FireSocket Sails to Growth in a Tough Vertical: Car Dealers Software CEO | by Adam Stone
CEO Jonathan Ord navigates in tricky waters.
He sails against the wind, selling software to a sea of people who know how to do it better than any outsider.
Yet his software firm, FireSocket, is showing explosive growth, ranking #43 on the 2006 Deloitte Fast 500 list of fastest-growing companies. The company has
2005 revenues of $5.2 million and an insane 6,180 percent revenue growth in the
five years since it was founded.
Based in San Clemente, Calif., the SaaS software company also took top honors in
Deloitte’s "Orange County Technology Fast 50" list.
With its DealerSocket CRM product, FireSocket helps car dealers automate and
organize every aspect of their operations: marketing, sales, customer service,
finance, and QA.
So far, nearly 500 dealerships have signed on.
Now FireSocket is gearing up to expand its product line, launching systems
designed for mortgage brokers, insurance agents, and home builders.
We convinced Ord to take his hand off the tiller long enough to explain what it
takes to keep his ship afloat. Here are his 14 tips on how to build a water-tight
software business serving a tough vertical market.
Tough vertical tip #1: To really understand your customers, work in their
shops, even for free.
The first squall that Ord encountered was the "insider" mentality.
Many car dealers already knew exactly what they were doing. They may have
trusted technology. They just didn’t trust him.
"I walked into a dealership and I said: ’Here’s what we are thinking.’ They said,
’You guys aren’t car guys,’" says Ord. "Now, what does that mean?"
What it meant was that Ord didn’t know the industry well enough. Potential clients
told him his pitch sounded promising, but the ins and outs of their industry were
too subtle for any outsider to grasp.
So what did he do?
Ord and his partner Brad Perry took a year off and went to work, at no pay, inside
several different dealerships.
They did it all, from answering phones to selling cars... "anything we could sink our
teeth into to understand the business better," he says.
And it turned out to be one of the smartest things he ever did.
Tough vertical tip #2: See things the way your customer does, and selling
becomes easy.
In his year of research, Ord gained a true respect for the market sector he hoped
to make his own.
Seeing the car-selling systems in action, he began to understand the initial
reluctance to introduce his CRM system.
"The fact is, dealership sales people have had fairly good processes in place for a
fairly long time," he says. No wonder they put him off at first.
But that understanding gave Ord a fresh way to approach the industry. Instead of
promising to fix their mess, he could offer to pump up the things they were already
doing well.
"The industry has some best practices that work, and there are ways to build those
into the [software] process. Then the technology becomes a supporting element,"
he says.
Pitch it that way, and suddenly everyone is in tune.
"Now they understand that you understand them. Now they have something that
they believe in."
And that newfound trust can become the starting point for growth.
Tough vertical tip #3: Make sure your customers are getting the most out
of your offerings.
FireSocket got started by immersing itself in the culture of its target market. And
the company has continued to ride the swells right along with its customers.
For example, every two weeks FireSocket runs a report to demonstrate some key
metrics for its customers. Each month, Ord calls around not to up-sell a new
feature but to chat about a dealer’s plans.
"Are you trying to increase new-car sales this month? Are you trying to increase
used-car sales? Are you trying to better track your service customers? What are
you trying to achieve?"
Ord’s sales staff follow this up with what he call "strategic services" discussions,
that show dealers how certain tools can help meet their pressing needs.
Think of it as features-in-real-time.
In other words, we know what features you want to see in the next release, but
that’s still a month off. Let’s make sure you are pushing the present release hard
enough to get what you need out of it right now.
As if all that interaction wasn’t enough, Ord is always ready to pound the
pavement.
"I still spend a lot of time inside dealerships, understanding what their needs are,"
he says. "More often than not, I’m feverishly writing notes, looking for minor
enhancements that can make big differences for our dealers."
Tough vertical tip #4: Listen to customers, but listen judiciously.
Any time FireSocket touches a client, Ord considers it a chance for both sides to
learn.
"At the end of the day, the dealer really defines what things are valuable to them,"
he says. But there are limits.
For example, client feedback led to a new telephony-tracking feature. Customers
said they needed to track all incoming calls, record those calls, and correlate them
to particular marketing campaigns. And now they’ve got it.
"That’s how we stay ahead of all our competition, by listening to our customers,
and making sure we stay on top of the processes that can make them successful,"
he says.
Okay, but. Every software exec knows that customers sometimes have dumb
ideas.
They ask for stuff that will never work. Or they beg for features they don’t really
need. If you take every request seriously, you’ll waste your precious R&D. And no
one will sail off happily into the sunset.
"You have to listen carefully, and then discern between the good feedback and the
not-so-good," Ord says. "Only then can you create products that make a world of
difference for your customers."
Having a real-world grasp of his customer’s working conditions helps Ord draw the
line between the must-do features and the ones not worth pursuing.
Tough vertical tip #5: Learn from the mistakes of others, especially their
impatience.
FireSocket does not work in a glamorous or well-recognized niche.
Ord admits this can be a hazard for any software company that doesn’t plan
strategically. Small spaces attract marginal players, who often sail in fast, and go
down fast.
He’s trying to learn by watching the mistakes of others. So far the key lesson
seems to be: Take your time.
"You see companies come and go. They build a technology kind of haphazardly in a
rush to get to market," he says. "It’s basically enough to sell, but they don’t create
the support structure, they don’t create the scalability so when they get enough
customers, it breaks."
At the same time, financial troubles often arise.
"They take on a lot of debt. They take on VC money. Then they just look for the
sale. Or the public markets bet on it, tempted by the growth and profits over the
first couple of years, and then get stuck with the bill."
Of course, all this can happen in bigger, more established sectors as well. But the
small vertical seems to be more susceptible, as vendor and customer alike explore
an unfamiliar coastline.
The bottom line: Don’t be in such a rush for instant results. Remember the year
Ord took to get the inside view of his market.
Tough vertical tip #6: To expand, find exactly the right market, with the
precise criteria for your ideal customers.
Watching smaller firms capsize by pushing fast has taught Ord to keep his sails
trim.
He is planning an expansion now, but it’s a measured expansion. In the near
future, he expects to roll out Socket products for mortgage brokers, insurance
agents, and home builders.
But it will be a voyage he planned carefully.
"It took a lot of research," he says. "We had to look for industries that are late
adopters of technology, that have good processes, that need to create a culture of
accountability, that have high turnover in their sales force."
Scanning virtually every vertical in search of these magic criteria might have
sounded like finding a few drops in the sea.
Yet in the long run, Ord says, that up-front time will be recouped when the
moment comes to seize the market.
With FireSocket’s experience, he figures his firm can roll up best practices into
software faster and better than the competition.
When Ord launches his new offerings, all that time spent searching and developing
will help ensure smoother sailing.
Tough vertical tip #7: Measure success both for yourself, and for your
customers.
Ord believes in seeking out numbers that tell the story.
On the client side, that means gathering sales figures, service statistics, customer
satisfaction surveys, and more. Put it together and it better look like real dollars.
"If you look at the top goal on the customer side, the single key measurement for
us, it’s simply this: Is the dealer making more money? Are they more profitable
today than they were before they had us as a partner?"
Since that’s all that matters to the dealers, it’s Ord’s main concern as well.
In his own shop, the meaningful metric is growth. Until last year, FireSocket had
three sales reps. Now it has six. Revenues are sailing forward year after year.
Some would consider these factors sufficient evidence of success, but Ord sees it a
little differently.
Growth doesn’t just swell the booty chest for a software company, as it might for a
car dealership. Rather, growth is a broad indicator of customers’ acceptance, a sort
of seal of approval on the company’s ideas.
"What our growth rate tells us is that people are getting it, that they like what we
do, and they are improving their business because they are using our technology."
Most CEOs we speak with agree: You can’t manage what you can’t measure. Heck,
you can’t even tell what’s going on if you can’t measure it. So make sure to get
meaningful numbers, both for yourself and for your customers.
Tough vertical tip #8: In a fragmented market, find the ties that bring
prospects together.
Ord has a problem reaching a fragmented market: How can a software firm speak
effectively to so many potential clients?
The good news is, Ord has plenty of potential fish out there ready to bite his hook.
In fact, the National Automobile Dealers Association estimates there are 1.1
million people working in new-car dealerships in the United States.
On the down side, these dealerships often operate independently, or at most in
small regional groups. They certainly don’t get together to buy IT in bulk.
Yet some ties do exist among dealerships, and Ord has learned to exploit those
ties.
"It is a fairly close-knit community, and when something works they tend to spread
it around. They may compete with the guy down the street, but there are many
other dealers that they talk to on a daily basis," he says.
To make that network work in his favor, Ord makes it a matter of policy to prime
the pump.
He’ll give any existing customer a five percent break on their ongoing payment for
referring a new dealership. This can add up to big numbers. California’s Ventura
Toyota, for instance, pays just $400 a month for $2,500 worth of SaaS.
This helps Ord draw in new clients without having to knock on 1.1 million doors.
Things may not be so easy as FireSocket approaches new markets. The mortgage
industry is pretty spread out, and so is insurance.
But all is not lost. In insurance, for example, Ord has already been able to sidestep
the fragmentation issue by playing at a higher level.
"With the insurance companies, we deal with bigger companies, people who have
hundreds of reps using our products," rather than having to approach every little
broker, he says.
He’ll keep looking for ways to reach out to many prospects at once, and give them
the right incentives to help spread the word. Any software firm operating in a
fragmented market would be wise to do the same.
Tough vertical tip #9: To be in the software biz, you need to make your
own product, not distribute someone else's.
Before taking the helm of his own ship, Ord founded and served as first mate
aboard consulting firm Foreshock.
That’s where he learned a basic lesson about the software biz: Make what you sell.
Don’t be beholden to someone else’s product.
As VP of sales and marketing, Ord drove stellar growth at Foreshock, a professional
services firm that helped implement accounting and CRM systems. In 2001, the
company broke $10 million in sales and took spot #169 on the Deloitte Fast 500.
And the firm kept good company, reselling software from Epicor, Great Plains
(now Microsoft), ONYX, and Siebel (now Oracle). But that was the problem:
reselling.
"We didn’t own the technology," Ord says. "We resold the technology. We were
almost like a glorified temp agency."
Like a temp agency, Foreshock could plug a hole with someone else’s talent, but
that was where the relationship with the customer pretty much stopped.
"If you’re selling third-party software, the customer will quit you when the product
or the service doesn’t meet their needs," he says. And you won’t be able to add
new features to help them, because it’s not your product.
While servicing someone else’s software can be lucrative, that’s not the same
business as writing and selling software.
Today Ord much prefers being an ISV, where he has control over his own product.
ISVs may risk more, but they get more rewards, and they also have a better
chance of staying afloat in choppy waters.
Tough vertical tip #10: Forget billing by the hour for services. Use SaaS to
create a climate of stability.
By setting up his own shop, Ord did more than just gain quality control over the
software. For one thing, he got to create a climate of stability.
At Foreshock, "we billed by the hour to customize and implement technologies.
That meant every single month we had to resell our solutions," he says.
The company itself never felt like it was on solid ground. If a client’s budget ran
out, Ord had to lay people off. On average, the firm had 120 employees, but things
could swing up or down depending on the business climate.
As an ISV with the SaaS model, Ord is now selling longer-term contracts from one
to four years, with an average of two and a half. And more than 80 percent of his
revenues recur monthly, based on these long-term contracts.
Now that he owns the software, Ord is in a better position to keep an even keel. He
can write longer contracts, work more closely with clients, and ultimately steer his
business through any ebb and flow in the economy.
Revenues from services can be attractive, but don’t get hooked on them. In many
markets, service revenues are harder to grow and less profitable than software
sales.
Tough vertical tip #11: Exploit the heaps of data supplied by SaaS.
Ord doesn’t have much problem selling his customers on the virtues of on-demand
delivery. He’ll shoulder the tech burden, provide timely updates all the
increasingly well-understood advantages of SaaS.
After all, signing up for SaaS is a lot like leasing a car, a transaction that every car
salesperson understands very well.
What his customers often fail to realize is that Ord can also mine their data for
them, and use what he finds to help them improve their business.
That’s because as information flows through FireSocket, Ord learns a lot about the
auto dealers he serves.
Take a lease-renewal campaign. Ord can watch sales fluctuate as various
milestones occur: E-mails and postcards go out, phone calls are placed, and so on.
And at any given moment, he can tell what’s working, and what’s not.
He can track how many prospects a salesperson is working, how many
appointments he made for a given day, how many were no-shows, and on and on.
If targets are not being met, Ord can see it in the reports and take that information
back to the dealer. In this way, the software creates a rich source of information
that can trigger action, and ultimately fuel his customer’s desired result: more
money.
Whenever Ord shows up armed with such detailed information on a dealership, he
says, "we can have a very educated conversation with that general manager."
This is another example of how FireSocket goes further than many software
vendors to provide bottom-line business benefits to customers.
Ask yourself: How can my software firm do the same? What kind of helpful
information could we bring to our customers that would make them pull out a chair
in anticipation of a good talk about their business?
Tough vertical tip #12: Build software that solves real-world problems.
Ord has always had a pragmatic mindset.
He studied accounting in college, minored in Spanish, and eventually took a
master’s degree in accounting with an emphasis on IT.
It wasn’t IT itself that attracted him, so much as the promise of what IT could do.
"It’s not technology for technology’s sake. It’s not just cool to have a product that
has all these features," he says. "I’ve always been one of the application guys. How
does it make my life easier?"
That is the approach he’s taken in building FireSocket’s products.
His most pressing question is always, "What is the result going to be? Not just,
what’s the actual task that is going to happen, but what is the desired result that’s
going to be achieved?"
For example, FireSocket recently handed dealers some new tools to enhance their
service departments. These included a new service-appointment scheduling tool,
that enabled them to follow up on service calls. The idea was to help dealers
squeeze more revenue out of this sometimes-overlooked part of the business.
Looking across the industry, Ord sees this as a far cry from the way other software
companies operate.
"They will create all these neat enhancements and cool gizmos that never, ever get
used," he says. "We have to continue to be more aligned with business processes,
not just create things for the sake of creating them."
His advice? Keep it simple and practical. Build software that solves real-world
problems.
Tough vertical tip #13: Get your hands dirty in R&D.
With his intense focus on problem-solving, Ord feels compelled to take an active
part in the development process.
Nothing gets built until he’s sure it makes sense.
The company uploads a major new release about once a quarter. Between
releases, Ord works with his partner Perry to plan the next step.
Before lifting anchor, Ord needs to know that the product makes sense to his
customers. He considers their direct input, examines records of their software
usage, and ponders his own inside knowledge of the industry.
Ord makes the business case, linking the software to customers’ needs, while
Perry, a former Deloitte accountant, works out how to manage the development.
Once the partners decide to move ahead with a new feature, they push hard,
holding conferences wherever and whenever they can, sometimes on airplanes or
at 6 a.m. in the office.
"We have spent a lot of time with our white boards in front of us, sliding pizzas
under the door so no one leaves," Ord says.
With a functional specification in hand, the partners then enter into intense
sessions with the development team.
In the end they have the new feature all mapped out, along with the development
plans for implementing it promptly.
Sure, it’s hands-on product management. But it works for FireSocket.
Tough vertical tip #14: If someone doesn't fit in, let them go earlier,
rather than later.
Ord likes to see the best in people. Doesn’t every employer?
But such optimism can be a treacherous reef lurking in the water.
"One of the biggest things we’ve learned is the need to make decisions earlier in
regard to people who fit the company and those who don’t," Ord says.
Especially in the software world, where tech talent is hard to come by, it can be
difficult for a CEO to let go an employee who just doesn’t fit in with the team.
Do it anyway, Ord says.
"My wife always tells me a snake is a snake, and they’re not going to turn into a
cute little rabbit any time soon.
"I think most entrepreneurs tend to take a lot on their shoulders in terms of the
success of early employees. You find out that this person is going to be a struggle,
but you take it on as a personal challenge.
"But at the end of the day, each of these employees has their own freedom of
choice, their own desires and ambitions, and at some point, the entrepreneur has
to take a step back, and draw that line in the sand."
Most CEOs we speak with agree with this advice: Deal with staffing issues
decisively. If someone isn’t contributing, let them go. Everyone will be happier.
A peek at the horizon: Let's build an industry that's both practical and
ethical.
This isn’t really a tip, as much as a perspective.
Ord thinks someone needs to remind the software industry about something, and
he’s happy to take on the job.
He says software makers have a moral obligation to society. Yes, you heard right.
"We need an ethical vision for what the result of our technology is going to be," he
says.
And that doesn’t have to mean anything as blatant as a video game like Grand
Theft Auto.
For example, he says MySpace and YouTube are explosive phenomena. And the
software community does bear some responsibility for the uses and abuses of the
technology we create.
"I am not one to hold technology responsible for the ills of society," Ord says. "But
I worry sometimes that software engineers are creating environments that are not
building up culture, but are leading toward destroying it."
That was your captain speaking.
And that’s the horizon Ord is sailing to, charting a course for his company, his
clients, and our industry that is both profitable and positive.
