CEO's bold prescription for profit turnaround

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Much of the history of Descartes Systems Group Inc. reads like it was ripped from the annals of Nortel Networks: High-flying stock soars to $130 in the dot-com bubble, then plunges to pennies in a spiral of collapsing sales, accounting crisis, furious shareholders and an analysts' death watch.

But while Nortel is now in bankruptcy protection and being sold off, Waterloo, Ont.-based Descartes has emerged as a startling turnaround, having generated 17 straight profitable quarters.

The architect of this comeback is Art Mesher, a U.S. serial entrepreneur who in 1998 joined Descartes, a maker of logistics-management systems, after a stint with tech research firm Gartner Group. Six years later, he became CEO during Descartes' darkest moment.

This university dropout is a business revolutionary whose prescription for turnaround management started with the command: Fire the salespeople.

Why did you drop out of college? I went to college for 13 weeks, but I dropped out and started to build our first software company. I was lucky that when I was 21, the first personal computers came out. It was the same for Steve Jobs, Larry Ellison and Bill Gates. A lot of people dropped out - entrepreneurs who understood what could be done and were adventurous enough to do it. It was a time and a place.

I started unloading trucks but, as a labourer, I never knew what was coming in. I couldn't plan my day and manage my facility because I couldn't see what was happening. But if we had this computer, why not use it on this task, instead of going through filing cabinets? I was just trying to be lazier in unloading trucks.

Years later, you became a supply-chain guru at Gartner Group. When you left to join Descartes, you said you moved from astronomer to astronaut. My role at Gartner was to define maps for people. The idea was to help people purchase technology to have them avoid bad companies and bad decisions.

But as an entrepreneur, my blood boils every once in a while. It was nice to build a business making maps, and being somewhat of an astronomer, but I felt a very strong need to get in the rocket and have the adrenalin rush of trying to get to the next moon.

Didn't you know Descartes was going downhill fast? When Descartes' CEO had come to Gartner, we diagnosed them as basically terminal. I proposed a plan on how to fix themselves. The CEO and one of their board members asked me if I thought the plan was so good, why didn't I come and participate?

It looked like a good enough opportunity and, again, my blood was boiling. The practice I had founded at Gartner was very successful, very stable. But as with a lot of entrepreneurs, the thrill is in creating and building.

Yet when you finally took over as Descartes CEO, the company seemed doomed. It was in very, very bad shape. It had just lost $14-million of cash in the quarter, and on my first day as CEO, I calculated that we were about 118 days away from being out of money. The first day I came on board, I made a decision to reverse $8-million worth of revenue.

We were losing a lot of money, we weren't taking care of our customers well, and, by my regards, we had revenue that we had said we were going to take, but I didn't think we should. I call it the burning medicine ball - and we were too fat to get out of the way.

What did you do? Sometimes, running a business is about distilling the essence of obvious - taking care of customers; doing what you say; making your products work.

The reality is that Descartes had a flawed culture - a culture of selling. The business model in the technology industry was based on buying a concept or a dream, spending millions of dollars up front, and taking years to implement it.

The notion of all this time and money spent up front, and having results much later, creates a certain culture: You sell a deal, then you move on, and have to sell another deal. If your business is in one-time licences, you always have to sell more deals just to stay flat. Imagine how many you have to sell to grow.

So we needed to create a culture of serving, as opposed to selling. And I fired the sales force. Of 64 people, I let 63 go. I also removed about two-thirds of the work force during those first weeks.

In a fishbowl there is only room for so many minnows, and one minnow will take the oxygen away from all the rest. You need to make sure there is enough oxygen to go around and not too many minnows in the fishbowl. So we went to work quite quickly trying to address first the notion of culture and performance.

So who sells your products now? I asked: Who were the top 10 people in our company who can change the way customers do business? I got a list of these people's names and none was engaged with customers in making our products work. They had titles like "presales" or "product specialists."

So I said to the engineers who did these jobs: 'Your job is to save people money. We're not going to sell our product per se any more; we're going to install it and make it work. Then if it works, we're going to ask to be paid.'

Our products don't cost, they save. So after you, as a customer, have saved some money, if you don't pay me, I'm taking it away. If it doesn't work, you don't have to pay. That revolutionized our industry.

What are the lessons? One of the hardest things in creating a sustainable business is to understand the difference between leadership and management. Descartes had leaders before, but those leaders were very much autocratic managers.

People, in their work, need to believe that what they do makes a difference, that they personally can contribute to making a difference and they have a high degree of autonomy. That can create a very good culture.

But as a leader, you need a framework in which people can operate; you can't just cheerlead. I tried to define our key framework as "One Learning Team." One really means "one networked enterprise." We were a company that had acquired a lot of businesses and never integrated them. For us to become profitable, we needed to tear down the walls.

And learning is important for a company whose strategy is to buy new companies and put them together. Jack Welch said holding companies will never be valued at more than the sum of their parts unless they create a learning organization.

Your experience is similar to Nortel's, but look what happened to them. These are all individual experiences. But the key message is you need to create a framework that everyone operates under. The second is: Listen to customers. I don't manage our business for the Street, or to financial targets. I'm proud that for so many quarters, we exceeded people's expectations. But we run our business for our customers. I think some public companies get distracted by trying to satisfy that other customer, the shareholder.

I also use a framework called 'metrics-driven focus on results.' You need to lead with your IP [intellectual property]forward, which means don't put the sales guy in front of the customer. Put the smart guy in front of the customer, and then become metrics-driven and focused on results. That was our mantra in the first year of the turnaround.

What keeps you awake? Time doesn't move fast enough. We have a new plan we delivered in January, and I wish I could just roll it all forward.

Whenever I go fishing with my friends I show up and the skies are always very clear. Then the high pressure sets in, which is bad for fishing. So my fishing friends have nicknamed me 'High-Pressure Mesher.'

In the most stressful situations, when the most powerful forces are working against you, you can turn all those forces to your benefit. That's where we were - everyone thought we would fail. We turned that it into the biggest weapon in the industry: If it doesn't work, you don't have to pay.