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CEO Spotlight: Art Mesher, The Descartes Systems Group Inc.
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
The rise and fall and rise (again) of logistics software company Descartes Systems is a turnaround story for the ages. Angel Mehta, Managing Director of Sterling-Hoffman, chats with Descartes' Chief Executive Officer Art Mesher about entitlement cultures, a gutsy, high-risk decision to win back customers, and creating an offer that customers guaranteeing success to customers, and how an internal game of musical chairs helped turn the company around.
Angel Mehta: What drove you to drop out of school and start a business? That's usually a risky career maneuver…
Art Mesher: The ideas were just too compelling to walk away from. I was 22 and part of a group that was using the PC to create storage drives and setting up EDI systems so that computers could talk to each other. The people from industry were still doing time-share on CICS machines and would look at us saying, "Wow, what are you guys up to?"
Angel Mehta: How did it all start?
Art Mesher: I was working at Dayton Hudson, which is now Target… and I met an industrial engineer from India who wanted to use a computer to simulate how a distribution center worked. I was working in logistics at the time, and thought it was a great idea. It was hilarious in retrospect because we are talking about a computer in the '80s, where 156k of RAM was a big deal. I met another couple of people who had left Control Data around the same time and were trying to use the personal computer to automate the freight process. We got together, raised some money, and had another ex-Control Data build what you would call today a "store & forward" mailbox. Back then, it was two phones that you stuck into these suction cup machines with a 20-megabyte external hard drive - again, a big deal. Anyway, it took off from there.
Angel Mehta: Tell me about Descartes. What convinced you to join and what was the state of the company when you were brought in?
Art Mesher: I met the CEO of Descartes in 1997 when I was with the Gartner Group. At the time, he had a six million dollar company and it was doing something that I thought was interesting. Remember I'm a network guy. My whole life, I've built large-scale distributed network systems to solve large global supply chain problems. The work I did at Gartner was about this area. And if you read papers I wrote in '94 and '95, it talked about distributed computing and heterogeneous operability and how large scale distributed systems will evolve. The thing about Gartner is, you're as astronomer… which is fun, but I wanted to be an Astronaut again. Descartes was an opportunity to do that. It was a little company that had an opportunity to become a global network provider as we are today. When I came here in the spring of '97, it was a publicly held company on the TSX in Canada; it had access to capital.
Art Mesher: No. When I came, it was $8.00 a share. Of course, the stocks went up to $12.00 the first day I joined. We then bought three companies within the first 30 days I was here. Then I took them down to the NASDAQ and with my Soundview and Piper friends, we put together an offering and IPO'd on the Nasdaq. The stock went from like $8.00 to $20.00 and then the bubble came….
Angel Mehta: Which was good or bad?
Art Mesher: Both. What happened is, people were buying our products for the wrong reasons. We had a logistics platform and everybody wanted to create some vertical market for something whether it was pharmaceutical or office products or whatever. All those people wanted, in theory on paper, to plug into some logistics application and be the hub for a certain vertical. They had business plans that were basically clouds on pieces of paper with lines drawn to everyone, which in those days, qualified as a great business plan. Every one of those folks bought from us, which was great… until they ran out of money. I know you know a ton of people who ran out of money in the bubble… backed by all those VC buddies of yours… and so you know that they all take care of themselves before worrying about the people they are feeding. So basically, our customers stopped paying.
Angel Mehta: Didn't the Gartner analyst in you see it coming?
Art Mesher: Yes, Angel, totally… the astronomer in me was saying this whole thing is a giant mess and none of these companies has any legitimacy. It takes years to build networks - I had built them before, so I knew! We were lucky that with the Sabre network we got to put a printer under everyone's desk because nobody ever had a computer printer at the time. But I was with a friend in the middle of Georgian Bay just saying, "This whole thing is going to blow up…"
Angel Mehta: And you didn't say anything to the Descartes team?
Art Mesher: Of course I did. We got the group together and I said, "This company is about to blow up." The CEO looked at me like I was crazy… he was off building cottages and golf courses. My proposition was that we should use our inflated currency while we had it to acquire some real assets: namely, companies that did network services work in each vertical we wanted to do business in. After a sobering weekend, everyone agreed and we started doing it. Then as forecasted, the whole world collapsed - and luckily we owned real businesses that were somewhat profitable.
The bad news is that we ran into pilot problems. Our CEO was 31… not exactly grounded, stopped showing up for work, and checked out completely when things got tough. Our next CEO was an ERP guy who didn't get network computing and wanted to sell enterprise systems… he hired 60 sales reps and paid them $120k base salaries… we were paying a sales rep in China $200k, as I recall, which is a nice deal in that part of the world.
Angel Mehta: I wish Sterling-Hoffman had Descartes as a client at the time… [Laughing]
Art Mesher: Oh, you missed out on a run, buddy, let me tell you. Anyway, our new "sales force" started selling enterprise license deals that had nothing to do with our core competency and so, of course customers refused to pay because they realized that the software wouldn't do what the sales reps said it would. Our rep in China entered into a contract with the Chinese government and they told him one day they weren't going to pay.
Chief Executive Officer:
The Descartes Systems Group Inc.
- Favorite band: Bare Naked Ladies
- Hobbies: Fishing
- Biggest fear: Failing
- Passionate about: Georgian Bay
- Favorite movie: The Game
- Favorite color: Purple
- Least liked food: Grits
- Most admired person: Steven Jobs