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CEO Spotlight: Joe Davis, Coremetrics
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: What was your first job in high technology?
Joe Davis: It was with Hewlett Packard as an engineer, designing inkjet printers. I fell into engineering in college… I was always a tinkerer as a kid, tearing things apart and putting them back together. It wasn’t until I was working that I got a good chance to think about what I liked to do… I didn’t follow the European model where you graduate from high school and then go to work for a year before going to college.
Angel Mehta: I didn’t know there was a European model.
Joe Davis: Yes, in some countries in Europe you’ll see people will finish high school or do two years of university then work for a year or two to gain an understanding of what opportunities are out there. After that they go back and finish their degree. I think there’s a lot of value in that approach because otherwise, you’re asking people who are 20 years old to decide a major in college, dictating what they’re going to do with the rest of their lives, without really understanding what it will be like to work in that area. It is one of the reasons you see so few people working in an area that they were trained for. You have people making decisions based more upon family history and simplistic notions of what a specific job is. My 13-year-old daughter regularly says, “I’m going to be a lawyer.” Well, she doesn’t know what that means, but it really doesn’t matter at this point so I don’t worry about it. If she feels this way as a college student I would like her to find a way to see what it is like to be a lawyer before she commits to it. There are some people who at 20 years old are very directed and know what they’re going to be… Bill Clinton, I’m sure he knew that he was going to be President of the United States, right? I certainly wasn’t one of those people.
Anyway, I eventually got bored with engineering and became more interested in the Product Management side of the business. I started asking, “Why are we building this; why are we picking that price point; why does it need this set of features?” I realized that if I wanted to be a manager I needed to understand more about business, even if I was going to be an engineering manager. The problem at HP was that it would have taken me 5 years to get into a first line management role. It was a great company, but had what I thought was a slow growth curve for management. So I decided to apply to Business School and went to Stanford where I realized that I didn’t want to run engineering. I wanted to run the whole company.
Angel Mehta: What elements of the HP culture did you respect most?
Joe Davis: There are many things I learned from HP. Even though I was not a manager, I certainly absorbed some of HP’s management techniques. For example they have an open door policy, there are no offices; everybody’s in cubes, even the senior management. Managers are generally in the next room or walking around, and are usually available to talk when needed. I think I have tried to recreate that open door policy wherever I have worked.
Another great HP management technique is that at the end of every quarter, all the employees in a department are ranked. I am not sure if they still do this, but I thought it was great. If there are a hundred employees in the R&D Department, you’re ranked 1 to 100 and you know what number you are, which is something that most companies don’t do. In many companies, the employee evaluation process is done in a very slipshod manner and managers are reluctant to deliver bad messages. It’s very easy to say, “You’re doing a pretty good job here but budgets are tight so you’re only getting a 2% raise…” …when the reality is you had ten employees in that department and this guy was ranked Number 10. The right message is to say, “you are the lowest ranking employee in this group, and here are the challenges you face. If you want to move up the ranking here are the things you need to do.” Under this forced ranking model, managers can’t dodge hard conversations and mislead employees. As an employee it was scary but honest. There was no hiding behind your own impression of how you were doing. If you were ranked near the bottom of the list you knew it and you got clear direction what you needed to do to improve. It was very effective. The only problem I saw with this system was that it still was hard to get rid of poor performing employees. That was one aspect of HP’s culture that I didn’t like. In every organization you need to get rid of the lowest performing employees. It gives you room to bring in more talent and it sends a clear message to everyone that poor performance is not tolerated.
Angel Mehta: Let’s talk about Coremetrics. What is the business problem you solve for customers, and how has the company evolved since it’s creation in the bubble?
Joe Davis: The founder of the company started the business to provide a set of tools to help on-line merchants be more effective in selling products. He actually started with an earlier business where he was trying to sell vitamins and health supplements on-line and found that the tools available out there were not very effective in helping him manage his business. He envisioned a set of tools that would allow him to track what people were doing when they came to the website to help him be a better marketing and merchandising vendor. As he was building these tools for his own web site he realized there was a bigger business opportunity offering the tools to others and that was the genesis of Coremetrics. Today we support 240 different brands on-line that use our product to manage their online marketing and merchandising activities more effectively. If you are buying anything online, chances are it is with one of our customers: Williams-Sonoma, Pottery Barn, Sharper Image, Eddie Bauer, Nieman Marcus, Lands End, Victoria’s Secret. It is a long list. We have most of the big name online retailers and our market share in Retail is five times that of any of our competitors
Angel Mehta: How do you differentiate yourself from competitors?
Joe Davis: There are competitors in our market who do similar things but they don’t record individual data. They collect it and they consolidate it down to a set of aggregated data. They can tell you that 10% of your clients came from an email campaign, looked at this one product, put it in a shopping cart but never closed the transaction and left the website. Well, we can tell you the same information, but we can also tell you the email or possibly mailing address of that 10% and whatever else they may have bought from you in the past. This extra level of detail we provide allows our clients much more flexibility in their marketing efforts. For example a client could chose to reach back out to the 10% product abandoners mentioned above with an email campaign that might entice them to come back and buy the product they dropped earlier. The more sophisticated the retailer, the more they need the data and the more they’re interested in the intelligence it can give them. For example, many of our clients regularly want to change how they categorize their merchandise. They may decide to put a selection of items on sale and in our merchandising reports they want to see a high level view of how all these clearance items are moving. With our competitors this would be hard to do because they aggregate the data at transaction time. Since we store every individual transaction it is simple for us to re-run reports under a new category scheme. In fact during the holiday season we have clients who upload a new category file to us almost every day and the system automatically makes the necessary changes. This is the type of service that gets the merchandising people at most of our clients really excited.
Before you had on-line retailing, most merchandisers had to wait quite a while to see what was selling. For a retail store they might have to wait for month end reports from all their stores. A catalog merchant gets faster feedback once a catalog is mailed but there is still a long lead time from when they determine what merchandise is included and when the catalogs are mailed. In either case it takes time to see what’s working and what’s not selling. With online retailing you eliminate most of the delays.
We provide instantaneous feedback to our clients. You can re-layout the website and within an hour, you can determine if it is working. So our retailers, most of whom are multi-channel, with a website and either retail stores or a catalog, can use the results of what’s happening on the website to be more effective in their other channels. As an example, let’s think about a large catalog merchant, someone like Lands End. In the past the marketing model was to print up a few million catalogs, mail them out and then wait for phone calls and orders to determine if they ordered the right merchandise and marketed it effectively in the catalog. They might have spent a lot of money on new merchandise with little idea of how well if it going to sell. But this has all changed. On a website retailers can test a new product and get immediate feedback on how well it is selling.
Under the old model if some merchandiser decided that orange was the new hot color they would have ordered a lot of orange items and then put out a catalogue with 20 pages of orange clothing. There is a huge cost to this in both inventory and printing costs. Instead you can now test this out easily on your web site. With an automated A/B test you can show half of the visitors a home page with orange clothing. If the retailer finds that nobody’s buying the orange, they can very quickly take that stuff down off the web site with little associated cost. The savings doing merchandise testing this way are tremendous. No excess inventory to deal with, no out of date catalogs, no more decision making on guesses and gut feeling. We call this the shift to analytical marketing and the implications of it are huge.
Angel Mehta: Has the solution set moved past the evangelization stage to the point where customers understand the offering, know that they want it and now it’s just a shoot-out between existing vendors?
Joe Davis: Yes. We have documented case studies showing either savings or incremental revenue as the result of using our product that’s in the hundreds of millions of dollars. There are individual clients who have increased sales by $30 million in a year by doing something from the data they found in our product. So, there’s no question we’re way past the new interesting technology phase. This is something that almost all retail vendors are using in one shape or form. So we’re definitely moving into a more mature phase and clients are now looking for recommended or automated actions instead of just getting more data. Everyone realizes they need to be more efficient and they are looking for solutions that solve problems faster and more simply. One sign of maturity is we’ve started to see more adoption within our clients’ organizations. Instead of one or two merchandising people or one or two marketers using the product, it’s now becoming departments of people working with our service.
Angel Mehta: You joined the company earlier this year… a lot of people would say that leaving a behemoth like PeopleSoft for a company of Coremetrics’ size is a considerable risk. Why did you do it?
Joe Davis: A few different reasons. First, I wanted to lead a company – and Coremetrics offered me the chance to do that. Second, I wanted to be in a place where I could have an actual impact. Where the results I delivered impacted the company, not just a tiny division. I ran the CRM business at PeopleSoft… it was the fastest growing division there, but it was still buried inside a much larger entity. The stock could decline for reasons that had nothing to do with me. At Coremetrics, it’s my job to make this company hum – and good or bad, I’ll see the results of my performance directly. When I told Craig Conway that I was leaving PeopleSoft to run a company he understood where I was coming from – he had done the same thing himself.