Surviving a mid-stage crisis: Masergy disrupts the networking services industry when it grows up in a hurry Featured

10:25pm EDT February 2, 2014
Chris MacFarland, CEO, Masergy Communications Inc. Chris MacFarland, CEO, Masergy Communications Inc.

Chris MacFarland was on his way to manage a startup when Royce Holland, chairman of Masergy, asked him to take a hard look at his company. Although the eight-year-old provider of networking services had reached nearly $100 million in revenue and survived both the nuclear telecom winter and dot-com crash, Masergy was stuck in that awkward adolescent stage just as the economy was slowing.

“Masergy’s board wanted me to consult for a year, offer advice and position the company for a possible sale,” MacFarland says. “After assessing the financials and current solution set, I thought it was possible to grow the business but the steps wouldn’t be easy.”

The telecom veteran and self-professed computer nerd, who taught himself structured programming languages as a child, found a company that from a macro standpoint was pretty good, but not great. Specifically, the staff was passionate about customer service but lacked the tools and systems to deliver, growth had stalled, the CEO had resigned and after bankrolling the company for the past eight years, the firm’s venture investors wanted liquidity.

“The top leaders needed to go, we needed a more collaborative environment and a change in ownership,” MacFarland says. “I was brutally honest in rendering my assessment because Masergy’s board trusted me to make the right call.”

Masergy’s board bought in. MacFarland became COO in 2008 and was promoted to CEO in 2010. Under his watch, the firm has matured from a rudderless organization to a major industry disrupter with revenues of $170 million for fiscal 2013, which ended in June.

Here’s how MacFarland pushed Masergy out of its mid-stage funk.

 

Build a healthy foundation

MacFarland initially planned to reposition Masergy during the recession, then satisfy investors’ need for liquidity by filing for an IPO as the economy rebounded. Given his goals and his assessment of Masergy’s issues, it’s not surprising that he started by replacing the company’s leadership team.

“There was a lot of infighting among our management team,” he says. “We needed leaders who could deal with investors and water the culture in order to get to the next level.”

MacFarland wanted to eliminate the fiefdoms that were hindering collaboration as part of a comprehensive effort to create what he calls a healthy company.

“You need trust between the leaders and departments to garner commitment for initiatives, core objectives, financial objectives or new product introductions,” he says. “And we didn’t have that. In fact, our environment had become so unhealthy it was stifling growth.”

Next, he weeded out underperformers and raised the bar for new hires by sourcing candidates who wanted to drive the bus instead of ride it. Paring the staff led to productivity gains and a 35 percent increase in profitability.

“Smaller firms need passionate ‘A’ players who will take the initiative,” MacFarland says.

 “The economy propelled us from 2005 to 2008 and during that time, people became somewhat inefficient and we ended up with a lot of ‘C’ players.

“Cultural fit and synergy are critical in a mid-market tech company like Masergy because we’re not IBM. We can’t drive the business through operational measures, we need passionate, capable people to carry the torch.”

At the same time, he established a new set of core values before setting his sights on improving the company’s technical platform.

“For example, one of our values is that everybody has to be engaged and involved,” MacFarland says. “If an employee sees something they don’t agree with or understand, instead of sitting back we want them to ask about it and offer up suggestions.”

Despite MacFarland’s best efforts, Masergy encountered significant head winds from 2008 to 2010. He ended up shelving the IPO and recapitalizing through another venture firm, ABRY Partners, in the summer of 2011. But upgrading Masergy’s staff, culture and leadership team has continued to pay dividends.

“Sure, I could lay out a vision but a CEO needs cohesive leadership and engaged people to carry it out,” MacFarland says.

 

Improve the customer experience

Competing against the likes of AT&T and Verizon isn’t easy. Industry leaders tend to offer a full portfolio of voice and data products, coupled with above-average service and support, wide global coverage and competitive pricing according to MacFarland.

“Our platform wasn’t stable which impacted customer satisfaction and hindered sales,” MacFarland says. “To make matters worse, our network admins and customer service staff couldn’t always see our customers’ screens which made it difficult to resolve their issues.”

Moreover, customers will defect if they don’t have a strong value proposition and a reliable global network, so MacFarland reset the bar by spending millions upgrading Masergy’s platform.

His team now has the ability to monitor the network in real time, while customers can run voice, video conferencing and applications while viewing the same interface from anywhere on the planet. And because the new structure is scalable, MacFarland says it can sustain Masergy’s growth to $500 million.

“Our 360-degree view of the customer is unique in the industry,” he says. “Plus, customers get to speak with a real person instead of an interactive voice response system or IVR when they call. And our customer service reps are experts at relating to prospects who aren’t technically savvy.”

While some of the values that MacFarland is credited with helping to instill at Masergy may seem rudimentary to outsiders, his mandate to treat customers and business partners equally is regarded as innovative in the networking services industry.

“Treating everyone equally is a fundamental shift in thinking for our industry,” he says. “It helps us build healthy relationships and a robust supply chain which is critical to sustaining growth.”

MacFarland isn’t solely relying on technology to improve the experience of Masergy’s customers. He’s using good old-fashioned feedback and metrics to track customer sentiment and improve their satisfaction. And he’s putting his money where his mouth is by offering customers SLAs and credits if the firm falls short of its promises while giving employees bonuses for improving their experience.

“We weren’t engaging in deep analytics because we lacked actionable data and metrics,” he says. “Being a global company we need to keep our fingers on our customers’ pulse and monitor how we’re viewed in the marketplace.”

He’s also using spot surveys to track customer reactions and the rise of Masergy’s Net Promoter Score (NPS), which measures the loyalty that exists between a provider and a consumer by asking if they would recommend the service to a colleague.

A positive NPS is good, and a score above 50 is excellent and regarded as a harbinger of profitable, sustainable growth. Masergy’s dreams of delivering exceptional service have been realized based on the firm’s most recent NPS of 59.3 percent.

“The first year we scored around 30, which is OK for our industry but not for a broader tech firm,” MacFarland says. “We need loyal customers to become a valuable partner and achieve our goal of competing on a bigger stage.”

 

Jump-start growth

After building a healthy foundation and improving the customer experience, MacFarland turned his attentions to Masergy’s lagging top line. Admittedly, sales was not one of MacFarland’s strong suits so he hired a new sales leader and charged him with reinvigorating the company’s base of channel partners and resellers.  

“As a technology firm, we rely on solution providers, systems integrators and telecom agents, as well as consultants and network and video equipment manufacturers to sell our solution,” he says. “Clearly, we needed new partners to jump-start growth.”

MacFarland’s sales guru reinvented the company’s sales methodology and rolled out new partner levels in 2011, offering Masergy’s top producers rewards and incentives for selling its WAN solutions. Gold and platinum partners receive higher commissions, spiffs and access to benefits such as customized joint-marketing strategies, co-marketing funds, special events and co-branded case studies.

As a result, Masergy saw its platinum partner base go from five to 12 over the past year, while its total number of partners rose to more than 100. In fact, some partners’ year-over-year sales grew roughly 30 to 40 percent, thanks to MacFarland’s well-timed entry into the cloud and cloud-based managed network services.  

To explain, MacFarland took advantage of Masergy’s recapitalization by acquiring Los Angeles-based Broadcore in July 2012.The move catapulted Masergy into cloud services and gave the firm a complementary presence in hosted PBX and UC services, a segment that is expected to achieve robust growth over the next few years.

“We’ve experienced double-digit revenue growth after recapitalizing,” MacFarland says. “And to sustain that we have to roll out a new product every other year.

“We’re not looking for a value play, it has to be a cultural fit and meet certain criteria. But given that we have significant market share within the networking services segment developing or acquiring new capabilities is the best way to sustain growth over the long haul.”

For a guy who says he knew nothing about sales coming into the job, MacFarland has been very successful in driving top line growth. Masergy has acquired numerous marquee customers such as Unisys Corp., Akamai Technologies, Dolby Laboratories Inc. and the Hallmark Channel. The firm is forecasting revenues of $170 million for 2013.

“Technology is a high stakes game,” he says. “It takes significant investments and efforts to succeed but you increase your chances by building a healthy, transparent company.”

 

Takeaways:

  • Build a healthy foundation
  • Improve the customer experience
  • Jump-start growth

 

The MacFarland File:

Name: Chris MacFarland
Title: CEO
Company: Masergy Communications Inc.

Birthplace: Born in Hobbs, N.M.

Education: He studied computer science engineering at the University of Texas at Arlington.

What was your first job and what did you learn from it? I worked in a tire store changing tires and repairing flats when I was 16. The work was so hard that it encouraged me to pursue a career that would utilize my brains instead of my brawn.

What’s the best advice you’ve ever received? During my early days in the telecom industry I got to know Michael Russell, co-founder of American City Business Journals. He taught me that there’s strength in numbers. In other words, your company will go farther and grow more quickly by having a strong team rather than a handful of strong individuals.

Who do you admire in business? I tend to admire leaders in different industries for their strengths and accomplishments. For instance, I admire Bill Gates for being an extremely shrewd business person, his problem-solving skills and his remarkable philanthropic spirit. I admire Jamie Dixon for his ability to manage through the global banking crisis. And I admire Herb Kelleher for creating a dynamic brand and culture.

What’s your definition of business success? You’re successful when you achieve a profit without compromising your integrity. Although many tech companies were successful in the late 1990s, they engaged in questionable business practices and weren’t transparent. True success takes place on multiple levels.

 

Learn more about Masergy at:

Twitter: @MASERGY
LinkedIn: http://www.linkedin.com/company/masergy-communications
YouTube: http://www.youtube.com/masergy


How to reach: Masergy (866) 588-5885 or www.masergy.com