Guth had to lead the company’s two-year reorganization with the help of an investment firm that specializes in pulling troubled companies out of the fire and put together a strategy based on discipline to rebuild TelCove on firmer footing, entrenching the company in fewer but more lucrative markets.
The lack of interest or confidence in technology investments at the time, particularly in telecommunications ventures, left TelCove without the resources it needed to execute its original strategy.
“Our business plan as it stood in 2000, 2001, required more capital,” says Guth. “If you have that kind of business plan and the capital markets shut down, you’re, by default, in default.”
He ultimately lopped off half of the company an action that came out of a painful realization that it couldn’t survive as it stood, with overbuilt and underutilized fiber optic telecommunications networks in too many regions where it was unlikely to establish itself as a stand-out player.
But after its stint in bankruptcy, TelCove is back on track, Guth says. And with a much more disciplined approach to its business, it’s not about to slide off again.
“We have an extremely disciplined company, maybe to a fault, and that’s the biggest difference between TelCove of 2005 and TelCove of 2000,” says Guth. “We know who we are and we know where to go.”
At least part of the reason that TelCove got into trouble was a strategy that called for a national presence of fiber optic networks geared to serve large numbers of customers. That much was excusable, as the prevailing wisdom at the time was that successful companies would need to have national coverage.
TelCove, however, found itself with lots of debt, located in markets that were growing too slowly to justify its massive investments in infrastructure and little to offer that other players in those same markets weren’t already providing.
“We had more than 30,000 customers at our high point,” Guth says. “For 20,000 of those, we had no differentiation story. We were just another me-too player.”
For Guth, the solution was pretty straightforward: Get out of markets where TelCove couldn’t outdo its competitors and continue to do what it had always done well. That, says Guth, is serving large customers in industries such as education, health care and finance, enterprises that require secure networks and high bandwidth, and doing it with very unique assets in ways that its competitors can’t.
“It really was, from a bottoms-up perspective, knowing which networks, for example, had value and which networks did not,” he says. “We did not just strip out networks that were out of our region we did a lot of that, too; Los Angeles, Phoenix and Seattle did not have that much to offer but we also got rid of some networks that were within our footprint. In Washington, D.C., we had a very me-too network. Boston the same way.”
TelCove stripped away some of its networks, closed others entirely and reduced its 2,000-employee work force by nearly half. It jettisoned most of its customers, cutting its list from about 33,000 to about 8,000 customers, “the ones that we could really say they’re buying from us because of this great asset we have, not because we gave them the best price,” Guth says.
The realignment of its networks and revamping of its business model has taken TelCove from commodity provider back to a model that offers large clients one-of-a-kind services.
“What we sell today in Harrisburg or Jacksonville or Nashville is anything but a commodity, because nobody has the fiber in place to commoditize it against us,” says Guth.
The restructuring made a big difference in the company’s financials, reversing its cash picture in less than a year. That kind of performance inspired added confidence in its investor, Bay Harbour Management, says Guth, and made it an enthusiastic partner in the reorganization effort.
“The most important time period for us was from the first quarter of 2002 to the third quarter of 2002, when we went through burning about $5 million a month to generating a couple million dollars a month by virtue of that refocusing,” says Guth. “Once we got to October and created a little bit of momentum, it was no longer essentially an evaluation role on their part. It was more of, ‘OK, let’s all work together and get this thing out of bankruptcy.’”
While calming the jitters of investors can be accomplished by sharing the intimate details of a company’s progress and operations is one thing, reassuring customers and employees is something else. Guth says management was able to do it by staying in frequent touch with both groups and sharing whatever information it could.
“Constant updates about our progress through the process kept everybody focused, kept everyone with the same goal, heads down and working, as opposed to worrying about our situation,” says Guth. “A lot of it was about the bankruptcy itself. Without going into a lot of details with them, we tried to lay out what the major milestones were and we tried to give them an idea of when those milestones would happen and then updated them as they did.”
Customers were less uneasy about TelCove’s situation, says Guth, because its most important asset, its cable network, was transferable to another owner, even if TelCove had liquidated.
“From a customer perspective, we really emphasized the value of the assets that served them,” says Guth. “Our biggest customers stayed with us throughout the restructuring because they could look out their front door and see fiber coming into their building, and they could say to themselves, ‘TelCove might not own it in a year, but someone sure will.’ It’s not going away, so having a physical asset like we do assured the survival of the asset, maybe not the business but the asset, and we were able to rally fast enough to assure the survival of both.”
While changing the business that TelCove does has reaped rewards, changing the way TelCove does business day-to-day has been a key factor in keeping the company on an upward trend. Guth and his team have put in place a structure that keeps the company trained on its core business.
“It’s not just a book on a shelf that says, ‘This is what we’ll do,’ and everybody says, ‘OK,’” Guth says. “There’s a process for pushing the envelope and pushing it back, and that’s stressed every day and probably creates stress every day, but it’s how we keep things on track.”
The controls are designed to rein in any tendency to stray from its core business, to keep TelCove trained on its focus and away from the temptations to venture into areas that take it away from it. Those rules of engagement cover the operations of the entire organization.
“Inherent in how we structured the company are checks and balances, whether it’s in how we sell, who we sell to, how we price, what products we introduce, all those things,” says Guth.
The more stringent guidelines have had a downside, however. Guth says some people in the organization moved on because they found the tighter structure a little too restrictive.
“Actually, there are folks that have left this company feeling like they might have had many more opportunities if we had just loosened the strings a little bit,” say Guth.
That said, Guth isn’t about to give those strings much slack, even if it means that some people find them too constraining. The benefits of a structure that forces a tighter focus outweigh any disadvantages enough for him to keep them in place.
Says Guth: “There are checks and balances today that probably create an incredible amount of frustration, but they are there, and they’re staying there.”
How to reach: TelCove, www.telcove.com