Evan Ramstad
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The hardest thing for a business owner or executive is making the shift when an existing source of revenue levels or fades while another is just budding.

As chief executive of Minneapolis-based SPS Commerce for the last 22 years, Archie Black has managed that shift several times. He counted them up at a recent all-hands meeting where he and Jim Frome, the company's president, recounted its history.

Since 2001, SPS Commerce has grown from $7.5 million to nearly $500 million in annual revenue. The company, which provides cloud-based software and systems for retailers to manage products and sales, is one of just a handful of tech companies born in the Twin Cities to achieve such size and longevity.

"Each phase had a theme and they went about three or four years," Black said. "You can't whipsaw an organization every year, but in about three- or four-year phases. So I think we're just embarking on SPS 6.0."

For most of SPS Commerce's 2,500 employees, the distinctive element of this next phase is that for the first time they will be led by someone other than Black. In October, he will hand the CEO reins to Chad Collins and become executive chair.

In addition to the talent of its staff through the years, the company's success stems from Black's ability to resist preserving fading businesses, which makes it harder to invest in new ones.

Black has read and thought a lot about business transformations. Consultant Geoffrey Moore's book "Escape Velocity" sits face out on the shelf behind Black's desk.

In that book, Moore uses a rocket science metaphor to describe the dilemma facing a CEO who needs to change a company's direction. For a company to be freed from the gravitational pull of its previous operations, Moore wrote, "You need to apply a force that is greater than the inertial momentum."

In most companies, that force is the budget.

"You've got to figure out your top priorities and fund those first," Black said.

That sounds basic until you consider the relationships and emotions inside a company.

"Where the challenge is that, as your company grows, you end up with a portfolio of businesses and everybody always wants to treat everybody equally," Black said. "But they've actually got to all be treated very, very differently because you've got to generate money for the new."

In some cases, that means cutting deeper into an existing business than it first seems necessary, he said. For example, a business that's expecting revenue to drop by $10 million will typically respond by cutting costs the same amount. Black said they should dig deeper, say $15 million, to free up funds to pivot to a new business.

"Because otherwise they say, 'Well, we don't have any money to invest'" in a new initiative, he said.

Black came to SPS Commerce as chief financial officer from a career in accounting. His promotion to CEO — and Frome's as chief strategy officer — in 2001 happened just after the company had sold its main legacy software business.

Their first decision had a big toll. They let go of three-fourths of the company's staff, about 225 people, to turn the company into a new market.

The remaining 75 built the foundation of the data network SPS Commerce runs that allows suppliers to connect with retailers.

"I think we've always had a paranoia and part of it is you got to instill that you're competing against yourself," he said.

As painful as that experience was, it set up Black, Frome and SPS Commerce to adapt in the years ahead as both e-commerce and cloud-based computing exploded in size.

But even with rapid growth, hard choices abounded. At each turning point came the need to persuade managers and staffers to understand and buy in to change. One thing Black said he's learned is to be patient with executives and employees after he first presents an idea.

"You get an idea, bounce it around, research and then you really get there about six months later," Black said. "So you present it to the executive team and, after a half hour, they say, 'I don't get it.' And you forget that you've been processing it for six months and they've only had 30 minutes."

Even though it takes time for ideas to filter through a company, Black said effective change management takes something else: keeping people focused.

"I'll tell new employees: 'If you have an idea. I'm a listener. If it's not within our vision statement, I'm not listening,'" he said. "It may be a good idea and somebody may make a ton of money on it, but it's not going to be us. The difference, in my opinion, between good and great companies is the great ones figure out what not to do."