The competitive nature of the fin-tech space means that technology lifecycles are getting shorter and shorter, making obsolescence a constant risk factor. So technology companies need to be obsessed with innovation in order to stay competitive. But that obsession can prove impractical if the R&D process is not aligned with a customer’s need for practical solutions. As Stuart mentioned, you need to solve the problems the customer has today, not just sell a vision.
Market research is essential for figuring out what companies need and are willing to spend money on today.
Deltix Labs is a perfect example of a company that has had a lot of success by constantly innovating around customer demand. So I interviewed Stuart Farr about how they approach innovation. Stuart is President of Deltix, a fin-tech company that is laser-focused on quantitative research and automated systematic and algorithmic trading. Along with Founder and CEO Ilya Gorelik, Stuart is responsible for sales and the continuous development of their product line. Founded in 2005, Deltix is growing quickly. Revenue was up 50% last year. This year, they were named one of the top 10 hedge fund software providers by Capital Markets CIO Outlook. They were also awarded Best Technology Firm — Overall by CTA Intelligence.
During the interview, Stuart and I talked about innovation and providing a solution for a specific target market. Stuart has great insights here for CEOs and company founders that can help with strategy.
Full disclosure: Deltix is a client of PropelGrowth.
So now, let’s dive into the conversation.
Transcript for Using Market Research to Drive Growth with Stuart Farr
Candyce: Stuart, thank you for joining me on the podcast today. I’m really glad to get a chance to chat with you.
Stuart: You’re welcome. I’m happy to join.
Candyce: Deltix has been on a pretty fast growth trajectory. In fact, I believe you’ve achieved 50% growth just last year. Let’s start on that topic and talk to me about what it is that has allowed Deltix to achieve this growth and what trends you think companies should look for to be able to do the same thing.
Stuart: Sure. Just to qualify, I’m not sure I’m going to say what other people should do. I’ll try and explain what we’ve done and you could take from what may or may not be relevant, but one of the things you will hear me say is, I actually think it’s almost dangerous to look too far outside of your own domain at what other people are doing. I think, actually, that’s a trap in actual fact. But more specifically about what we do, we try and be very, very, very focused on what the market, and more specifically, the very narrow segment of our market is doing, what’s going on in that world. Our market is financial services. Specifically, it’s technology for quantitative and systematic research and trading, which is a small niche. It’s growing, but it’s a small niche within the very large financial technology market.
It’s very specific and just understanding what’s going on in that world at a macro level, and what I mean by that is how participants in that market are themselves faring over, historically, now and what their thoughts are for the future. That is very important. At a general level, I found, historically, is knowing what your market is doing as your customers or your hopeful customers will perceive it. What does their world look like when they get in the day? Are they pleased to be in there? Is business going well for them? Because if it’s not and it hasn’t been for some while, that is hugely relevant to whether or not they will talk to you and how you should talk to them. In other words, whether you should be helping them survive or whether you should be helping them thrive in a growing environment and their fear of missing out.
So, really understanding what’s going on in their world is very important. I can tell you that I certainly learned this the hard way. In other words, we got it wrong. And if you think they should talk to you because you have something really cool, or you think is really cool and it may be really cool but they don’t think so, or they do think so but it’s just really not relevant right now because we’re talking about survival or we’re talking about very low growth rate — it doesn’t matter. It doesn’t matter how cool it is if it’s not relevant to them right now and not likely to be for the foreseeable future because of the environment in which we’re operating. So, knowing the market and knowing what’s going on in that market is really, really, really, really important. It’s the first thing I hopefully have overstressed.
Candyce: So when you talk about that, can you talk about how you came about the focus both for Deltix and for Beauchamp, your previous company, in getting to that really tight target market? Because I think that that’s an area that a lot of firms struggle with as they think, “Oh, well, I’m serving the financial services,” or, “I’m serving the buy-side or the sell-side,” but in reality, in the financial industry, you have to have a much tighter focus on your niche than that.
Stuart: Well, that’s certainly my experience. Again, I don’t want to project too far out of that, but my experience is exactly that. We have had to be really narrow, let me qualify that. At Beauchamp, we were focusing on hedge funds. You think, “Well, that’s pretty clear,” right? That was a growing niche and I’m talking 15 years ago, 16, 17 years ago, dare I say it. When the hedge fund industry was nascent, growing like a weed and there were very few competitors in that market. Now, we stumbled across that market, and to give you an example of what we were talking about earlier. So we … When I say “we,” myself and my business partner, had a design for software, platform-based software that we thought was brilliant. Because we did. We were as arrogant as that. Actually, it was pretty good but it was completely irrelevant to what was needed by that market at that time.
So we had this generic platform that could be used for all sorts of use cases within buy-side and sell-side financial services. We thought it would be obvious that people would see the value of this and buy it. Of course, they didn’t. It was by accident, and again, I’ll say “accident,” not by plan, that we stumbled across these things called hedge funds that people talk about daily now but those days were not. And somebody told us. Again, it wasn’t market research. Somebody told us that you should use your platform to build something specific that helps hedge fund managers because they have nothing today because that person was in that world. We thought, “That sounds like good advice. Our current strategy is not working. Why wouldn’t we do that?”
And we did that. And we did it well, as it turns out. We did have a very good platform. We built this vertical application for, I was talking about earlier, a market and knowing where you are in that market. This was a growth market in the true sense of that word. It was a growth market with low competitors. We had a good product, so we should’ve done pretty well. And we did do very well but we should’ve done. The point was, we had to have something that was relevant to them, to that particular community at that time. A generic platform that might have been was not a good answer. Having something that was specifically built for them to do their day job was exactly what they were needing. And it sold like hotcakes.
Candyce: We had the same experience at IBSN. We had a product that could be very general. It was an integration product, but when we tried to go after a really broad market, we weren’t very successful with it because it was not tangible. It was difficult to really articulate the value proposition and definitely hard to train a sales person on how to articulate that value proposition. So once we went really focused around equities order routing, then we started to really grow because of the focus. And I find that small firms don’t always feel comfortable with focus because they feel like it will inhibit long term growth. Have you found that to be a problem?
Stuart: Absolutely. And I see that in two ways. I’ve seen people who say, “Look, we have this broad product or a service or a platform that can be applied broadly. Look, here are all the revenue lines that we could get from this.” It’s almost done as a lack of confidence in choosing a specific vertical to go after and you have several and hope that one of them works, and that’s not a good strategy.
And the other thing is — which is maybe less obvious — is that sometimes, again, and particularly in a small company in that environment that you said is, the founders need to get out of the way and not sell a vision. I mean, founders are usually very good at, and they’re very passionate about, having something that by definition they really believe in. And it may be overwhelming, something may be hiding something that is really needed. And so I’ll come back to our example of Beauchamp, where we had this great platform but it did all these really cool things, really quite clever. Probably about five years, and in some cases more, ahead of their time, that we were really passionate about and telling people about.
But it turns out that there were two things that were really very important, again, at an operational, daily level that help people today to do their job better and get out of the office earlier, that were really very useful. And these other cool things that we were talking about, that were very cool, but they said, “You know, that’s great, yeah … Good, that’s great. That’s great. But I really want these two things!”
And a number of people said essentially the same two things. And we built those and they were trivial. They were intellectually … Not very advanced, frankly. But they were very useful at an operational level. People said, “This makes my life easier. It makes my work better.” And that’s what solved it. It wasn’t the whole vision thing. It was actually something that helped people in — literally — their day-to-day job.
So I think founders sometimes need to get out of the way of their own rhetoric and listen to what is actually resonating and what is not resonating, and obviously focus on what is resonating and makes people say, “Yes, I want that!”
Candyce: Wow, that is such an important comment because I think a lot of CEOs and CTOs also tend to get bored with the trivial part…or what they perceive as trivial, even though the customer doesn’t. They want to go do the hard stuff, especially if they’re super smart people, which usually they are! That’s boring and it just doesn’t seem like they’re solving as big a problem as they could potentially solve with their thought leader idea. Would you agree with that?
Stuart: Absolutely! I blame Steve Jobs and Sergey Brin and a couple of others up there. It’s all their fault! It’s all their fault because everybody wants to be the next — with good reason — everybody wants to be the next Google founders or Steve Jobs, again for obvious reasons. And doubtless there are some others out there that will be the next generation of those, but there aren’t very many of them and they don’t come along very often. So, to aspire to that is admirable and noble, but it’s not very successful if you look at the numbers of people who achieve that. It’s obviously very successful for those instances, but we need to get out of our own way and not try and be Steve Jobs, and listen more and focus on the things that people say they want, and really need, as opposed to what will be the next iPhone or the next search engine.
Candyce: Sell what the customers want to buy.
Stuart: There you go. There’s a concept!
What they want to buy now, not what … I mean Jobs was brilliant in producing something that they didn’t even know they wanted. I mean, that was his brilliance and genius. That is not a trait that is widely distributed.
Candyce: Well I don’t think a lot of people know how long the iPad sat on the shelf before they started selling it either. They had developed the iPad before they developed the iPhone — if I’m remembering correctly — and then decided that they needed to launch the iPhone first. Probably to get our heads wrapped around the idea because the market for an iPad probably wouldn’t have been as big if we didn’t already have a phone in our pocket that could do the same things. And people think that the iPhone was such a revolutionary thing, but it wasn’t. It was really an evolution of things that had already come before it, like the PalmPilot. And then trying to turn the PalmPilot into a phone, and all of these other different pieces of technology that preceded it.
Stuart: That’s true, and a great point. And I didn’t make a big deal of it, but one of the things you touched on, which is really, really important, is timing. Timing, you can call it luck, you can call it whatever you want to call it. But timing, and your example there of the iPhone and where it was in the evolution of other devices, is really very, very, very apt.
Again, in the experience I’ve had, timing was really, really important. We were very lucky, and it was luck. The hedge fund business was growing like a weed. That wasn’t originally our target, as I mentioned earlier. We were just lucky that there was that expanding market that didn’t have anything [like our capabilities]. Five years later, there were lots of other competitors. It was very different. Likewise with Deltix, same thing. Where are you, what’s going on in your market, as I mentioned earlier. And timing. Where are you on some curve of the client’s growth or potential growth? Are you on the up? Are you on the down? Is it uncertain? But know where you are on that, and act accordingly, I think is the message.
Candyce: So talk about then, how did you go about figuring this out? With Beauchamp, you said that somebody mentioned it to you, but then you had to go figure out the market research and talk to people. And then with Deltix also you have a very specific audience. How have you figured out what these customers want so that you can sell them what they want to buy?
Stuart: You said it in what you just said. It’s talking to people. You have to do research, and research is nowadays doing Google searches. But really you have to be out talking to people, and you have to be talking to people in not formal meetings where they’ll tell you things that they wouldn’t otherwise do if it was a ‘formal meeting” when on the record. You have to get intel on what’s really going on. And that can only be done verbally. I mean, you can ask people in emails, and you can ask them to send you something, but you need to talk to them. And you need to do that a lot. And you need to talk to different people, you need to talk to the customers, the people who serve the customers, as competitors to you, as other people in the ecosystem that is surrounding that client, that customer. You need to talk to them and know what’s going on, and talking is the operative word.
And that’s not obvious. When I joined Deltix I did all my market research and looked at the market at a (literally) research level in terms of who were the players and what was the ecosystem like, and that gave a certain amount of information as to what it was like. But it was nothing like the reality of then going and talking to people and saying, “Well, yeah actually, this is what we see, and this is what’s going on, and this is what you won’t hear, and this is what you are hearing, and that’s valid, and that’s not valid.” And you’ll get contradictions in that of course, and you’ll get people giving their own agendas and their own spin, of course. But that’s all about sample size and talking to a lot of people. And frankly figuring it out of what is real and what is not real. Where the trends are, if there are trends, and what is going on? It’s old fashioned shoe leather and talking to people.
Candyce: Did you and Ilya both do that? Were there several people in the organization who are continuing to do that market research? How do you guys approach that from a tactical point of view?
Stuart: That’s a good question given a small firm. So it’s not part of the sales effort per se, but in practice it’s Ilya and I, and our going to conferences and offshoots of conferences and talking to prospective customers, talking to former customers. I should say clients, because we call them clients.
So, talking to people as part of not necessarily a business effort, but again just our job of being in that ecosystem around conferences and people coming into town for other purposes and meeting them over coffee. Simple, informal things like that.
It is really just the two of us, as opposed to a team of people whose job it is to go and do that. It’s really us. And I think, certainly in a small firm, it has to be. Because you need to hear this. There needs to be some level of trust there. And somebody’s talking to somebody that’s not going to go in there saying, “Oh guess what I heard,” and spill it up the chain. I think there’s a level of trust there that needs to be implicit anyways. That you hear what is going on, and the person telling you that can be comfortable, is not going to go into some CRM and push it up the system.
So implicit in what I just said, we don’t do it systematically in the sense of recording every conversation and writing down things that certain people said. We don’t do that. It’s all in our heads, and then we mull it over verbally and we come to decisions based on what we’ve heard, without it being part of a formal recorded process.
I’m not saying that’s good and whether one shouldn’t do more formal recorded process, but that’s the way we have done it and we do it. Is by doing it more informally and less strategic.
Candyce: Describe who Ilya is for our listeners who aren’t familiar with you guys.
Stuart: Oh sorry, yes. So Ilya Gorelik, he’s one of the co-founders of Deltix. I’m not a co-founder. He is, and so he and I are really the people that go out and talk to the people I mentioned. But he’s the visionary of the product and the platform that we have, so really the main person that should be part of this conversation.
Candyce: How big is your sales team Stuart?
Stuart: I’m sorry, I’m laughing because our sales team is technically two people.
Candyce: Okay, so not everybody is involved in those conversations you’re talking about. So how do you go about educating them on the insights that you’ve gathered so that they can go out and have the kinds of conversations with the prospects that communicate what you’ve learned from the market and help to drive home the value proposition?
Stuart: Well firstly, that information gathered is not just for Sales, it’s product and service as well. It’s very importantly on a medium-term basis, what we should be doing at a product level and platform level. Clearly that’s really important in the medium term.
But to answer your question, we do have schedules. We do have a process for that and scheduled calls that we have where we talk about exactly that. What’s going on with actual clients, people who are about to become clients, we do that on scheduled calls and share information about what we’re seeing.
Candyce: Okay. So then for our closing topic here, one of the things that particularly older firms struggle with is figuring out where to go next. You know, they’ve got a technology that might be 10, 15 years old. It had its time and is still doing well in terms of generating recurring revenue, but maybe they need to figure out where their innovation budget should be going. And you guys are really good at that, and I know that it’s part of that market research that you’re doing. So can you talk to me about how you’re going about deciding the next two to three years, where you’re going to go with the technology given the types of research that you’re doing and forward thinking that you’re trying to do to be where the client will need you to be?
Stuart: Sure. Again, I’m going to say what I said earlier. So I’ll explain what we do. I’m not honestly sure it’s very practical for other people, but that’s for them to decide. So we don’t just have an R&D budget, we have literally twice as many staff than we need to run the business. In other words, over half of the people we have are doing R&D, most of which is thrown away. I’ll say that again. Most of the technology R&D we do is thrown away. And that’s not something everybody can do, for obvious reasons. But in our very specific niche-y market that is all about technology and analytics, we would be dead as a company in three years if we didn’t do that. Because technology moves so quickly, and there’s lots of open source coming into the market, very good open source. Not so much solutions, they’re not really solutions, but some very, very good open source tools that our marketplace is looking at very seriously — as they should be.
So we don’t just pay lip service to innovation and R&D, we literally have double the staff that we need operationally to keep ahead. And a lot of that is thrown away, because that’s the nature of R&D. It’s not a product life cycle in the true sense of that traditional world. It’s basically listening to those conversations I was talking about earlier and saying, “Well that’s interesting maybe we should …” And doing a prototype and a prototype may be two man years of work, and then showing it that to people, and they say, “No, no, see that thing I was wrong on.”
Very annoying, but we do that hundreds of times. And not all two years, obviously. And just keep coming up with … Not so much solutions, but prototypes of things that people have talked about. And some of them stick, and we’ve had some very important developments that have happened that have become our next generation of … Not just product, actually market. We’ve widened our segment by doing exactly that. But we don’t regard it as bold. We just regard it as necessary investment to keep up and not get overtaken by particularly open source technology. There aren’t many other vendors doing what we do. But open source is a real… Not a threat, but it keeps us on our toes.
So we have to throw a lot of R&D resource at it to keep up and serve some of those ideas that we hear when we do those discussions I mentioned.
Candyce: But I’m hearing also that you’re doing early prototypes and running that by clients early in that process, not trying to build out a product and then go see if there’s a market for it. You’re figuring out whether there’s a market before you can actually throw serious development dollars at it after you’ve come up with a prototype.
Stuart: Exactly right. Yeah. Exactly. We’re building something prototype real and taking not to market but yeah. Exactly what you just said. Yeah.
Candyce: Yeah, I think that’s really critical. You have to have some level of being able to experiment without committing until you know whether that experiment’s going to have legs.
Stuart: Well, yeah. I mean that’s at a micro level for that particular project. But you can’t just do that with one. That’s bound to fail, right? The chance of you hitting it out of the park first time is pretty low. So you have to do that multiple times in parallel, and then in our case maybe 10 or 15% of those prototypes actually go forward. But you need to have 10 or 15% of a decent number for it to be meaningful. You can’t have two or three projects like that because 10% of two or three is not very many. So you have to therefore commit resources to be able to do a number of those “project-lets” — if you will — in parallel such that you do get things that go forward. But it’s a numbers game essentially.
Candyce: And how do you come up with the ideas for that? Is that something that people are coming up with in their own heads because of the nature of the work they do, or are some of those ideas coming from customers, or is it a combination?
Stuart: The conversations you asked about earlier, so it’s talking to our ecosystem that I mentioned, that’s getting fed back into that process. But some of it, I’m not sure if it’s a half or not, but the other side of that is our own engineers. They’re coming up with things. They’re very talented and creative computer scientists and engineers. They will say, “Well, I think this is really cool,” in the way that good engineers should, and do. They say, “I think this is really cool.” And it may or may not be, going back to the point I made earlier. It may be really cool but nobody else thinks it is! It doesn’t matter. They do that bottom-up, will often come up with things and show us internally. Say, “Look, I think this is relevant, based on what I know of the world that I see from my corner. I think this is really cool and relevant.” And we’ll say we don’t think it is or it is or we’ll have a discussion about it. So bottom-up in terms of internal staff, and then those discussions I mentioned earlier from the external ecosystem.
Candyce: I think that permission to fail is so critical. You don’t have to knock it out of the park with every one of them.
Stuart: No, absolutely. ‘Cause you can’t. You can’t. And again, I blame Steve Jobs!
If you really have your heart set on one thing and you want to make the next iPhone, then good luck with that because it’s just not going to happen for the vast majority of people. So I don’t think you should be deluded by those sort of success stories.
Candyce: Well I think we’re out of time. Stuart, this has been such an interesting conversation. Thank you for sharing and being so generous with your time for us, and looking forward to talking further!
Stuart: You’re more than welcome. Thank you.
Takeaways from This Session
The competitive nature of the fin-tech space means that technology lifecycles are getting shorter and shorter, making obsolescence a constant risk factor. So technology companies need to be obsessed with innovation in order to stay competitive. But that obsession can prove impractical if the R&D process is not aligned with a customer’s need for practical solutions. As Stuart mentioned, you need to solve the problems the customer has today, not just sell a vision.
There’s a proverb in the Bible that says:
“Plans fail for lack of counsel, but with many advisers they succeed.”
— Proverbs 15:22
I think my biggest takeaway from this conversation is how many advisers you do need. Stuart highlighted importance of constantly talking to people – your customers, your competitors, others in your target market, and ancillary roles. You have to figure out what’s keeping people up at night, what challenges they’re facing, and where they’re confronting new headwinds. Then the insights gathered need to be systematically disseminated to the rest of your organization – from product to sales to marketing to services.
My second takeaway is how important it is to focus on the customer as well as your vision. Your vision might be to far in the future, while the customer has problems they need to solve right now…and that’s where today’s revenue is.
For more information about Stuart and his company, explore one of the links below:
Website: www.deltixlab.com
LinkedIn: www.linkedin.com/in/stuart-farr-23b1275
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