I took over ICG in late 2004 and ran it until we sold it to Level 3 Communications in 2006. At the time we took it over, ICG was burning lots of cash. The turnaround, of course, was predicated on quickly getting out of this cash flow burn mode. To do so, we needed to sell off some of the underlying properties.
The first transaction was to sell ICG’s California property to MPower. The CEO of MPower was Rolla Huff. At some point, my Texas Hold’em series will cover ICG, Mpower, and Telepacific–the company that bought MPower. Today, though, I want to focus on Rolla Huff’s current company–Earthlink. Rolla took over as CEO one year ago. The stock hit $6/share a bit after he joined.
Last Wednesday, in an Envysion board meeting, John Siegel brought up how well Earthlink was doing. “It is producing a lot of cash flow. Rolla has done a good job there.” I made a mental note to look into this.
This morning I saw Rob Powell’s post: “Earthlink and the Power of Cash Flow“. Rob–thanks for saving me the time it would take to look into John’s comments.
Earthlink is a classic telecom story. Their core business was end of life. This was clear prior to Rolla taking on the CEO position. The company he inherited didn’t feel too kindly about managing their business downward. The reality of a shrinking business isn’t innovation it is all about squeezing cash flows out of a declining revenue base. RIFs, minimal product development, no investment in new technologies, etc. is the game.
In my early Bearonbusiness posts, I made the case that a business is worth what its cash flows are really going to be. In a declining business, the cash flows better be coming in real time, or the business is worthless. The DNA of a declining business must center on how to generate cash flow NOW.
Despite knowing that declining dial up Internet market was Earthlink’s reality, the management of Earthlink chose a different course.
(More tomorrow)
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