Bear On Business

This is a follow-up from yesterday’s post. I will skip past the obvious personal lessons for me and touch on a couple that are more general and perhaps not as obvious.

First, is this: objective, thorough analysis can provide huge insights. So often analysis is used to check a box. NPV is nicely positive and IRR is comfortably above the prescribed hurdle. Level 3 invested billions of dollars based on the notion that demand was going to skyrocket—so the analysis better prove this to be the case. So what do you do when the analysis leads to unexpected and perhaps unwelcomed conclusions? Do you tweak with assumptions so that the analysis becomes “right”? Do you cast it aside? Or do you embrace it and re-think your game plan?

Quite often, the opportunities to do well in business are rooted in gaining insight that cuts against the grain of conventional wisdom. I’ve written several posts about Warren Buffett and a few about the herd mentality. Discover when the herd is marching the wrong way and, if you have the guts to act on it, you can strike oil. Discovering new insights should be the goal of the analysis. Proving deeply-ingrained beliefs should not be.

The other lesson is one of corporate politics and hierarchy. Senior people (like me in the year 2000), get off your high horses. Junior people—do not view senior folks as being on a pedestal. Find ways of communicating openly and honestly, just like Maggie is. If they don’t listen, become a doctor.

Thanks Maggie and KD—sharing this story will help me be a better manager.

My good friend Ike Elliott of Telecosm and I continue to entertain each other. I suspect the rest of you hope one of us concedes just to put our readers out of their misery. Please, spare us the references to the Hillary and Obama show.

Anyway, Eliot Soft-Spitzer (recall Ike + Softswitch + Bear Poking) is denying me dinner based on his crazy post yesterday. I have always been known as a great listener with an open mind—even in the year 2000, Maggie Lott—but even I have my limits. In a comment on his blog yesterday, I appealed to his Telecosm readers:

“Ike. Are you serious? Late in our debate, you changed your claim to be narrowly focused on “wholesale Internet Access”. I pointed out this Obama-ism (as your original claims were more far-reaching) but went along with it. Now you have further qualified it as “pay-per Mbps wholesale Internet Access” and “truly pure wholesale Internet access”. To top it off, you made up a hypothetical example to explain Cogent, which is as pure a play as there is in the wholesale Internet access market. Your example shows how it might be conceivable that despite its rapid growth and profitability, your assertion (using more tightly-defined definitions) might possibly still be true. O.J. had a better defense than that.

Even Eliot Spitzer knew when it was time to resign. Telecosm readers—help!!!! Is it time for Ike to buy dinner?”

Now, everyone join the chorus: “100 bottles of expensive red wine on Ike’s bill. 100 bottles of wine”.

I asked Matt Erickson of Zayo Bandwidth to provide some examples of how we apply Customer Stack Ranking to better our business.

Sandi Mays told him, “It’s a blog; make your post snarky.”’ 

“Snarky?” I questioned. 

“It’s a blogging term,” she chuckled at me. 

Judging from Matt’s chuckling, he acted like he understood her. Or maybe it was part of his allergy. (Matt is allergic to new buildings, no joke.)  So I received Matt’s guest blog and here are his examples: 

1.     Scarano (Zayo’s COO) won’t let me hire a couple of ex-Soviet Planners to track sales activity…

2.     Every physics student understands and remembers everything the first time…

3.     Hablas Espanol? Praat u Afrikaans? Hal tatakallam al-lugha al-Arabiya?  

4.     I’m not smart enough…

5.     I am smart enough to pick up the phone…

6.     Mark Vreeland will work 90 hours a week…

7.     Mountain biking, anyone?

So there you have it—the Guru’s guru-ish list. Snarky? I suppose. I guess you get what you pay for. Ummm—thanks Matt!?! At least I don’t feel guilty for yesterday’s post.

Maggie Lott was an analyst at Level 3in the year 2000. She is now a doctor. Congratulations. Along the way, she became Maggie DiGeronimo by marrying another Level 3′er—Rich DiGeronimo. Rich is still at Level 3 and is doing very well—running some big vertical channels in the sales organization. Congratulations to you too.

I was at Myrle McNeal’s 50th birthday party over the weekend. That same evening the Avalanche beat Minnesota in an exciting 2-1 series ending victory. I should have gone to the hockey game.

Kevin Dundon arrived late (shocker!) and spotted me across the room. The last time I saw him with such a big smile was when LVLT was over $100/share. I knew something was up. I nearly spilled my drink when he yanked me to the other side of the room. “Do you remember Maggie Lott?” he asked as he introduced me to Maggie and Rich. I didn’t, though I remembered Rich. KD told me that she was an analyst at LVLT, married Rich, and then became a doctor. Bringing me up to speed on the DiGeronimo family was not why he violently dragged me across the room.

At this point Don Gips elbowed his way into the conversation, seemingly knowing where it was going. “So Maggie, tell Dan the story,” prodded KD. Don nodded knowingly. Maggie smiled proudly but refused to speak. No problem–KD decided to tell it. Evidently he had a lot of practice, as he said he’s told the story at least 50 times over the last few years. He took about an hour to tell it—pausing at every embarrassing detail. I’ll take a few sentences.

In the year 2000, Don’s corporate group did a bunch of analysis on transport demand. Maggie was a junior analyst at the time and did much of the work. They called a meeting to explain why they were alarmed with the results. “No matter how optimistic you make the assumptions,” they concluded, “The amount of wavelengths needed was a small fraction of our expectations.”

At the time, dozens of companies were deploying 16 to 32 channel 10G wavelength systems. Nortel, Lucent, Cienaand others were making a killing selling WDM gear. Level 3 was selling more strands of dark fiber than DS3s. If Maggie, et al, were right, a meltdown of massive proportion was about to hit telecom.

Their analysis showed that demand for wavelengths would be a silly-small fraction of what the industry believed. I was not pleased with what was being presented—claiming they were losing sight of the big picture. I guess I assumed something was wrong with their analysis—because the implications were inconsistent with the overall industry dynamic. So instead of understanding and appreciating the analysis, I pushed back. In this well-attended meeting, Maggie raised her hand and peppered me with an innocent question something like, “Why do you believe our analysis is wrong?” My dismissive response was, “There are a lot smarter people than you working on this.” At least that is the way everyone remembers the story.

I have no recollection of the meeting. Maggie cleverly lined up countless eye witnesses to bolster the details of her story. My response to Maggie and her minions: “There are a lot of people with better memories than you who remember it differently.”

I will comment more about lessons that can be gleaned from this story tomorrow.

Have you ever seen that title on someone’s business card? Okay, so maybe it is only a portion of someone’s job—but I consider it a very important responsibility. A particular person in the organization should own the target customer list. This person is probably a mid-level, savvy marketing person.

Every month the person should “publish” an updated list. It should be posted in a place that is readily accessible by those in the organization who need to see it. It should either be on an Intranet dashboard or within the customer relationship management (CRM) system. If the company holds regular staff meetings, it should have a regular 10 minute spot on the agenda.

The Stack Ranking Guru should be very proactive in refining the list. Every month, the list should get better and better. Input from the sales teams and Internet research are two prime examples on how to re-assess prospective customers. In a subsequent blog entry, I will give examples on how to refine the list.

It is very important that everyone in the organization respect the list. That is, the official company list, not the opinion of the Guru who owns it. If someone in the organization doesn’t agree, he or she needs to make a case on what should be different. If someone doesn’t think the Stack Ranking Guru is correct, the case can be “appealed” to higher level manager.

So why, you might be thinking, would anyone care if the list is inaccurate? The answer to this question is actually a good test of whether the list is being used effectively. That is, people will care because there are implications as to where a customer falls on the list. I will expand on this in a later post. For now, focus on the following point: If people don’t care, you have work to do.

Does your company have a Stack Ranking Guru?

It is time to settle the bet with Ike Elliott of Telecosm and softswitch fame. Elliott + softswitch + bear attacks = Eliot Soft-Spitzer. Over the weekend, I declared this post might be enough to sway Ike. The best part of this proof is I don’t have to write much. Here it is, Ike—how do you explain Cogent?

The only pure play public company that provides wholesale Internet access is Cogent. Here is a summary of their 2007 financial performance. Fantastic growth matched with rapidly growing EBITDA. If you look at their enterprise value, their investors seem to be thrilled with their performance. Cogent’s EBITDA multiple is 14.3x. Sound like resurgence is in full swing for them.

So Eliot Soft-Spitzer, are you ready to follow the path of your (nick)namesake and like the governor resign your post? I’ll check in with Frasca for a reservation. How many friends can I bring?

You can’t. This is why some people are bothered by what I find to be an essential business practice. The fact that #43 might be better than #38 does not lessen the value of the exercise.

Most businesses have prospective customers which fall right into their sweet spot. In Envysion’s sweet spot are growing fast-casual franchises which have hundreds of store locations. Zayo Bandwidth’s has carriers and Internet/media companies in geographies served by its network. What is your sweet spot?

Once the middle of your fairway is clearly defined, your most important customers (both existing and prospects) can be identified. The size of your target list varies by situation; for discussion purposes, let’s use 300.

So the exercise goes like this: Simply stack rank the top ~300 based on one simple parameter—how important is this customer to the ongoing success of your business? I know this is subjective, but at the end of the day, it is the only parameter that matters. By “Stack Rank”, I am being quite literal. Which is #1? Which is #15? Which is #38? Which is #43?

The key is to complete this list top to bottom. It only needs to be approximately right. That is, #38 should certainly be more important to the company’s success than #83, but reasonable people can have different opinions about whether #43 should have been above #38.

In the next entry on this topic, I will discuss why this exercise needs to be a process, not a one-time event. In later posts, I will discuss why this exercise is so helpful and how it can be used to focus company resources.

This post is one of my many responses to Ike Elliott’s challenge to me that the telecom resurgence is a figment of my colorful imagination. A dinner awaits me on Ike if I prove him wrong—yet he capped the wine to $80/bottle. He did not limit the number of bottles though.

Yesterday, I offered that Monday afternoon would be a post that might sway Ike to declare me the victor. It is not definitive I admit, but I believe it is far more meaningful than the “proof” he has offered up so far. I suspect it will take additional data points for Ike, but sometime before the baseball season ends in October—at Wrigley field with the home team celebrating—Ike will have nodded in agreement with me.

In this post, I challenge Ike to dig a bit deeper into his Level 3 analysis. What other revenue is captured in the IP and Data Services revenue line of Level 3? Perhaps a bit of retail VoIP—a product discontinued and burning off the revenue base? IP-VPN—a product that is not central to Level 3’s sales strategy? Perhaps some retail Internet access—legacy from the Broadwing, Telecove, etc. days—very high price per bit to be sure but now just being left alone to churn to Level 3’s enterprise-focused competitors? Anything else? My guess is some of this information is buried in annual reports and more can be whispered to Ike by his Level 3 brethren. Ike—if you redo your analysis while adjusting for this noise, what does this suggest about Level 3’s growth rate on wholesale Internet access?

Ike, it might take me a while to win a dinner from you, but my guess is that before long you will realize resurgence began in 2006 or 2007. At that point, you will declare you owe me a dinner. On Monday afternoon, however, I will put up a post that should sway you a bit.

Let me be clear though. I have no insight on growth rate of bits. Whether the growth rate is/has been 50-60% or something higher is not core to the discussion. Even if we find out it was in fact higher, I do not expect a dinner from you (though that was part of your offer).

It is the other part of your assertion that I quibble with. I need to first point out that you started out with a much broader conclusion than you are now stating. This is your Obama-ism. Your posts that sparked this friendly dialogue are Is an Internet Industry Resurgence Coming? and Triangulating Internet Growth. In a quick re-skimming, I saw many, many references to Internet bandwidth growth and several bandwidth growth references with no Internet as a qualifier. Here is an example of your broadly-worded conclusion:

“Internet backbone providers are hoping that a surge in demand for bandwidth, driven by Internet video distribution and other large file distribution services, will reduce the rate of price declines while creating a big surge in bandwidth utilization.”

To me, this sounds much broader than “wholesale Internet access“, though your dinner bet carefully narrowed the discussion to this term. In your two posts above, I only saw a single reference to wholesale Internet service. But that is okay.

On Monday, I will post something that might cause you to declare me the victor. Tomorrow, I will offer up a few tidbits that might make your rethink your Level 3 data point.

Good Old America still has a long way to go in the area of race and gender equality. Nonetheless, we’ve come quite a long way in the past 40 years. The video below illustrates this, as well as make you cringe and chuckle.