Tea Leaves

My internet provider of choice (and former employer) Telerama has been having a few problems lately. This has engendered some morbid conversations, Irish wake-style, among some folks about whether and when the business will completely give up the ghost.

Regardless of what happens to Telerama — and I hope it’s around for a long time, and regains a solid financial footing — I think it brings some lessons that are of interest to anyone who wants to run a small business. I’m going to wander far afield and talk about some of these, and also talk a little bit about Telerama.

A friend of mine asked me yesterday whether I had switched my DSL over to some other company yet. “No, not yet,” I said. “I’m going to ride it out for a few days and give Doug some time.” “Is that an emotional attachment, or a financial calculation?” she asked. “Neither. It’s just, well, having my DSL through these guys keeps things interesting.”

Now, the unfortunate thing for Telerama is that “interesting” is not really what most people want out of their service providers.

The intriguing thing about Telerama as a case study is that it was clear from around 1995 or so that it was in the wrong business. Small businesses can’t make money and grow selling internet services to end users. Yes, I’m aware that there are a number of other providers in the Pittsburgh region in this market, but that doesn’t make the statement any less true: unless you are offering some substantive service that isn’t available elsewhere, you’ll eventually be pushed out of the market by larger players, who will offer better service for lower cost.

So the key question for Telerama in the early 1990s was: how could the company exploit its early start and find new markets? That’s what never happened. Why not?

Unwanted Guests

Most of the people who started internet companies in the early 1990′s had, to put it mildly, strong personalities. This is not coincidental. The Internet in 1990s was largely controlled by an oligopoly of entities that worked on behalf of universities and research institutions. For-profit network operators were unwanted. Early on, your ability to resell service lived or died at the pleasure of someone who had no interest in actually selling you bandwidth. The only people who started ISPs were those who were prepared to take risks that others were not willing to take.

In order to start an ISP in the early 1990s, you had to be willing to look your upstream provider in the face and lie to them about what you were doing. That really meant that only a certain type of person could start a succesful ISP.

This very attitude let Doug, Telerama’s owner, do some things that others were unwilling or unable to do. Doug was a superb judge of technical talent, as distinguished from technical knowledge. He was constantly hiring people who had very sparse technical resumes, but who would prove to be sharp, quick-learning, and adept. I know of many people working as software developers, networking researchers, and network operators today whose careers were launched because Doug gave them a chance before anyone else did. The importance of his ability to recognize this kind of talent can’t be overstated.

It’s also important to note that Telerama has been an ISP for 16 years. In that time, countless other ISPs have started and gone bankrupt. Keeping an ISP afloat in the marketplace for this long is no mean feat.

The Control Paradox

The key paradox in running (and growing) a small business is that you can’t grow without dividing up control and responsibility, but there’s incentive against doing so. Giving the wrong guy too much control can result in someone taking the company you worked hard to build and driving it into the ground. But in my experience, failing to find the right people to give control to will result in the same end — it’ll just take longer. You can’t do it all yourself, and you shouldn’t try. Finding the right people to give responsibility to will increase your control over the company.

This can be summed up as follows: as an entrepreneur who owns a startup, your number 1 priority should be hiring your replacement.

You need 4 good people to have a hope of managing any business:

1. The Guy Who Manages People. This is the person who hires the people who do the “real work”, and whom they report to.
2. The Guy Who Sells Things. This is the person whose job is to help you plan where you will make your money, and to help you execute that plan (yes, I am well aware that I am mixing marketing and sales together. You will unmix them as you grow).
3. The Guy Who Watches The Cash. This is the person who can, at a moment’s notice, answer the questions “What are we spending money on?” and “What can we do to improve our cash flow?”
4. The Idea Guy. This is the person thinking about products or services that you can be selling several years down the road.

In most of the successful companies I’ve seen, the founder ends up being The Idea Guy, since that’s how he came up with the idea for the company in the first place. If you actually plan to grow, and not just maintain your business, you’ll very quickly need an HR person (“The Guy Who Keeps You From Getting Sued Too Much”).

The road to failure is littered with the corpses of companies who let their Idea Guy also be The Guy Who Watches The Cash or, for that matter, any of the other guys. One or more of these people will also be your Guys Who Raise Money, but that’s a subject that’s beyond the scope of this article.

The thing I’m trying to make clear here is that it is in your business’s best interest if these are all physically separate Guys. There are a number of reasons for this, but it boils down to two things. First, the most important part of fixing a screwup is figuring out that the screwup exists. Second, you want accountability. You want to be able to make the minimum number of staff changes needed to fix the problem, and no more.

My impression at Telerama is that at any given time they really only had 2 Guys: “Doug” and “This other guy that Doug hired to do everything.”

That’s not enough Guys.

An Illustrative Story

In early 1994, Doug and I were in our early 20s. Neither of us had a lot of experience running a business. When things at Telerama needed to be done, we just did them. The idea of hiring (for example) a Sales Guy didn’t really occur to us.

Once, we showed up for a sales call on a local Internet startup (motto: “We don’t produce anything of value!”). These folks were looking to lease a modest amount of high speed internet services. The local phone company was still charging usurious rates for DS1 service, and the expertise to operate the lines was still fairly specialized. Telerama had already demonstrated competence at operating such services, and was quoting a price significantly less than our closest competitor.

I wore a suit. Doug, who was used to dealing with techically savvy people who didn’t trust people who wore suits, was wearing very casual street clothes.

Since this potential customer was a very “straight” company, that’s really all you have to say. The numbers we put up, the value proposition, none of that mattered. To this company, Telerama had just become the oddly-dressed guys, and there was no chance of making the sale.

On the way out to the parking lot, Doug said “Huh, that didn’t go so well, I guess.” I looked over at him. “You’re buying a suit.” “I can’t afford a suit!” he said. “The company is buying you a suit,” I said.

We got Doug a suit. We started making sales after that. This particular potential customer went bankrupt in 1997, so at least some good came out of the meeting.

The interesting thing about this story, to me, is that it could have gone either way: had the client been a different sort of company, the sale might have been lost because I was wearing a suit. “Why should we trust these guys? They’re a bunch of suits.”

If you have a Guy Who Sells Things, she knows exactly what the customer expects her to be wearing before she shows up.

100% of $0 is $0

One thing about Telerama that I think most people don’t realize is that it mostly grew by its bootstraps. Most of the money invested in the company came from its customers. This is unusual. Many companies, especially tech companies, choose venture capital. The most egregiously unselfconscious of entrepreneurs even choose VC and then whine about how they had to sleep in the bed they made. VC comes with strings, and for many businesses those strings are very helpful. But the secret of VC is that the real value it brings isn’t cash, but expertise — expertise in running a company. A good VC helps you hire your replacements. That will help your company grow.

All of this sounds obvious, but the missing link is that founders are not always rational about money. Many of them don’t view the company as an intangible holder of value, but as an emotion-laden opus into which they’ve poured their hopes and dreams. And so the rational argument “bringing in more expertise will help the company grow” sometimes can’t outweigh the desire to keep tight control on “their baby.” All you can do as an employee is learn to recognize when this is happening, and run in the opposite direction as fast as you can.

Memento Mori

In Republican Rome, when a victorious general would receive a triumph, a slave dressed in rags would be perched behind him. That slave would periodically lean over and whisper in the general’s ear, reminding him that he was merely a man. In a business, that role is served by your partners, by your board, and by your shareholders. If you have no partners, no board, and no shareholders, then you are navigating a very strong current with only a very weak rudder. I think that, more than anything else, is what has put Telerama into its present dire strait. No matter how good Doug’s judgment is, he’s just one guy, and without a group of people with brains, experience, and a vested interest in the matter, he’ll continue to struggle.

I don’t know how one can salvage the situation. But if there’s one thing I know about Doug, it’s that he’s not afraid to try new things. If he can find the fortitude to find funding, gather a competent team, give them responsibility, and execute a plan, then who can say where the company will go. This is Telerama’s standing eight count. “Down and out” may seem likely, but it’s not a certainty. Not yet.