Edward Kennedy is an experienced chief executive with a successful track record of creating value at companies in the communications equipment industry. So it’s no surprise that his ascent within Tollgrade Communications Inc., a more than $50 million, 120-employee provider of network assurance solutions for the utility and telecommunication industries, was a quick one.
Kennedy was named to the board of directors in June 2009 to help the company from a strategic standpoint. He became chairman of the board in March 2010, and just three months later, he became Tollgrade’s president and CEO. In his more than two years in the role, he has helped Tollgrade grow in several ways.
“Our customer base is the who’s who of telecom players, both here in the United States and Europe — AT&T, Verizon, Quest, Frontier, British Telephone and more,” Kennedy says. “We have a very strong footprint — roughly about 250 million lines under test — 140 million in the U.S. and 110 million in Europe.
“Because of all that, we have over the years, developed some very, very sophisticated software that allows us to maintain this leadership role in testing.”
Beyond Tollgrade’s core service of testing telephone lines, Kennedy has helped the company break into the smart-grid business with a product called LightHouse.
“As utilities globally look at how to become more efficient with their distribution of electricity and also how they manage different types of electricity generation, such as renewables and how that comes into the network, the ability to monitor your network becomes key and that’s what we do with our smart-grid product,” Kennedy says. “That’s a high-growth area for us.”
While Tollgrade’s core business and its new smart-grid business are similar technologies, they are vastly different businesses, and trying to grow a new business while maintaining the other has been Kennedy’s biggest challenge.
Here is how Kennedy is balancing Tollgrade Communications’ growth of a new business while maintaining its core service to take the company to the next level.
Create investment opportunities
Along with the challenge Kennedy has of balancing a new growth opportunity and an existing business, he also needed to find ways to invest more in the future of the company.
“One of the things we did back in May 2011 is we went off of the NASDAQ and went from being public to being private,” Kennedy says. “The motivation to do that was we saw the requirement to make larger investments in new products and larger investments in increased infrastructure inside the company.”
As a public company, you’re measured on a very tight set of parameters. All of those metrics don’t lend themselves when you want to do an investment for the future.
“In a public company it’s kind of a catch 22 — you don’t really have enough money to invest the way you want to grow the business, but if you don’t invest, the business won’t grow the way you need it to maintain increasing stock price,” he says.
Tollgrade decided it needed to look around and see what it could do to unlock some of the investment dollars. The best way for the company to do that was to go private. The company was then bought by a large private equity firm out of California called Golden Gate Capital, a $12 billion fund that invests in all sorts of technology companies.
“With that we are allowed the flexibility to make investments the way we need to grow the business,” Kennedy says. “It allows us to invest for the future, which these days is pretty challenging. Keeping one step ahead of the competition, but also having the next generation of products is going to be key to keeping your business vital.”
Strike a balance
Tollgrade’s ticket to keeping the business vital is through the growth of its LightHouse product in the smart-grid area.
“The smart-grid area has the largest potential for growth and is the one that is the most challenging because we are in so many different areas and applications,” Kennedy says. “The utility environment itself is in a period of change and the requirements for electricity are ever increasing.”
Utilities are looking at how to better manage their grid, which opens up a huge opportunity because the power grid has been the same for many decades.
“Now what’s happening is the issue of different types of power generation where it’s not just nuclear plants, coal plants, hydro plants; it’s also wind farms, cellular rays and things like that,” he says. “There’s a whole new set of demands that have to be addressed and that’s what we are going after.”
While Tollgrade is investing heavily in the smart grid and is one of the market leaders in the sensing and monitoring of that for the utility group, its telecommunications business is also still vibrant and growing. Kennedy has to make sure that Tollgrade is successful at striking a balance between both the new business and the existing business.
“Having multiple business lines in very different market areas is challenging and where it becomes challenging is you want to make sure you put enough investment in the new products to grow it, but you’ve got to make sure you’re not hurting the overall profitability of the business by investing too much,” he says.
Where companies get in trouble or get offline is they don’t sit and think about what the metrics are for success along the process.
“Everybody says, ‘I want to grow this from zero to $100 million in sales,’” he says. “But what are the major steps along the way and what are the definable milestones that you can figure out whether you’re making progress toward that? If you’re not making the progress you thought … what are the issues preventing you from hitting the milestones?
“Having that kind of environment where you’re analyzing in real-time how your business is doing makes people gloss over a little bit because they’re so busy trying to grow the business. As a CEO your primary role is to step back and think on a more strategic and global basis to understand how the company is doing.”
If you’re not keeping tabs on how all your business segments are performing, it is very easy to lose track of one or more of them.
“The core business can’t be seen as an orphan or a stepchild because all the fun and excitement is in the new products,” Kennedy says. “People have to realize that maintaining and growing the existing business is as important, or sometimes even more important, than the new initiatives because the new initiatives aren’t paying for anything if they are still in the investment mode.”
Manage growth
When focusing on a new business, you have to put together some milestones to get to a certain amount of revenue in a certain amount of time and highlight what needs to happen in order to get there.
“As you move forward with your plan, you need to compare that to what’s actually happening and have a feedback loop to understand if you were too aggressive or not,” Kennedy says. “You have to constantly improve your model to better predict how you’re doing moving forward.”
There is a different set of metrics that you put on a new product or a new business area because you have to take increased risks that you wouldn’t take in your existing business because you no longer need to.
“Sometimes these risks work out and sometimes they don’t,” he says. “Failure isn’t not achieving a goal. Failure is not trying hard enough to achieve the goal.
“You focus in on your core strengths and what you know and what you don’t know and by having a very clear conversation with the team that’s running the new business, you can have a view of what progress is and how you measure it and figure out if it’s doing what you think it’s doing.”
The biggest key to having successful growth of a new or existing business is the people who drive the company every day.
“It is crucial to have very motivated and smart people under you that get it,” Kennedy says. “You have to give them an environment where they want to go out and grow the business and they’re rewarded for growing the business and success is seen as management of risks and rewards versus making sure that they stay in their comfort zone.” ●
How to reach: Tollgrade Communications Inc., (724) 720-1400 or www.tollgrade.com
Takeaways
– Create opportunities that enable investments for the future.
– Strike a balance in how you grow a new and existing business segment.
– Set goals and create milestones to measure growth.
The Kennedy File
Edward Kennedy
President and CEO
Tollgrade Communications Inc.
Born: Philadelphia
Education: Has a B.S. in electrical engineering from Virginia Tech
What was your very first job and what did you learn from that experience?
My first job was cutting lawns around my neighborhood. I’ve always been kind of a high-energy-driven kind of guy. I learned that you have to work hard to get ahead.
What is the best business advice you’ve ever received?
Be tenacious and thoughtful and think about what you want to do and then be relentless to get it.
What are you most excited about for the future of Tollgrade?
I’m excited about the fact that we have a huge installed base in the telecommunications side that we can continue to grow and help our customers globally to provide better service for their customers. On the smart grid side there is a huge opportunity to help the whole energy marketplace in a better and more efficient delivery of electricity. That’s going to be a major social trend and a major business trend and we can be a pretty significant player in that.
If you could speak with someone from the past or present, with whom would you want to speak with?
I would like to sit and talk to Winston Churchill. He was a man who faced incredible situations and had the weight of a lot on his shoulders, and it would have been interesting to see in his time what he was thinking.
If you had the chance to do something dangerous one time, without consequence, what would you do?
If I couldn’t get hurt, I would want to try flying around in one of those squirrel suits. As long as I land safely, that would be fun to do.
