Steven Smith and his little Des Moines software company balance on the cusp of big change — thanks to a very big friend.
With the help of Microsoft, Smith plans to solve a $20 billion problem for auto parts retailers. If GCommerce can do that, then it could transform other industries, including plumbing, construction or any business that sees demand for items not commonly kept in stock.
"This is a game-changing moment for GCommerce," said Adam Claypool of DeWaay Investment Partners of Clive, one of the company's investors. "But it's not the defining moment."
That moment happened in 2004, shortly after Smith moved his company to Des Moines from New York. GCommerce lost a $6 million to $8 million contract. The company owed the state $1 million.
"A board member told me to throw in the towel," Smith said. "But I saw the need for this. I said, 'We have to do it.' "
One definition of leadership, Claypool said, is committing to your vision when everything else is pointing against. It's putting your own money into that vision to keep it alive.
That adversity has prepared Smith, 46, for the next leadership test: saving other firms billions of dollars.
How GCommerce made its mark with move to Iowa in 2003
Smith has made big promises before.
Iowa officials and the city touted GCommerce as an economic development coup in 2003. Weary of New York's high costs, Smith picked Des Moines over sites in Illinois, Nevada and New Jersey to move his three-year-old software company.
He had started his career at Ruan Cos.' Iowa Export-Import after graduating from Grinnell College. One of GCommerce's investors was Des Moines businessman Gary Kirke.
Smith pledged the 20-employee company would grow to 150 workers in about four years, with help from a newly signed contract with True Value Hardware stores.
The state, the city of Des Moines and Des Moines Area Community College offered GCommerce up to $2 million in assistance to move.
Smith hoped most of his employees would move with the company. No one did.
Less than a year after the state awarded the money, the True Value contract blew up over a dispute. GCommerce nearly did, too.
"It went to right to the edge," said Larry Hootnick, general partner of Acuity Ventures, a Silicon Valley venture capital company and GCommerce's largest investor. But the investors believed in Smith and his idea that its software could streamline transactions between suppliers and retailers.
Smith said it required courage to continue, especially from his wife, Marina, a Russian immigrant who gave up a career in modeling and acting to come to Des Moines. "My wife and I took the company on our backs," Smith said.
To rebuild, Smith decided to focus on helping auto parts retailers, distributors and suppliers connect. It was a business that Smith knew: His father had worked for Gates Corp., a parts maker. The son had helped Prestone antifreeze become a leading supplier to Wal-Mart Inc.
The company would create a basic software product and make pricing simple. It sold.
GCommerce now handles procurement for about a third of the $300 billion automotive aftermarket industry, Smith said.
The company helped develop a system to allow the Aftermarket Auto Parts Alliance — a trade group of 2,300 auto parts stores and 2,700 service centers — to manage inventory, despite those members using 26 computer platforms. It saved members $17 million a year.
GCommerce now employs 40 people, far fewer than originally planned. It repaid the state about $1 million after failing to meet the job-creation goals.
But Claypool said success shouldn't necessarily be measured by jobs. "The company has become the cornerstone of the supply chain for the auto aftermarket industry. Customers are relying on them," he said.
That foundation will lead to further job growth, particularly if services expand to industries beyond automotive, he said.
Company hears customers, delves into parts concerns
After GCommerce created efficiencies in the auto parts supply chain, customers pleaded: Make it easier for us to fulfill special orders, such as requests for parts that aren't stocked. It was a problem Smith wanted to solve for years, but the solution was expensive and technologically complex.
To grasp Smith's challenge, see Keith Bauer's job. He's the manager of Arnold Motor Supply Auto Value in Ankeny. Customers ask him for hard-to-find electrical parts, springs and frames, plus oddball items. Recently, he found a gasket in Los Angeles to fit a Volkswagen. Camp Dodge has requested Pentagon-approved starters for Humvees.
"The parts explosion is getting really bad," Bauer said.
In the 1980s, the average warehouse had 75,000 part numbers. Today, the inventory stretches to 350,000, as more vehicles and more models have hit the market, and more consumers hold on to cars longer. In five to seven years, that could rise to 500,000, according to the Aftermarket Auto Parts Alliance, which Arnold Motor is a member.
If Alliance warehouses don't have a part, then Bauer starts searching. He points to a list of nearly 250 warehouses he often taps — some of which have online parts databases, but others just phone numbers. He also might have to check with parts makers. Meanwhile, customers used to instant answers from the Internet — including Amazon.com's auto parts business — are left waiting.
Lost sales, employee time and other problems with special orders represent 80 percent of the costs in the supply chain, GCommerce estimates. Smith said the cost is conservatively $20 billion a year.
GCommerce finds answer to problem 'in the clouds'
GCommerce promises to change that, in some cases cutting from 15 minutes to 15 seconds the time needed to find and order a part.
The system, called Virtual Inventory Cloud, will create a massive database of auto parts. Retailers can search the cloud and order while the customer waits at the counter or on the phone.
The system uses cloud technology, which uses the Internet to replace expensive hardware or software that a parts business would have to purchase.
Virtual Inventory Cloud relies on large Microsoft data centers — such as the one to be built in West Des Moines. "Microsoft allowed us to bring this to life," Smith said.
"Cloud computing can be the next big wave of productivity. It's a tenth of the cost, a tenth of the people, a tenth of the time."
Buyers and sellers will pay GCommerce a fee for use of Virtual Inventory Cloud. Microsoft will be paid based on the amount of monthly activity and storage.
The system is scheduled to go live in late September. GCommerce plans to hire 15 to 20 people in the next three to four months, including chief operating officer, a senior production manager, and programmers.
GCommerce expects its network of about 1,000 suppliers and 200 large commercial buyers, buying groups and retailers to be part of the system. The company is working with the industry, including the Alliance, to design the system.
Dale Hopkins, the Alliance's vice president of information technology, said competitors may arise to challenge GCommerce. "But they have the track record," he said. "With Microsoft as a partner, I wouldn't want to bet against them."
The company's top investor and co-chairman is cautiously optimistic. Hootnick said GCommerce has potential to succeed dramatically, but it must now design the Virtual Inventory Cloud so customers can use it.
"Steve has a great foundation, the potential for a mansion, but he still has framing to do, a lot of work to do," Hootnick said.
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