How can organizations stay engaged with their customers? In this episode of Mastering Innovation on Sirius XM Channel 132, Business Radio Powered by The Wharton School, guests Russ Fradin (W’97) and Steve Heyman (W’98, E’98), co-founders of Dynamic Signal, shared their successes in starting a software-as-a-service (SaaS) company in a traditional software space by understanding their customers.
Fradin and Heyman described two ways to innovate: create a new category to cater to, or do a better and cheaper job in an existing one. The two Wharton alumni opted for the former when they started Dynamic Signal, a company that helps organizations communicate better with their employees. They discussed how to focus on adding the most value to an existing customer base and how to take products in a new direction, whether through a new line of business or an expanded set of customers. Because many companies are competing in the software space today, Fradin and Heyman work to avoid customer churn by listening closely to their customers and innovating around their specific needs.
An excerpt of the interview is transcribed below. Listen to more episodes here.
Russ Fradin: The three of us started Dynamic Signal to solve a problem in a space we knew very, very well. We’ve been successful multiple times doing things in the digital advertising technology ecosystem on the research side, on the media side, and on the technology side. We’ve known that for years, and with the rise of social media, we started the company really focused on solving a problem for marketers around how to get more people, specifically the employees at that company, actively talking about marketers’ content on social media. We built a technology platform that companies would use to push content to their employees, that was convenient for their employees to look at and share. We knew that well, and that product worked very, very, very well.
What happened is while we were in that space, we were selling a category we used to call employee advocacy. It is still a perfectly useful thing in the world. As we were building and growing that category that we had invented, we really kept listening to customers and figuring out other things that they could do with the product. We actually did not start out to build Dynamic Signal like so many companies. We started out with an idea, and as that idea caught on, we continued looking for other ways to take the same technology and the same relationships and just further penetrate the existing customers.
“As we became successful, we looked for ways to continue growing and expanding what we were already doing with our existing customers.” – Russ Fradin
There is only one product at Dynamic Signal. What happened over time is that we added more and more functionality, more breadth and depth to the offering. The way we talk about ourselves today is very different from the way we spoke about ourselves six years ago. But the answer is really, to boil it down to your listeners: we started with a very clear problem in a category that we deeply understood as well as anyone else out there in the world, and then, as we became successful, looked for ways to continue growing and expanding what we were already doing with our existing customers.
Harbir Singh: It’s really like getting into an adjacent space or extending what you are using in one technology and one set of clients to another set of applications, right?
Steve Heyman: 100%. If you think about it, the core technology at Dynamic Signal had one use case. Thanks to, frankly, having such wonderful customers and spending so much time hearing from them and constantly innovating and constantly driving the conversation, we’ve been able to make it so that there are 12 things that one does with the Dynamic Signal platform today. One of them is that original use. There’s nothing wrong with that use, but the other 11 are things we’ve come up with over the years that have just allowed the business to grow. Our average new deal size today is five times what it was three years ago because we solve so much more for an enterprise than we used to.
Singh: Very interesting. When you do this kind of extension, part of the challenge becomes, as you said, changing the language and how you position the proposition. Most importantly, you listen to your customers. When you look at this work on disruptive innovation, one of the reasons why disruptive innovation caught on and disrupted some of the logical operations was that they were caught up in the existing model and not understanding the next use case. Can you tell us what it was that did that for you?
Fradin: Sure. Part of this is fundamentally inherent in building a SaaS software company versus building an on-premise traditional software company. There are pros and cons to both companies over the years, but part of building an on-premise software company is basically, customer success doesn’t matter as much. I sold you the software, then there was probably a third-party integrator that actually integrated it. The companies that became very large in software 20+ years ago really had to do hard work to constantly understand all of the ways their products were being used because it was packaged software. I sent it to you, you had it, and that was that.
There are costs, by the way, to having a SaaS software company. You need to focus on customer success. These things matter. But, one of the benefits to building a business in the SaaS world is you’re constantly connecting with your customers. You’re constantly talking to them. You’re constantly talking to their IT departments around various cloud issues. You’re constantly talking to their HR departments. They’re turning to you for how to expand.
“One of the benefits to building a business in the SaaS world is you’re constantly connecting with your customers.” – Russ Fradin
Granted, I will say, I haven’t thought about this theory enough to know that this is a bulletproof theory, but I think just inherent in building a SaaS software business today requires a much deeper closeness with the real end-users of your product. In the old world of packaged software, you’d sell it to IT, and then, they really handled it. It isn’t to say IT departments don’t matter anymore. Of course they do, but for us, we spend so much more time on a weekly, monthly, or quarterly basis with the actual business users of our software over time.
Singh: That’s really a fascinating point because often, people talk about the tension between product development and marketing, that they are different worlds. Often, the dialogue is not synchronous, and sometimes, it may even be tension in other ways. What you’re saying is, as long as you are really close to the customer’s use of your application, you can actually finesse that.
Fradin: 100%. By the way, there’s a downside to it as well, which is the upside of being an enterprise software company these days versus 20 years ago is the barriers to entry. Getting a large company to try your software is probably easier now than it has ever been over the last 40 years. The downside is getting them to continue with your software and not churn out and become ex-customers is hard. That has just required these muscles and these skills versus some of our competitors. We had competitors in the employee advocacy category, and, frankly, we just probably did a better job understanding all of the ways to grow inside these enterprises. I suspect it’s because of the amount of time we spend focusing on our customers’ success. I don’t mean that as if it’s its own department. Of course, it’s its own department.
It’s something Steve has to think about with his team. If something fails, we have to think about it. It’s something everyone in the organization has to think about. That just drives you to understand where your software sits in the solution set. If your customer is right, a $20-billion public company today is probably buying between 500 and 1,000 pieces of software. To be successful, it’s not enough to sell it, put their logo on your slide deck, and move on. You have to really understand at any given point in time. Next year, they’ll still have 1,000 pieces of software, and 300 of them will be new – so, 300 people who did a poor job, either the product didn’t work or didn’t deliver enough value to enough business users across the organization. Those will be ex-customers.
About Our Guests
Russ Fradin is a digital media industry veteran with more than 15 years of experience in the online marketing world. He co-founded and was CEO of Adify, which was acquired by Cox in 2008, and he also co-founded SocialShield. Fradin was also SVP of Business Development at Wine.com, Executive Vice President of Corporate Development at comScore, and was among the first employees at Flycast, which was acquired by CMGi in 2000. He is an active angel investor in the digital world and currently sits on a number of boards.
Steve Heyman is responsible for the technical vision, the development team, and the code. Heyman’s experience includes leading the engineering team as CTO at digital ad platform Adify, building the Yahoo! Music Engine product, creating the survey system and client-side software platform at comScore, and developing the ad serving technology of Flycast. You can follow him on Twitter, @steve_heyman.
Mastering Innovation is live on Thursdays at 4:00 p.m. ET. Listen to more episodes here.