Time and Effort are the Greatest Barriers to Entry for New Markets

Back when we were pitching Pardot to VCs in an unsuccessful attempt to raise money, one of the more common questions was, “What are the barriers to entry?” Then, a more specific variation of this question would arise, “What’s stopping Google from assigning 100 engineers to this market and crushing you?” Both are legitimate questions and we’d counter with things like having a mini-brand, 100+ paying customers, strong product/market fit, and so on. One famous investor, who writes the excellent Above the Crowd blog, told us he wasn’t interested because there weren’t enough defensible network effects or marketplace elements to be interesting. Fair enough.

In hindsight, the answer to the barriers-to-entry-question is much simpler: until there’s a meaningful market, no big company is going to care. By the time the market is large enough to matter, the winners will have been established, and the massive tech companies will merely acquire one of the leaders. When a major tech company does enter a large existing market as a laggard, most often they abandon it a few years later (see Google Hire’s recent shut down notice). Why? The market it already saturated with viable solutions and competitive dynamics are too strong. For major tech companies it’s always better to buy than build for a new product offering.

So, with small-but-fast-growing markets as the ideal target for most startups, barriers to entry are almost non-existent. After talking to thousands of people about entrepreneurship, and seeing so few people start companies, I take a different view.

Time and effort are the greatest barriers to entry for new markets.

Creating a new company is hard. Expect 5 – 10 years of difficult work to build something viable.

Most entrepreneurs don’t have the time.

Most entrepreneurs aren’t willing to put in the effort.

With new markets, there’s no guarantee it will grow into a large, meaningful market. Some do, most don’t. Quite often, people think a market will catch on and grow fast, only to have it fizzle out. That’s a big risk, and people are generally averse to risk.

The next time someone asks about barriers to entry for a new market, remember that it’s rarely an issue. It’s not that an entrepreneur couldn’t enter the market, it’s that there are so few entrepreneurs out there, and even fewer are going to commit the time and effort.

The Recurrent Competitor Worry

Back when starting Pardot, we only knew of one existing competitor: Eloqua. After getting into the marketing automation market (then called demand generation followed by lead management), we quickly found competitors that were established but subscale in Austin and Minneapolis.

Then, as with any small but fast growing market, more competitors emerged. And more emerged. And more emerged. The number of new competitors was staggering.

I was worried.

Two years in this new upstart called Genius emerged. With slick marketing, a clever edge to their product, and tons of VC money we were nervous. A couple quarters went by and we kept losing deals to them — we were losing the fight.

Then, unexpectedly, something happened. Genius essentially went away. We were no longer losing competitive deals. Customers they had signed were defecting and coming to us. While they were great at raising money and customer acquisition, their product wasn’t meeting the needs of the customer. No matter how hard they tried, and how much money they threw at the technology, they weren’t able to deliver a compelling product.

One competitor down.

But, how were we going to compete with all the players in the market?

I was asking the wrong question.

The focus must be on the customer.

The focus must be on delivering an amazing experience.

The focus must be on delivering incredible value.

Staying close to the customer is what matters most, not competitors. Yes, being cognizant of competition is prudent, but competitors are outside your control. Delighting the customer is within your control.

With hindsight, I realized I worried too much about the competition. I obsessed over them. I feared them. Only after experiencing continual success in the market, and seeing many competitors flail, did I come to understand that this was a normal part of the entrepreneurial journey. Competitors will always come and go — I needed to redirect my worrying to serving the customer.

In the end, the customer decides who wins.

Serve the customer.

Belittled for Not Raising Venture Capital

It was late Summer of 2012 and we were out at the annual Dreamforce show in San Francisco. In addition to having a booth at the show, I was out there meeting with partners and customers. For several months prior, we had been working on a distribution relationship with a large tech company that’d I’d always liked and bought a number of laptops and computers from over the years (their name rhymes with “Smell”).

Eagerly, I went to meet with their cloud software division located in the heart of San Francisco to wrap up a distribution agreement so that their customers could buy our software on one bill with everything else they sell. We exchanged pleasantries about being in town for the big show and the partner manager laid right into me.

Partner manager: How much venture capital have you raised?

Me: None.

Partner manager: Why not?

Me: We don’t need it. We’re bootstrapped, north of $10M recurring, and doing great.

Partner manager: You should raise venture capital.

Me: We don’t want to.

Partner manager: You’ll grow much faster with venture capital.

Me: We’re already growing super fast.

Partner manager: Every successful software company raises venture capital.

Me: We don’t need it.

Partner manager: You’ll be a better company if you raise venture capital.

Me: I feel really good about our company.

After this exchange, I was fired up. Our company was amazing! And, here I was, being belittled for not raising venture capital. This partner manager had been so brain washed by the Silicon Valley narrative that she couldn’t appreciate that there were other paths to success.

Venture capital isn’t right for everyone. In fact, it’s wrong for 99% of entrepreneurs.

See people where they are and work to understand their position. Even if you don’t agree with them, the best thing you can do is work to leave with a strong rapport and mutual understanding.

One final note: it was all I could do to bite my tongue during this conversation with the partner manager as we’d already signed an agreement to sell our company for ~$100M, and it would be announced shortly. Just wait until she reads the announcement!

Disrespecting a Team Member is Never Acceptable

I was two years in as a full-time entrepreneur and we were meeting a potential customer in a small nondescript building less than a mile from our office. Our startup was still struggling and I, as an eager first-time entrepreneur, was chasing any opportunity regardless of fit. Helping me that day at our sales meeting was our lead engineer, and after a few pleasantries, we started talking shop with the prospect.

Quickly, as the conversation turned technical regarding product capabilities, our lead engineer dove in regaling all the details. Only I, as a sales-oriented entrepreneur, thought our lead engineer was focused too much on the minutia and not enough on tying the functionality back to the customer’s needs. So, in an expression of poor leadership, I interrupted him mid sentence and took the conversation a different direction.

Another topic with the prospect, another detailed comment from our engineer, another poor interruption from me going a different direction — on and on it repeated.

Only after the meeting, as we got into the car, the lead engineer shared with me how little he felt. How I had unprofessionally talked over him. How poorly I had reflected our company in front of the prospect. How miserable I was in the setting.

It was all true.

Now, 16 years later, I still remember this lesson. I did an unacceptable job setting expectations with the lead engineer before the meeting. I did an unacceptable job showing respect to the lead engineer in the meeting. I did not lead, I trampled.

Disrespecting a team member is never acceptable.

The next time you have the urge to talk over someone, let them finish. Hear them out. Reflect on their position. Treat them with respect — it’s always the right thing to do.

Limiting Beliefs, Stop Holding Yourself Back

Growing up in a small town in Florida, I didn’t know any software entrepreneurs. Not only did I not know any personally, I didn’t know of any at all in my town — not a single one. Of course, I read about famous ones in different magazines and online, but they weren’t relatable. While it’s inspiring to read about someone doing great things a 1,000 miles away, it’s significantly more impactful to see someone doing great things in your town or even neighborhood.

For me, I let myself down early in life with limiting beliefs. I let myself be a product of my surroundings.

If I only had X, I could be more successful.

If I only lived in Y, I could be more successful.

If I only knew Z, I could be more successful.

Only limiting beliefs are exactly that: limiting.

One of the best things an entrepreneur can do is realize that every successful entrepreneur is just another regular person, eating, sleeping, and living life like everyone else. Maybe they were a little luckier. Maybe they tried a little harder. Yet, all are human. All have 24 hours in the day. All have challenges.

The next time a limiting belief enters your mind, fight back. Recognize it for what it is and override it. Don’t let yourself limit yourself.

They Said I Wasn’t Good Enough

The year was 2009. We pitched Pardot to VCs all over the country. 29 of them to be exact. Rejection after rejection. You’re based in a second tier city. Your market isn’t big enough. Your network effects aren’t strong. You’ve never done this before.

They said they didn’t want to invest.

They said I wasn’t good enough.

Today, as part of Salesforce.com, Pardot is worth billions of dollars of market cap.

Last week I was reminded of this personal experience when an entrepreneur shared he performs best when there’s a chip on his shoulder. When his back is against the wall, he fights hardest. When things look bleak, he grinds more.

Most entrepreneurs are the underdog. Society is averse to change. Companies are averse to change. People are averse to change. Yet, the only constant is change.

Entrepreneurs must recognize the challenge, embrace it, and overcome it. Use adversity for motivation. Find value in having a chip on the shoulder.

Just because they said I wasn’t good enough didn’t make it true.

Most Startups are Self-Funded

With all the talk about startup financing rounds, it’s easy to forget that most startups are self-funded. Self funding ranges from personal savings to credit cards to consulting with one common theme: resourceful entrepreneurs working through adversity to achieve their goals.

Just last week, I met with an entrepreneur who’s been working on her startup for several years while still having a day job. She identified a valuable, urgent problem (hair on fire!) and was able to get the future customer to fund development of the product while she retained the intellectual property. Customer-funded startups are often the best.

Locally, I know an entrepreneur that drove Uber on nights and weekends, especially during concerts and events for surge pricing, so as to work full-time on his startup. After doing this for a year, and getting some initial traction, he then raised money from investors. Traction first, investors second.

Of course, the best known local success story is self-funded: MailChimp. In the early days, MailChimp was a web consulting firm before morphing to an email marketing platform after a few years. Now, MailChimp will do over $600 million in revenue this year and is one of the most valuable tech companies in the country.

The next time an entrepreneur laments a lack of funding, make sure they know that funding isn’t a pre-requisite for success. The main pre-requisite for success: grit.