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Thought Leaders in Big Data: Interview with Jim Swift, CEO of Cortera (Part 3)

Posted on Sunday, Mar 24th 2013

Sramana Mitra: I get what you are doing. Would you like to discuss a use case that is outside of sales? You said you are providing information to finance and marketing.

Jim Swift: In the risk space there are several different applications. A lot of our customers are using data in different ways. One in particular is a 130-employee boutique manufacturing company that is a customer of one of our customers. They are a good example of what tends to happen in the risk world. There is a blind spot that has always existed with the traditional ways to look at companies.

The way companies tend to look at risk today is based on payment behavior. You look at how companies have been paying their bills and other suppliers, and you see how that is trending. What you find in a lot of cases – especially smaller businesses – is that companies will pay fast for as long as they can until they can’t pay anymore. That is driven by what is going on in smaller companies. The company tends to be started by a person who has expertise in a specific area. If the company doesn’t make it, that person has isolated his or her personal liability and will probably come back and start another company that does something very similar, because that is what the expertise is. A person is so skilled in and so committed to that area that he or she is unlikely to go to something very different.

As a result, the behavior of the business tends to mirror the small business leader, so they tend to be good personal credit risks. That, combined with the fact that if their business is not going to make it, they are going to need to rely on the same suppliers in their next business, so they tend to be very conscientious about how they pay. This opens up blind spots. As you are a supplier to them, you are interested in how they pay, and you want to make sure you always get paid by your customers. You want to get paid promptly so that your cash flow is efficient. But you also want to make sure that your sales forecasts work. So, it is just as important, if not more so, to understand customers that stop buying as much from you as it is to monitor the payment side.

That has always been a blind spot. There are tons of surprises out there where you have a loyal customer that all of a sudden stops ordering and you say, “What is wrong?” and they say, “Our business is failing.” Then it is too late. Your forecast is shot, you are doing things in your business you don’t want to do, you are trying to patch a hole in the bucket.

What we are able to spot, in as far as 18 months in advance, is their change in payment behavior. We are able to see declining trends in what they are buying. Declines in shipping spending, which is correlated to how much product you are moving as well as reduction in purchases of raw materials, is very noticeable. When you look at the two of those, you are making a loss in your shipping [costs]. That is usually an indicator of declining sales. Eventually it gets to a point that if it doesn’t recover, you are not paying somebody.

That is an example of how companies change the way they look at risk by getting these early warning signals that something may be changing for their customers. We have lots of ways for companies to consume the data. They can get an alert as part of our core offerings. We send an alert every day on changes that could be good or bad. In the case of the example above, anyone who had that company as a customer would have gotten alerts over an 18-month period, as different things happened within that business that would have been a sign that something was brewing.

This segment is part 3 in the series : Thought Leaders in Big Data: Interview with Jim Swift, CEO of Cortera
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