The Boulder Daily Camera hosted a web chat with me yesterday.  Thank you Daily Camera!.  I reprinted the chat below.

Questions:

wallacea: Good morning, Dan. Thank you for joining us.  What is Zayo Group, and what makes it unique from others in the industry?

Dan Caruso: Zayo Group is a telecommunications company. Specifically, we are a group of three independent companies — Zayo Bandwidth, Zayo Managed Services, and Onvoy Voice Services.

Part of what makes us unique is that we have been the most active buyer of other telecom companies over the past year.

wallacea: What is your professional background?

Dan Caruso: I am a 22-year veteran of telecom. That sounds like such a long time. I started at Ameritech–which was similar to US West. I left to join an upstart competitor to the local Bell’s by the name of MFS Communications. After we were acquired by Worldcom, I was part of the founding team that launched Level 3.

A few years back, I led the turnaround of ICG Communications, which we sold to Level 3 in 2006. I launched Zayo in 2007.

wallacea: Your former company Level 3 Communications recently announced some cut backs because of lower demand during the current economic times. Were you surprised to see that?

Dan Caruso: These are rough economic times for all industries. However, telecom is resilient. I believe bandwidth demand will continue to grow. I was encouraged that Zayo had a solid December from a sales perspective.

I believe Level 3 would cite issues specific to its company as the primary reason for the cut backs. It is completing integration of businesses it acquired in 2006 and 2007 and suspect that is contributing to their cut backs.

wallacea: You mentioned that you’ve been the most active buyer of other telecom companies over the past year, how have these integrations progressed? And are there plans for more acquisitions?

Dan Caruso: Integrations are progressing fine. We expect to be substantially complete with integrations in the 1st half of 2009. In fact, most of the integration work is already done.

In my blog bearonbusiness.com, I shared Zayo Group’s 4 priorities for 2009. Additional acquisitions were on the list but was 4th. This means we would like to buy more companies but other goals are higher priorities.

wallacea: How much has Zayo grown during the past two years? And what type of growth is expected in the future?

Dan Caruso: Well, in March of 2007, our revenue was $0. In 4Q08, it was approx $47M (which is ~$190M annually). Much of this was a direct result of the acquisitions. However, our internal growth rate is in the double digits.

We expect double digit revenue growth in 2009.

wallacea: What are some of the hurdles you have faced this time around, and how did you overcome them?

Dan Caruso: No one clued me in that the economy was going to crash. That has been a bit of a hurdle.

We raised debt in late 2007, March of 2008, and Sep 2008. Each time was described as the worst time to raise money in decades. Thanks to our CFO, we somehow were successful. I’m still not sure how he did it.

Other hurdles were anticipated. Integration is always hard with roll-ups. Ensuring the day to day business performs well while doing acquisitions is also a challenge. Both have worked out but not without a ton of hard work from our team.

wallacea: How would you say Zayo is faring during the recession?

Dan Caruso: Very well.

In October, I saw the now-famous report from Sequoia Ventures on how their portfolio companies should prepare for a very severe downturn. And we took it to heart.

Many companies put contingency plans together. We didn’t. We changed our plan using the assumption that times will be tough. We put all emphasis on ensuring our cash position remained strong. We were willing to sacrifice revenue growth to ensure financial strength. This approach is already paying dividends.

We are on the verge of being cash flow positive. We have investment on hand to fund our business. We are very profitable already. And our 4Q08 sales results were solid (despite downturn).

However, we do not take anything for granted. Our decision-making will continue to be based on conservative outlook of demand.

backside180: You mention in your blog bearonbusiness.com fairly specific financial goals for 2009. What steps are you taking to ensure you meet or exceed the said goals during times of economic contraction?

Dan Caruso: I was an engineer by training. We engineers are not known as great communicators. I used to think employee communications were a distraction from real work. I learned the opposite.

So step number one is to communicate frequently and clearly. The blog is often my vehicle for doing this. I use it to communicate our goals and to highlight what execution focus is necessary to achieve the goals.

I believe in rigorous financial forecasting — call it “operational finance”. This gives us the headlights to understand our business multiple quarters before events play their way through. We are fine tuning our processes, systems, and data so as to put us in a better position to achieve our goals.

backside180: As CEO of a large corporation, what advice would you offer recent college graduates entering a very tough job market?

Dan Caruso: If you want to work in Boulder area, contact Zayo. I suspect we will be doing some hiring this year.

Generally speaking, it will be a tough job market. Make your priority to be to get a job where you will build skills as opposed to holding out for higher pay. Make it clear to employees that this is your priority. Tell them you will work hard for them. These are tough times, and those who are in a position to hire will be selective–they will value those who want to help them through those times.

Networking is an often used word–but not an overused one. Network every chance you get. Learn from the networking and daisy-chain each convo into additional introductions where possible. Be persistent. Remain confident. And be optimistic–my guess is this economic downturn will be past us much more quickly than most are predicting.

wallacea: What are your long-term goals for Zayo?

Dan Caruso: The telecom industry is consolidating. Most companies will become part of other companies. That is, most will be consolidatees (I think I made up that word), not consolidators.

My long term goal for Zayo Group is to be a consolidator. Whether we go public or private, I want it to be my last job.

My related long term goals are (a) all investors do well with their Zayo investment and (b) our culture develops into one where employees enjoy and are proud to work for the company.

wallacea: Dan, thank you so much for taking the time to chat with us today. If people have additional questions about Zayo, how can they find out more information?

Dan Caruso: Go to bearonbusiness.com or zayo.com. You can find my email address in either place. If I don’t respond to your email, please resend after a couple days–sometimes they get lost in the blackberry abyss.

Also, take a look at Envysion.com. This is another exciting company in the Boulder area. I am chairman. Their blog is www.managedvideoblog.com. Check it out too.

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