Pasquale "Pat" Romano Featured

7:00pm EDT November 25, 2007

When 2Wire Inc. — the telecom company Pasquale “Pat” Romano co-founded in 1998 — was just about to take off, the wheels almost came off. It was March 2001, and the venture investing community decided to hide behind a rock for a year, Romano says, and companies were shutting down left and right because the funding pipeline had vanished. That turned out to be a blessing in disguise for 2Wire because by securing one strong financial backer when most companies had none, the company obliterated its competition. As president and CEO of 2Wire, Romano weathered the storm and grew his company to 1,400 employees and 2006 revenue of $242 million after three straight years on the Inc. 500 list of the fastest-growing privately held companies in America. Smart Business spoke with Romano about how to scale your company as it grows and why you have to invest early in infrastructure.

Think big, so you’ll be ready when you are big.

One of the biggest things you should try to avoid is not putting in infrastructure — an organizational structure — in advance of needing it. You can go too far with that, you can put in Fortune 100 infrastructure when you have no revenue, and that’s a mistake, but you do need to hire talent that’s way ahead of where your business needs are.

If you do that early, you can’t micromanage. Even in the early phases, you can’t be the guy who calls all the shots because no one who’s senior enough to take the ball to mid- or large-scale will want to work in that environment. They have to work as a partner with you; they cannot just work as a task executer.

So if you hire right early, you have a much better shot at scaling a company. And you have to hire all functions. Another pitfall is that companies in their early phases don’t invest in the operational infrastructure.

Again, you can go way overboard on spending money on complicated systems and overhiring in areas you don’t need early on. However, the critical functions — good finance organization, a good operations organization, a good IT infrastructure so people can get their work done — all those things need to be healthy and need to be adequately focused on early.

The tendency in the early stages is it’s all about product, product, product. Well, you’re building a business, not a product. If you focus on those things, it dictates your leadership style to some degree because you’re forced into dealing collaboratively with a lot of partners around the table that you will run this future large enterprise with while it’s small and try to get it there.

If you want team-oriented culture, one good way of getting it is to hire people who are as good as you are.

Scale your communications. When you start a company, you can fit it in your conference room. Communication with employees in general is implied. You see the entire employee population every day. So you form the usual bonds. When you’re working really hard to get something off the ground, the bonds naturally form.

When you get bigger, which is the goal, you want to continue with that, but it doesn’t scale indefinitely. You have to add in some form of informal communication, or people will lose track of what’s going on with the company.

One thing I’ve always done is have regular company all-hands meetings, where we talk about the status of the business.

We’re really open internally with the information flow — inclusive of some things that are sensitive to the outside world. We tend to have an environment of ‘trust your employees’ with things. We give pretty unfiltered information to the employees about the financial performance of the company, products that are coming, so they can connect what they do at their desk every day to what the outcome will be if they take a particular action.

That’s the key: Making sure they get a grass-roots sense of the drivers of the business.

Don’t get too hands-on. You need to be very involved [with the operations] but very carefully involved. If it ain’t coming off the rails and it’s not broken, you put in the metrics to monitor it and tell you if it’s coming off the rails early.

But don’t mess with it in a micromanaging way if the metrics are telling you everything is going well. You need to be looking at all the details.

With a mid-sized company like us, there are tons of programs. There are so many programs running simultaneously. Is any one going to make or break the company? Probably not. When you’re in your early phases, can one make or break the company? Sure, because you’ve probably only got one or two. So you need to be fairly heavily involved but not intrusive, unless there’s a problem. Then you have license to get in and make sure the problem doesn’t extend as soon as possible.

Let your employees stretch. If your business is successful, good people will be attracted to it because good people like to work for winning teams. Doing good at your day job in terms of making the company successful is going to make it easier to hire.

Even now, we still use equity ownership in the company as a motivator because there is a direct, long-term relationship between a person’s contribution and the value of that equity. Money’s not everything, but it’s nice to know that if you push hard and everybody else pushes hard, then you win.

Here’s another factor: Do you let your people stretch, or do you put them in a box? People like to get measured by as large a yardstick as possible, and they like as much latitude as possible to take opportunities outside their initial job description — as long as they’re getting their day job done — and be able to stretch.

If you keep people challenged in general, you get a reputation for being able to grow employees. One corollary is that if you have good employees, other good employees want to work there. The key is maintaining the quality of your existing employee population.

If you allow substandard performance to persist in your organization and dilute down, the intangible feeling when a candidate comes in to interview — that you’re a high-caliber team — you are diluting your ability not only to execute with that team but to attract good people. So you need to be diligent about managing the employee base.

HOW TO REACH: 2Wire Inc., www.2wire.com or (408) 428-9500