John Simon was the CEO of QRS, a highly successful, fast-growing company that had carved a strong niche in providing electronic data interchange (EDI) and other electronic-commerce services to the retail industry.
He was also the focus of a Stanford business school case study which presented QRS in light of the competitive dynamics of an emerging industry at the time.
John and I got to know each other by collaborating on an investment opportunity in the retail technology space and then through subsequent conversations on how the space was evolving.
He’s seen quite a bit over the years and so I thought it would be interesting to conduct an interview with him for the benefit of our audience, which has now grown to more than 20,000 CEOs and investors.
I hope you enjoy the piece.
RJ: John, some would consider you the pioneer of retail technology, perhaps we could kick off with your background and how you got started in the space.
JS: Sure. I got into retail like many other people get into retail, by not knowing what else I wanted to do. I grew up in suburban Scottsdale, Arizona, I went to Harvard College and then Harvard Business School. I didn’t like finance and didn’t like consulting, which pretty much wiped out 95% of the jobs out there and it came down to a choice between airlines, a consulting firm that specialized in loyalty marketing, and retailing. I took a retailing class my second year, and ended up doing a retailing field study and did pretty well in that. I ended up going to Carter Hall Hale Stores in Southern California after graduation and got a job at a department store there.
RJ: Stanford Business School ran a case study on you and your experience at QRS. Can you share with us some of the key teachings from that case study?
JS: The case was from 1999. That was at a point where QRS was starting to become increasingly profitable. So the question was how to manage that growth and profitability, and literally what to do with all the cash we were generating. The answer was that we opted to do essentially three things – we did more of the same from a business perspective and we started to invest in two areas. One, we invested in an Internet start-up called TradeWeave. It’s not in the case, but we set it up as a separate company – sort of a next gen catalog for lack of a better way to describe it. The second thing we did was continue to acquire solutions. One was in imaging, the other was a sourcing solution to add to the catalog part of the business. None of that actually worked out really well, however.
The thing that kept us on top was the basic machine, so we kept making money. We also got better and better deals from IBM. The retailers were constantly hearing about how the Internet would replace EDI but by that point they were almost getting it for free so it was really a strategic discussion about the internet for other things. The big retailers, our 300 hubs, continued to compel their trading partners, our 9000 spokes, to use EDI in addition to our leading UPC catalog. So we were able to do a lot of things. I think, stepping back, we did a couple of things wrong strategically – we didn’t execute the transition to the internet very well and had trouble selling application solutions.
We used to joke, in the early 2000s, we said, “What exactly is wrong with QRS as a private company?” You know, ownership was pretty consolidated, they would have been happy to have taken that cash check home. But we were sort of slaves to the market and our stock price was never better than when we were going through trying to figure out what to do. We invested a lot of money with little return in the early 2000s. And the market rewarded us for it.
RJ: I can imagine going through that, being in that time when you’re trying to figure out what to do, how to spend money, how to pursue growth and deciding on the right identity. Is there some wisdom you can impart on how to make better decisions or a means to evaluate a company’s future?
JS: I think the core thing that every company needs to do is just figure out “what are we trying to accomplish?” For us, during the early 2000s, that was a period of time when the stock market used to be function off a combination of ratios, between the growth rate and your return rate. And so because we had enough money we could try to do both. But the board was never fully aligned. And ultimately that was the crux of what ended up happening; I left the company and the company sold out much lower than we could have if we decided to do so five years earlier.
RJ: A large part of our audience is CEOs of growing tech companies, mostly B2B, and so this interview is particularly relevant. Could you share with us one of the more challenging times in your career, as an executive or entrepreneur and how you overcame that challenge.
JS: One of the most important ones was when we built QRS. And we said, “We’re going to scope this problem and then we’re going to figure out how to design it.” Basically, we were sitting with IBM as a partner and they asked us, “How big is this going to be?” And we said, “We’re not sure.” IBM told us the most they could handle, so we had to take that limit and hope that the technology would improve over time and it did. But it was a bet. You have to be able to take advantage of those improvements and not limit yourself to a snapshot of technology.
RJ: In the field of retail technology today, what do you find most interesting?
JS: Really, it’s that space between B2B and B2C. With a lot of B2B stuff there are just way too many features and functions. Business applications are rarely utilized anywhere near the amount of capabilities they have. Companies spend way too much money on features and functions. They fall into that trap for one of two reasons – either they’re not selling anything so they keep adding bells and whistles or customers suck them into it by saying “Well, what the users have always wanted is, you know, feature A, B and C and that’s what they don’t have today.” The reality is they often don’t have it today because it really isn’t that important.
So if you think of the evolution of technology, there’s been a lot of standalone software applications. Data architecture has tended to be driven by applications, not by efficiency of data, so that big data, which is now where a lot of the value add is in retail and technology, is an afterthought. It’s partly that way because the consulting business and the software business model couldn’t care less about having unified architecture. In fact, that is revenue reducing because they don’t get as many integrations in consulting projects. We have a big problem trying to do analyses on sales trends across our customers and products because the software and the enterprise databases are all different.
That’s the biggest impairment to the databases right now – getting the big data. If you talk to people, they’re trying to do big data analytics and getting the coherent big data is many times the biggest single problem. So I challenge anybody with a business at this point in time to build your business from the databases up, not from the applications down.
RJ: John, thanks so much for taking the time – always insightful speaking with you.
JS: Thanks RJ.