Bear On Business

I have known and worked with Steve Liddell for many years.  Steve was integral in the recent acquistion of GTS (view my prior post “GTS Telecom Acquired; More Work for the Bear“).

Earlier in May, Steve was named CEO of Panther Express, a “global provider of high performance content delivery.”  You can read about Liddell’s extensive history in the press release.

Brad Cheedle, Matt Erickson, and teams–let’s make sure we find some good ways to partner with Panther.

Steve, congrats and best of luck!

Ameritech was one of the seven baby bells created when the original AT&T was broken apart.  It is now apart of the new AT&T via the SBC/Ameritech merger.

My first job was at Ameritech.   Let me correct that, my first post college job was at Ameritech.  Prior to graduating college, I was a bus-boy, a caddy, a painter, a swim pool worker, a bagel maker, a do-whatever guy at a tree nursery, a RA, a pizza delivery guy, and (for one month) a telemarketer.

My last Ameritech stint was in Corporate Development.  One of the projects I worked on was Ameritech’s entry into Security Alarms.  The notion was that the physical security company was like telecommunications and therefore Ameritech should do a roll-up in the space.  It sounded flimsy to me, but Ameritech went onto acquire several companies and launch Ameritech Security Link.  SBC/AT&T thought this was not such a good idea, and they sold it.

However, my views changed over the years.  I think Ameritech was right all along.  Physical Security and Communications are converging.  Ameritech was just a decade and a half off in its timing.

Cisco is moving ascertively into physical secuirty.  Read Rob Hagen’s post on the Managed Services Blog for insight into this.  A growing number of telecom-orientated managed services providers are following Ciscos lead.  Envysion, which provides a software as a service video surveillance solution–which is called Managed Video as a Service–is actively working with several of them.

Finally, the real reason that Erickson is a stack ranking guru.  (See these posts for context:  Guru of Stack Ranking and Stack Ranking Guru.) 

7.     Mountain Biking, anyone?

One of the things I enjoy doing outside of work is mountain biking.  I would thoroughly enjoy the opportunity to take any of our top 300 customers mountain biking in one of the mountain biking capitals of the US: Colorado.  I have one such invite outstanding for this summer - please notify me directly if you regularly purchase fiber based bandwidth and you’d like to come along!

Over the past few weeks, I covered a few of the big players in the telecom boom.  As the story unfolds, I will be laying out what happened to all these fiber-based telecom companies.  So far we’ve learned that MFS and Brooks were acquired by Worldcom and are now part of Verizon.  Nextlink became XO, and still exists as one of the remaining major fiber based providers.  GST went bankrupt and was purchased by TW Telecom.

The part of GST that TWT did NOT acquire was the Hawaii property.  Tomen America (now owned by Toyota) partnered with John Warta and his NextNet Investments to acquire GST Hawaii in 2001.  The company changed its name to Pacific Lightnet and in-business today.  It operates a 10,000 fiber mile submarine and terrestrial fiber optic network connecting the Hawaii’s six major islands.  It is primarily SMB and resi in its focus and its revenue is $20M or thereabouts.

I guess you could say they are still holding onto some chips and therefore still in the Fiber Texas Hold’em tournament.  For now, I’ll put them at the third table–though they might get bumped to table 4 as we compare Pacific Lightnet to the additional smaller players later in the summer. 

A friend of mine and former (& hopefully future) co-worker is a St. Louis Cardinals fan.  Though this is more forgivable than if he pined for the Chicago White Sox, it is still quite annoying to us Cubs’ fans.  Anyway, I received an email from this wayward baseball fan.  He was kind enough to offer me constructive feedback on this morning’s blog post.  His taste in baseball teams is questionable, but his message was spot on.  

I’ll refer to this guy as John as it is a generic enough name.  To protect his identity, I will change his last name to Idaho. So I’ll call him John Idaho. Wait, that sounds made up.  Let’s see.  How about John Montana.  Yes, that is much better.  So, without further adieu, here is John Montana’s feedback:

While I completely understand your position and why you wrote [it], it can come off to folks as you always thinking ‘if I am working with you there are better uses of my time’ to the employee. This may be intended in many cases but I imagine there are instances where it is in your best interest to spend ongoing time to continue to groom and shape folks as part of their particular career maturation and growth, correct? I guess what I am saying is there may be very purposeful times where you are choosing to work with someone in a positive sense and if they read that bolded sentence they may feel a bit of angst or even resentment knowing that you are only spending time with them because you feel you have to and that you may be quietly thinking ‘I have better things to spend my time on.’

The passage John is referencing is: “So, for all of you involved with me on a professional basis, you heard it here first. If I am deeply involved in how you are doing your job, know I am doing so because I feel it is necessary. Know also that I feel it is a sub-optimal way for me to spend my time. If you complain about my micro-management, you will now hear me utter ‘performance is the price of freedom’. ”

John, thanks for bringing this to my attention.  My words are horrible.  The context of the blog post was situations when I am being perceived to micro-manage employees.  It is where I am being overly involved with suggesting to a person how they should go about doing their job.  Fortunately, I am not often in this situation today.

Telecom and business are my passions.   I love collaborating with employees/team members on all sorts of business topics.  I learn from them–like when Mark Minor took us through what he is doing on Google Maps.  I bounce ideas off of them.  This is why I do what I do. 

I know the mysterious John Montana knows this and again I thank him for bringing my attention to this wording.

We have been focusing on how to build awareness for Envysion and the Managed Video as a Service (”MVaaS”) space.  We started a blog on the topic.  We identified highly focused lists of (a) prospective customers (b) prospective partners and (c) other participants int he MVaaS ecosystem.  We outlined tactics on how to strengthen our ties with each of these MVaaS stakeholders.

Upon reading a blog post on Hub Spot, I learned this morning that we are heading completely the wrong direction.   The blog post resonated and led me to concluded Envysion needs to approach its challenge altogether differently.  I have not yet informed the Envysion folks–I assume they read this blog daily so I will use this to communicate with them.  Buckle your seat belts–a course correction is underway.    

I will summarize the new plan.  First, we will raise some whole-number multiple of $12M, hopefully at a very high pre-money.  Then we will invest in several of Hub Spot’s suggestions below:

1. Send 17 Million Pieces of Direct Mail
2. Place 50 Million Cold Calls
3. Create a mascot and make it world famous
4. Buy 1 Billion Pop-up Ads
5. Start a Fleet of 5 Envysion Blimps
6. Put Marketing Devices Similar to Bombs in a City
7. Launch an Envysion NASCAR team
8. Hire a Celebrity Spokesperson
9. Purchase 10,000 Hours of Infomercials
10. Send 250 Billion Spam Emails

The pros and cons of each item are described on Hub Spot’s post.  Many additional suggestions were offered by readers in the comments to the blog.   “95 White Persian Monkeys”, for example, merits serious consideration.

NOTE: Please read the subsequent blog post “Great Feedback from a Wayward Baseball Fan“ .  Some of the wording below was poor and might have left a wrong impression–instead of changing it, I decided to respond to the feedback from a misguided baseball fan.

Wow.  This is a quote that stuck with me.  Perhaps it is commonly used.  For me, I heard it only once but I jotted it down immediately, knowing I could use it in the blog as well as to terrorize employees.

Zayo has been in the news a bunch as of late.  A price of this publicity for me is that I receive an over-whelming number of requests to network.  Though flattering, these phone calls, coffees, lunches, and subsequent email follow-ups chew up lots of time.

Anyway, I agreed to meet a person–I’ll call him Wyatt as I watched the movie Tombstone last night–for breakfast.  Wyatt took me through his career experiences, which included close relationships with two specific mentors.  Evidently, these mentors were hard driving type-As.  They pushed their people hard and demanded a lot from them.  Many people complained at being micro-managed.

Wyatt emphasized that he had a postive experience with these two mentors.  Both, he explained, had the philosophy “Performance is the Price of Freedom”.  That is, once they developed confidence in someone’s ability to deliver good results, these execs would give their top performers plenty of space and autonomy.

Well said.  I’ve had lot’s of people complain about me over the years–and usually it was that I was being too demanding of them.  Where do you think the nickname “Bear” came from?  Today, I am often asked how I am able to be involved with several ventures.  The answer, in my opinion, is that I work hard to create situations where talented people can perform without requiring my day-to-day involvement.

So, for all of you involved with me on a professional basis, you heard it here first.  If I am deeply involved in how you are doing your job, know I am doing so because I feel it is necessary.  Know also that I feel it is a sub-optimal way for me to spend my time. If you complain about my micro-management, you will now hear me utter “performance is the price of freedom”.

For those of you who operate autonomously, know that you are earning it through performance.  Either that, or your autonomy is because I am distracted with my blog.

Darren Loher of Envysion (a provider of Managed Video as a Service) wrote a great post on the Managed Video Blog site.  The opening sentence is a perfect lead in: 

“If your video system isn’t linked to ‘real’ information, it is providing only a mere fraction of the value it could be.”

Darren referenced a blog called Security Dreamer and linked to a particular interesting post on the site.  I will add Security Dreamer to my blogroll.

This is a continuation of a series on telecom companies who invested lots of dough on developing fiber networks.

Actually, $2B is a very rough guess as I was unable to find much information about GST on the Internet.  I found this amazing.  GST declared bankruptcy on May 12, 2000.  Most of the assets were acquired by TW Telecom for $690M in January 2001.  Not acquired by TWT was GST’s Hawaii property.  More on the Hawaii portion in a post later this week. 

Here is what little I could learn in a 45 minute web search.  The company started in the early 1990’s.  It went public in the late 1990’s.  GST’s focus was in the western U.S., including Washington State (where it was headquarted), California, and Hawaii.  I think they had local and intercity fiber, though that is not clear.  In addition to bandwidth, it became involved in a wide assortment of telecom products and services.  The company might have had $1.2B in debt at the time of bankruptcy.  This is about all I could learn.  Even TWT’s annual reports seemed (based on a quick review) to provide little information on GTS.  I suspect there is more info somewhere with TWT’s web site but it wasn’t easily found.

Nonetheless they spent a lot of money and therefore needed to be included in this litany of fiber boom companies.

I am looking for additional information on GTS.  What was its origin?  What were its initial markets?  How much fiber did it build?  Did it acquire any other networks along the way?  How much money did they burn through?  There must have been some intriguing boom and meltdown GTS stories–can anyone out there share them?   Bearonbusiness readers–help!

GST is only one piece of the TW Telecom story.  I will share the rest of their story over a few upcoming posts.  No surprise, though, that TW Telecom has a seat at the Final Table–and they have a big stack of chips in front of them.

Ike has had several posts recently on Vonage.  Mr. Blog (a blog new to me) challenged Ike’s assertion that Vonage needs to ramp up marketing spend.  Today, Ike responded to Mr. Blog. 

I agree with Mr. Blog’s point that ramping advertising is likely throwing good money after bad.  I also agree with Ike’s post today–Mr. Blog’s conclusion suggests that Vonage needs to answer the ”then what do we do?” question. 

Many companies make a huge mistake when they get into a situation where their main business thrust proves to be flawed.  These companies (assuming they have access to some cash) frantically ramp up spending in hopes an answer will emerge.  They panic.  They need an answer so bad that they hang their hopes on a questionable one because having none at all is far more frustrating.

In the end, they usually make the situation worse.  They consume their most valuable asset–cash–on activities that are unlikely to put a dent on the main problem.  They seal their own fate.

ICG was definitely in this mode when we bought them in 2004.  It is part of what made our turn-around plausible.  Level 3 was in this mode in 2005, when it plowed a tremendous amount of resource into VoIP/IP Centrex.  Earthlink was recently in this mode when it pursued municipal WiFi networks because its dial-up Internet business was hitting maturity and decline.    Many DSL and UNE-P CLEC businesses went through this stage.

So what do you do if (a) you have cash or cash flow (b) your core business is flawed or end-of-life and (c) you don’t have a new initiative to replace it?  The first thing you do is buy yourself time.  You do this by putting the core business into a harvest mode.  Make sure it is being run for maximum profitability and cash flow.   This includes maintaining spending to keep current customers happy, as you want churn to be lower, not higher.  But spending levels should be spent with a realistic expectation on the prospects of the core business–if it is in the mature stage, treat it as such and make sure cash is generated.

Next, consider the possibility that new material new initiative will be discovered to replace the core business.  Model the free cash flow of the business in this scenario.  How much cash can be squeezed from the business over time?  Does it cover paying off the debt?  Does it imply any equity value?   It is important to make this scenario as accurate as possible.  Inaccuracy on this scenario–whether to the positive or negative–will almost certainly lead to bad decision-making.  

This scenario should be considered the baseline against which alternatives are measured against.    This scenario also becomes the basis for setting budgets for the business, and bonus plans for the management team.  

With this baseline established, new initiatives can be considered.  New initiatives must be vetted every bit as carefully as if the company was in start-up mode.   On a stand-alone basis, is it a good initiative and do others outside the company agree?  Is there a reason (i.e., synergy) that this initiative should be pursued within the company?  Does the company’s challenges in its core business hurt or help the prospects of the new business?  It is hard to be candid in answering the last question–as the answer is usually “hurts”, not “helps”.  Hurts is not the answer the company is looking for but they most be open and honest about it.

If initiatives pass these screens, start slowly.  Allow time for feedback loops prior to committing major dollars.   Just because the company has cash or cash flow doesn’t entitle it to be careless in throwing money against new initiatives.   What if, because of problems in its core business, the company doesn’t have time to be patient?  See the previous paragraph.  Almost certainly this means that the new initiative shouldn’t be pursued.

I can write a ton more on this topic.  Perhaps I will pick it up in a future series.   Bottom line–companies who find themselves in Vonage-like situations are best off slowing down.  Get very good at running your core business for nearer-term profitability.   Understand what this means in terms of shareholder value.  Be very conservative on all discretionary spending until you are highly confident that you have something to invest in.