For most of its first decade of its existence, Cbeyond Inc. was a growth machine, achieving double-digit revenue advancements year after year. But four years ago, the IT telecommunications firm’s growth engine was stalled by a double dose of bad news: the onset of the recession and an incursion by cable companies at the low end of Cbeyond’s market. This malignant combination began to smother Cbeyond’s year-over-year growth rate, which gradually fell into low single digits.
“Our customers are small businesses, and the recession was tough on them,” CEO Jim Geiger says. “Many of them went out of business. The incidence of financial default and bankruptcy was significant over the past several years.
“Also, a lot of these folks are Subchapter S corporations. Their income flows to them personally, so they’re very concerned about all the uncertainty and the issues surrounding their tax liabilities. All of these things that have become political fodder of late are very real around the kitchen tables of our customers.”
The emergence of cable companies as players in the market has exacerbated Cbeyond’s recession-fed slowdown.
“That’s the other aspect that has been difficult for us: the emergence of cable as a competitor,” Geiger says. “I hesitate to say ‘competitor’ because cable only competes with us at the lowest end of our market. But at that end of our market, they have been very effective and have caused us to react.”
Gradually, the twin challenge of the recession and the cable companies’ encroachment started sending trouble signals to Geiger and his leadership team.
“Our incidence of business failure in our base started increasing, and the cancellations due to financial duress in that time frame literally doubled,” Geiger says. “Our bad debt expense has increased. And while we still have a very small churn rate — in the neighborhood of 1.5 percent of our customers per month — it used to be only 1 percent. And just about all of that increase in churn has been because of increased business failures and business contractions.”
Alarmed by the slowdown in growth, Geiger and his leadership team started looking for ways to turn the trend around. And throughout the last two years, as a new technological opportunity began to materialize, they shifted their company’s business strategy to capitalize on it.
Adjust and adapt
Geiger and his team realized that Cbeyond would need to change and adapt in order to get the company’s growth rate back on track. Some of the changes they made were small and incremental: running Cbeyond in a more lean, cautious fashion; competing more on price; and introducing greater flexibility in the company’s product and service offerings.
“Those are some adjustments we made to our core business, adjusting as any business would, and we continue to focus on them,” Geiger says. “We’re conservatively capitalized, and we don’t have any debt, so this slowdown never threatened our future. It just threatened the fairly gaudy growth rates that we had experienced for most of our history.”
One other change Cbeyond made was more substantial, however: It started offering cloud-based telecommunications and computing services.
“In that same time frame, about 2010, technology took a leap forward and virtualization became economical,” Geiger says. “Along with greater bandwidth and access rates, this allowed us to start focusing on a different piece of the marketplace. This was exciting to us. Of course you’ve heard the overused phrases ‘cloud computing’ and ‘cloud services.’ Everybody wants to be offering cloud services today. But, indeed, we are.”
Geiger explains Cbeyond’s move into the realm of cloud-based technology in terms of “boxes.”
“It’s as simple as this,” he says. “There are boxes that companies — small businesses as well as large ones — used to have on their premises. When I say boxes, it may have been a firewall, it may have been a PBX [private branch exchange] or a key phone system, it may have been a server that ran some piece of their company’s automation.
“But now these boxes can be housed in a data center out on the Internet, if you will — out in the cloud. And we recognized this as a very natural strategic extension for us.”
One benefit of extending its business into the cloud is that Cbeyond is now attracting a different breed of customer: businesses that are slightly more, as Geiger terms them, “upmarket.”
“With companies that have a real technology dependence, if they don’t have access to their systems, they’re basically out of business,” Geiger says. “Professional service firms, doctors and dentists — who happen to be two of our biggest verticals — as well as attorneys, accountants, small manufacturing — these are companies that really depend on technology. They have knowledge workers. In many cases, they have multiple locations or at least remote workers. And they are willing to outsource. So we’re able to come in now with our new products and channels and offer a much broader package of capabilities to our customers.”
Cbeyond’s new set of offerings is also attracting larger companies with greater revenue and more employees as prospective customers.
“We’re now able to access a larger wallet of spending capacity of these slightly larger customers,” Geiger says. “Whereas our average customer used to have 12 employees, our new customer has somewhere in the 20s. And these newer customers have been growing, so I would say probably that average will end up being about 30 employees.”
The result of these changes is a redefined, repositioned Cbeyond. The company, which was launched in 1999 as a small group of entrepreneurs to solve technology problems for other entrepreneurs by providing them with basic IT and communications packages, is now a cloud-based, broadband Internet, Web-hosting telecommunications firm with 2,000 employees and projected 2012 revenue of $485 million.
Additionally, Cbeyond now has offices in 14 markets across the United States and four data centers in Atlanta, Louisville, Dallas and Las Vegas.
“The positioning of the company is really a lot different now than it had been,” Geiger says. “In the past, we had really good, broad solutions for a rather simple bundle of communication services. Now we’re a much more rich service provider in technology services.
“Our positioning now is to be a technology ally for small businesses. We’ll do the hard stuff, the heavy lifting: make sure that your data is always available to you, that it’s accessible over an adequate piece of bandwidth, that it’s up and running 24/7, that it’s protected, that there aren’t any viruses, that the operating systems of the servers and devices are all up-to-date and patched. We’re really acting almost as an outsourced CIO to our small-business customers.”
To get itself moving toward that goal, Cbeyond did a great deal of research to determine what types of cloud-based products and services it should offer its customers.
“While we knew that this was the direction we were going in, we weren’t so certain about which specific product offerings our small businesses would be interested in buying,” Geiger says. “So we did a ton of primary research. We talked to about 7,500 small businesses, both existing and prospective customers. We gathered a bunch of data, and then we went to work developing products to satisfy what we understood the market to be.”
Two of the primary results of all that research are Cbeyond’s new TotalCloud Phone System and TotalCloud Data Center. Both products are aimed at giving small-business customers greater flexibility in concentrating on their core business operations and not having to directly concern themselves with the operation of their communications and IT systems.
“The TotalCloud Phone System gives our customers the ability to have remote workers anywhere, with many different types of phones, and it gives them all of the same types of phone capabilities they would have if they were on a phone system in the same building — four-digit dialing to co-workers, transfer, etc., etc.,” Geiger says. “And it takes the job of taking care of the system’s uptime and performance and makes it our problem instead of our customer’s technical person’s problem. You can wash your hands of it once it’s in our care.
“Our TotalCloud Data Center is a similar offering for servers — for computing power. It enables our customers to outsource their servers. We’ll take their servers and house them in the cloud, and we’ll connect them securely and be responsible for their operation systems. Also, many of our customers have certain compliance regulations for their data today, which aren’t easy for them to figure out, and we can do that for them.”
Cbeyond’s leaders project that these new services will represent a quarter of the company’s revenue by the end of 2013, and that Cbeyond will be back to double-digit revenue growth by that time.
“These are very popular services, and they’re growing fast in popularity,” Geiger says. “They represent a material amount of our growth opportunity.”
Take quick action
Once Geiger had a clear picture that an economic downturn was deeply impacting the company, along with a new group of competitors nipping away at his company’s market share — it was crucial to be decisive and act quickly.
“If your gut tells you to make a change, do it sooner rather than later,” he says. “Follow your instincts and make the changes you need to make right away. Don’t waste a lot of time trying to improve the status quo. When you start to feel things shifting in a major way, don’t wait. React and respond.”
Trusting one’s intuition is a theme that Geiger keeps circling back to.
“It’s a mistake to fall into the trap of always listening to the experts,” he says. “One of the things you have to constantly remind yourself of is that no one knows more about your business than you do. If that isn’t true, then you need to find a new line of work. But assuming it is true, you absolutely have to trust yourself and your own instincts — and don’t listen to the experts.”
Lastly, Geiger says, a leader faced with the type of challenge that Cbeyond faced has to keep an eye out for opportunities and always be poised to act, to move forward quickly and forcefully.
“You have to have a high level of aggressiveness,” he says. “I think the level of aggression with which we embarked upon the change wasn’t enough at first. We were a little more hesitant than we could have been. And we’d necessarily be further along today had we had acted sooner.
“Of course, a lot of people could say that about many different aspects of their business. But if you see changes starting to happen and you feel it and you believe it, it’s probably true. As the often-said quote goes, the only constant is change. So you have to embrace it and act decisively and rapidly.” <<
How to reach: Cbeyond Inc., (866) 424-2600 or www.cbeyond.net
THE GEIGER FILE
Chairman, president and CEO
Born: Syracuse, N.Y.
Education: Bachelor’s degree in accounting and pre-law, Clarkson University, 1981
What was your first job, and what business leadership lessons did you learn from it?
In my midteens, I had a mentor who lived down the street from me. He ran a successful produce business. His name was Frank Mento. I worked at a farmer’s market unloading produce from rail cars and tractor-trailers. Frank started out with a single truck and would get up at some ungodly hour like 2 o’clock in the morning and go down to the farmer’s market, pick the best produce and deliver it to his customers personally. He was an advocate for his customers. The quality was all that mattered. He didn’t think in terms of short-term profit; he thought in terms of long-term relationships.
Do you have a central business philosophy that you use to guide you?
We’re very metric-driven at our company, and I’m personally very focused on creating systems that give us the best chance to meet those metrics: management systems, talent identification and development systems, incentive systems. I find that when all of those things are consistently defined, communicated, understood and implemented, that’s the fastest route toward the success of the business. Also, I have a coach: I’ve used the same consultant for the past 16 years, and he has helped me design those systems and be true to them.
What trait do you think is the most important one for an executive to have in order to be a successful leader?
Trust, which flows from integrity. We have a lot of long-tenured employees, and I’m very proud of their continued support and commitment to the company. We’ve gotten to where we are because there’s a tremendous amount of shared values and cross-commitment and trust.
What’s the best advice anyone ever gave you?
Listen to your customers, listen to your employees and do what they tell you. Frank Mento taught me that.