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| Home - CEO Spotlight - Oct 06 Issue |
CEO Spotlight: Art Mesher, The Descartes Systems Group Inc.
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Angel Mehta: And THEN you took over? Were you insane?
Art Mesher: You have no idea. Our DSOs were 150 days… we'd lost $12 million in the quarter… our CEO miraculously disappeared… we had five class action lawsuits because shareholders sometimes get irritated when a $100 stock goes to 92 cents. But I believed in what we were doing. And it's paying off today…
Angel Mehta: I noticed the "Stevie Award" for best turnaround story… that must have been gratifying. Take me through the process - how did you do it?
Art Mesher: First, I fired every sales person in the company. We had to answer the question, "What is our job at this company?" - and the answer was, "To get customers to receive the business value they paid for." Our job was not to sell technology or services - our job was to deliver real value. Once that was clear, I looked at the top 10 people in the company who actually had the ability to ensure our customers were benefiting from our products.
Angel Mehta: Getting the right people in the right seats, so to speak?
Art Mesher: Exactly. None of those valuable people were in positions where they were billing customers. They were involved in product strategy, pre-sales, or other functions that were not about directly servicing customers. This is an important point so I want to emphasize it: we had our best people convincing new customers to buy, versus having our best people ensuring our existing customers were getting the value they wanted. So I developed a strategy that had a couple of key slogans… the first was, "Lead with your IP forward" - IP being intellectual property. The second was, "Metrics Driven, Focused on Results". In other words, we were going to change the way we sell, change the way we do business, by going to our customers with the people who can best solve their problems, then define exactly what we would achieve for them with metrics, and deliver. The last thing we did was change our pricing model: basically, customers don't pay until we make them successful. End of story.
Angel Mehta: That's certainly putting a lot of skin on the game… high risk, isn't it? What were the results?
Art Mesher: We cut 70% of the cost out of the company and built a recurring revenue model. We now have 90% of our revenue as recurring. I removed the whole sales force so that my expenses are equal to my recurring revenue. This changes the behavior of our entire company and the power we have in negotiating with customers. Put it this way: if we fail to sell anything new, what happens? We still break even. Imagine another software company failing to sell anything for a quarter… what happens? They lose a ton of money - because their expenses are not aligned with maintenance revenue. The principle is, "Sell not the wine before its time". We can go to a customer now and say, if our systems don't work for you, you don't pay. We'll tell you exactly what the metrics are, this is what our systems are going to do for you and if it doesn't work, you don't have to pay.
Angel Mehta: It still sounds high risk to me… did you offer this to everyone or where you targeted in the approach?
Art Mesher: We targeted the number one company in every major market we were serving. Staples in office supplies… CVS in pharmacy… DHL in logistics… Cannon in digital equipment. We picked 12 companies to start with and dared them to let us make them successful on this "pay only if we deliver" model. All 12 have now signed long-term contracts.
The net of all this is that we've got seven consecutive profitable quarters, and our growth margins have increased from 55% to 67%. In the last quarter, our EBITDA earning was 21% or $2.8 million with 90% of our revenue recurring on a quarterly basis - and no debt. At the time when I first came in we had lost $14 million, were $28 million in debt, and at our current burn rate we had only 118 days left of cash.
Angel Mehta: I have a question about the culture that was in place shortly after you came in. What kind of leveling effect did the bubble have on employees of Descartes who were left? Did you find that reality had sunk in, or was there still an entitlement culture?
Art Mesher: There was definitely an entitlement culture left over, and it was a problem. The hard-core engineers believed that the whole fight was about them keeping their jobs and the whole lead with your IP forward thing completely motivated them because they finally felt they were being recognized for their value. Most of their lives, they felt patronized by a group of sales guys who wanted $1 million and never stuck around to do the real work. But there was a group of people in sales and marketing that had enormous difficulties with the new order and I had to fire every one of them. They just couldn't get over the fact that we're not going to pay the same way… we're not going to reward the same sales behavior. Descartes suddenly didn't have a culture where the sales rep is king - in the new world, the customer is king and whoever serves the customer is going to be elevated and rewarded.
The very few sales executives I have are effective because they walk in every day and say to customers, "I know very little, but my job is to put you in touch with people that do. My job is to make sure that you get access to the truth anytime you want it." Their job is to manage a process.
Angel Mehta: You hired Greg Cronin, who ran his own company, to be an EVP. Did you see any problem with hiring a previous entrepreneur to be your wingman?
Art Mesher: No. The reason entrepreneurs sometimes conflict with CEOs is that the CEO is a narcissist and wants to tell everyone what to do. That's not my job - I'm just here to be a cheerleader and offer guidance and realism whenever I can. Greg is an amazing guy who has scaled companies to $270m and is totally about customers, which I have lost the ability to do because we're a public company and so much of my time gets spent on shareholder, communications, and compliance issues and the like. I hope I can hire 5 other guys like Greg someday, but they're not exactly on every street corner.
Art Mesher is Chief Executive Officer of The Descartes Systems Group Inc. He oversees the Company's marketing and sales, product development, network operations, and customer and corporate services with direct responsibility for the executive management team. Before joining Descartes, Art launched Integrated Logistics Strategies Services for the Gartner Group, building the practice into a leading advisor to major global corporations. Prior to Gartner, Art was President of Advanced Logistics Research, where he helped numerous multinational companies develop and deploy emerging technology-based supply chain strategies. In 1998, Art joined Descartes where he led the creation of the first on-demand logistics network that provides application and communication capabilities for all three major modes of transportation: truck, air, and ocean. In May 2004, Art was appointed to Descartes' Office of the CEO and subsequently appointed CEO in November 2004. For interview feedback, contact Art at amesher@descartes.com
Angel Mehta is Managing Director of Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies and lead investor in http://www.softwaresalesjobs.com, the # 1 site for software sales jobs. Angel can be reached for feedback at amehta@sterlinghoffman.net
 
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