Bear On Business

Operations people love our sales management process. That is, they love it until it finally hits them that we are going to ask the same as them. Then they sound an awful lot like Paul Rogers of the classic rock band Free, belting out from the song “All Right Now”: “Oh, hold on. Don’t go fast. Don’t you think that love can last?”

Operations people participate in the meetings in which we expect the sales team to tell us what orders they are committing to have closed by month’s end. They smile cheek to cheek when the account execs are grilled on why they believe a particular order will get signed. “Remember,” they chime in at the most inopportune time, “it doesn’t count as sold until operations accepts it.” Then the operations people make eye connect with the engineers in the room, generating smirks all around.

That is, until we get to the discussion on service activation. “How much revenue are we gonna get turned up this month?” In a way that only a mother of an operations executive can appreciate, the answer begins, “Well, so far, we are showing only 10% of our target being installed this month.”

“Really.” I have the response memorized, “We have been above our sales targets the last five months. How can we only be showing 10%?”

And the explanations begin… “Well. On one order, we are missing a piece of information we need on the exact location of the demarc. On another, engineering hasn’t completed their design. On yet another, the customer hasn’t confirmed what day they want it.” They continue with, “blah, blah, blah, blah, blah, blah and blah.”

Just to be clear, I appreciate operations people immensely. For very different reasons, their job is as hard as any other. The strength of the overall organization depends on a very strong operations team. I do want the BearonBusiness.com blog to be somewhat entertaining, so please cut me some slack on the “blah blahs”. Now I’ll continue.

As discussed in prior blog posts, we expect our account executives to put a stake in the ground early in a month on what deals they will close. They must deal with a lot of impossible-to-know information, most notably whether they can get their customer to sign a contract before month’s-end.

We expect the same of our service activation team. We expect them to make an assessment of every order they have in their pipeline. We expect them to accurately estimate when each order will get installed. We expect them to put a stake in the ground way before all needed information is available. As they do this, (assuming proper feedback loops are in place) they will get more and more accurate as to forecasting when a sale will turn into revenue. Moreover, they will demonstrate increasing command and control over the turn-up process. This will enable the entire organization to put revenue on the books sooner AND make our customer very happy.

By the way, the sales guys smirk with the marketing guys when they see the operations folks being pinned down. I can hear them hum the rest of Free’s rock classic, “Oh, Lord above. Now they’re trying to trick me in love.”

Last week, my post was titled “Should I file complaint or send a thank you note?“. It pertained to a message that popped up on my computer when I tried to log into Salesforce.com. I was told that my computer did not have permission to access the particular account I use. I explained that I used a shared account–and have for a while–but this was the first time I was blocked.

Before I continue with the story, let me stress one thing. The first thing I do with a business I am involved with is to encourage (and where possible, require) that Salesforce.com be implemented. I find it to be an incredibly valuable business tool, and I personally have driven its adoption in several companies. I am an evangelist for Salesforce.

Customers who are willing to share logins need less subscriptions. Salesforce.com, one can surmise, prefers its customers to purchase additional subscriptions. This desire, it is safe to assume, led to the new “feature” I ran into a couple of weeks ago, as described in prior post. Now that I mulled it over, I decided a thank you to Salesforce.com is more in order than a complaint.

Envysion is pioneering a subscription model for video surveillance. Though others in the video surveillance world have had revenue models based on monthly (instead of upfront) fees, Envysion is the only commercial grade service that uses a hosted, software-as-a-service (SaaS) model as its foundation. This sounds fancy but the idea is very basic.  A user hops onto www.envysion.com. They log in using their unique username and password. The user has access to certain authorized cameras and video. For example, a regional manager of Chipotle might have access to only stores in her region, while the security manager at Chipotle might have access to all Chipotle locations. The SaaS business model means that the software that runs the service sits in the network; when we upgrade the software, all users benefit the next time they log in.

Over time, we envision (go figure) more and more capabilities that make each individual’s experience very unique. Reporting, naming conventions and saved videos are examples of items that individuals might want to define for themselves.

Down the road, Envysion’s revenue model will migrate toward price per subscriber. As we have kicked this around, we wondered how to structure this in a way that a given organization will have unique accounts for each of its users. That is, a per-subscriber billing model doesn’t work well if big customers use only a few shared accounts. Thus, Envysion’s challenge is similar to Salesforce.com’s. In the spirit of laziness, I am hoping our Envysion product and engineering folks understand thoroughly Salesforce.com’s solution so that we can smartly plagiarize it.

For those who use Internet applications, the description above probably sounds common.  That is, one might assume all video surveillance applications work more-or-less as described above.  They don’t.  Envysion’s software-as-a-service approach is novel in video surveillance. 

Thank you, Salesforce.com.

[Ike Elliott, a friend and colleague, has a blog called Telecosm.  It is worth reading.  Ike had a blog entry last week that reminded me of when I first met Ike and some of the initial VoIP experiences we shared.  Ike--remember SIOS?   With Ike's permission, this post is a re-print of Ike's blog entry.]

There was a good post by Daniel Berninger over on GigaOm today, recounting the 1995 paranoia about VoIP at AT&T Bell Labs.  Daniel laments that a dozen years later, VoIP still hasn’t eliminated the phone company business model. 

It took me down memory lane, because I was part of very similar conversations at MCI at the same time.  As an engineer that was leading some of the VoIP research at MCI back then, I was pulled in to meetings with executives every now and then to talk about VoIP, and I always felt like the execs couldn’t make up their minds about whether VoIP was a threat or an opportunity.  Sometimes they would say disparaging things about VoIP, such as “it is like ham radio, a toy for hobbyists.”   I saw it as a big opportunity for MCI, though, arguing that we finally had the tool we had been looking for to end our slavery to the circuit switch manufacturers.  Sure, our top line revenue might suffer as prices declined, but if we played our cards right, we could rapidly compress our costs as well by moving off of old circuit switched technology and onto an all-packet network, while focusing our attention on growing our Internet backbone.
Wow, I was naive. 

MCI ended up getting bought by Worldcom and never really bought into the risky strategy of replacing circuit switches with new networking technology based on VoIP.  In fact, while all of the major long-distance carriers did a lot of research on VoIP and applied for patents on the technology, none of them really wanted the technology to succeed and all of them tried to milk the circuit-switched cow for the next decade.  They watched their residential phone businesses shrink and were eventually acquired by their arch-enemies, the Regional Bell Operating Companies. 

But was it VoIP that caused the collapse of the long-distance carriers?  No, in the end it was a combination of wireless encroachment, lost regulatory battles, and corporate malfeasance (in the case of WorldCom) that did a lot more damage to the long-distance carriers than VoIP.  Sure, VoIP did help crater the high-margin international long-distance business, but that by itself wasn’t enough to kill the inter-exchange carriers. 

Like Mr. Berninger, I expected VoIP to wreak more havoc by now.  I wouldn’t have guessed back in 1995 that twelve years later, I would still be thinking VoIP’s best days are ahead of it.  My views are more nuanced now; I no longer believe VoIP wins in a frontal assault on the gates of the telco fortress.  VoIP is already winning in more subtle ways, as the technology is incorporated into mainstream product offerings (Comcast Digital Voice, for example), and into emerging standards (the IP Multimedia Subsystem, for example).  VoIP is sneaking its way into fixed-mobile convergence standards, too.   VoIP still wins in the end, but folks might not notice, or care, that it is VoIP under the hood.  

Please visit Ike Elliott’s Telecosm blog.

Michelle Krezek is a friend of mine from high school. She moved to Boulder in 1998, (the same year I did), when Level 3 set up shop in Broomfield. Though some of our political views might differ, I am proud to see what she is doing for the Boulder community.

Intergovernmental Affairs Director Dickey Lee Hullinghorst to retire, Board to appoint Michelle Krezek

Michelle Krezek, Land Use Manager, chosen to succeed Hullinghorst

The Boulder County Commissioners have announced that they will appoint Michelle Krezek, Boulder County Land Use Department Manager of Special Projects, to fill the Intergovernmental Affairs Director position after the first of the year. Her responsibilities in the County’s Land Use Department have included managing several high-profile planning initiatives, including extensive public outreach to revise the current County Land Use Code.

“We are pleased to be able to appoint Michelle Krezek to the position of Intergovernmental Affairs Director,” said County Commissioner and Board Chair Ben Pearlman. “In her two and a half years of service to Boulder County, Michelle has shown us the kind of expertise and proven ability to develop positive community relationships and carry through a disciplined approach to public policy that we were seeking in filling this position.”

Michelle brings to the position a wide range of state, regional and local planning and public policy experience plus a strong background in project and team management. Prior to working at Boulder County, she held several director-level management positions with Level 3 Communications in Broomfield.

The County Commissioners are committed to revising the County’s Land Use Code and are in the process of developing a transition plan to replace Krezek and continue work on this effort. “We set out over two years ago with the ambitious goal of revising the County’s Land Use Code to make it more fair, uniform and sustainable than it exists in its current form, and we are committed to seeing that effort through to the finish,” said County Commissioner Will Toor.

During the coming weeks, Krezek will continue to manage the public process for an expanded Transfer of Development Rights program and a green building program, known as “BuildSmart,” for Boulder County before moving over full time to the Board of County Commissioners staff. The transition period is expected to take 2-3 months.

In addition to her work with the County, Krezek serves on the Board of Clinicia Campesina and has served as interim executive director for Safe Shelter of St. Vrain Valley. She has a J.D. from the Hamline University, School of Law, and a Masters of Arts in urban and regional planning from the University of Iowa.

She lives in Boulder with her husband, John Wharton, and their two sons Gerardo and Jonathan.

Zayo Group to Acquire Citynet’s Wholesale Division

LOUISVILLE, Colo., Dec. 13, 2007 – Zayo Group, a regional provider of bandwidth and telecom services, today announced it has signed a definitive agreement to acquire Tulsa, Okla.-based Citynet Fiber Network (CFN), the wholesale division of communications provider, Citynet. CFN will become part of Zayo Bandwidth, Zayo Group’s fiber based bandwidth business unit. This will be the sixth acquisition by Zayo since May 2007. The acquisition is expected to close in the first quarter of 2008. Terms of the agreement were not disclosed.

“CFN’s network compliments our existing metro and regional networks by increasing our fiber footprint in the Mid-Atlantic and Midwest regions,” explained Dan Caruso, CEO of Zayo Group. “CFN has an excellent customer service, installation and maintenance reputation and we look forward to combining the best practices and capabilities of both companies.” The CFN network has 8,500 route miles of fiber covering 57 Tier I-III markets in ten states. The company’s on-net buildings encompass many major carrier locations like local exchange carrier central offices, carrier hotels and wireless mobile switching centers. Upon completion of the acquisition, Zayo will have doubled its metro and regional fiber route miles to 17,000 serving more than 1,000 on-net building locations.

Based in Louisville, Colo., Zayo Group was organized to support the unique needs of its customers and consists of three distinct business units: Zayo Bandwidth offers high bandwidth services for carriers, technology companies, state and government agencies, educational institutions and the healthcare and financial industries; Onvoy Voice Services provides switched access, long distance, SS7, directory assistance and operator services to local exchange carriers and other communications providers; and Zayo Managed Services enables private and public sector companies to avoid the expense and hassle of managing their voice, video and data services by deploying and managing those services for its customers. Zayo Group is backed by Columbia Capital, M/C Venture Partners, Oak Investment Partners, Battery Ventures and Centennial Ventures. www.zayo.com.

I check Salesforce.com every day. In fact, I check it multiple times per day. And I check multiple versions–Envysion, Zayo Bandwidth and Zayo Managed Services. I always look at one particular report: what is listed as “closed”, “committed” and “best case” for the month.

This weekend, I made a cappuccino and fired up the computer. I pulled up Salesforce.com and logged into the Zayo Bandwidth site. It blocked me. It told me that my computer wasn’t authorized to log into the site. I tried Envysion’s login in and got the same message. In both cases, it told me it would send a message to the “account owner” and see if they would allow me access.

Okay. I need to confess. I don’t actually have Salesforce.com logins. I share accounts for Zayo Bandwidth, for Envysion and for Zayo Managed Services. I never enter data and, for the most part, look at only one report. I like to think of myself as “cost-responsible”; others accuse me of being cheap. Be that as it may, keeping the number of Salesforce.com logins to a reasonable level is the goal.

Salesforce.com, of course, want to maximize the number of log-ins each customer requires.

So now you know why I am thinking of filing a complaint. Later in the week, I will let you know why I might instead send a thank you. Hint: Envysion’s business model is software-as-a-service.

I received this email from a Zayo employee who joined us via a company we acquired. Posting it is a bit self-serving, I recognize, but I think it is helpful to people who are new to our environment. My #1 goal is to create and maintain a culture that is defined by “people want to work at Zayo for all the right reasons”. In later blog posts, I will discuss what this means but, based on the note below, we are moving a good direction.

“Working at Zayo Group is in stark contrast from the environment at my prior company. I joined my prior company soon after the network was turned up and was there for several years prior to its acquisition by Zayo. At first, we worked as a start up and everyone was cooperative and eager to find new customers. As the years went on the corporate culture deteriorated. We became an organization that could not work together between departments, the management team was consistently at odds, and we became a company that made decisions based on cutting operations costs to make numbers instead on consistently growing the revenue base.

“When the announcement was made that Zayo had signed an agreement to purchase my employer, the initial anxiety was high. This was a result of the fact that even though things were stagnant at the current company, it was still a ‘known’ entity and the feeling of ’security’ was now in question. This anxiety grew very high up until the close of the acquisition. It was clear there was a mix of cultures. Some people were very negative about the change (most of them didn’t make it through) while others were excited about the new opportunities that awaited. After interacting with a few of the folks at Zayo on some orders I was working, I got a glimpse of the new attitude and became excited about the future.

“The first 2 months were stress-filled due to learning the new procedures and account changes that were inevitable. However, the cooperation from the different departments and the culture that was introduced by the leadership of Zayo has made this transition an easy one to accept. The culture is sales-driven and the company is lead by ‘outside the box thinkers’ which has created a company that is a joy to work for. The pace that we are moving is astounding and challenging. The success we are enjoying is purely the result of departments that do not linger on decision making due to the corporate goal to drive revenue and grow the network through acquisition and account growth. Did I mention that the company is sales-driven? This is such a refreshing change from the culture at the previous companies that I have worked for. This vision not only has a positive effect on sales, but it resonates through all of the departments and creates an attitude of teamwork which becomes very visible to our customers in the level of service and responsiveness that they appreciate.”

Boy, don’t you wish you could come up with a great dot-com business idea. Let’s see, what’s hot? Software as a Service (SaaS)–yeah, let’s find something in this space. Web 2.0! Let’s include some of that stuff. Video space for certain.

So if you could only come up with something involving video, Web 2.0, and SaaS, all would be well. Hmmmm. So far so good. What else? Needs to be a huge market–lots of customers spending billions of dollars already. Yep. That’s important. Anything else? Yes, one more thing. Needs to be something that hasn’t been done before–novel, unique, one-of-a-kind.

You want to be the clear leader in applying a Web 2.0, SaaS approach in a billion dollar market involving video. Is that so much to ask?

That is what we are up to at Envysion.

• The billion dollar video market Envysion is tackling is video surveillance. Cameras are going up everywhere and are increasingly being connected to the Internet. How will this be managed?
• Software as a Service is the technology/approach Envysion introduced earlier in 2007–and we are the only entity that has implemented a SaaS approach for a commercial-grade video surveillance. Analog and IP camera systems are accessed and managed through a standard web browser.
• Web 2.0 is the major development theme for 2008. The Web 2.0 approach will focus on how captured video can be shared in a collaborative ways with the groups of “friends” self-defined by our users. “Saving to the core” will be the first Web 2.0 capability; it will be rolled out in beta form within the next month. I will describe what “saving to the core” means in a future blog post.

I don’t know how successful we will be, but I do know we are excited about the prospects.

(This is an afterthought from the blog entries of last week. It will be helpful to read those prior to reading this.)

I was accused of this. Over dinner, no less–and I ended up picking up the tab. It was roughly January 2005.

I was President and CEO of ICG Communications at the time. In a later blog, I will discuss how dire ICG’s situation was when we became involved. But for now, trust me–we had a whole lot of work to do to stop the ship from taking water.

Much of our activity focused on debt restructuring and selling off non-core assets. However, my focus was also on getting the core business healthy again. We had tremendous fiber networks, particularly in Colorado, and bandwidth was our main product. We needed to protect our embedded base of revenue. We needed to get the sales engine roaring again. We needed to install in a predictable way.

We implemented Salesforce.com. We put in place the sales methodology I described in prior blog entries. We put in rigorous methodology for tracking installations, disconnects, repricing, etc. ICG had very weak processes in place in all of these areas, so this took a lot of work.

The person who accused me of wasting resources was one of the guys on my senior executive team. The two of us and one other person had a steak dinner in Boulder to talk through some tensions we were experiencing. Only after a few glasses of wine (and a damn good steak) did he blurt it out. “Do you realize that sales, installs, disconnects, etc. are not reported in the financial statements?” is the question that I recall being asked. In fact, he pointed out, these terms are not even clearly defined in GAAP. His point was simple: “Don’t you think we need people to focus on things that are far more important to the company?”

I was a new CEO at the time and, I must confess, a bit worried when I heard it. I didn’t waver, but, inside, I did wonder. So we agreed to disagree. I felt strongly that we needed to put in place the methodology and reporting around these operational finance metrics. He got his concerns off his chest. We went on.

The strong beliefs I’ve shared throughout this blog are rooted to a fair degree in the ICG experience. I believe the processes we put in place provided focus and accountability in the organization. Our revenue was growing at 15% annually; our EBITDA was over 30% and growing quicker than revenue. And we were free cash flow positive at ~15%. Maybe this would have happened without the focus on operational finance; I doubt it, but you never know.

[Two blog entries from last week pertained to Salesforce Management Methodology. One of my very first posts in this blog pertained to the Importance of Predicting Cash Flows. An effective salesforce methodology is the crucial first step in forecasting financial results. To emphasize the relationship between last week's two entries and my earlier post, I am going to re-print the earlier one here. For those who already have seen it, it is worth re-reading.]

Predicting Cash Flows: The Foundation of an Exceptional Company (from Nov 5, 2007)

The previous blog described the difference between “investing” and “speculating”. Investing is only possible if free cash flows can be forecasted with reasonable level of accuracy. Warren Buffett is an investor, not a speculator, so he only makes investments in companies whose cash flows he can predict with confidence.

A corollary to this principle pertains to how companies should be run. Management should make it an extremely high priority to build a strong corporate competence around how to reliably forecast cash flows. This capability should be an integral part of their culture. It should permeate the entire employee base. The goal should be to get better and better at both the thoroughness and accuracy of cash flow forecasting.

Further, management should involve the entire organization in this quest. The financial forecasts should be communicated often and in a way that makes it easy for executives and employees alike to understand. Every month, the actual results should be compared to the forecast. Was the forecast as accurate as it should have been? How could it have been more accurate?

Each month, management should update the forecast. The update should reflect that 30 days have elapsed and more is known than a month ago. Enabled by this new information, the revised forecast should be better than the old one. Moreover, if the company is getting better at projecting cash flows, this should be reflected in bettering the forward looking view.

I know what you are thinking: “your company already does this”. I doubt it, at least not anywhere close to the degree I believe it should. I am not talking about an annual budget process. I am not allowing for making loose approximations. If it feels like a bureaucratic waste of time, you can trust we are talking about two different things. If it is primarily an exercise for the finance organization, a warning bell should go off. If the balance sheet is excluded from the exercise, substantial pieces of cash flow are largely ignored. Finally, if the relationship between revenue, expense and capital is extremely hard to follow, know that your company is nowhere close to having a competency in this most critical area.

Buffett requires that he stay grounded in companies that he can reliably predict cash flows. Else, he is a speculator. Executives should require that their companies develop a core competency in accurately predicting cash flows. Otherwise, the executive is taking on more risk than he or she is required to. It is hard to overestimate the importance of this point. The executive cannot allow its employees to make decisions based on unnecessary speculation. The executive should not force investors to speculate on what should be knowable.

I feel so strongly about this point that I make it a centerpiece of every company I am involved with. We will be better at predicting cash flows than any company out there, whether in our industry or not. We will do this not just to be better than our competitors, as this is too low a bar in my mind. Our goal is to earn exceptional returns for our investors. Knowing everything we can know about our future cash flows is the foundation for doing this.

In subsequent blogs, I will discuss what management’s responsibility should be relative to its stock price. As a teaser, I will offer a provocative clue: the executive’s job should not be making the stock be as high as possible. This topic is very related to the one covered in this blog. Additionally, I will further discuss the concept covered in this blog, especially in the context of the great Telecom Boom, Bust and Resurgence.