By Verne Harnish
When Steven Smith sold his software-as-a-service company, GCommerce, for $45 million in July, 2022, to SPS Commerce, a Nasdaq listed company in Minneapolis, it was the ultimate acquisition target.
GCommerce, an 80-person juggernaut now part of SPS Commerce, helped members of the automotive aftermarket streamline their ecommerce processes. It provides electronic order management to companies that buy and sell auto parts, like Pep Boys and AutoZone.
At the time of the sale, GCommerce, based in Des Moines, had seen consistent 15-20% year-over-year revenue growth for a decade, along with 15-20% EBITDA growth. It had 82% gross margins, 92% recurring revenue and customer churn of less than one-tenth of one percent.
“That’s why, when the company bought us, they were super-thrilled,” says Smith.
Smith, who founded the company when he was living in Chappaqua, N.Y. in 1999 and is now based in the Los Angeles area, credits the Scaling Up platform, which he began using at the 21-year-old company when he spotted my book Scaling Up on Amazon. “We started implementing Scaling Up and just ran with it,” he recalls. “It became our operating system.”
Five years into using Scaling Up, he signed up for our Master of Business Dynamics program and, with the guidance of The Growth Institute, deepened his knowledge further. “Scaling Up is an incredibly robust set of tools,” he says.
Here’s how he built a company that was irresistible as an acquisition target.
“Caught in the act of doing something great”
From the time he stated GCommerce, Smith put culture first. His philosophy: “Always do right by the customer and the employees.”
He and his leadership team built the culture around the Core Values of Accountability, Collaboration (including collaboration with automotive industry customers), Integrity, Innovation and Tenacity.
“It goes back to one of the core learnings from Scaling Up: If you live your values, they become the way you run your business,” says Smith.
To reinforce these values, GCommerce recognized team members who were “caught in the act of doing something great” by a peer who nominated them, celebrating them at GCommerce’s all-hands meetings. Outstanding employees received awards tied to the Core Values they demonstrated. For instance, the Eleonor Roosevelt award recognized a team member for Accountability. Winners would receive $100 prizes on the spot.
“We really celebrated people,” says Smith. “People were a huge part of the success story. Not only did we have this incredible beachhead, but we also had this incredible work force that was bonded to the customer. That was their ‘Why?’”
In this close-knit environment, there was almost zero turnover. “People become love bugs—people who love to be together,” says Smith. “They want to be part of this family culture.”
It was the cohesiveness of GCommerce’s employees that helped the company survive several crises, including a devastating cyberattack in 2020.
“We should have died three or four times,” says Smith. “We lived through so many near-deaths and extinction-level events.”
Going all-in on strategy
After reading Scaling Up, Smith built a strategy team of key executives. The team completed the One-Page Strategic Plan and went through the Seven Strata of Strategy, meeting every six weeks for nine years.
In doing so, they got crystal clear on the company’s Purpose: Empowering the success of its customers “with industry-specific solutions that drive down costs through automation of complex processes and increase sales in the durable goods distribution industry.” To align the entire team around what the company stood for, they created a Vision Summary and made their strategy part of daily conversations.
“It probably drove people crazy because we were talking about our strategy so often,” he says. “We were constantly course-correcting: ‘Here are our key actions.’ It was very specific.”
Simplifying technological processes
A big contributor to the company’s success was getting execution right. Smith and his team completed the Function Accountability Chart (FACe) and Process Accountability Chart (PACe) to eliminate bottlenecks and improve accountability. Smith also hired an experienced operations manager.
Making sure GCommerce’s processes worked smoothly was the goal. Onboarding clients was one of the most complex of these processes, given the many products its biggest clients sold. Smith’s team found a way to balance the need for customization with automation so onboarding could be done profitably at scale.
To pull this off, they devoted a lot of attention to reducing multi-step technological processes. “We might have had 80 steps when we started,” he says. “Five years later, we had 22 steps. And by the time we were done, we had 5 steps.”
To keep initiatives like this progressing Smith and his team embraced the Daily Huddle, which they held at 6:01 am Pacific time–8:01 for the majority of the team, based in the Midwest. The leadership team would address three questions:
If things were going smoothly, they might spend the rest of the meeting looking at where the company could improve on following the Rockefeller Habits, the foundational principles for Scaling Up. If someone was “stuck,” the rest of the meeting would be spent on “triage.”
“We did that for 15-20 minutes every day for seven years,” he says. “It transformed our leadership team and allowed us to take a pulse on the business.”
Doing a deep dive on cash flow
Although cash flow was healthy at GCommerce, after watching the cash flow module in the MBD program, Smith enlisted Alan Miltz who co-authored the “Power of One” section of Scaling Up, and his team to help speed up the cash conversion cycle. “That was a real eye opener,” he says.
Miltz and his team helped to educate GCommerce’s team about the importance of collecting payments more quickly. This resulted in collections that were eight days outstanding on average. “I wish we had engaged them earlier,” says Smith.
But it’s never too late to make good cash flow even better. Now, with the company in able hands, Smith heads its board of advisors and is planning his next chapter. “It was a storybook ending,” he says.