to get paid once you’ve had that first conversation and you believe that you can provide them with value?

You’ve essentially got a qualified prospect. So how quickly can you go from, we’ve qualified that we’ve got somebody who fits our target customer profile and has a problem we can solve. Then how quickly can we demonstrate value in their business and get paid? We normally encourage startups to align when they get paid to when the customer sees value because this significantly reduces the customer’s perception of the risk in this purchase or the risk in this deal.

And frankly, customers are not going to cut you a lot of slack until you’ve demonstrated some real value. So, I think this question of how quickly you can produce value in their business is always a strategic consideration for startups.

Etienne Garbugli: So, the question the other question I’m adding there; in that case, if you’re bootstrapping versus you’re a venture-backed startup, should your idea of the time to revenue change and should it, in that case, mean that the type of value you’re trying to provide will be different?

Sean K Murphy: Okay. There are two drivers on this. We do some work with venture-backed folks. Typically, it’s after they went through their money and have discovered the joys of bootstrapping. The reason why you want to focus on the customer paying you is because that’s unambiguous proof that you’ve delivered value.

For the most part, a business will not pay you or will not do a reorder until you’ve delivered value. And that is the crucible. The whole cluster of hypotheses you’ve been carrying around, actually get marked to market: it tells you if this works or it doesn’t.

So, to me, the time to revenue is the clock speed or the clock cycle on how quickly you can run experiments that you can iterate. Now, I know in the very beginning, people may pay you with their attention. So, you try a message and you get paid with attention. That’s necessary , but that’s not sufficient.

And then as well, they give you data or they give you some problem you can solve to demonstrate you can do something. That’s a form of payment, again, that’s necessary, but not sufficient.

So, the reason why I focus so much on time to revenue is that’s when you get unambiguous proof that you’ve actually delivered value. So, I think venture guys should do it as well as bootstrappers.

Etienne Garbugli: I think they probably somewhat tried to do it based on their pitch decks and how much money they feel they need to raise to reach certain milestones, but yeah, they probably don’t do it the same way for sure. That’s partly why I think it’s super interesting. And it’s really interesting in the book that you talk about as well, the time that it takes to get paid, which is a really critical consideration, especially for people who have maybe never managed a business because actual money matters if you want to keep the business engines going.

Sean K Murphy: Right. And I think it’s possible to work nights and weekends and do a certain amount of lunch hours and do it outside of ordinary work hours. Not chasing customers that your current employer also wants or at least solving the same problem. I don’t think you should compete with your current employer.

The other thing that the venture-backed guys sometimes get into… I did some business once with an early-stage startup and I said, “Look, I’d like to buy a seat.” And they say, “Well, we’re trying to prove our business model, and selling to you is going to be off strategy for us.” And I’m like, “Well, how many people have paid for the product?” “Well, no one.”Well, gosh, I’d like to use it and see what I can do” They were very committed to their model. I guess that was all strategy.

If I had been on the other side of the table, I would have found a way to take my money and work with me because it would say something. If I already had 10 paying customers, then I might be less willing to explore. But at the very beginning, all you’ve got is a hypothesis about how it’s going to move. You don’t actually know.

Etienne Garbugli: Yeah. And it’s interesting when people self-select, to some extent, as you were kind of doing in that case. You were thinking, “Oh wait, this could be interesting for that.” So, it’s probably very important to still be open to these unplanned outcomes a little bit because they can open up doors that are very interesting.

In the book, you talk about the importance of letting go of bad product ideas and knowing when to pivot. What are some of the signs or signals that typically indicate the need for a pivot or a change of strategy?

Sean K Murphy: Some people talk about pivots as if it’s not a big deal. And at least as I look at it, it’s typically somewhat painful. It’s always hard. So, first of all, I think you’ve got to talk to enough of your target customers who have the problem and know that you’re not providing value. So, you’ve got to have explored.

And that number, for me, is somewhere between 10 and 30 if you’re listening carefully. And it can be less if you’ve got a very strong signal, but to me, that’s kind of the range. I also make a distinction between pivoting and tinkering. I think you’re tinkering a lot.

I think you’re making a lot of small adjustments. You’re making a lot of fine adjustments. The other thing is I think when the team forms, they need to say, “Look at us, look at our capabilities. Let’s make a plan B and a plan C now.” Because one of the other things that makes pivoting hard is, should we keep doing this or do something else? I don’t know what that something else is. And that unknown actually makes people persist on a bad plan when they should have pivoted. And I have worked with and had the privilege to hear a number of serial entrepreneurs talk about this at the Bootstrappers breakfast.

If you look at how they go about it, typically, the team doesn’t change as much, but when the team forms, they write down a list of ideas and they work that list. And so, if the first thing doesn’t work, they go to the second one. I think first-time folks tend to get trapped in the, “I can do plan A I don’t know what I’m going to do”. And that always leads too far down the wrong track.

Etienne Garbugli: And in that case, when you’re talking about plan A plan B, should those plans be ideas, or should they be markets, or should they be combinations of both?

Sean K Murphy: I think they should be written down and I think they should be plans for some way that still builds on the distinctive know-how and the social capital of the team, but may involve a different technology or maybe going to a very different niche. So, we’re not going to sell to these guys. We’re going to sell these people over here.

Etienne Garbugli: So, in a way, charting these different paths that are not necessarily overlapping enough that one would negate the other one?

Sean K Murphy: Right. I think the other thing is if you can’t think of at least three things you could do with a team, then you’re probably not investigating enough alternatives. I think it’s also legitimate to explore a little bit in parallel. I think it’s sometimes useful to say, “Look, we’ve got two ideas here.” There’s a risk that if you chase two rabbits, you don’t catch either. But there’s also a benefit to being a little open to multiple possibilities.

And it could be that you discover that both are actually viable. One is small, but the time to revenue is much shorter, in which case, you use that to get in and establish a beachhead, and then from there, a base camp, and then you can scale up into B and C and D. And you should have a plan for what happens when you exhaust your primary market, but that’s a different conversation.

Etienne Garbugli: So, say, you’re exploring the several options in parallel or a little bit in parallel and you decide to go with option B, for example. Should you, at that point, stop exploring other options and focus entirely on that one, or can you still keep other paths in your target?

Sean K Murphy: I think there’s discovery and delivery, or exploration and execution. I think, to really make it work, you’re going to have to go all-in on one opportunity for a certain amount of time. When you really get into it and you’re competing with incumbents or against other people that you’re in a startup, at some point, you have to focus fully there. It doesn’t mean you can’t come back later on and reopen some of those conversations and go forward.

And you’ve got to be open to the fact that you’ve invested a lot in this effort and it’s not paying off. You’re not getting traction. You’re not getting uptake, and you’ve got to change gears.

Etienne Garbugli: Okay, great. Maybe if we take a step back a little bit more of a general question; so, you’ve been helping companies for several years. You’ve seen different models. I know you work with some hardware companies, software, different types of organizations. Has your perspective on starting businesses evolved over the years? How do you see B2B entrepreneurship evolving moving forward? Where was your understanding of it before, where is it now, and where do you think it’s trending? It’s a big question.

Sean K Murphy: I guess the first thing to say is there’s no fixed formulas for success unless you want to buy a franchise, and even then, things change. So, I think you’ve got to be careful about people that are promising you a fixed formula for success.

There’s a really good article by Arie de Geus from the late eighties about Planning as Learning. And he says, “The ability to learn faster than competitors may be the only sustainable competitive advantage.” That, to me, is the core, at least for technology entrepreneurship. That means that there’s a need for ongoing exploration and discovery efforts, not only about natural phenomena and technology innovation. I wouldn’t call it basic research. I’d use Donald Stoke’s term of use-inspired research, where you’re open to discovering basic principles.

I think there’s also gotta be this ongoing, intense curiosity and care on the part of everyone in the startup who touches the customer about how to create value or how to remove things that are limiting or restricting the value they get from their product.

I don’t know if that’s actually changed. I think that’s probably always been true. I started SKMurphy in 2003.. And that aspect of it I don’t think has changed. You have to have an intense curiosity. You have to be committed to creating value and you have to be committed to ongoing learning.

Etienne Garbugli: Well, in that case, what changed more the fact that maybe more businesses are convinced by these ideas or maybe that the way you were able to learn or the way you were able to speed up that learning or continuously improve yourself have also improved as well? Would that be a fair assessment of maybe what’s trending or what’s changing over time?

Sean K Murphy: One of the things that you have to do at certain points to learn more is you have to let go of old ways of doing things and you have to let go of previous expertise. I just don’t know anybody who doesn’t find that painful. If you’ve got a process that’s working very well, it’s hard to break that up, to find the higher plateau, or even worse, when a competitor comes in and is outperforming you. You go, “Hey, what we currently count as the best we can do is not good enough.” You have to look for new methods and look for new approaches.

I don’t know if that process is getting any easier. I guess I’ll put it that way. I think there are human elements to that or human aspects to that, and interpersonal aspects to that, but they’re just very painful. There’s an aspect of learning that when you have to reorganize your understanding of something that’s both exciting, but in some cases, it can be very painful as well.

It’s the realization that a lot of things that I thought I knew are now wrong, or obsolete, or whatever. So, I don’t know that that gets any easier.

Etienne Garbugli: Yeah. And it’s also hard to know which parts will either become obsolete or will continue to deliver value. It’s very difficult to know how you should plan for adaptation moving forward.

Sean K Murphy: You’re right. I was talking to somebody the other day about Fuji versus Kodak. So, two firms at the top of their game in photography and digital photography is coming. And for the purposes of photography, digital obsoleted probably, let’s say, 60 to 70% of their knowledge.

I think Kodak gets a bad rap. I think they ultimately didn’t do as well as they could have, but the Fuji guys said, “Okay, we’re going to hang on to what we know.” So, they chose the pain of going and talking to a ton of strangers to figure out who else could use what they did, which is just painful and being told over and over again, you’re used to coming in with high confidence and you’re saying, “No, you don’t understand. And we got to go hire people, I’m sure, that understand these other industries so that they can take our know-how and they can repurpose and remix and redeploy it.”

Fuji did that. Kodak was less able to. The Digital Tonto guy has got a thesis that we’re coming to the end of the digital revolution and that we’re going to go back and material science and atoms not bits.. I’ve argued to some level that some of the digital, the Facebook and some of the social network stuff is actually a little bit like heroin. In the same way that in 1905, you could buy heroin in the drug store, and in 2020 you couldn’t, maybe we’re going to look at Facebook that way.

But the deeper point is that we may be hitting an inflection here. All of a sudden, material science and atoms may become a much more significant source of innovation than just pure digital play. And I think the companies that adapt to that are going to have to go through this restructuring process. And I think it’s painful.

Etienne Garbugli: Yeah, but maybe that’s also the answer to some extent. You got to be willing to accept that pain, which seems to be the case with Fuji that you were mentioning. You got to set things up in a way that people are willing to take that pain.

Sean K Murphy: Right because your survival is at stake.

Etienne Garbugli: Yeah. To that point specifically, oftentimes that decision is made when the ship is already sinking, as opposed to on a continuous basis.

Sean K Murphy: Well, and things are going great. The problem is the new technology comes in slowly and, and first of all, it takes away many customers you didn’t really care to serve. So, for a while, you think this is great. Our core is protected and our critical stuff is going to be served by this crappy digital stuff.

Etienne Garbugli: Yeah. In a lot of ways, I feel like those are also based on maybe outmoded ideas from business. Like you read a lot of MBA type books from the 90s and this idea of endless growth or endlessly being able to just operationalize business and then keep spitting out cash, where I think as we’ve seen if you look at the companies at the S&P, the lifeline of a business is getting shorter and shorter. It’s way harder to be on top.

And you could argue that Kodak, for example, had a really good run for a long time, but maybe they did reach the end of the line or maybe they didn’t need to.

Sean K Murphy: No, they could have emulated Fuji.

Etienne Garbugli: Yeah, which is probably a very difficult thing to do when you’re the incumbent. Super interesting. Thanks for taking the time, Sean. Where can people go to learn more about your work, some of your thoughts on business and entrepreneurship?

Sean K Murphy: I’ve got a website with about 2,000 blog posts on it. It’s skmurphy.com. That probably is the best place to find me.

Etienne Garbugli: Perfect. Thank you.

More on Customer Development

[ Interview ] Testimonial Hero Founder Sam Shepler on Building and Scaling a Service Business in B2B

A few weeks back, I spoke to Sam Shepler for The Lean B2B Podcast. We talked about entrepreneurship, customer development, service vs product businesses, and how to go about scaling a service business.

You can watch the full interview below, or access it on iTunes, Google, or Spotify.

Interview Transcript

Sam Shepler – Scaling a Service Business

Etienne Garbugli: My guest today is Sam Shepler. Sam is the founder of Testimonial Hero, a service company helping businesses create video testimonials to build trust and accelerate the buyer’s journey.

Before Testimonial Hero, Sam built a video production agency called Skyscope that was acquired in 2016. Since the acquisition, Sam’s also been involved as a venture partner at NextGen Venture.

Sam, welcome to the podcast.

Sam Shepler: Thanks, Etienne. It’s great to be here.

Etienne Garbugli: Good. So, first question: why video? What got you interested in video? What made you decide to start two different businesses around video production?

Sam Shepler: The real answer is I’ve always had a natural affinity for video so kind of just playing to my strengths. As a kid, at 10 years old, I was making videos with my friends, back in the day; making snowboarding films and all these things.

Eventually, I got the entrepreneurship bug. I was like, “What valuable skills do I have to apply?” The most valuable skill that I had to apply was video.

And for people starting out, that’s always a good thing. Step one is to get some rare and valuable skills and then figure out how to apply them. For me, that skill was definitely video. So that has been the unifying theme for all my companies so far.

Etienne Garbugli: You were based around Boston and I know you’re now in Connecticut. There’s certainly a lot of great successes and models as product organizations in the ecosystem in Boston. What made you decide to build a service company?

Sam Shepler: It was kind of accidental. Basically, I started my first company while I was finishing up college. This was Skyscope. I didn’t really know much about anything. People started paying me to make videos for them and that took off.

That was a pretty traditional agency business. After, we had the opportunity to sell that to a PR company that was looking to bolt on a video production arm, I had the opportunity to pause and take a step back.

Actually, I never wanted to start a services company, and I tried to start a software company after that. That didn’t take off. So a year after I sold my first company, I was like, “Well, I’m tired of getting excited for a month and invalidating these ideas. I just want to do something that will drive revenue that I know works.”

Then I basically said to myself, “What would it look like if I took what I knew, which was video, picked a very specific niche of it, which was customer testimonials, and then try to layer and innovate on that to make it easier, and do it in a completely different and better way?”

The prompt was if I was trying to solve the problem that B2B marketers have around video testimonial creation, how would I do it, regardless of the technology or the services element?

At Testimonial Hero, our vision is to be a tech-enabled service. We’re trying to take the best parts of human touch as well as technology layered on that to increase the customer experience and obviously make it more scalable because that’s the key, I think, with scaling a service business. You have to see a pathway to scalability in one shape or form.

I’m sure we can talk more about that but the one answer to that is it is as tech-enabled services. Companies like rev.com is a great example where it fundamentally is a transcription service, but they’ve layered on proprietary first-party technology to handle 100X the volume of transcripts with the same amount of people.

There are other examples of that; some of them successful, some of them not. Like Atrium, the legal firm. It’s a big example of tech-enabled services for law that didn’t end up panning out.

I’m super excited about tech-enabled services. It’s a big opportunity. pilot.com, bench.co; those are some good examples. I’m super excited right now about taking the best of what can only come with a service and human touch and then asking, how can we layer technology on top of that to both increase the scalability and make it a really attractive business for us, but just as importantly, really improve the customer experience and the value for the customer.

Etienne Garbugli: We skipped over a little bit. How did you actually lock in on testimonials? There’s a bunch of different things you could have done. Why that specifically?

Sam Shepler: Good question. I think there’s a part in your book where you mentioned that 50% of founders got their idea for their company at their previous job. For me, I got it at my previous job, but really just my previous company that I was running.

And what the insight was was that the projects that Skyscope had the biggest success with were testimonials and they were also something that we could put a process behind. The willingness to pay was there as well. Then also there was founder-market fit, too. I personally loved them. I believed in them.

I really deeply believe that the best way to communicate value is through the voice of the customer. It’s something that I’m really passionate about as compared to an advertisement, which is an advertisement. Buyers are going to be skeptical of that, but communicating through the voice of the customer is extremely effective and actually is what buyers want.

It was something I was personally passionate about, the willingness to pay was there, the scalability was there. It’s something we could put a process behind. Those were all things that I looked at and I continue to look at it as I think about other services that could be tech-enabled and scaled.

It’s really, is this valuable to the customer? Is this scalable for me in terms of the process we’d have to put behind it?

Etienne Garbugli: That’s great. So you locked in on a “sub need” or a “subproblem” that the customers that you had before had and you tried to find a way to scale that. What do you feel makes customer development different for service companies versus maybe product companies, or versus tech-enabled service companies?

Sam Shepler: That’s a great question. It’s something that I am still figuring out and I’m trying to learn more about every day. I’d love to get your take on it too.

I think for us, in my experience, it is slightly easier and in some respects because you’re delivering the service and you can really get feedback every time and every new customer you can just quickly adapt.

Because it’s so hands-on, you don’t have to spend time writing a new feature or launching a new feature that could take a couple of months. You can say, “Okay, I learned something in this service experience, let’s apply it immediately in the next call that I have with the new customer.”

That’s one of the benefits of services, and again, I think you underscore this in the book so well. Working as a service gives you visibility into the business problems and building the proximity with customers and then you get that domain expertise. So I think it’s easier in a lot of respects.

That being said, I think you still need to do it because customers, even if they’re happy, they’re not raising their hand to tell you what they want. You still have to read between the lines.

For example, with us, the big thing I thought about is video testimonials are incredibly important, but they’re complex. There’s a lot of friction. You might have to find a local partner or fly a videographer across the country. What would the dream situation be for marketers? How could we just remove the complexity from that?

What we ended up doing with our first iteration of Testimonial Hero before COVID was we built a global network of videographers all around the world, trained them, onboarded them such that, previously, customers would pay us to fly around the world. And that wasn’t effective for anyone.

So we were like we’re going to figure out a more modern way to do it. Customers never asked us to do that, but they were thrilled when we did. So it’s a mix between asking them and then paying attention to friction in the process that’s sort of implied.

Etienne Garbugli: There’s a lot of service organizations out there. Why do you feel some organizations never make the transition into tech-enabled services and/or product itself?

Sam Shepler: Obviously, some of them may not need to. It just depends. There’s nothing inherently good or bad about scaling a service business further. If you want to do it, which I do, I think the first step for any founder is getting clear on what you want and then working from there.

Personally, I enjoy the intellectual challenge of seeing how far we can scale this. Then technology becomes essential. In terms of why it doesn’t happen, I would say it’s a lot of things. If you have a working business on the services front, it’s easy to just let the status quo continue. Also, it’s not something that a lot of services founders are familiar with—technology.

I think that’s changing. I think no-code is going to be super exciting as a movement to make it easy for more service businesses to become more tech-enabled. That is super exciting because now, with Zapier, Airtable, and Webflow, you can learn it yourself or you can pay someone for a lot less cost than having a first-party software built. And you can add a lot of scalability.

I think it’s been harder. Luckily, it’s getting easier and easier. I think we’re going to see much more things changing from pure services to tech-enabled services. Also, I think things are changing in terms of how buyers want to buy. Productized services as well, I think, are important.

Before, people were happy to hop on a call and get pricing or sit through a demo, but everyone’s so busy now. Now the expectation is to make it super clear for me, productize it, help me buy, or else I’m probably not going to engage. Those are two big macro trends that I see as it pertains to that.

Etienne Garbugli: It’s interesting because, clearly, one, you’re thinking about building maybe a product beforehand, so you definitely have that mindset. You’re also always looking at it as, how can I remove the inefficiencies? How can I improve this?

Maybe it’s a mindset thing or maybe it’s just the models that you’re looking at it. You’re definitely not the only person looking into this for sure. A lot of people that bought my book, surprisingly, own a customer development firm or marketing agencies.

There seems to be a lot of people looking at or interested in doing some kind of transition like that or some addition to their business. I’m wondering, what’s keeping these people from doing this specifically? There are clear advantages that you mentioned like combining technology with services that are unique.

How would you advise another service business to look at this specifically? Say an existing company that has been around for five years or something like that. It’s successful in their sector. How would you advise them to start looking at opportunities for them to tack on more technology or product based…?

Sam Shepler: It’s a great question. The first tactical tip would be to have someone who’s really familiar with Zapier to just start to automate everything. That’s not me at all, but my head of ops, he love’s Zapier. There are other tools out there—Integromat, same idea.

The point being, think about what we can optimize, automate, or eliminate. It’s just easier than ever to automate a lot of stuff. That’s one thing I would say.

The other thing and this is something that I’m still learning about as the tech-enabled services space matures, but to some extent, it’s a strategy decision on pricing. A lot of tech-enabled service services to date that we’ve seen, it’s not necessarily a premium service in a lot of ways. It’s premium, but it’s not like ultra-premium.

There’s a reason why the best advertising agencies who charge a million dollar a year, their website is an artsy little thing and you submit a form and talk to their rep or their creative directors. I think it’s getting clear what game you want to play?

To some extent, I think the promise of tech-enabled services is exceptional quality at a disruptive price point and that’s relative.

When I say the disruptive price point is relative, it doesn’t mean it’s cheap. For us at Testimonial Hero, we’re a fraction of the cost of a big agency to produce your customer testimonial videos—a fraction of the cost with most of the quality or if not more quality. But we’re still not cheap. So it is relative.

Frankly, I don’t think tech-enabled services are for everyone. If you’re just trying to be super boutique, super hands-on, absolutely charge as much as you can in your services business, that’s not yet the method where tech-enabled services are heading.

On the other hand, if you want to have amazing margins, have a super scalable service, and deliver incredible quality at an extremely disruptive price point, relatively speaking, and really be able to, as a founder/owner, step back from everything to the day today, that’s my personal goal—to get the business to be owner-independent.

I’ll pause there, but those are a couple of my thoughts on all things technical services.

Etienne Garbugli: That’s super interesting. There’s also a pricing component. If you want to be perceived as a boutique agency, that might not be the right path because people might be looking for that handholding and working closely with an agency. Yeah, that does make sense.

In that case, you guys recently acquired a company called Applause Lab. Congrats. Why did you decide to go down that path and what made this a good fit for you?

Sam Shepler: Well, thank you and it’s a great question. I think it’s important to give a little context on what we do and then I’ll tell you why it fits in.

At Testimonial Hero, our main product offering at the moment—we’re obviously recording this in COVID 19 times—is remote customer testimonial creation. We help B2B software marketers at over100 different companies: UiPath, Google, Medallia, InsightSquared, and many others to create remote customer testimonial videos.

The current process that we have is fairly hands-on and a human touch to get an exceptionally high-quality result. That’s really why our customers choose us. If you want absolutely the highest quality remote testimonials, you’re going to work with Testimonial Hero.

The opportunity that we saw with Applause Lab was more scalability and still good quality but eliminating a very human part of the process, which was a one-on-one interview. With Applause Lab, the way that their technology and platform is set up, it’s asynchronous. It’s capturing the testimonial asynchronous, so you can just blast out a link.

I see that especially being super attractive for different markets that we’re not currently serving, specifically, e-commerce companies. E-commerce companies, it’s different from B2B. You don’t have that close relationship with every customer but you have a massive email list of customers.

Our vision with their technology is a slightly different market and way more scalable and less expensive than our current situation for customers who want to go down that route that is okay with something good, and just want it to be more scalable. They want to blast out a link to their email list and capture 50 testimonials that day.

Etienne Garbugli: I was setting you up a little bit with the question. You mentioned before that you got to get really good at Zapier. There are different ways to spot the inefficiency. How do acquisitions play into this?

You acquired a technology company that was in the sector that you guys were in. How does that fit in as a solution to be able to tack that on to a service business or maybe integrate that in your service stack for your company?

Sam Shepler: It’s always a decision in terms of build versus buy. There are so many variables and it’s different in every situation. That being said, if you get a chance and the price is right, it’s awesome.

With Applause, we got an existing customer list on top of the technology. Not all of their technology was first-party technology and that’s the case with most tech-enabled companies. I think that’s good.

Development is expensive: wait as long as possible to build custom software. If you can glue some stuff together with third-party tools, that’s great. It’s always a good opportunity and then you just got to weigh the build versus buy pros and cons and, of course, the overall pricing in terms of the deal.

Then other strategic things. For us, that was a good competitive acquisition too because they were a potential competitor in a lot of respects or could be. So just understanding how you value all those things, at least that’s how I think about it.

Etienne Garbugli: Well, I think one big part there as well is the acceleration. One great thing about a service business is that you have money coming in as well. If you can use that as a way to speed up your process towards being tech-enabled, that could be a great thing.

I have a contact; they have an agency in email marketing. They actually built a platform over three years, spent $50,000 building an email marketing platform that never actually launched. And you look at the approximate cost of acquiring maybe a lower-end version of that and then starting from that, that could have been much faster to market. Then at least see the response and/or maybe scale that afterwards. Definitely a lot of value there.

Sam Shepler: 100% yeah. I think we’re seeing more acquisition entrepreneurship, and generally speaking, I think I’m a really big fan of it. Especially if you can do a seller side financing, where the seller uses the business as collateral. Seller side financing is super great if you can get a deal like that.

We did just pay cash for Applause Lab but they were about a year into it. It really was something we could afford because, like you said, we have great cash flows because of our services—which is another benefit to services businesses.

Testimonial Hero is kind of an infinite runway, God-willing. Knock on wood there. If we’ve survived the pandemic, we can survive just about anything. It’s great to have a services business be the bedrock of what you can build a product business around later on. I think that’s underappreciated in some respects in the general entrepreneurship community.

If you’re not trying to build something venture scale especially, and even if you are, services are a great way to get proximity to the customer and just have that profitable business, cash flowing, infinite runway to then take some great moonshot swings off of.

Etienne Garbugli: How would you advise an agency owner or the owner of a service organization to look for these opportunities?

You mentioned that Applause Lab was one year old so they were probably not that visible on the market at that stage. How would you advise to be able to spot those before they become either too valuable to buy or too competitive or any other variation of that?

Sam Shepler: Well, I can tell you how it happened for me. Basically, I had developed a relationship with their founder, Tyler, because he was aware of Testimonial Hero. We just hit it off from the early days.

Initially, we made a small investment in his company. How it worked was someone introduced him to me because I was known in the testimonial space. We hit it off. I was like, “Cool, this is neat. Let’s make an investment.” So we made a small angel investment in his company and over time, I was just like, “You know what, let’s just acquire this. Well, what would he say?”

I don’t know what other people can learn from that other than maybe just keep an open mind, be helpful, and you never know where it will go. I was basically working with him in the early days of the business to just advise him. I was an advisor.

Having a personal brand helps. I don’t have a big personal brand, personally. It’s not something I’ve focused on too much, but I guess I had enough of one where someone heard that he was building a testimonial company and they thought they should talk with me. That’s how it all connected. I think at least in this instance, those are potentially some things to take away from it.

Etienne Garbugli: It does sound like there’s an interesting pattern as well how you found the niche for testimonials from your first company and how you found that maybe e-commerce might be an interesting way to go. It’s always staying close to the customer and understanding what are the solutions that they’re using and the opportunities out there. That’s interesting.

Maybe as a more general question, how would you advise a new entrepreneur to think about business opportunities?

Sam Shepler: That’s a great question. A couple of things come to mind. One of them is thinking about a Venn diagram. You have three overlapping circles of what you are personally really good at, what’s your rare or valuable skill, and then what the market needs. Really, there could be a lot of circles. Timing is a huge one. Timing is everything, frankly.

It’s just the overlapping of a bunch of different factors and also the willingness to pay quite a bit. In your target market, does the customer have the willingness to pay?

You can have the best opportunity or idea, but if the customer doesn’t have any willingness to pay for it or they love it at this price point but you need a different price point for the economics to work out, then that’s something to think about early as well.

Another thing I think about is, especially with services businesses, how can we make this way easier and apply a more modern approach to it? Like this process of doing things hasn’t been updated in a couple of years. New technology has come out. If we were looking at this with fresh eyes, what’s our hypothesis on how we should do it?

Those are all things. Then circling back, having some unique insight is super key. And there’s a couple of different schools of thought. There’s one school of thought that says pioneers get arrows in their back. Don’t be innovative necessarily because it’s risky. You’ll probably fail, blah, blah, blah. Just copy an existing business that’s working and put your own spin on it. And that’s totally fine. There are a lot of businesses that have been built that way.

The other thing is that innovation is also cheaper than competition. I think there’s probably a middle ground and that’s what we found with Testimonial Hero.

The first thing that we did with Testimonial Hero was we’re broadly in the video production space. We’re going to innovate by saying we’re going to make it completely effortless to produce B2B customer testimonial videos. They’re going to be fixed price; no travel fees anywhere in the world. It doesn’t matter if it’s in London or Los Angeles or whatever. It’s all going to be the same price and it’s all going to be super easy.

So take a concept that you believe in, with a market that it’s a real need for, put just enough innovation on it that it’s pretty different, and in my experience, that works pretty well. And obviously, niching down. There’s always power in niching down, especially getting your message out there early.

If you try to appeal to everyone in your messaging, you’re just going to appeal to no one. I’m a big fan of just niching down, especially early on.

Etienne Garbugli: Along those lines, where do you think B2B entrepreneurship is going? How is it evolving?

Sam Shepler: A couple of things. Socially and culturally, I think it’s getting cooler, for lack of a better term. It used to be consumer was all the rage and now B2B is getting a lot more attractive. Culturally, I think it’s coming into its own there.

We’re always going to see a cascading effect of what was current or popular or effective in consumer is always going to, in a couple of years, make its way to B2B. We’re seeing that now and we haven’t seen it for the past couple of years with design.

It’s crazy. Design was something that wasn’t even a consideration for a long time in B2B and now it’s a core thesis. Then the question is, well, where is it heading? What can we derive from consumer behavior for B2B?

One example I think is B2B marketplaces. There haven’t been quite so many B2B marketplaces, but consumer marketplaces have been a massive explosion. I think that’s one example. I think we’ll see a lot more B2B marketplaces being built at scale and in the next one, three, five years, for sure.

Etienne Garbugli: That’s an interesting point. If you look at, specifically, design, you mentioned mobile was one as well. Looking at these things a little bit gives you a sense of the momentum of where things are going.

Thanks a lot for taking the time, Sam. That’s really appreciated. Where can people go to learn more about your work, your company, what you’re focused on?

Sam Shepler: It’s absolutely my pleasure. It’s always great to chat. If anyone wants to learn more, testimonialhero.com or just search Testimonial Hero will pop up. Then on Twitter, I am just @SamShepler. That’s usually the easiest way to contact me.

Etienne Garbugli: Great. We’ll point those out. Thanks for taking the time. We appreciate it.

Sam Shepler: Absolutely.

More on Scaling a Service Business

[ Interview ] Alex Berman on How to Evaluate B2B Market Segments With Cold Email Outreach

A few weeks back, I spoke to Alex Berman for The Lean B2B Podcast. We talked about entrepreneurship, sales, customer development, validating B2B market segments, cold email outreach, and acquisition entrepreneurship.

You can watch the full interview below, or access it on iTunes or Spotify.

Interview Transcript

Alex Berman – Testing B2B Market Segments With Cold Email

Etienne Garbugli: My guest today is Alex Berman. Alex is the co-founder of Experiment 27, a company building lead pipelines, helping businesses book meetings with billion-dollar brands. Alex is also an investor, a producer, an educator, teaching entrepreneurship, and lead generation, a traveler, a Shopify app owner. He was also an early reader of the Lean B2B book way back. Alex, welcome to the podcast.

Alex Berman: Of course. Thanks for having me.

Etienne Garbugli: Let’s start at the top. Six, seven years ago, you or your co-founder had the idea of starting Experiment 27. What was the original idea and why did you guys think it made sense?

Alex Berman: Sure. The book, Lean B2B, I used to recommend it to everybody at the agency I was at back in New York because I loved the ideas. I went through a very similar process with previous ideas. So, the original idea was not lead generation.

The first thing that I wanted to do was agency owners. The first thing I thought was, okay, let’s try to outsource sales. So I sent some cold emails. The outsourced salesman went through some of that, then I pivoted to content to see if that would work.

Then we went from content and blog posts where people were paying for that to more cold email and lead gen. Then that seemed like it hit. We talked to a couple of clients. They really loved the billion-dollar brands’ aspect versus the leads for everybody. So then we doubled down on those.

Now we just focus on booking meetings with $5 to $150 million in revenue companies and helping these companies get larger deals. So it definitely came about in a very lean manner.

I don’t even know if you could come up with this business if you just try to. At least I couldn’t come up with it if I was just trying to think about it. It is something that really happened organically.

Etienne Garbugli: How did you guys figure out that that specific niche or market was the right one? How broadly were you defining that target initially?

Alex Berman: Initially, it was as broad as I want to start a business. I was the director of marketing at this digital agency, so I wanted to do something with marketing. It kind of honed in from there.

Originally though, the reason why we knew we wanted to double and triple down on this niche was we were on a couple of calls with agency owners when we were selling lead gen for any sort of B2B business. The agency owners would buy without asking too many questions in like 15, 20 minutes versus some of these other ones.

Like we were trying to sell the manufacturers and they’re hard to get a hold of; they were hard to close these massive deals. We were basically finding that some of the markets we were selling to really wanted to buy and wanted the peel hot and then in the other markets we had to really try for.

What I was trying to find was I wanted a business that sold itself. I wanted something where I didn’t have to try so hard on the sales calls because I knew the harder it was for me to sell, the harder it would have been for me to outsource it to salespeople. The easier it is, the easier it is to add a team and grow from there.

Etienne Garbugli: So the main driver, the main thing you were looking at was the ease of getting them to convert, to sell, to buy?

Alex Berman: Yeah, because if you can make money, you basically control the whole process. It all comes down to who can make money and then who can fulfill the contracts there.

I wanted something that sold itself, that I could easily find somebody else to do both on the fulfillment side and the sales side. I could escape the business and be free. That was the entire thing.

Etienne Garbugli: When you guys locked in on that, how broadly were defining it? Was it the agencies or you were agencies with specific profiles or…?

Alex Berman: We were the outsourced CMOs or outsourced marketing partner for digital agencies. Basically, anyone who did software or marketing. That was how we defined it. Almost 100% of them were in the US to start.

Etienne Garbugli: Did you feel like that was too broad or broad enough?

Alex Berman: Looking back, it was perfect for what it was at the time. I think within our first 30, 45 days, we ended up booking about $400,000 in yearly revenue, which was great for initial traction. It was amazing. But what we found out was the market we were targeting only had about 3,300 people in it, 3,300 companies.

With our cold emailing strategy—we were going out there emailing all these guys—we touched everybody in the market within two months. The rest of the time, it was something that sold itself. Then it became something that was harder over time. We had to find new markets at that point. And that’s when we decided to branch out and do some other stuff.

Etienne Garbugli: How did you guys approach that decision? You were running out of leads, how did you start winding in it?

Alex Berman: We made a list of other B2B industries. Just basically pie in the sky brainstorming, like who would buy this? Commercial cleaning companies, manufacturing companies, big law firms, whatever. We made a big list.

Then instead of going through and tactically figuring out this list and coming back that way, we went through each one and cold-emailed each one. I think we sent 100 emails to each niche. We kind of saw which niches popped up and we were able to find some pretty good ones from there.

Etienne Garbugli: How many different niches did you look into?

Alex Berman: I think we just found about 15. We didn’t go too crazy. What I like to do is I’ll look up the most popular industries. For instance, the site that I really like right now I think is OpenSecrets.

Basically, on opensecrets.org, there’s this long list of companies that lobby the government. The companies are all organized by industry. So the way that I’m looking at it is these are major industries in the United States; which ones of these industries are B2B? Because we don’t want to do anything in B2C lead gen.

Then, from that, we were able to really hone that list down. Then you have one, two, three, four, going through it with cold emails to see who actually bought.

Etienne Garbugli: In that case, were you tailoring your pitch to these specific industries or you were kind of going, this is the standard template that we use, target these, and see what happens?

Alex Berman: Every cold email is tailored to the industry. We still write cold emails like this. It’s customized first-line with some kind of compliment. Then the second line calls out some case studies. Like, “Hey, we recently finished doing this project for this company and got this result. We’d love to do the same for you. Let me know if that works. Happy to send over a few times for a quick call.”

Etienne Garbugli: Okay. How do you figure out which one of the 15 was the most compelling and based on the data you were getting?

Alex Berman: We ended up picking a couple, but I look at a couple of things. I look at how easy is it or how often do they open emails? What I found is people in the manufacturing niche do not open emails. You can have the greatest subject line in the world and you might cap out 20, 30%. But some niches like startups or even e-commerce stores will open emails 90% of the time.

So it’s like, do you want to sell to somebody who barely opens your email, or do you want to sell to somebody that’s really opening it? Then there’s the reply rates on that. Then when they do reply, how enthusiastic are they? How in need of our help are they?

Then from there, once they’re on the phone, how easy are they to actually close? It’s a multi-step process. It’s very much a scientific approach—very boring, step by step by step approach.

Etienne Garbugli: That’s great. So you’re able to explore multiple niches and I figure out which one is most compelling. Then the end data that tells you this one, you said you picked a couple. The reason why these two, specifically, were picked was because of the…?

Alex Berman: The ability for them to sell themselves. At the very end, I want something where we send a cold email, we get on the call, and we barely have to talk. They know they need us. They have a very burning issue and they have the money to afford us.

If all of that aligns, then we’re good to go. What’s cool about cold email is you can really hone in on that target. It’s not like paid ads where you have to go searching for that. You can really just hone in exactly on what you’re looking for. Then do it over and over again until you cap out the market we did with the agencies.

Etienne Garbugli: How did you know that the pitch you were using was going to perform or give you at least a baseline performance that you could rely on?

Alex Berman: We have that standard template that we always run with. If I’m complimenting you, saying that I’ve won with somebody else that’s as close to you as possible, and then asking for a meeting, it’s like eating McDonald’s. It’s not like going to a fancy restaurant. You’re like, this is sugar and fat and salt. We’re going directly for the value liner right there. They either want it or not at that point.

Etienne Garbugli: So you use a value proposition that you know works and you’re focusing on the core of it and just making sure that they get in front of it, pretty much? Is that the process?

Alex Berman: My main hypothesis and one thing that’s working for us is that all businesses need leads. All businesses need customers and marketing, at least the people we talk to. So it’s just trying to figure out how to frame that to find the ones that need it the most.

Etienne Garbugli: I find it super interesting that you’ve been using your core expertise in lead generation, go-to-market, cold emailing to build related products like email10k.com, but also to grow other types of businesses.

If we look at it more broadly, how would you go about validating a new product? Say you are an entrepreneur and you’ve built a project management software tool in a market that’s super crowded. How would you go about validating the product, the market, finding the right opportunities for your product, maybe through cold emails?

Alex Berman: Project management I think is a very flooded market. We have a similar opportunity coming up this year so it is something that I’ve actually thought through.

Etienne Garbugli: You mean in project management?

Alex Berman: Literally a project management software. There’s one I did focused on Scrum project management. Anyway, I would try to find, what is the niche that you think it’s going to fulfill?

Maybe it’s going to be something as broad as a monday.com. But if it is a very specific project management tool for a specific type of team, I would start with that and email those types of customers with the exact same type of email.

There’s the product development process where you’re doing the customer interviews and everything. I think that has some limited value. I would much rather pretend the company already exists, build a landing page, email it out, and try to sell them like the company already exists. Putting all of the assumptions and everything into that landing page; just like doing a pie in the sky brainstorming session.

That’s what I would do. I would reach out to, say, 100 people with that kind of value proposition and just see who responds. Hopefully, some people get on the phone. If not, things need to be tweaked from there and work on it from there.

Etienne Garbugli: How do you define that initial value proposition? In that case, you’re starting from nothing. Well, you have a product, but that’s the only thing you have.

Alex Berman: It’s going to be some brainstorming. For us, the team we’re working with has a lot of experience when it comes to Scrum project management. They’ve built their Scrum project management tool, which I’ll talk about in a second. I wouldn’t start new products. I only want to do partnerships going forward.

They already had this. They had experience in Scrum. Now it’s like, what companies run Scrum? Let’s reach out to them and see if they’ll buy this. If not, I’m fine with totally changing the product or dipping on the whole concept. I’m down with leaving completely also.

That’s the main thing. What niche is your project management software actually filling? What does it do? Why wouldn’t they just pick monday.com? I think that is what you need to do. You need to be thinking about that all the time because if they would just pick monday.com but you’re getting to them first, if that’s your entire business plan, the odds that that’s going to work are very low because Monday has such a big budget or any of these other major ones.

You can’t count on being the first to get in front of a customer when you’re this late in the market. You have to have something different, whether it’s pricing or features or something else.

One thing that I saw recently, I mess around a lot with the lead gen space. And ZoomInfo sells leads. They’re a publicly-traded company and they replaced a company called Hoovers who was at the top. Now ZoomInfo charges about $12,000 a year for their lead gen and that was so good. But then this other company, UpLead, comes along. They’re charging $79 a month for the exact same lead gen, no year-long contract or anything.

Etienne Garbugli: Same quality?

Alex Berman: Same if not better quality. So now as ZoomInfo has replaced Hoovers, now UpLead, I would assume, is going to take over if they push it a little further. If you can come up with that kind of innovation, I don’t know what that is on project management, but that kind of innovation really grows. Otherwise, a fast follow with a little bit cheaper pricing.

Etienne Garbugli: Okay, I get it here. In that case, you would need to figure out what that differentiated thing is and then use that as a way to approach these organizations.

Alex Berman: Right. Why is your project management system better? And it doesn’t have to be better than Asana. It doesn’t have to be better than Basecamp, but it should be better than those for one very specific user group.

Hopefully, that user group pays more than a couple of hundred bucks a month. That user group should be able to very much value it. The one we’re working on is tied to this enterprise. It’s not just Scrum project management, but it’s enterprise Scrum. Let’s say like American Express’s project development team; made for those kinds of companies.

Etienne Garbugli: It’s great that you have that experience. You mentioned it’s kind of late to the game. Why are you deciding to take that on then?

Alex Berman: I just know the founders and they have strong connections to Fortune 500 clients. That’s why. I think it with Brian acquisition’s going to be easier. Their main issue is the product isn’t aligned with the market.

So if they tried to sell it as is, why wouldn’t they just go out with their own product? Well, if they tried to sell it as is, it wouldn’t fit, it wouldn’t sell. But I know if we tweak it a couple of times, get on a couple of meetings, we can knock this out, and then it would scale like that.

Etienne Garbugli: If we go a step back, you have that software that you built. You don’t necessarily know but you have ideas of what might be differentiated, what might be valued by customers. How would you go about figuring out that first on people that you reach out to, first on the businesses in that case?

Alex Berman: It would be the use case. The reason why I think it’s valid is this agency that built it runs that Scrum process. They built it for themselves and their clients. So I know already it’s validated. They’re just having a really hard time saying why it’s different. How I would find those first 100 clients is I would first focus on getting three or four really good clients or 20 good clients. One thing that I really focused on is I’m not a big fan of going after the $20 a month, $30 a month thing. The softwares I want to sell are more of ClickFunnel’s type of pricing. Like $297 a month, $397 a month. Those are the type of sales that I’m comfortable with.

I’m not looking for a hundred clients. You only really need 15, 20 clients to get it to the point where you can start really pushing it.

Etienne Garbugli: What industry were you after? Would you go after a specific vertical or horizontally different B2B market segments?

Alex Berman: This one that I’m working on, in theory, right now, I haven’t tested in the market, this might totally fail, but it’s based on going after huge companies, let’s say over $300 million in revenue or $500 million in revenue that run Scrum project management. There might be 300 companies total, but if they’re all paying several hundred dollars a month, that’s a good lifestyle business right there.

Etienne Garbugli: So you’re starting with that hypothesis that this group of people will buy based on the fact that they’re running Scrum projects, specifically, that aspect?

Alex Berman: Based on the fact they’re on Scrum, based on the fact that they pay hundreds of thousands of dollars per developer and they might have 30 developers on a project.

I know they have money. I know they’re on Scrum and these other guys I’m working with say that they can do Scrum more effectively. If that is true, then why wouldn’t you take your 30 developers and get a little bit more out of them?

Etienne Garbugli: So you’re looking for signs that there was money to pay for the software, that the value that’s differentiated will be perceived as valuable and that you can actually reach these people?

Alex Berman: Yeah, exactly.

Etienne Garbugli: Any other factors you typically consider in these decisions?

Alex Berman: I’ve got two other factors. One, I need to be able to have fun doing it. It needs to be able to be fully outsourceable. I don’t want something where I’m on calls all the time selling it. So getting it to the point where it’s either selling itself or somebody else is selling it for us is good.

Then the third thing, for me personally, I’d love to have something tied into my personal brand. For instance, I’m seen as the lead gen cold email guy. So if I’m working on a lead gen tool, it’s going to be better or another agency.

We just started Institute of Sales Training, which has a sales training agency and that’s blowing up because Alex Berman is sales, Alex Berman is cold email. So that works there. Other businesses I’m looking for, I really want a cold email sending tool. Something like Mailshake. I feel like that would be cool and then another lead gen. If I can get a board position in UpLead, I gotta try to go along and get that.

Etienne Garbugli: So you’re expanding on what your competitive advantage is?

Alex Berman: Exactly. Yeah. For you, you’re Lean B2B, so you starting a B2C company would be less helpful than you starting something that’s…

Etienne Garbugli: In that case, if you are doing that, how do you know who to reach out to in organizations? If you’re starting out, there are many people in these organizations that you’re going to be targeting. How do you know who to send the cold emails to?

Alex Berman: Typically, I start top-down. I will literally start at the CEO level. We’ve reached out to CEOs of Morgan Stanley, Nike, and stuff like that. And I’m always surprised when they turn into meetings—not with the CEO, but with somebody multiple levels down. I’ll start there and then if the CEO turns us down, a couple of weeks later, I’ll wait, and then I’ll reach out to whatever the next level down is. Usually, the C-level would be CMO. Then under CMO, on the marketing side would be specific teams and each one of those has a director.

I’ll just wait a week or two between each of these outreaches. I can just start at the top of the pyramid and work my way down until I get very specifically onto the team that I’m trying to sell to.

Etienne Garbugli: How do you know that you actually found the right level or the right role, the right person within the organization?

Alex Berman: Because we’re starting at the top, it’s not something you’re having to look for. It’s something that should fit itself.

Etienne Garbugli: Doesn’t that create, sometimes, a bad relationship with the organizations?

Alex Berman: I don’t know. I love organizations that like people that are trying to deliver value as is evidenced by the cold email. We’re going in with a real honest compliment, we’re going in with a case study and that we can deliver value. That’s going to get to the right person. That person is either going to hire us or not.

Etienne Garbugli: So even in that case, when you’d be starting out for Scrum project management, you would probably find that first case study and use that as a kind of golden horse to get into the organization?

Alex Berman: Yes. It’s always better if you can have one case study and if the case study is as close to the target as possible. One thing we actually talked about in our business course, Email10k is how to borrow other people’s case studies.

For instance, if I was trying to sell a project management tool and I know that I wanted Fortune 500 clients, I would try to get a partnership with another software that was in Sony or in one of these other major companies so that I could have that logo going in.

It’s always hard to get that first client, but it’s actually fairly easy to borrow other people and get their legit permission to use their clients. In the course, I did a 45-second cold call to get this dude’s case studies. It was like three or four sentences and then a couple of emails back and forth.

So people are very game for it. If you go in and you say that you’re going to deliver value for their business, they’ll help you.

Etienne Garbugli: So you’d try to find a partner that helps you position your company as a partner of theirs with that larger organization?

Alex Berman: Yeah. The idea being you want to be able to use their case study’s name when you go and do outreach. For instance, the partner is going to tell you, “Yes, you can use the Sony name. You can use our case study when you do outreach.” Then you go out with the Sony name. Now it’s easier for you to get meetings and then you talk about the partnership along with yourself.

Etienne Garbugli: Okay. So you would never approach a company and try to start guessing what role would be the most likely to buy the technology that you’re putting in place? You would not go like, “I think it’s going to be the IT department or it’s going to be the marketing department so I’ll reach out to that department.” You start at the top to be able to find the right path.

Alex Berman: I start at the CEO and then if the CEO turns it down, then it’s either marketing or sales or IT, one of those. Then going from there.

Etienne Garbugli: What I’m trying to ask is you never go directly for the department that you think might…? You don’t follow that assumption?

Alex Berman: No. I really let these companies tell me what to do. You go for the top, see what happens. You’ll be surprised. A lot of the time, the CEO responds, even at major companies.

Etienne Garbugli: That’s great. How would you compare different markets or different B2B market segments? Say, you’re doing this, you start, okay, I think these organizations are relevant, this market is relevant. How would you evaluate, in that case, if you’re still building that product management software?

Alex Berman: If the market’s relevant?

Etienne Garbugli: If that segment is better than another segment. How would you define which one is the better one?

Alex Berman: Sure. How badly do they need this and how much money do they have to spend on it? That’s the thing. For instance, if manufacturing project management is horrible but they have millions and millions of dollars in revenue, maybe that’s the place to go.

Etienne Garbugli: Okay. So it’s very similar to what you mentioned earlier.

Alex Berman: What is it? Willingness to pay, ability to pay, and then how bad the problem is for them.

Etienne Garbugli: So it’s always going into that equation where you’re trying to find a greater need and the greatest ability to purchase.

Alex Berman: Yeah. I’m trying to boil it down to literally as simple as possible. A lot of people throw all of these levels on top, but if you have something people want and you talk to the people that want it, and those people can afford it, that’s it. That’s all you really need.

Etienne Garbugli: What would be signs that you’re not headed in the right direction? Say, for an entrepreneur, you have the experience of doing this with a lot of different products. If you’re not Alex Berman, you’re someone else who is building software in an industry, how can they tell that they’re not getting anywhere, that they’re going in a circle?

Alex Berman: If you send 20 cold emails and you don’t get back four responses that are like, “We need this. This is amazing,” then I would completely reroll and try again.

Etienne Garbugli: That little numbers?

Alex Berman: Yeah. If you have something that’s obviously the next best thing, the greatest thing ever, and it’s communicated correctly, it should be very clear to your clients.

Etienne Garbugli: But it could still be many different things. In that case, you’re assuming that it’s communicated correctly, right? There’s a lot of elements there that if I’m a technologist and I’m approaching a market, I might be completely off the market in terms of what’s valuable, how you bring to market the value proposition. Do you have any…?

Alex Berman: Normally, I tell people to send out 100 cold emails. What we look at first is the bounce rates. How good are the leads versus how many leads are getting thrown back as not good leads? That answers how easy is it to actually find these people?

The second thing I look at is how many people opened the email. I was just looking at a guy’s emails today and he was sending them to manufacturers and it was a 20% open rate, even on the best subject line. If they’re not opening the emails off the bat with a quick question or with a three, four-word subject, I’m going to tell them to probably move on to different B2B market segments.

Then if they’re responding, but it’s a lot of, “We already have a vendor to do this,” that is actually a really good sign because that means that they’re buying in this market already.

That’s good. That means if you could sell better, you can actually get through.

If they’re responding with a lot of not interested, then I look at the body of the email. I look at why are they not interested? A lot of time I’ll respond to those “not interesteds” and say, “We’d love your honest feedback. What do you think? What makes you not interested in this?” Sometimes people will get back and you get feedback there.

Those are the main things. You want to basically figure out, at a broad level, are you on the mark or are you off the mark? Does everyone think you’re spamming and hate you? Or does everyone already buy from somebody who does this or is this the greatest thing of all time? Best thing, worst thing, and then lukewarm response.

Etienne Garbugli: So you’re basically doing customer development with email?

Alex Berman: Yeah. Customer development, email, and not the normal interview process. My customer development interviews are sales calls. If they buy at the end of the sales call, it’s valid. If they don’t buy at the end of the sales call, something’s wrong.

Etienne Garbugli: So you’re focusing on that pre-selling thing where you’re pushing the product, whatever the product would be or is?

Alex Berman: Yeah.

Etienne Garbugli: In that case, how would advise a new entrepreneur, maybe more of a tech profile, to think about B2B market segments, niche, prospects? How should they think about these things when it’s not their universe to start with?

Alex Berman: I would think about their background and what market they know the best, specifically, what industry. Let’s say you’re in banking, you’re going to speak a different language than if you’re in something else.

Think of that industry first, then think of who are you actually emailing within that industry? What titles are you the closest to? If you’re tech, maybe email the tech people, and then your product would be in there. If you can code, you’re actually at a very strong advantage because you can build whatever. You just need the idea.

I would go out maybe with the idea that I want to build a project management software and I want to make it better, but not with the idea of “This is the solution. This is the project management software that is going to change the world.” I would go in very, very loose with maybe just project management software. Three or four keywords of what you want to build, go in very loose.

Come up with a hypothesis on this CTO at this type of company will buy this software. Email them like that software is the finished software, like you’re ready to go. If they say no, be ready to move on. If they say yes, be ready to build it.

Etienne Garbugli: In that case, if I have that first version of the product management software in place, how do I know when I need to adapt it when I’m reaching out to different organizations? I can code, I can add whatever, but how do I know when I’m supposed to actually be taking those feedbacks or when I’m supposed to be changing the actual product?

Alex Berman: If you hear the same thing multiple times from the same people, then it’s time to change it. The best feedback is, “We’re not interested at this time,” because then you can come back later. Or, “We’re already working with another vendor,” and then you can get feedback based on those.

That’s basically it. If you’re getting the same feedback over and over again at any point in time, then it’s time to listen.

Etienne Garbugli: Which points you to the gaps in the product that you have in place?

Alex Berman: Yeah. And the gaps might be huge. The gaps might be small, they might be huge. Sometimes all that it takes is a different title. All that it takes is calling your software a different thing and then it resonates.

Most of the time it’s not a full restructuring that’s needed. It might be grabbing one little feature and then hitting that feature as hard as possible. With our Shopify apps, one of the apps is just a Facebook Messenger integration in one click.

Everyone else is doing all these crazy chat apps and we’re over here charging $15 a month because people don’t understand how to install Facebook Messenger on the Shopify store. You don’t need a million things in your software.

Etienne Garbugli: In that case, how much of customer development do you feel is positioning?

Alex Berman: It totally depends on how you’re selling it. For the Shopify apps, we’re selling in a marketplace. So you go in on Shopify, you buy your Shopify store, then you go to the marketplace and you search for something like Facebook Chat. The app that comes up first or second is typically the app you’re going to buy. That’s total SEO play.

With something like Experiment 27, where we’re selling lead generation, that is a market that we’re tackling via cold email. In that case, it all comes down to, it’s not really branding as much as it is about just pure value delivery.

Like, “Hey, what would it mean for you to get another 40 leads this month? How much is that worth to you?” $500,000? Is it worth $50,000 for us to do this for you? Yes or no.

Etienne Garbugli: Last question and you kind of answered that so more as a general question. How has your perspective on starting businesses evolved over the years and how do you see B2B entrepreneurship evolving moving forward?

Alex Berman: I think starting a business is so hard; unbelievably hard to the point where it might take three or four years to really figure it out. The lean model I think is very interesting and it works because I did it right, but it took me three years to figure it out, maybe a little less, maybe two and a half years to really get it to a point where it was scalable.

What I would rather do and what I’d recommend anyone doing is reaching out to some of these entrepreneurs that already have a valid business but don’t want to grow it. Especially if you’re coming from any sort of corporate world, where let’s say you have 30, 40 grand in cash. There’s a lot of highly paid engineers that are coming from Google that are quitting their jobs to start these little apps when 30 grand would buy you a business that’s already making even $3,000, $4,000 a month.

So I would do that: identify the type of business you want to start. Make a list of those founders, reach out to those founders, talk to them, and try to make some offers, and buy a business. Skip the first three years of entrepreneurship, if at all possible.

Etienne Garbugli: Because that is too much risk or that is not the most efficient way to get to the outcome that you’re looking for?

Alex Berman: It’s not the most efficient way to start a business. If you’re trying to sell a project management tool, there’s a million out there. I’m sure of the million project management tools that already exist, there’s one with 300 customers and the founder’s burned out. Just join that one. Grab that one. That’s yours now. Go buy that.

There’s no reason to try to start from scratch here. Especially in an industry that’s been around for four or five years unless you have something totally innovative. Even if you do, let’s say you buy a project management tool, you can innovate based on whatever that tool is.

Obviously, that tool already has something special if they have 300, 400 customers, 1,000 customers, whatever it is. There’s a ton of people that start businesses, they list them on Product Hunt, then they get a bunch of customers and a lot of them didn’t want to start businesses or they don’t want to deal with the customer headache of having people talk to them all the time.

There’s a ton of demand for unloading these businesses. A ton of entrepreneurs want to escape. If you go in there and you have a little bit of cash from working your corporate job, you have such an advantage over all these bootstrapped entrepreneurs that are starting from nothing.

Etienne Garbugli: Yeah, as a way to transition faster into something that actually works.

That’s super interesting. Thanks for taking the time. Where can people go to learn more about your work, what you do, what you’re working on?

Alex Berman: Sure. If you want a course on how to start a business, I would check out email10k.com. And if you want free tutorials on entrepreneurship and some behind-the-scenes stuff, I would go over to alexberman.com. That’s our YouTube channel, and you can check out all our free content over there.

Etienne Garbugli: Awesome. Thanks for taking the time.

Alex Berman: Of course. Thanks for having me.

Etienne Garbugli: All right.

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