Welcome to episode thirty-three of the SaaS Backwards podcast, where we interview CEOs and CMOs of fast-growing SaaS firms to reveal what they are doing that's working, and lessons learned from things that didn't work as planned.
You can listen to the full episode directly below via Spotify, or visit SaaS Backwards on Buzzsprout or wherever you listen to podcasts.
Finding win-win opportunities in the margins
With Dan Johnston, CEO of WorkStep
Edited for clarity and readability
Host, Ken Lempit:
Welcome to SaaS Backwards, a podcast that helps SaaS CMOs and CEOs to accelerate growth and enhance profitability. Our guest today is Dan Johnston, founder and CEO at WorkStep, a SaaS that helps companies hire and retain their frontline workforce across the supply chain. Hey, Dan, welcome to the podcast. Before we dig in deep, could you just tell everybody a little bit about yourself and your company?
Sure thing. My name's Dan Johnston, I'm the co-founder and CEO at WorkStep. We build software solutions that help many of the world's largest and best employers better hire but, even more critically, retain the heartbeat of their organizations, which is their frontline workforce.
Excellent. And before WorkStep, what were you doing? How did you get to this point?
Like so many other companies, WorkStep was founded out of a personal experience of mine. Way back when, before I got into technology, I had the opportunity to manage a third-party logistics warehouse in suburban Portland, Oregon. Of all things, that warehouse imported trampolines from China and shipped them to DCs and eCommerce orders throughout the country. 100% trampoline warehouse, if you can picture that.
From that experience, I saw several things that stuck with me. I think most notably when I inherited that warehouse we were 100% temp staff. So basically almost every worker in our building was a day-labor temp that was contracted via an agency. And so that had all sorts of problems for us as a company: super high turnover, running training groups every day, constant rotating door. But also I saw really just how detrimental that model was to the workers in our building.
At the time we were paying our agency $18 hour, the workers were taking home $11 to $12 of that. And for a worker taking home $11 to $12 an hour, that spread is a very big deal, right? That’s a huge chunk of their work that they're missing out on. They also couldn't easily move up within our organization because they didn't work for us.
And the challenges, the detriments, the human impact of that temp-staffing model, as well as the employer challenges of, well, how else do you acquire talent, how else do you give your talent a great place to work, really stuck with me and was a problem that we circled back to when we started WorkStep.
So I think this is worthy to talk about the fact that even this kind of job, this kind of work, you're calling these folks talent. They're not cogs in a machine. They're people with skills that are really critical to the success of the organization.
Yeah. I think that there is this misconception perhaps among part of the, let's say, group of the population that works behind a computer screen all day, that what is traditionally considered blue-collar job are less skill or unskilled and that's just not true, right?
If you are operating a CNC machine or doing high-velocity order picking or operating a tractor trailer in traffic, meeting all sorts of deadlines and all also doing customer interfacing at your stops, right?
These are roles that have very meaningful skills. They are roles that are incredibly expensive for companies to find, train, and replace. And generally they're people like you and I who want to feel a connection to their career who want to grow, who want to evolve, and who want to work for a company that offers them a great place to work.
So you started this firm to help address some of those things you experienced working in the trampoline business. And it's also about how that formation went and where you started, what problems you started working on.
Yeah. I think like many companies who eventually reach scale, we started small, right? I think that starting small is typically the best way to go because, if you can't solve a small problem, it's very hard to solve a big problem.
We looked at this problem in terms of how we could create a technology ally for this segment of the workforce--frontline supply chain workers. And how do we create a technology platform that allows workers to find the right job fit for them without needing to go to a temp staffing agency?
For companies, how do we provide software solutions that make it as easy to employ workers directly so that their wages aren't garnished by a temp staff agency as it would be to contract with an agency?
So that's the problem we started with and we actually constrained it even further because we said let's just solve this problem in Portland, Oregon, right? We focused geographically by role type on talent acquisition and built software and partnered with companies to help them solve this specific challenge of finding great-fit talent for their frontline supply chain roles in this very specific geographic area.
We just did that for a year and a half. No other role types, no other software types, no other geographies, like let's just solve this very constrained problem well. Then, if we could solve that constrained problem, our customers and users will help us learn what we should do to help them next.
That's really awesome. I think there's also an interesting aspect of the business that you revealed that I just wanted to look back at, which is you disintermediated a player in the food chain, right? So there was an entrenched intermediary and they still exist, I'm sure, in large number, but it's a disintermediation player, which is a great business model for the internet, right? I mean that's a very powerful business model. And this idea of focusing on one problem in one geography, where did you get that inspiration? How did you figure out to do that?
In terms of the disintermediation, it’s a model as old as time. I think it was Jeff Bezos who said your margin is my opportunity, right? So wherever you see somebody living fat on the margins of somebody else's work, there's an opportunity to use technology to enable better outcomes for both sides without that middle man as a way of brokering that deal. And that was very core to our initial thesis.
As far as where we got the idea to constrain that problem, we knew that if we couldn't make this business work at a small scale, then how could it work at a big scale, right?
So, if you're able to constrain it to a geographic region, in this case where there's workers there's companies, you're able to see what sort of a density you can build.
- How many workers in Portland are interested in joining a platform like this?
- How many companies are interested in signing up?
- And how many of their workers are they interested in hiring via the platform?
- Can you get those dynamics right?
- Does it all work economically when you start talking about sales and marketing expense?
- Can you win enough of that market that it's interesting as you scale it?
Hypothetically you can only make Portland, Oregon, a $50,000 business. That's probably not going to be that interesting as you scale it nationally. However, if you can make Portland, Oregon, a $5 million business, well, that's going to be interesting as you scale it.
So that's why we decided to start so small is to really give ourselves the space to learn. Does this work? How well does it work? What are the challenges? What are the customer pain points? What are the scaling challenges? And then let's start to unconstrain the problem space.
How did you start priming the pump with candidates and jobs? It's a real chicken-and-egg problem, isn't it?
Yeah. On the customer side, we partner with companies and provide them with software that automates the sourcing, screening, and placing great fit frontline talent within their organization. So, our demand is durable.
When you are a company who has a network of warehouses or a network of manufacturing facilities or both, you might have a hundred people per building--upwards of a few thousand, sometimes less. And you probably are turning over that workforce at anywhere between 40 and 140% a year. So let's say you're doing well in your 50% annual workforce turnover.
That means in each of your buildings you need one new hire to start every week or you are going to decay your workforce.
That means you’re always hiring, even when you’re fully staffed today, you won't be tomorrow.
So for us as an organization, we needed to provide an extraordinary amount of value to our enterprise employer partners, because their demand is constant.
A worker might want to provide feedback to their employer today, they might want to find a new role tomorrow, but they don't want to find a new role every day. For us, the chicken-and-the-egg problem was you need to build these enterprise partnerships and you need to maintain and grow them. And then you can use those partnership to build the worker side of the equation.
So you created opportunity and that made it easier to find people.
Makes sense. You recently completed a fundraise, right? Can we talk a little bit about what the goals were and what the fundraise was and how you're using it?
Absolutely. We're very excited. We just wrapped up our series B fundraise at the very end of last year, announced early this year, which was a $25-million fundraise led by NewRoad Capital with a bunch of existing and new investors also participating.
For us, it was really about adding more energy and gas to what was already working, which is we have this platform that is loved by customers, that is driving real value for workers, and is growing very quickly across all core measures.
We were at a point where we were functionally team constrained. There is only so much that each person at WorkStep can do to continue to improve on our software solution, to continue to partner with our customers to ensure they're receiving maximum value, to continue to build partnerships with new customers, et cetera. Our Series B then was not about tackling a new opportunity or building a new product or like going international.
The market that we play in the United States is very large. Companies in the United States spend $1.1 trillion every year on frontline supply chain staff, temp staffing, and overhead expense. So it's not a small problem space nationally. Our fundraise was about putting our foot on the gas with the strategy that was clearly already working.
I think that's a really important point. So you have product-market fit, you have good product, you have customers, you have processes that you can now scale, right? And I think when we did our prep call, you also mentioned that it's allowing you to match up a little better against your larger opportunities, right?
Yeah. So we talked about starting small and scrappy and constraining the problem and winning customers to learn what they need and what they want and what their pain points are, right? But over time, as you start to have a stronger and more informed thesis in terms of who is your customer, who should be your customer, what value do they need and what can they become over time if you win them, you start to see opportunities that have a very good long-term investment profile. Like maybe, you know that if you can win X customers, they'll generate $500,000 in value this year, a million dollars in value next year, and $2 million three years from now.
Now if you're small and scrappy, you might not even be able to invest $200,000 in winning that relationship, even though it would pay back in six months, because you can't wait that long. And you certainly can't do it if there's only a 50% chance that it works out.
But as a business grows up and has capital to invest in growth, you're able to take a more long-term view.
For us, that meant we could sell to larger companies and more senior decision makers at those companies, because selling to an SVP at a Fortune 200 company might take six to 12 (or heaven forbid) 18 months.
If you're just getting started, you might not have the time luxury to be able to invest in that relationship. But as the business has grown, it's enabled us to do that and to play that long-term partnership game with both our customers and our prospects. And that's also been a huge unlock for WorkStep the company.
That's awesome. So you can almost have a longitudinal view and more of a portfolio management view of your pipeline, right?
Yeah. That's precisely right.
You're hiring up. I mean, have you had to change who is selling and also the marketing team to go along with that?
Yeah. I would say both our sales and marketing engines are always evolving. Now, first and foremost, we have strong leadership at the front of each of those orgs who have been able to identify, understand, and resource the needs of the business for where it is today but also for where it needs to be 6, 12, and 18 months from now.
That’s critical because if you're just hiring for today's needs with the sorts of growth rates that our business is experiencing, you're going to be in a lot of trouble six months from now, not even to mention 24 months from now, right?
So, as we've expanded from this niche market in Portland, Oregon to national, and as we've gone from serving small customers to serving some of the biggest employers in the world, as we've expanded from primarily offering this talent acquisition solution to offering sort of full-scale talent retention management solutions that can be deployed enterprise wide, we've needed to adapt our sales and marketing strategies just as quickly. We've needed to bring in more traditional enterprise sales people who have managed these multi-stakeholder, multi-quarter, multi-hundred thousand dollars deal relationships.
And we've also needed to build marketing strategies that pair with that go-to-market strategy. So rather than needing to be able to measure ROI on everything we're doing in the short term, the ability to invest in awareness and early-stage pipeline and customer relationships that will eventually beget referrals and new customers, all of that comes into play as well.
And again, we are fortunate that we have strong leadership at the front of each of those teams helping us continue to evolve not just the people in those departments but also the strategies and playbooks that those departments are running.
So this was a really fun part of the prep call, because you told me that there was some eye-opening stuff that your marketing and sales people brought to you about what that long-term game looks like. So you were very focused on the lead generation, the things that were very tangible. Tell me about the process of learning about the long-term play with the marketing as well. It just seemed like it was really interesting time for you as a leader.
Yeah. Listen, I always have been and probably always will be the kind of leader who wants to see the line directly connect between investment in and out. And maybe that has to do with my background, like in between managing a trampoline warehouse and WorkStep, I co-founded an online tutoring company that reached meaningful scale.
In a business like that, if you imagine like there's students and there's tutors and there's tens of thousands of each, and it's a customer acquisition cost and long-term value game, right?
Which is basically, can you reduce your CAC meaningfully enough below the long-term value such that there's a real business in between?
With a product like that, there's like very fast payback or failure. You acquire a student for X dollars, they spend Y dollars. It's either working or it's not. And you know right away. A channel that you test is either working or it's not immediately.
Sometimes it’s like that in B2B—for example, if you want to look at cost per lead or maybe an SMB sales cycle, but of course, sometimes it's not.
You go to an event, you have a conversation with an executive. They don't want to get in a sales cycle today, so it looks like the event maybe was a failure, but then nine months later you see them at another event and the timing's better aligned and it becomes a million dollar partnership, right?
Like these sorts of like drumbeats of awareness and multi-touch, multi-quarters, sometimes multi-year partnership investment cycles are much more real.
So, I think I've had a lot of growing up to do in terms of having patience, I suppose, and understanding where there is like good belief-based bets and where there are bad belief-based bets.
For example, you could go crazy here. You could say, yeah, well it's all long-term and it's awareness and yada, yada. So let's just do a Super Bowl commercial or let's put billboards all over Atlanta. And maybe those are good ideas, I don't know. But the point is that would be a belief-based bet that's not based on historical experience.
Not terribly grounded, right?
... a fundamentally strong thesis that's grounded in reality. However, maybe something like we believe that our presence at these 12 industry events will create a groundswell of awareness within the industry that will not only accelerate our current customer relationships but will also accelerate the long-term pipeline of our sales organization. And maybe when we add up every hour spent, every dollar and cent, and every single component of that effort, it won't look like it's penciling after two quarters, but that doesn't mean that we should kill it.
It means that we need to have a belief in our strategy. And also it's very true for product development in a SaaS company, right? Which is sometimes you're going to release a feature or a change and behavior's going to immediately change. And you're going to be able to say, wow, that was a great change. We did what we were looking for. And sometimes you have to believe that this is the direction that we need to be going. And not every step along the way is going to have a quantifiable signal that says like, you're doing a good job. Keep going. You just have to know that your strategy is correct and you trust your leaders and therefore you continue along this pathway.
There’s a lot to unpack there. From a leadership standpoint, being willing to having trust in the people you hire in these different domains. So as you scale up the organization, it's no longer founder does everything or the founder’s right? The founding team can't do every job and as well as getting new chops in these other disciplines, right? You need to develop the skills, experience context in other disciplines. There's a lot to this that is maybe not as apparent if you haven't gone through it yet. So that's very cool.
What's the future look like for WorkStep? Currently you’re five to six months into having the greater funding. Where are you taking the business from here?
Where we take the business from here is all about the reason that we exist in the first place. Because we are here to help frontline workers improve their job so that they can live a better life.
If you help a worker find a better fit job or improve their employer as a place to work, which is what we do, you can have a meaningful impact on their overall quality of life. Therefore, everything that we do at WorkStep is in service of accelerating that mission.
A big part of that is the things that we're doing that are working in terms of that mission, let's do more of them at a bigger scale and better, right? So let's improve the value that we provide and let's provide that same value to more people.
But I think it's also how else can we further that mission. If today we help companies find the right fit talent, we help them lift for attention by improving employee satisfaction, how else can we partner with those companies organically to help them improve the lives of their frontline workers?
How can we help their workers adapt as decades pass and technologies change?
How can we help them ensure their workers are compensated fairly?
How can we help them ensure that they are positioning themselves in the market as an employer of choice that's a great place to work?
For now, our strategy has more of what we do better in short. But over time it's what else can this WorkStep platform be to be this defacto technology ally for the frontline worker globally.
It's very cool. I want to actually walk back something. I didn't ask enough about one point, which might be worthy and a place to land, and you talk passionately about improving the workplace experience. I would love for you to reveal a little bit about what that means for these employees and how you're helping them. Because it just seems like such a powerful mission or element of your mission. And I just feel it's worth just digging in a little bit.
It starts with that notion of starting narrow, which was to help workers find a great fit job. We helped companies find talent that was a fit for their roles. But what we quickly realized was that it wasn't just finding talent that's hard for companies at scale. Even more strategically, it's keeping that talent, which is to say you can dump as many new employees in the top of the funnel as you want, but if you lose 75% of that talent in their first 90 days (which happens to some companies) it's incredibly challenging organizationally.
We realized that if we're going to help these workers succeed and help these companies succeed, we need to also help these organizations retain their talent.
To do that, we help companies automate the process of collecting feedback from distributed hourly teammates at scale, we automate how they analyze that feedback to understand where there's imminent turnover risk, as well as what are the actual turnover drivers within your workforce by segment.
So not just where are people unhappy, but what is leading people to quit?
What can you do about it?
What are the best-of-breed companies in your space doing about that challenge?
And how can you measure the impact of those actions?
The outcome of all of that for a company is that we take 100% annualized turnover, and we make it 80% annualized turnover, thereby saving tens or, in some cases, hundreds of millions of dollars a year.
But for workers, what it means is that their voice is heard at scale because in many of these environments there might be a hundred frontline workers for one HR representative or, in some cases, a hundred teammates to one manager. And also you're on the night shift. Leadership's on the day shift. You're at a satellite facility and the people who are making the decisions are nine levels removed from you.
We use technology to remove all of that.
The voice of an associate can be heard by the leadership who can positively impact their experience in real time, without any middle management filters, and in a way that ties their voice to business outcomes so that our customers can really hit that double bottom line.
What I mean by that is the best thing that we can build as a software company selling to businesses is software that at the same time helps businesses improve their business outcomes, right?
So save money on replacement and sourcing and training by reducing your turnover. Great. We will help you save $20 million a year. That's good for your shareholders, but it's also the right thing to do from a human perspective. Because if you can't empower the voice of your frontline teammates, take actions that matter to them, and improve their satisfaction and retention, guess what?
Now you've helped 10,000, 20,000, 50,000, 100,000 frontline workers live a better life, right? And so that's what's so exciting for us is that we can help customers see this opportunity for them to do the right thing from a human perspective that's also the right thing for their shareholders.
That's just such a powerful mission. The way you've spoken of it here I'm sure is very compelling when you're presenting to potential clients. And it's nice to help amplify your message in our way. I want to say thanks so much for joining the podcast. People want to learn about WorkStep, where do they go?
WorkStep.com or they can email me directly Dan@WorkStep.com We're hiring.
That's awesome. Thanks so much, Dan. It was great interview. For folks if you haven't subscribed yet to the podcast, you can do so almost wherever podcasts are distributed. And if you'd like to reach out to me directly, it's linkedin.com/in/kenlempit. Thanks again, Dan. And we'll be in touch soon.
Thanks for listening to the SaaS Backwards podcast brought to you by Austin Lawrence Group. We are a growth marketing agency that helps SaaS firms reduce churn, accelerate sales, and generate demand. Learn more about us at www.austinlawrence.com. You can email Ken Lempit at email@example.com about any SaaS marketing or customer retention subject. We hope you'll subscribe, and thanks again for listening.