The New Entrepreneur
David and Blair discuss how the nature of entrepreneurship is changing and what the new entrepreneur is facing in today's world.
BLAIR ENNS: Hello, David, how are you?
DAVID C. BAKER: Hi, Blair. I'm good. Thank you.
BLAIR: Excellent. I guess today we're talking about the new entrepreneur, is that right?
DAVID: Yeah. The old entrepreneur, yeah, let's talk about the new entrepreneur. That's a good idea.
BLAIR: You want to get right into it. The old entrepreneur is dead. Entrepreneurs are passé. This is something you've been thinking about for a little while. I'm not sure if you've written on it yet. I know you've got ideas percolating on it, and you're seeing some trends. I guess the first question I want to ask is when did you start seeing some sort of pattern that led you to believe that the nature of entrepreneurship is changing or the face of entrepreneurs is in some way changing? What did you start to see and when?
DAVID: This feels a little bit like a trap question, because if I say I just saw it recently then you're going to say, "Well, why did it take you so long?" Then if I say, "Oh, I saw it like eight years ago," then you're going to say well why did it take you long to articulate an intelligent thought about it, so what's the safe... ? How about if I say three years? How's that?
BLAIR: That's a great answer. I wouldn't say any of those things in response. I would think them absolutely, but I know enough to keep them to myself. Three years ago you woke up and saw what?
DAVID: It was in the context, interestingly, of other things, so we all know that people are getting married later, they're having kids later, and they're maybe even graduating from college later and then doing something else before employment, and then it just carried over to start noticing what was happening with entrepreneurship in the field that both you and I serve, the creative field. It was just interesting to see that, so it came up in particular because I do a lot of succession planning work, and so you have the principal who's the older party of the two and then there's somebody else who's usually working for the principal already, and they both want to transfer the firm.
It occurred to me that the folks that were leaving were not as old as they used to, in other words they weren't sticking along as long as they had before and also that there was an entrepreneur in their midst. Because we used to say, listen, if somebody is still working for you in their 30s then they're not an entrepreneur. If they were they would be off doing their own thing, but I don't think that's true anymore. It's kind of jumped up about 10 years maybe. I don't have the data but just looking around it's obviously a little bit different.
BLAIR: The pattern is you're seeing people bailing out, of owners exiting their firms a little bit younger and with more ready-made entrepreneurs already in their midst ready and willing to take over.
DAVID: Yeah. Exactly. It's like a baton. Somebody has to give up the baton but somebody has to be there to take it too, and so the principals who would be working for a long time and then they'd be done and they would move to Florida, or I don't know where you folks move in Canada. Where do you move?
DAVID: You move to Florida too.
BLAIR: We move to Florida. Yeah. Not me but...
DAVID: God. That's before we put the wall up. Once we get the wall up, you're not moving to Florida.
BLAIR: You're going to make us pay for it, right?
DAVID: They would move but now they're not doing that. They're ending earlier, they're handing it off to somebody and they're not assuming that this new, hot, young entrepreneur is going to come from the outside and they're either going to buy the firm or they're going to start their own firm. It's not this huge transition that it used to be. It's more of a moving in and out of entrepreneurship rather than some big decision that everybody is making and everybody congratulates the other person, and then when they're done with the entrepreneurship journey everybody celebrates that too. It's just more of a nonchalant thing, it seems.
BLAIR: Are you saying that the line that separates an entrepreneur from whatever a non-entrepreneur is is blurrier?
DAVID: It's blurrier in the sense that it's less obvious to me that somebody's capable of running a business, but I don't think it's blurrier in one key aspect and that's the risk component. In the true entrepreneur, whatever that means. Maybe we should define that at some point, but in the true entrepreneur's life their... I actually did a study of 1,340 principals, surveyed them, interviewed them, and then gave each a personality profile and there was not a single common pattern in their personalities except for one thing and that was their aptitude for risk taking, and I don't see that... That has not changed at all, but all the other things seem to have changed, so like if somebody's a certain age and before you might have written them off and said, "Ah, they're not going to start a business. They're too old," that's not true anymore, but that risk thing, I think, is still true.
BLAIR: Do you think if we were to define entrepreneur and we could look it up here, but what's your definition of entrepreneur and is your definition tied to propensity for risk?
DAVID: Yeah, I think it really is tied to risk. I feel very strongly about that, in fact. When I use the word entrepreneur, what I mean and I'm not saying this is what everybody should mean, but what I mean by it is that they see some unmet need in the marketplace and they do a little bit of research combined with some level of hunch and they take a financial risk, a significant financial risk to meet that need and they figure it out along the way, which is different from other entrepreneurial types.
In fact, you've known of principals who've decided to sell their firms to a key employee, and in some cases it's easier for that key employee if they feel like they're inheriting a business that's run pretty well, the positioning's determined, the service offerings are there, we already have a staff, we already have client relationships, so it's easier for them. In some cases they really want to redo it and make it completely in their own image, to borrow a phrase somebody else said, I think it was God. I'm not sure. They want to do something completely their own, but what's unique is that these people are confident, they're optimists, they're risk takers, and they're excited about changing the world in some unique way.
BLAIR: Do you equate entrepreneurship with starting a business, running a business, or both? Because the greatest risk, I would assume, and correct me if you disagree is in starting the business, right? That's where you take the greatest amount of risk, and it's far less risky to buy a going concern.
DAVID: That's interesting, like when you do start a business though your risk is... it's greater in the sense that you don't have a paycheck, but it's not as great in other areas. You're not going to sign a very expensive, 10-year facility lease until you've been up and running for a while. You're probably not going to borrow a tonne of money, so in a sense I think it's just a different kind of risk. If you're taking over a large business, it would seem like there's not as much risk there, but the purchase price is really significant and the level, the monthly nut you've got to come up with just to meet payroll is substantial.
To me I think we can maybe think about entrepreneurship on the flip side, like what happens if an entrepreneur fails? That's what defines an entrepreneur to me, and that failure is probably going to be personally embarrassing and it may hurt their credit history, their employees are going to be disappointed, many of them will be without a job, so it feels like it's just slightly different, but it's a different kind of risk, but it's still a very significant risk. Both kinds are.
BLAIR: I was having a conversation at the beginning of this week with a client of mine who advises executives, CEOs of Fortune 500 companies, and he's a solo consultant, and he was just telling me that he has to remind himself from time to time that it's a peer-to-peer relationship. He is the CEO of his business and he is working with the CEO of another business, and I pointed out that... I'm not sure how valid this is but I want to put it on the table for discussion. I pointed out, I said, "Yeah, you're a CEO and an entrepreneur, and a lot of your clients are CEOs but they are not entrepreneurs, because they didn't choose to start a business."
Now, I'm not saying that they're lesser people or anything like that, but I'm just pointing out that there are CEOs of large companies who have never... It's not like they don't take huge amounts of risk every day but it's career risk. They don't have everything on the line like an entrepreneur does at least in the early days. Is that an important distinction, like this idea that I started the business versus I bought the business and the profiles might be different?
DAVID: Absolutely. We can think about very specific companies where that seems to be the case. Steve Jobs maybe would be a classic entrepreneur, but Tim Cook would be... It's hard for us to picture Tim Cook rescuing Apple back then and having the guts and the craziness, but then maybe Tim Cook's better at running a larger company, so, yeah, I think... If Tim Cook fails, what will failure look like? He'll still have $100 million in the bank. It's hard for me to treat that seriously as failure. I think you're exactly right. The people that you and I advise regularly or that go through your training programs, they're classic entrepreneurs running a small business. There's a pretty heavy price to pay if they fail.
Some of them are moving to the corporate side when they get tired of the entrepreneurial fight, but you don't see as many people leaving the corporate side to start a firm like what I just described. What I was saying at the earlier part of this is that those movements are a little bit older, so maybe somebody does it when they're 35 now but they're still not doing it when they're 55. There is something about this freewheeling, high aptitude for risk that happens for entrepreneurship, and it's interesting to me.
I think the risk thing is still there, it's just different in that people are not making 30 year decisions now like they did before. They're making a five or a ten year decision. They're starting when they're 35 instead of 25, and it's just interesting. It's opened up things for me like as I'm planning succession, because I wouldn't necessarily rule somebody out now who comes in who's 40 years old and says, "I want to buy your agency." Just because they're 40, doesn't mean that wouldn't work, like it would have meant in the past, I think.
BLAIR: You would have previously thought, "Listen, if you're really an entrepreneur, you would have raised your hand before 30 or maybe before a certain age."
BLAIR: What do you suppose is driving this change, the fact that people are coming to entrepreneurship a little bit later and there's kind of a movement back and forth?
DAVID: Here I'm just guessing, but LinkedIn did this really interesting study. They have all this data out there that's... Man, you can do so much with it. One of the things they discovered is that people are making more money than they used to not by getting raises where they're currently working but by switching jobs. It's like when I move from one team to the next, I'm going to get that second contract, and I'm going to make more money. We live in a culture where everybody's changing jobs and they seem to be thriving. It's not hurting them. It's not hurting their careers. There isn't this stigma associated with bouncing around, this penalty for bouncing around. That's part of it, I think.
The other is that folks are so much more in touch with themselves and they're more disgruntled with lack of transparency. They recognize bad behavior within companies quicker than they did before and they're willing to step out. Many families are two-income families as well, so it's not quite as risky if somebody does that. Those are just guesses about why it's happening.
BLAIR: Some of the businesses that are being talked about these days, almost always in the same breath: Airbnb and Uber. One of the things that those two businesses have in common it's essentially making entrepreneurs out of everyday people by selling their excess capacity, their excess driving capacity with their car or their excess bedrooms in their house. Are you seeing that kind of part-time entrepreneurship rearing its head? Is there more of that going? Are we all blurring the lines where we might have a day job but we've all got something going on the side?
DAVID: I don't see it in this industry yet. You do see a lot more what we used to call freelancers, now they want to be called independent contractors. You do see more of those folks who have... They're not selling their time to 20 different entities in Dallas, say, they're now... They have more fixed gigs with three or four agencies and maybe it's 10 hours a week with one and 15 hours a week with somebody else, and that's driven in part because they don't want to go all the way away from that and start their own business and be responsible for all the management and all the new business and so on. They don't like the new business process, but they also don't want to give up the freedom that comes in working with somebody else.
They like moving in and out, and they've figured out a way to somehow allow that lifestyle to be defined as still successful for them, and they're making a lot of money as well. If you're a great writer or a great digital media planner, a great strategist, you can make really good money and not go through the hassle of running and building your own firm.
BLAIR: You could really have two or three clients and that was the subject of Dan Pink's first book, right, Free Agent Nation.
DAVID: Right. Exactly.
BLAIR: While we're talking about entrepreneurs, there is such a thing as a serial entrepreneur and some would say that entrepreneurs are serial business starters. Other entrepreneurs just start one business and run that business for the rest of their careers. I have my opinion. It's not a strong... I haven't kind of sorted it all through, but I have my opinion on this, but I wanted to ask you. These people who if you look at their LinkedIn profile or you look at some sort of written description of them it says, "I've started and exited four businesses." Started and sold four businesses. I always wonder, you go look at the businesses they started and you think, "I've never heard of any of these."
DAVID: Yeah. You have to find them first, right?
BLAIR: Yeah. They don't exist anymore. They were swallowed up by other entities, so my question is are these people adding, and I suppose this is a bit of a... I don't mean to be judgmental but I suppose there is some judgement behind this. Are these people really adding value in the world, or are they spinning something, spinning a top and then selling it? That's a bad metaphor, but are they just spinning something up and exiting at the right time and leaving this trail of vapour behind them?
DAVID: I'm getting a sense of how you feel about this. That wasn't a very objective question.
BLAIR: No. The flip side of that is, no, the companies don't exist but the technology or the IP that they developed is a very small but important part of the bigger entity that bought them or the entity that bought them, et cetera, so that would be the counter argument, I think. I just don't know what's really going on. Do you have an opinion?
DAVID: I do. We all have some family member that comes to reunions and you almost hesitate to ask what they're up to now because you know they're going to answer it differently than they did just, you know, this is Christmas and they answered it differently in Thanksgiving.
BLAIR: But with just as much enthusiasm.
DAVID: Right, and an opportunity to invest if you're interested. Those kind of folks I just kind of roll my eyes, and it's like just settle down, and get a job, and contribute to the world, and quit trying to find easy ways around things. Then I know, well, one of my son's father-in-laws is one who really is a serial entrepreneur and has been wildly successful at everything he's done and they haven't been all closely related, and I look at people like that and I'm just amazed at... I know the exit stories and they're real.
When somebody tells me that, I get red flags. They just kind of pop up, and what I want to know is did you get bought, accidentally bought during one of those crazy markets where things were happening that just shouldn't have, or when we look into the story a little bit more closely was it really an acqui-hire, which is a term that didn't even exist back then, but basically they folded you into their company and you didn't get any money for it or if you did it was $50,000. I'm really skeptical about those sorts of claims. I do know very, very successful serial entrepreneurs, but it seems like they're in the minority and they're the ones that don't talk too much about it. It's the ones that are always talking about it that I'm leery of.
BLAIR: When somebody says I started and exited four companies, you want to say, "Okay, just stop and show me the numbers so I can know how to gauge, how to measure what you've just said."
DAVID: Right. You and I have joked at times about how there are so many experts around, and I think many folks are really trying to inflate the resume and talk about this hoping that people won't ask too many questions about it. I'm sure I never did any of that years ago.
BLAIR: Yeah. Me as well. I've heard you say that another pattern that you've noticed that running a creative firm is no longer a life sentence. What do you mean by that? Maybe you've already addressed this, but are you saying that it's not you go in, you do your life's work, you sell, you move to Florida at the end? If it's not a life sentence, what are these people doing after they exit a little bit earlier?
DAVID: It's really interesting because if you look at the educational preparation that these entrepreneurs had, very little of it matches what they're doing for their business. In some cases they're free to do anything they want because there isn't a strong tie between their vocation and their education anyway. They're leaving because I think if there's one larger reason why they're leaving is because they're disillusioned with the marketing field, honestly. They frequently, if there is a pattern there in terms of what specifically they get tired of first, it's not so much the principals of marketing that they're selling, it's the poor client behavior. They get tired of clients. Then the next step is frequently they get tired of employees.
The other factor is that exits, like it's okay to have an orderly closure of a business and that does not signal failure in our world like it used to. There was no good explanation for a business closing in the creative field up until recently and nowadays we understand it. It's like, "Oh, okay. You had a great run. You had an impact on clients and on employees and you made a living and you've decided to do something else. No problem. You didn't find a buyer. Too bad, but that's okay." It just means that people have a lot more options.
Now, what are they doing when they leave? Oh my goodness. I have seen some crazy stories. A lot of them are going into very non-traditional things like they're shoveling wolf shit in Utah, like one of my clients, you know some conservation kind of a thing. Many of them are consultants to the field. Some are teaching. There seems to be a pretty close connection between running a firm and teaching, having an impact on kids in an educational environment. Some of them have made enough money that they don't have to do anything else. They built a firm in the right way, and they sold it at the right time and 10 million is enough.
A lot of my clients I've told them to plan on taking all the money they make as the money they take out every year. We aim for a target. They'll go for six, eight, ten million and when they hit that in their young 50s, then they're ready to do something else, and then we either transition the firm, or we don't. It doesn't matter.
BLAIR: Yeah. I am seeing the pattern. There's quite a highly regarded UX firm a couple of years ago just shut it down and went to work for Facebook. It left the industry talking about it quite a bit, but it was just a really well regarded, really successful, excellent work, just decided, "You know what? It's going to be difficult to scale beyond where we are right now. We kind of built the company for this size. We're ready for the next challenge. We're not structured to do things differently. Let's just shut it down, call it a day, and go do... " At a time when the principals received a great offer from another large, exciting company.
DAVID: Why not? Like Adaptive Path got bought by Capital One two years ago, same story. They were a very famous, well-regarded firm running two conferences, and just the time was right. The in-house department, for one thing more people are working in in-house departments than are working in independent firms now, and they're not the enemy like they used to be. They also have a great benefit structure. They don't bring the new business pressure that some people don't like, and so on, so why not?
BLAIR: We've got a couple of minutes here before we wrap up. Just you and I were talking before we started about kind of the relationship between entrepreneurship and franchisees and maybe a little bit of a blurring of the lines there. Did you want to talk about that at all?
DAVID: It's interesting to see. It's not quite in the category of a quick rich scheme, but you do find folks who are not the wild, off-road vehicle entrepreneurs that want to create something from nothing. You do find a different kind of entrepreneur that really wants to borrow a system, almost like a franchise. What a franchise does is I think of it as like a middle ground of entrepreneurship. I don't mean to disparage their level of entrepreneurship because they're taking a massive risk and they are doing it within an environment with less control, which I think is really admirable.
A franchise gives somebody a system. It's a proven system. If you buy a McDonald's for a million and a half dollars then you know where you're going to get your food, you know what the recipes are, you know exactly what the coop dollars are, you know what you're going to have to pay the mothership for that marketing help, and so on.
BLAIR: Follow the manual and everything will be fine.
DAVID: Yeah. Right, which sometimes is true. When the world became more digital and we felt like we were going to be able to track what was happening in the marketing world because of all of this, there was this sense that a lot of what we were going to do was going to become more automatic, and so you have some systems out there that help people. You'll see the ads for it, basically: "We'll tell you how to do it. Here's how you make money. We'll provide the support systems. You only need $6,000 to start and meanwhile you can do it." I think there is a place for that, but it's very hard to combine that, like that sort of a system is going to be just completely frowned on by the typical entrepreneur who resists systems.
They see a great system and they don't care how great it is. Their first instinct is how do I change it. It's a different world that those systems are appealing to.
BLAIR: Now, I'm tempted to ask this question about your kids, but you have older kids. You were a very young father and you're a young grandfather of some very young children. If you had to look forward into their future and make a prediction about how likely they are to be entrepreneurs in some form, do you think it's higher or lower than it would be today?
DAVID: I think it's pretty high, but I think there's two reasons for that. One is that they're both risk takers by nature. They take risks differently between the two of them, two boys in their young 30s. The other is that they grew up in a household where I was doing that, and so they were sitting in the office while I was on the phone listening to my side of the conversation. They were attending the seminars I was doing, and so it took a lot of the mystique out of it. It made it seem very comfortable and doable when they had a father as an entrepreneur, and my dad was not a classic entrepreneur but he had an entrepreneur's mind. I feel like I learned so much about that risk taking from him as well.
BLAIR: All right, so we're moving into a more entrepreneurial world. Thank you for this, David. This was fascinating.
DAVID: Yeah. Great. Good to talk to you Blair.
BLAIR: We'll talk to you next week.