As of February 2003, Glen Meakem's formal title is 'Chairman'; in the weeks following this interview,he ceded the CEO title to Dave McCormick. But no one denies the impact of his hyper-intense personality on the FreeMarkets culture. As one FreeMarkets executive explained, "Glen is FreeMarkets - FreeMarkets is Glen." Like many tech entrepreneurs in the 90's, Meakem setout to change the world with a revolutionary idea. But unlike most, he actually did it. With revenues approaching $200m, FreeMarkets seems to have done what seemed impossible post-bubble: make 'B2B' look good. Sterling-Hoffman's Managing Director Angel Mehta spoke to Glen Meakem in January:
Angel Mehta: So, tell me what the challenges have been for FreeMarkets this year and what will they be going forward? What keeps you up at night?
Glen Meakem: Our key challenges revolve around the fact that we have moved dramatically from a couple of products and services a year ago to really being a multi-product and service company. Three years ago, we were a single offering company with our FullSource offering. This time last year, we were a dual product service company. We had our FreeMarkets QS product and our FullSource service, had our asset business and a few other smaller things. This year, we've launched our FreeMarkets ES supply management solution for companies.
FreeMarkets QS, our negotiation application, continues to grow very very rapidly. FullSource continues to be a key driver of our revenues and a key service that many of our large companies use. We also introduced our Savings Implementation solution, which is has softwareand a service component to it. We also introduced our 'Spend Visibility solution which, again, is software with supporting services. We've become a multi-product and multi-service company in a very dramatic way this year and the challenges involved in this include dramatically scaling our product management, product development capabilities, supporting different customers and educating our sales force. There's a whole bunch of issues as you scale out that have to be solved and we've been working hard on those.
Angel Mehta: Tell me what the primary driver of all those offerings has been. Is this because you found that your existing product lines were not able to fuel the revenue growth you needed? In other words, has the market demand for each of your legacy product lines tapered off?
Glen Meakem: Companies that are providing services to large corporate Global 2000 organizations are feeling economic pressure and companies that are providing software are feeling economic pressure. As you reach our stage, a medium size company…a publicly traded company, its part of the natural evolution of things to really explore and build out capabilities based on customer needs within your space for growth. I think that need for growth is extenuated during a period of economic downturn but it's also a natural part of our stage of life. We've got almost 1,100 employees around the world, we've got a lot of scale; we can do a lot of things at once.
Angel Mehta: How has the competitive landscape changed? Presumably just by virtue of the fact that you folks are still alive when the shake out killed so many must be beneficial, right?…
Glen Meakem: The shake out is still killing. The creative destruction of capitalism has never been better but we are seeing irrational competition. We're seeing people who are so desperate right now that they're irrational in the marketplace which hurts everybody too.
Angel Mehta: What do you mean 'irrational competition'?
Glen Meakem: Dropping pricing well below cost - things like that.
Angel Mehta: Reverse auctioning, at least at a high level, seems like a no-brainer to implement. So out of curiosity what are the barriers to closing deals? If it's not between you and the competitor, do customers have objections to the concept? Are you still educating the marketplace?
Glen Meakem: First, We're so much broader than reverse auctioning. I mean, reverse auctioning is just one little piece of our software. We are helping companies around the world find, screen, develop and do business with suppliers all over the world. We have many many tens of different auctioning or negotiation formats that's just one piece of sourcing. When you talk about 'spend visibility' you're talking about analyzing a company's whole spend…all their supply relationships to figure out how to cut the costs of their supply. There's a heavy duty analytical information software component to that and there's also a big service component to that.
When you talk about things like 'specification management', which we have imbedded in our latest version of software…how do you manage technical drawings, millions of technical drawings, across all the different business units you have or all the different engineering systems you have? How does a buying organization, a sourcing organization even start to pull together that technical information to give it to a new potential supplier who they may want to do business with? Think about THAT information challenge. It's SO much more than reverse auctions and that's why we're so valuable to companies . We're helping them really fundamentally improve how they manage suppliers and how they manage supply. How they find suppliers, how they screen and track the performance of suppliers, how they negotiate with suppliers and choose suppliers. How they collaborate with them and communicate with them over time. It's a very very broad set of supply management capability on a global basis.
Angel Mehta: Does that, then, put you in A.T. Kearney's backyard so to speak? Would you still define yourself as a software company?
Glen Meakem: You can't even begin to manage an engineering drawing without software. You can't even begin to do spend analysis without software. We have a whole suite of software that starts with spend analysis and goes through things like specification management, RFX, "Request for Quote", Request for Proposal, Request for Information and Management all kinds of collaboration around negotiation including auctions. Then how you make implementation decisions and how you manage contracts so we have a whole suite of software that our customers use that cuts across all those dimensions of supply management. Yes, we provide services on top of those services. We're very unique in that we're both the software company and a service company and we always have been both since 1995; it's in our DNA. We're just a different animal and we're the animal that the marketplace wants, we're what customers need to get reduced costs, reduce the risks in our supply chains and just do better business.
Angel Mehta: You're one of the rare stories of a founder who has remained involved at the helm long after the company has gone off the ground. What's been different about you that allowed you to stay at the helm that way, especially with the high-powered Board and everything like that? I mean, you would think the investors would have come in and say, "We want to put in a brand name candidate from wherever?" Tell me about that.
Glen Meakem: When was the last time some outside brand name candidate actually created a great company?
Angel Mehta: I have no idea, but…
Glen Meakem: Exactly. I mean, was Michael Dell a marquis name before he built Dell? I know these guys have built much bigger companies than me. But, was Bill Gates a marquis name when he was 19 years old? Was Sam Walton a marquis name? Was Scott McNealy a marquis name?
Angel Mehta: I agree, there are unique cases. But silicon valley wisdom still dictates that outside CEO's are generally required to help the entrepreneur scale. Tell me what allows people like you to continue whereas other founders flounder?
Glen Meakem: I think the founders who flounder are usually the companies who fail. Name me a company that had a founder who flamed out within three years that's been successful and stayed around.
Angel Mehta: Are you saying the founder floundered because the company failed, or do companies fail because the founders are incompetent?
Glen Meakem: It's all about the people. What I'm saying is if the entrepreneurs aren't really good and really talented the company is not going to succeed. If you talk to John Doerr, John Doerr will tell you it's all about the entrepreneur. If the leaders of the companies - the entrepreneurial leaders of the companies aren't good, the company is not going to be successful. This notion during the Internet bubble of 'oh I'm going to found a company for 12 months and then move on and bring in professional management' - that doesn't work. The chances of bringing in a CEO to actually be successful are like nil.
Angel Mehta: You mentioned John Doerr…how active have he and the other original investors remained in Freemarkets.
Glen Meakem: Our original investors and venture Board members - they're long gone. We made a transition right before the IPO where we brought on a Board that was a public company Board and we've continued to grow that Board. We're continuing to enhance the capability level of our Board. Our Board is an independent Board that represents investors in an independent way; they're not tied to any single VC. Ray Lane, who replaced John Doerr on our board, does not act like he's here to help KP cash out; he's here to help the company.
Angel Mehta: I want to come back to the whole topic of entrepreneurs because that was really interesting to me. I think your point is contrarian….or at least against the common wisdom in silicon valley. What advice would you, then, have for would-be entrepreneurs? How do you know whether you're good so to speak and that you are capable of staying with a company until $100 million or whatever it is?
Glen Meakem: Every company is different. What I look for when I'm investing in people or when I'm hiring people is I'm looking for a lifetime of achievement. Has this person been successful at each stage of their life? If somebody is mediocre at the last stage in life what makes you think they're going to be outstanding in this stage of life?
Angel Mehta: Has there ever been a period in FreeMarkets' history where you have been intimidated? Where you wake up in the morning and say, "Wow this is going way faster then I think I can handle?"
Glen Meakem: Frankly, the Year 2000 was a tough year. We had a great year in terms of our performance but it was a tough year because of the bubble. Building a company and running a company is a struggle. There are some great victorious moments but there are some really low moments too and, overall, it's a struggle, it's always a struggle. I don't know which Japanese business leader said this but it's a common term, "Business is a perpetual war" that's what it is. Business is a perpetual war. I guarantee you the competitors we defeat and kill today will be replaced by new people we have to defeat and kill tomorrow. I have a graveyard chart. The graveyard of companies that have been in the B2B commerce phase in some form were founded, raised a lot of money and went out of business is incredibly long. A lot of those companies made HUGE amounts of noise when they had their funding and when they had their first investors or whatever but that doesn't mean they're not stone cold dead today. There are people out there who are alive and kicking today who are going to be stone cold dead tomorrow. One reason we've survived is we're focused on customers. The other reason we survived is we can take a kick in the teeth. When someone kicks us in the teeth we come back swinging very very hard.
Angel Mehta: Psychologically?
Glen Meakem: No, I mean in business. It's not like war where you shoot guns at people. Somebody comes out with a new and inventive product with a customer or two. You go and develop a better product and you target those customers and you take them back and you put that company out of business.
Angel Mehta: You talked about people before. There's a cliché that goes, "The way to win is to hire smart people". Usually investors are talking about IQ points. 'The more IQ points an organization has the better you do.' True or False?
Glen Meakem: True but not complete. You know our friend, [Name deleted]?
Angel Mehta: I know him but I don't consider him a friend.
Glen Meakem: I'm glad you don't. [Name deleted] has an incredibly high IQ. Look at the way he's run circles around the competitors…the guy is really really smart but he's also an incredibly immoral, unethical and evil individual. I don't just look for smart people, I look for smart people of really high integrity and strong character and if you find great smart people of really high integrity and really strong character not only will they create great things but customers will love them and they will work together well because they'll respect each other and treat each other well. If you have a bunch of smart egomaniacs who are out there….just out for themselves and are relatively without ethics and morals then you'll implode. A lot of companies have done that.
Angel Mehta: Do you see a turnaround anytime soon? People have been hoping for a recovery for a while now. What do you think 2003 holds for software?
Glen Meakem: 2003 is really tough.
Angel Mehta: Tell me why.
Glen Meakem: All the stuff I read; IT budgets are flat at best so I think '03 is a really tough year. In the 90's the IT industry, whether it's services, hardware or software, people were used to the IT industry leading the economy. "Gee it's 1994 and things are still kind of sluggish" but all this Y2K and ERP spending is going on and the IT industry is what lead the U.S. economy in the 90's. If things were a little sluggish throughout the economy it didn't manner because high tech was leading. Now, IT spending has been cut way way back and we're following now; we're not leading the economy. We're waiting for the rest of the economy to gather enough juice to start corporate spending again. The rules of the game are different, different environments. It's hysterical for me to read this stuff everyday. I was reading this report on the Web today, "When are the good old days going to be back?" They never do. I think '03 is a tough year again and we do believe it will be proven in '04. The only reason there will be an improvement in '04 is the rest of the economy will start to percolate along in '03 and will finally draw IT back to the table in '04.
Angel Mehta: The venture firms have a ton of uncommitted capital and, at the same time, are not doing deals. Would you take the same approach, then, if you were to venture forward?
Glen Meakem: They should give their money back to their investors.
Angel Mehta is a Managing Director with Sterling-Hoffman Management Consultants, a retained executive search firm focused on enterprise software companies. He can be reached via email at: angel@sterlinghoffman.com.
For more information about Glen Meakem or Freemarkets, email Karen Kovatch: kkovatch@freemarkets.com.