Bear On Business - Tracking the Telecom Industry

My Dear Friend, Terry Venezia (#4)
My Dear Friend, Terry Venezia (#3)
My Dear Friend, Terry Venezia (#2)
My Career during College
What Bruce Springsteen Means to Our Gang

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Posted by Dan Caruso
November 2, 2009

Steve Halstedt is Tonight’s Guest at Entrepreneurs Unplugged at CU in Boulder

Zayo and Envysion employees–I encourage you to attend! I’ll be there. The event is tonight (Monday) at 6:15pm in Atlas Room 100 at the University of Colorado. For more information visit the Silicon Flatirons website.

Silicon Flatirons is a University of Colorado organization that promotes entrepreneurs, particularly in the fields of telecom and software. I have personally gotten involved with the organization. We see the CU as a major resource in our own backyard, and we want to encourage the development of the entrepreneurship.

Silicon Flatirons sponsors Entrepreneurs Unplugged. It is a forum that features successful entrepreneurs who have an informal discussion with students and business people from the greater Boulder area. Last year, guests included Sam Zell (which I attended and enjoyed immensely) and me (which I attended and enjoyed even more than the Sam Zell event).

Tonight Steve Halstedt is the feature guest. Many Zayo and Envysion employees might not realize that Steve is involved with Zayo Group. Steve is the co-Founder of Centennial Ventures, one of Zayo’s private equity investors. Steve recently took Centennial’s lead role in overseeing Zayo, as Rand Lewis—the original lead—became involved in other ventures. Steve is an active participant in Zayo’s board meetings.

Steve knows telecommunications and Internet infrastructure. Steve was chairman of Verio, Inc., a roll-up of Internet Service Providers (“ISPs”) in the 1990s. Verio became the largest web hosting company in the world. In one of the most remarkable exits of the telecom boom era, Verio was sold to NTT at a $5.5B valuation and the form of currency was cash.

Centennial was an investor in Brooks Fiber Properties, one of the early fiber-based competitors to the Baby Bells. Brooks was similar to MFS Communications, my alma mater, and like MFS was sold to Worldcom in a healthy exit.

One other example that is particularly relevant to Zayo is Centennial’s investment in Crowne Castle. Crowne is heavily involved in the ownership and operation of cell towers.

Steve was also chairman of OneComm, Inc., which was founded in 1989 by Centennial Ventures to become a leading provider of specialized mobile radio (SMR) services in the Rocky Mountain region and the Midwest. Centennial Ventures provided both seed and start-up funding and interim management. OneComm successfully completed its IPO in 1993, and merged with Nextel Communications, Inc. in 1995 at a $750 million valuation.

Before Centennial Ventures Steve was the Executive Vice President and Director of Daniels & Associates, Inc., a private communications service company involved in cable television system operations. Prior his time at Daniels & Associates, he served as a platoon leader and battalion operations officer in a U.S. Army combat engineer battalion in Vietnam. He taught computer programming at both the U.S. Army Engineer School and at Dartmouth College.

Steve received the Ernst & Young Entrepreneur of the Year Award in 1999 in the category of Supporter of Entrepreneurship, which recognizes a standard of entrepreneurial excellence. He is also the founding President of the Venture Capital Association of Colorado and has previously served on the board of the National Venture Capital Association.

So Now What?

Colorado Telecom Companies
Will Steve Wilson be the $300,000 man?
Steve Wilson: the Almost $300K Man
CU New Venture Challenge Kickoff Wednesday
Mendelson’s Crash Course on Venture Capital

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Posted by Dan Caruso
October 30, 2009

Closing Thoughts: What Did I Learn? (part 5 of 5)

By guest blogger John Scarano a.k.a. Johnny Scannns

Thank you for the opportunity to share these thoughts with you via posts to Dan’s blog. This is the last of 5 parts of my inaugural blog series. This has been a great learning experience. You should try it (posting blogs).

A couple weeks back, I had the opportunity to present the Zayo story to the shareholders of one of our major equity syndicate members. Thus far in this short series, I’ve offered thoughts and preparation leading up to and the key messages of the presentation to Investor #6 and their key shareholders. Today’s topic: So what did I learn?

Sadly (and embarrassingly), I did not really appreciate the importance of the essential requirement to ‘make money’ until fairly late in my own career. Certainly, I’ve been fortunate to learn and experience and be accountable for nearly every aspect of the competitive telecom business at various companies. And of course it is simple; our for-profit business is just like every other for-profit business. It’s about making money (oh—did I just repeat this again?)

The point to me on this score is that as long as making money remains our chief goal, then all necessary supporting elements logically fall into line. We cannot make money without happy (i.e., well serviced) customers. We cannot have happy customers without investing in our network and services properly in order to maintain high quality services. We cannot deliver these customer requirements steadily without treating employees with respect and fairly with regard to remuneration. It is a virtuous cycle if managed properly, but the shareholder is at the top.

I fret that investment bankers or accomplished business persons who read these posts will laugh heartily about how naïve I sound. Nonetheless, my observation is that the “operators” who work in or manage businesses like Zayo’s tend to not be formally trained in banking or in the importance of managing a business FOR profit. As a result, they often overlook what might seem so obvious. I believe that most Zayo folks understand these concepts at least generally and over time will cause our overall performance to improve as we embrace them more. A metronome-like beating of this drum cannot hurt. It takes time to absorb fully. And I welcome Zayo folks (or anyone) to chime in and support or to challenge.

After this presentation experience, I cannot be happier that I have conveyed the views discussed in these posts repeatedly and will not soon stop doing so. We have chosen to work for our shareholders in order to make them money on the investment they have entrusted to us. We as employees and managers had better do a very good job. It’s that simple.

By the way, not-for-profit institutions and charities are so valuable and necessary for our society (and economy) to thrive. Please do not assume that because I talk about making money that I suggest this is all that matters in life. I am happy to talk about my own involvement in these things one day, but then I would have to create a competing blog, and… well… we already have one of those at Zayo!

In closing, it is always enjoyable to learn (and re-learn). Investor #6 (and all of Zayo’s investors) are extremely disciplined, thoughtful and conservative in their approach to managing their (and their shareholders’) money for a good return on this money. Our job is to do the same for them for the portion they have entrusted to us to manage. Pretty simple.

Thanks for your time reading these posts. And thank you, Dan, for the opportunity to do so, and for your own clear guidance which I believe is reflected by these posts. However, I am hopeful there will be no comments. This way, if I have harmed your readership volume, you will no longer ask me to post again. (Just joking of course)

So Now What?

Remembering Who We Work For (part 2 of 5)
Preparation, the Audience and the Cold Shower (part 3 of 5)
Introduction
Did we learn anything?
Management Ethics – 1(b) of 4 — the last one

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Posted by Dan Caruso
October 29, 2009

Key Messages (part 4 of 5)

By guest blogger John Scarano a.k.a. Johnny Scannns

I am day 4 into my inaugural 5-part blog series. The topic is a presentation I gave a couple weeks back to the shareholders of one of Zayo’s private equity investors. As I prepared for the presentation, I reflected on what we are doing at Zayo and I thought it might be helpful to share these reflections with others. As an added benefit, Dan can take a week off of blog-writing and maybe do some real work for a change.

Today, I will offer the key messages I sought to deliver in the presentation:

1) Zayo is profitable – we make more money than we spend – by choice. That is, our capital program is enormously discretionary. If we chose to reduce investments to extend the reach of our network on behalf of our customers, we can and would return meaningful cash flow to our investors;

2) We are experienced – our leadership and working level teams have a track record of successfully navigating complexity while remaining focused on key priorities. We are able to conduct M&A and the resulting integration efforts while maintaining double digit organic growth; and,

3) We accomplish these things by way of our owned and operated bandwidth infrastructure operating platform. Bandwidth demand into the foreseeable future is unwavering. Barriers to entry are high where unique network exists. Remaining disciplined regarding how we invest our shareholders’ money, whether for inorganic or organic growth purposes will continue.

Assuming I successfully conveyed these messages, I would re-assure the investors of our investor that we are good custodians of their money.

So Now What?

Preparation, the Audience and the Cold Shower (part 3 of 5)
Closing Thoughts: What Did I Learn? (part 5 of 5)
Remembering Who We Work For (part 2 of 5)
Introduction
Estimating your EBITDA Multiple

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Posted by Dan Caruso
October 28, 2009

Preparation, the Audience and the Cold Shower (part 3 of 5)

By guest blogger John Scarano a.k.a. Johnny Scannns

Thank you for the opportunity to share these thoughts with you via posts to Dan’s blog. This is the third of 5 parts. Thus far in this short series I’ve offered thoughts leading up to the presentation to Investor #6 and their key shareholders. So how did I prepare and what did I learn?

The format for the overall presentation was for two of what are currently a dozen or so ‘portfolio companies’ to be featured with 20 minute presentations. The 100+ sized group in attendance included the entire Investor #6 partnership and support team members (about 20 people) as well as the representatives of most of the firms who have invested their money with Investor #6.

As an aside, the night before the presentation I and the CEO of the other featured business and several of the specific team members of Investor #6 had a dinner together. The CEO of the other featured business had presented many times to this same audience previously. He is a very accomplished and trusted business leader. He did not hesitate one moment when I asked his advice for the key message to deliver – “tell them how you’re going to make them money” he said. He followed up with, “what else matters?”

With prior guidance from our sponsors, I knew that it was important to present background about our industry before presenting the focused Zayo Bandwidth Infrastructure oriented business plan and status. This way there was context before diving in. And, to be sure (for those of you who know me), it was very tempting to talk in great detail about all that has transpired in our industry over the last 100 years and at Zayo in just the last two years.

Of course, the preparation objective, which was confirmed by the experienced CEO, was simple: tell them how you’re going to make them money. After all, isn’t that what really matters to shareholders and to the shareholders of shareholders?

This was the cold shower. What cash investors of any sort care about is that we make them money. How we get there is interesting but not entirely relevant (to them). Crass? Calous? Perhaps. But what else matters? Think about the stocks you yourself have sold for a loss, do you care why there is a loss? You care that you trusted someone (or some entity) to deliver a benefit to you, and this benefit was not delivered. Pretty simple.

Having taken to date nearly $260M of our shareholders’ money to manage on their behalf is the burden we at Zayo bear at this time.

So Now What?

Introduction
Closing Thoughts: What Did I Learn? (part 5 of 5)
Remembering Who We Work For (part 2 of 5)
Key Messages (part 4 of 5)
High Stock Price = Bad (sometimes)

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Posted by Dan Caruso
October 27, 2009

Remembering Who We Work For (part 2 of 5)

By guest blogger John Scarano a.k.a. Johnny Scannns

Thank you for the opportunity to share these thoughts with you via posts to Dan’s blog. This is the second of 5 parts following the introduction post (part 1).

Two weeks ago, I had the opportunity to present the Zayo story to the shareholders of one of our major equity syndicate members. In this Part 2 of my blog series, I will share my thoughts leading up to the presentation:

As Zayo’s employees know, the Zayo business unit leadership teams hold monthly all-employee meetings with our teams. The Zayo Bandwidth meetings tend to follow a fairly consistent format.

We provide a summary level and deep dive financial review. We discuss various key factors that have enabled our success to date such as pending acquisitions, sales performance, installs performance, service maintenance, etc. We are open about feedback, results, progress against plan, good and bad. We solicit for questions in advance of our meetings and we open the calls to questions during the meetings.

Additionally, we hold once weekly a sales, installs and service maintenance meeting with all service delivery personnel as well as all management team members across Zayo Bandwidth. We are a geographically distributed team which is nimble and adapting to the way our customers need us to support them. These consistent discussions have helped bind us together as we have evolved.

At the top of most of these meetings I find myself almost instinctively presenting the ‘state of the business’ in a snapshot form. Periodically, I have begun offering the simple view that there are two types of work environments – for profit and not for profit. Either we work for a cause—as do educators, government employees, charities OR we work for a return for our shareholders.

And this is the point. As a for-profit enterprise, we at Zayo work for our shareholders and they expect a good return on their investment. This is our top priority.

Specifically, we work for our private equity shareholders. These shareholders in turn raise money (typically) from wealthy individuals or a wide range of institutions such as endowment funds or insurance companies who seek a return on their money diversified from their other investments. These parties all TRUST US to work for THEM to make money.

By the way, were we publicly traded instead of privately held, should this trust in us offered by more distributed shareholders be handled any differently by us? Of course not.

And yet, ironically, I have offended people at times having heard feedback after having relayed the points above. I have been told that I am ‘crass’ and ‘callous’; that I am ‘all about the shareholders and by extension, not the employees’. And other things I should not write.

Frankly, I have ignored this criticism as naïve, and have continued to repeat and provide context for this key message. These points above were my own key thoughts leading up to the presentation to our shareholders of shareholders.

So Now What?

Introduction
Closing Thoughts: What Did I Learn? (part 5 of 5)
Preparation, the Audience and the Cold Shower (part 3 of 5)
Key Messages (part 4 of 5)
Work/Life Firestorm

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Posted by Dan Caruso
October 26, 2009

Introduction

By guest blogger John Scarano a.k.a. Johnny Scannns

Dan, since you have asked me only ~10,000x to make a post to your blog, and as I had the opportunity to present the Zayo story to the shareholders of one of our major equity syndicate members (I’ll refer to them as Investor #6) earlier this month, it seems a near perfect time to make the inaugural entry.

The rationale is simple. Firstly, I am tired of you asking me to make a post. Secondly, it is not often that one has the opportunity to speak with the shareholders of your shareholders directly – yes, the people who are directly affected by how well or how poorly we manage their money. I wish that everyone at Zayo were able to have the privilege. This experience is like taking an ice cold shower (in a good way), forcing one to reflect on what really matters.

I’ll relay the thoughts going through my own mind leading up to the event as well as some take-away thoughts. This way, I am hopeful to remind our entire Zayo team (and others) of what matters the most -> turning a good profit ultimately to the individuals and institutions (and their representatives) whom have trusted us enough to fund our thesis and business operations which, in-turn, enables us to take care of our customers and remunerate our employees for delivering results.

Please stay with me. I’ll break this posting into 4 subsequent parts:

1) My thoughts in general leading up to the presentation

2) Preparation, the audience and the cold shower

3) Key points of the presentation

4) Closing thoughts

Thanks for the opportunity to make this inaugural post. Two achievements result: 1) you’re hereby officially off my back, and 2) another perspective is presented (and I hope taken to heart and mind) on our key business priority – our shareholders (and theirs). Frankly, these thoughts may come off as naïve, particularly to our investors. I hope that, instead, what is gleaned is an adjacent and related perspective to yours (Dan) into the guts of not how but WHY the Zayo sausage is made…

So Now What?

Preparation, the Audience and the Cold Shower (part 3 of 5)
Closing Thoughts: What Did I Learn? (part 5 of 5)
Remembering Who We Work For (part 2 of 5)
Key Messages (part 4 of 5)
Management Ethics – 1(a) of 4

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Posted by Dan Caruso
October 23, 2009

Tracking Financial Performance (more)

Yesterday’s post focused on 2b of my Management Ethics.

“Financial performance should be tracked and reported in a clear and unbiased way”

I focused on the word “Performance”, which implies more real time activity than the word “Results.” How are we performing? It is a continuum of what results were posted for last quarter as well as the leading indicators that foreshadow what to expect in future quarters.

Today, I want to focus on one other subtle point on the inclusion of this 2b Principle. I use both the words “tracked” and “reported.” Financial performance is the data of business. It is like the box score in baseball. How many hits? How many runs? Who won the game?

Principle 2b emphasizes first management’s responsibility to “track financial performance.” In discussions with investors, I try to leave aside all the subjective accolades about how hard everyone is working and what a great job we are doing. Instead, I focus on numbers. Specifically, I focus on those numbers that “track financial performance.” And I try to do it in a clear and unbiased way. And then I report these numbers to our investors open and honestly. If, as a result of this process, the company is doing well, then we take the time to celebrate success and reward employees. If not, we deal with the ramifications.

What if the clear and unbiased tracking and reporting of financial performance suggests the company isn’t doing all that well? This is why the responsibility is included as an ethics principle. The baseball manager might not like that his clean-up hitter has a .280 on base percentage (non-baseball fans–.280 not good for OBP), but the manager deserves to know it. Maybe his player needs some extra batting practice. Maybe he should be pushed to a lower spot in the line-up. Maybe he is just in a slump and time will self-correct. Maybe, the player needs to be cut from the team. My point is this: whatever the ramification, hiding the data is not the answer.

Make sense?

So Now What?

Tracking Financial Performance
Management Ethics – the 2nd of 4 Principles
Good, Bad, or Neutral
Zayo Priority #1A: Financial Excellence thru Results
Tracking Net Installs

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Posted by Dan Caruso
October 22, 2009

Tracking Financial Performance

It might seem odd that “Financial performance should be tracked and reported in a clear and unbiased way” is embedded in an ethics principle. Is it not commonplace that companies follow this principle, as every company has to abide by GAAP.

Only seven or eight years have elapsed since the collapse of Enron and Worldcom. These companies followed GAAP. In fact, they “knew” GAAP so well that they found ways to use GAAP to deceive their investors. Were they clear with their financials? Were they unbiased? With the benefit of hindsight, the obvious answers are shouts of No and No.

Sarbanes-Oxley, also called SOX, was to fix this. Did it? My less-than-educated guess is that it helped a fair amount. However, the Great Recession of 1999 provides plenty of examples of public companies who were anything but clear and unbiased in their reporting to shareholders.

SOX, by holding CEOs and directors personally liable for bad deeds, has inspired many companies to simply cut back on their public reporting. They comply with SOX, but they do so with providing the minimum amount of information possible. As a CEO of a company with IPO aspirations, I understand where these companies are coming from. However, I am also a CEO that wants to share with my investors a clear and unbiased view of our financial performance. Accomplishing this, without bringing on undue exposure, will be an ongoing challenge.

The way I view SOX is that it has raised the minimum standard for acceptable reporting—and it has raised the stakes for failing to comply. However, simply complying with SOX does not mean that my Management Ethics Principle 2b is satisfied. To understand why, let’s focus on the word “Performance”. Why was “Performance” used instead the word “Results”. There is a subtle but all-important difference. Results implies a backward-looking activity. What did the company accomplish last quarter or last year? GAAP, by the way, is all about how to account for results.

“Performance” implies more real time. How are we performing? It is a continuum of what results were posted for last quarter as well as the leading indicators that foreshadow what to expect in future quarters. If “financial performance is tracked and reported in a clear and unbiased way”, investors should have information to better ascertain the value of their investment.

So Now What?

Tracking Financial Performance (more)
Management Ethics – the 2nd of 4 Principles
Good, Bad, or Neutral
Zayo Priority #1A: Financial Excellence thru Results
Tracking Revenue under Contact

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Posted by Dan Caruso
October 21, 2009

Good, Bad, or Neutral

This post is a continuation of a discussion on my Management Ethics Principle #2:

2. Be clear, open and honest in communications with investors.

a) Whether the news is good, neutral, or bad, management is responsible for making it easy for investors to understand what is happening in the business.

b) Financial performance should be tracked and reported in a clear and unbiased way.

c) Management should understand and clearly articulate the risk profile inherent in the businesses decisions being made.

Yesterday, we covered how the Meatloaf song “Two out of Three Ain’t Bad” doesn’t apply to Principle #2. An executive must be Clear, Open AND Honest. Two out of Three Ain’t Good Enough.

Today, let’s discuss 2a.

Warren Buffet writes “Elsewhere, triumphs are trumpeted, but dumb decisions either get no follow-up or are rationalized.” The Omaha Oracle points out the unhealthy bias that exists in many companies—emphasize the positive news; sidestep the negative.

As members of Zayo’s team know, following 2a is hard when it counts the most. Especially when the bad news is the result of management missteps. Twice in Zayo’s brief history we had painful events that fit in this category. Both required that I disclose information to our board that, frankly, I would have rather not have shared. I labored over the communication, reminding myself of my responsibility. I suspected the board would appreciate the clear, open and honest part—but, let’s face it, the content of the messages was that the management team screwed up. Just because the board might appreciate the clear, open and honest messaging, the fact that we screwed up wasn’t going to be overlooked. If, as a result, the investors want to make changes, you’ve made it very easy for them to justify.

Let’s pause for a second and re-read 2a. “Whether the news is good, neutral, or bad…” Note that it is balance that is being emphasized. Only harping on the bad news is not much better than only emphasizing the positive. Balanced communication is the key. Management should make it easy for investors to understand what is happening in the business. Investors should feel like they will get the skinny whether it is positive, negative, or just plain neutral. Develop this capability and your investors will forever be grateful.

So Now What?

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