Zayo’s priority for “integration”, ironically, became “de-integration”. We wanted to retain the concept of Zayo Bandwidth being a tightly-focused entity whose sole purpose is slapping up bandwidth. Therefore we had to split apart the other two entities into their own business units. Both of these had to stand on their own two feet. Both had to have their own tightly-focused business plan.

So de-integration is what we did, and today we have 3 completely independent business units. I want them all to have their own bank accounts, balance sheets and statement of cash flows. Only then will we have true P&L accountability.

Investors liked this. But, then again, they couldn’t help their venture capital bias. “When are we gonna sell these other businesses?” was the knee jerk reaction.

I am not being critical. I understand where this is coming from. It’s like the game of Monopoly. Should we trade Boardwalk for Marvin Gardens + three railroads? The dilemma is that I am at a phase of my career where I want to be involved in multiple businesses.

It is in this context that I came across the Tyco article and the quote, “What weaves them together is the operating culture.”

Arguably, Zayo is more like Nike than Tyco. Zayo is defined around telecom, which is narrow enough so that it wouldn’t be viewed as a conglomerate any more than Level 3 or AT&T. Nonetheless, from a venture capitalist’s perspective, the concern is that we are not sufficiently focused by start-up standards.

As a result of two of our acquisitions, we ended up with two additional business units—Zayo Managed Services and Onvoy Voice. Zayo Group was formed as very small corporate group that brings together the three autonomous business units. Certainly all three entities are telecom/Internet companies—but they are very different from one another. It is my intent to see all three of these units prosper within Zayo Group indefinitely; it is also my goal to see us add additional autonomous units.

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Zayo Bandwidth was launched as an entity who would narrowly focus on providing bandwidth to a small number of bandwidth-hungry entities. The focus was tightly defined. This was appealing to investors. 

Our strategy was to roll up fiber-based bandwidth companies. Many fiber-based companies did more than produce bandwidth. Beggars cannot be choosy. So if we wanted to consolidate fiber companies, we had to be willing to tackle non-pure plays. 

We merged Voicepipe into Zayo after the Onvoy transaction. Voicepipe’s business was similar to Onvoy’s managed services so the two units together became the foundation for Zayo Managed Services.

Onvoy was running a process in 2007. They fit with Zayo because of their unique and extensive fiber footprint across Minnesota. However, they were not a pure play. They provided wholesale voice services for carriers and managed services for the SMB market. We received some push back from investors initially, but they jumped on board after some discussion.

Who can guess what the investors’ next question was? 

(Answer tomorrow…)

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Operating Culture Weaves Them Together (part 4)
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Why zCOLO?

Early stage companies need to be tightly focused. The more focus they have, the higher the likelihood of success. That is just the way it is.

Many medium-sized companies struggle with focus. Instead of finding a strong foundation on which they can build, they try to do more and more things. Often, disparate business get co-mingled together. Confusion and poor accountability rule the day. See my earlier posts on true P&L accountability if you want to see how important focus, accountability and P&L management is to me.

My investors have venture capital in their DNA. Narrowly-focused business plans are paramount to them. Part of their bias toward narrow focus is cemented from the notions in the two paragraphs above. Adding to their bias is that most of them are focused on the telecom sector. The very nature of their existence springs from the expectation that they will fund multiple telecom companies. This is obviously easier if each company has a tight business plan.

One of the appeals of Zayo was how tightly we defined our initial strategy. The company was named Zayo Bandwidth, because producing big chunks of bandwidth would be our only focus. Investors liked that. So did I. Focus. Good.

(Un)fortunately, Zayo Bandwidth didn’t last all that long.

(To be continued…)

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Operating Culture Weaves Them Together (part 4)
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In a recent issue of BusinessWeek, an article was written about Tyco International. It’s title: “Solving Tyco’s Identity Crisis” (http://www.businessweek.com/magazine/content/08_07/b4071062403578.htm?campaign_id=rss_topStories). All quotations that appear in this blog post are passages from the BusinessWeek article.

One particular reference in the article caught my eye—I see it as pertinent to my vision for Zayo Group.

Some background on Tyco is necessary for context. Dennis Kozlowski, who is now spending a many-year prison sentence, orchestrated the Tyco empire. The Tyco that Kozlowski handed over was a $40 billion conglomerate that was “constructed for all the wrong reasons—size without strategy, dealmaking without management”.

Over the past couple of years, Tyco was divided into three parts: Covidien, Tyco Electronics and Tyco International.  My good friend Scott Drake is a senior executive at Covidien.

The BusinessWeek article focused on Tyco International—a $20B entity consisting of five loosely-related business units: ADT, Flow Control, Fire Protection, Electrical and Metal, and Safety Products.

“‘Why does Tyco exist?’ is the question that still  remains to be answered. ’It is a collection of decent businesses,’ says Robert F. Mittlestaedt, Jr., dean of the W.P. Carey School of Business at Arizona State Universtity. ’The question is, do they make sense [together] going forward?’”

Later in the article, this introspection continued:

“The sort of existential anxiety Tyco must deal with is a fact of life for any conglomerate. (No one has to ask Nike what it does for a living). And each successful one, from a titan like General Electric to smaller ones like Emerson Electric or Danaher, has a different strategic rationale for its collection of businesses. ’There are plenty of companies that exist successfully at the size of Tyco,’ says Nicole Parent, a multi-industry company analyst at Credit Suisse. ‘What weaves them together is the operating culture.’

This is a thought-provoking string of works: “What weaves them together is the operating culture.”  Tomorrow I will discuss how this is helping me think through Zayo Group.

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Operating Culture Weaves Them Together (part 4)
Operating Culture Weaves Them Together (part 3)
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