Updated as of Tuesday, April 25, 2017.
“Frankly, I think this is an ideal time for new start-ups to capture significant market share.” Bob Cowan, founder of American Teleconferencing Services, Ltd. (ATS)
Digital Growth Ventures interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche. This week we interview Bob Cowan:
Interviewee: Bob Cowan, started ATS as a 1st-time entrepreneur.
Why Selected: With no previous business experience, Bob started ATS from scratch by borrowing $35,000 from friends, family and a second mortgage on his house. Defying the odds, he grew the business and sold it, 13 years later, for approximately $60M. I had the pleasure of working with Bob and ATS and I can tell you it was one of the most rewarding and formative times of my career.
In the following interview, Bob provides you with some insights on how he and ATS were able to enter a market dominated by AT&T, carve out their niche and grow the company before selling it to Premiere Global Services (NYSE: PGI) in 1998. During the interview, Bob brought up many relevant points about what it took to start, persevere and grow ATS and three key aspects kept jumping out to me:
1. Focus on solving your prospect’s and client’s pain by constantly talking to them and getting to know their business. Clients are more willing to pay above fair market value IF you are able to address an issue that impacts the client directly (a client's "pain"). Any statement that starts with "I wish...", "If only...", etc. will lead to higher profitability.
2. Continually innovate
3. Get to know your employees as they may have additional talents that can help your clients and your business. Instead of seeing "Human Resources" as the policy/procedure department, using HR to capture the full range of employee skill sets and experience as part of your "competitive advantage" will go far in making your company more responsive and market-agile.
What drove you to start ATS and how did you plan penetrate a niche dominated by AT&T who had more than 90% market share at that time?
Frankly, the healthcare chain that hired me to develop a medical telecommunications network decided not to fund the effort after several years of effort. Not having a job and a three-month old daughter was a great motivator!
When asked by a friend about my unique project experience and what difficulties I had implementing projects, I realized that the biggest difficulty I faced in implementing my teleconferencing programs was a lack of service that would reliably handle the interconnection process. While AT&T and MCI were the largest providers of “conference calls,” even the smaller niche firms that specialized in conference calls did not seem to understand what was necessary from a user’s perspective.
My initial “gut” objective was: “to start a conference call company that provided the services I wished were available when I was a user.”
First, I went back over all the business and educational conference calls I had been involved with as a moderator and participant and outlined all the problems I had encountered. Second, I reviewed the equipment available to host teleconferences to determine which problems could be addressed by changes to the service delivery and which problems could be addressed through modifications to the technology. Third, I started to estimate potential user communities in the healthcare industry (since it was a sector I knew quite well) and type/frequency of use. Fourth, I called many of my health care friends to get more concrete information about who they used, what they were being charged and the service problems they were having. Fifth, I started to estimate how much it would take to start/maintain such a service and the potential revenue stream that was offered between 10-20% less than the current going rate. Sixth, I pulled together a conference call with some of the same people in health care to discuss my ideas for a service that would not only address their problems, but offer some additional services that were not being offered by any service provider. Seventh, I created an Advisory Board of friends that had expertise in finance, planning and education. Eighth, with the help of the Advisory Board I started to go after funding sources.
What were the biggest obstacles you ran into at the different stages of ATS’ growth and how did you overcome them?
In some respects, growing a company is like raising children: there are always problems – the type of problem keeps changing.
Funding. Obviously, the first issue you face is raising the initial funds to meet the estimates in your business plan. In our case, the business plan called for about $250,000 in capital to purchase equipment and cover expenses for the first year. Unable to obtain funds from traditional banking sources, I turned to family and friends. In the end, we had seven people put up $5,000 each and started the company with just $35,000. We were seriously undercapitalized and we were able to continue because of two factors. First, I was able to get initial business from the healthcare clients that had helped me design our company’s offerings and, second, their word-of-mouth recommendations brought in significant additional business.
Sales. While I had managed sales people in the broadcasting field, I did not have any direct sales experience with a product that was sold on a national basis. We were able to achieve some significant increases in sales by getting stories about out company placed in a number of magazines read by those in our target industries. Some of our most productive results came from feature articles that appeared in in-flight magazines. Once we were able to cover our basic expenses, I concentrated on building a sales force. I think we went through five or six sales managers before we were able to attract someone that had experience in the teleconferencing industry.
Maximizing human resources. When we needed help, we would hire the best person to fill the position and move on to the next problem. I didn’t realize until later I was overlooking one of the greatest assets in the company – the unique capabilities of the people already on the payroll. For whatever reason, when we hire someone to fill, say, a clerical position we tend to forget about any additional skill sets they may have. Case in point, in a casual conversation with a member of the clerical staff I found out that she was a physician in her last year of residency when she found out she had cancer. She dropped out of medical school, was divorced by her husband and took the clerical position because she desperately needed a job. Since she had a strong medical background that could be leveraged, I moved her into a pharmaceutical sales support position where she immediately tripled her salary. From that point forward, I viewed the “human resources” department in a totally new light. Instead of a department that managed the paperwork associated with hiring/firing, benefits, etc., it became a department that developed an inventory of backgrounds and skills that could be used to gain competitive advantage. For example, if we were thinking about opening a new sales office in a city we pulled in employees that had lived in that city to give us any useful insights. Since a number of our employees were ex-military that were stationed abroad, we were able to take advantage of their language skills when dealing with multi-national clients. For those that are starting a new venture and have limited financial resources, it is certainly recommended that you make maximum use of every dollar spent – and fully utilizing the people you have already hired is a no-brainer (although it took me a while to figure it out).
Synchronizing service capabilities and sales promises. We were able to attract many new clients by providing customized services that other firms were not willing to provide. As we grew in sales staff, we encountered an increasing number of problems where the services promised by a creative sales force (many of whom were now living in major metropolitan areas and unfamiliar with the specifics of service delivery) created problems for those that were tasked with providing the service. The resources necessary to meet the level of service promised by the sales force were not reflected in the charges to the client. The sales staff was doing their job – our revenue growth rate was in excess of 40% – but there were also an increasing number of quality related issues that were giving our competition an opportunity to take business from us. We went back and reviewed every type of service we offered, reset the pricing elements, reduced some of the customization elements that were getting us into trouble and dramatically increased the staffing in our service area.
Helping Employees become Employers. We were growing so quickly that in a three-month period of time a new hire could become a supervisor. While we had training programs in place, I wasn’t sure they were helping our staff in their decision making process. I started ATS University as my “sleeping pill” – since I would like awake at night wondering whether the new staff members “got it.” Essentially, every new staff member would go through a 3-day training period on the industry, on the history of the company, and the financial contribution of the Top 20 clients. Finally, I would put up the detailed income/expense sheets and we would go through every line item so that they knew not only where the money was coming from, but where it was going. Finally, there had been some criticism from those on the service side that we were not hiring enough to cover the growth – so I started to put up some historical revenue numbers and challenged the group to estimate future growth. They soon became aware of the complexity of the forecasting process AND the key elements necessary to provide a more accurate estimate. Now, when they heard client comments that might have a potential impact on future revenue they were very quick to pass those observations along. In addition, we started a process of dividing service providers into small entrepreneurial groups that had some control over their own expenses and were able to retain some of the excess profits they generated. After a few false starts, this became an outstanding way of creating employees that could make ad hoc decisions more in line with company goals and significantly reduced some of the quality and expense issues that had surfaced.
In 1994, when Telespan Magazine named you “Teleconferencing Professional of the Year,” one of the things they said about you and the company was “ATS doesn’t steal market share, they create new markets.” That is easier said than done. What steps did ATS take that made this possible?
For me, the key was listening to clients or potential clients talk about the problems they faced – the kinds of issues that kept them from being more successful or reducing their stress. If they were a potential client, I was interested in the problems they were having or the features they wished were available. If it was an existing client, I was increasingly interested in the issues their division or company was facing – including objectives or targets for the coming year. This gave me a chance to think about how our technology or service could help them meet their goals.
Over time, I started to understand that I was searching for their “pain” – on a professional and personal level. When someone would express their concern about a corporate goal to open a significant number of new offices, I would try to understand the basis for their concern and see if we had or could develop a program to help them. When someone would complain that they couldn’t get home in time to see their child play baseball, I found myself trying to find ways to reduce their workload.
While I started these discussions with users because I enjoyed the conversations, I found that when we came back with some potential solutions several things happened: first, since we were offering relief from the pain there was no bickering over price and we were able to maintain outstanding profit margins; second, the fact that we listened and brought back potential solutions made us more immune to competitive attack from our competitors; third, we would get amazing word-of-mouth recommendations within the company leading to additional business; fourth, the decision to use our services was kept out of the telecommunications department (who often went with a low quality, low priced service).
The other approach that helped us create new markets was our approach to vertical and horizontal solution sets. In the beginning, the bulk of our business was three vertical markets: the healthcare industry, Wall Street financial firms and the airline industry. Since we wanted to find ways that we could help our clients, we ended up learning quite a bit about each industry and developed a number of industry-specific offerings that helped us attract others from the same industry. We developed marketing materials that targeted each industry that highlighted our unique understanding of their business needs – a strategy that was unusual at the time. As we worked more closely with firms to refine the services, our clients started to view our work effort as part of their competitive advantage and it became increasingly difficult to use case studies as a method of selling a service to a potential competitor.
At approximately the same time, we started to promote our services at a series of national and international conventions of educators, public and investor relations professionals, human resource providers, etc. It was at that point we realized that the lessons we had learned in creating, for example, service offerings geared toward the training of on-the-road pharmaceutical sales staff could be slightly modified to train on-road-sales staff regardless of industry. This horizontal approach that targeted people holding similar organizational positions regardless of industry enabled us to leverage our experience and program development effort.
All of this led us to look for several potential client types: the underserved (those frustrated with their current provider), the pent-up demand (those know there is a solution to their problem but don’t know how to move forward), and “I could have had a V-8” group that had no idea there was a solution to their most vexing problems. If you notice, there is no mention of “someone that wants it cheaper.”
All of this led us to a “contrarian” marketing approach – going where our competitors were not showing up and filling their vacuum. If all of our competitors were exhibiting at national conventions, we targeted smaller regional conventions where we could be invited to speak and could spend more time talking with potential users. I must admit that I resisted this approach at first, but our return on investment was dramatic.
After a while ATS, became known as one of the conferencing niche leaders. Once in that position, what did you set-up so that ATS stayed in that leadership position? What were you doing different than others in the conferencing niche?
If the standard mantra is: do it better, do it faster, do it cheaper, then you better think along those lines.
Very much like software companies that need to constantly introduce new versions to keep the revenue on an upward trajectory, a service shop has to constantly refine its offering and offer new options on a regular basis. If you don’t constantly try to innovate, then it gives the competition an opportunity to develop their offerings to mirror your own. Once that occurs, you have lost the competitive advantage and are forced to compete on price alone – leading to a death spiral of profits.
The problem we faced was that there were only a few companies that manufactured the equipment used to combine the telephone lines for conference calls which meant that those providing the services all had similar technical capabilities – a difficult strategic position. None of the equipment providers were willing to allow our software programmers access to the source code to make modifications to handle our unique requirements.
Suddenly, there was a dramatic increase in use of computer server technology to replace the telephone switching systems being sold to businesses. During our research, we found that this new technological application was incorporating some conferencing capability. We negotiated the rights to the source code, hired our own programming staff and were able to create conferencing equipment that we could modify to meet our own strategic needs at 1/10th the cost we were paying existing hardware firms. To be fair, however, the expansion of our programming staff did decrease the hardware savings, but control of the “feature set” would have been worth even more in an increasingly competitive environment. We had created a new “barrier-to-entry” for the competition.
In the end, continued innovation and creating new barriers-to-entry is the key to maintaining profits and market share. By this I mean innovation in both service delivery AND technology. In addition, I have never been interested in my market position in the overall industry – I just want ownership of the most profitable segment of the market.
In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?
Someone said “Do what you love and the money will follow.” A little over simplified, but effective advice. If it is something you love, then you will have greater knowledge of the entire field than someone that simply thinks that it is a great investment opportunity. In addition, you will find yourself spending far more than 40 hours a week with your new “baby” and it is much less painful if you are developing a product or offering that you are passionate about. You will also find that your “passion” for the product is a great sales tool – I believe that potential buyers are strongly influenced to try a service/product from someone that truly believes that their product will make the world a better place or solve a significant problem.
I believe that there were elements in my background that gave me a unique perspective on the type of services we designed – a perspective that was missing from those offering services that were never end-users themselves. The key is finding the “pain.” If you are frustrated with the lack of a product or service there are probably hundreds like you out there that would be willing to spend a premium to have their problems solved. That’s the place to start. Then add your own take on the solution – something that only is obvious to you because of your unique experiences. Now, you have high profit potential and a barrier-to-competition.
While there are other elements to make a new venture a success, you can hire those elements out. No one else can be paid to come up with an idea that stems from your unique take on an industry or problem.
What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?
Success oriented service. I believe that regardless of the product or service you provide it is critical to see yourself (and your company) in the position of helping your client get promoted – by making their decision to use you reflect positively on them with their superiors.
Service agility. Have and maintain the ability to quickly modify the product offering to meet underserved or pent-up demand. Look at what the dominant company does not provide and seek to provide it. Look at what they do well and avoid it.
Company-wide vision of client success. The tone of service starts at the top and the message must be uniform all the way to the bottom. Special attention needs to be given to the sales commission plan. My VP of Sales once said “If you want to see what a company is really all about, read their commission plan.” It took me a while to understand the implications of that statement, but I’m a true believer.
What are the key characteristics of companies that have been able to dominate a niche?
Listen and listen for the pain. Whenever someone says “I wish…” the next few words will probably define a moderate- to high-profit market opportunity. Someone is giving you a clue. I always tried to write down every “I wish…” I heard and go through the list every three months. If you toss an idea because you can’t do anything about it RIGHT NOW, then you are missing an opportunity to enter a new niche when the conditions are right.
Never act like you are a market leader. A market leader pleased with their success will often respond to new ideas with a “No.” Someone trying to become a market leader is looking for ways to say “Yes!”
Every employee is a disciple. Don’t just hire people that can “do the job,” but seek out those that have the same vision of helping clients. A good example would be those that work in public contact positions for Disney.
Always let the client know when you went “above and beyond.” When I heard several of our staff people talk about a situation where their quick decisions kept a miscommunication from one of our clients from creating a disaster, I asked if they had shared that with the client. After hearing “no,” I started our Guardian Angel program to make sure our clients knew when we put in extra effort to make sure everything went well for them. Each problem offered a unique opportunity to talk with the client and reinforce our dedication to their success.
When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?
The current economic environment may unseat many firms that view themselves as “dominant.” Frankly, I think this is an ideal time for new start-ups to capture significant market share.
Dominant organizations are tending to reduce staff on the service provision side of the business in an attempt to preserve executives. More often than not, these executives have only a partial understanding for the nuances of high quality service. In addition, the number of unemployed, high-quality potential employees makes it an ideal time to bring in considerable expertise at a very affordable cost. Add any additional incentive for long-term business development and you have the potential to add yet another “disciple” to the staff.
What are the biggest threats to losing that dominating position?
Thinking you are big enough to withstand any attack.
Saying “No” more than saying “Yes.”
Lack of innovation (look at the game developer/software market)
Laying off key people that will contribute to the long-term success just to save money to keep executives employed.
Which companies come to mind that once held a niche dominating position and then lost them and why do you think they lost that position?
Kodak. The shift away from film and the introduction of high quality home printers has been faster than they predicted. They are only now starting to understand their new niche potentials. Wasn’t Polaroid a big name for a while?
General Motors. You figure it out.
Record companies as a group. Failed to find a new business model for their industry. Tried to use law suits as a way to modify consumer rather than spend the time/money on finding new ways to make money.
Xerox. Lost their market position by not understanding the shift from heavy metal to lower cost, distributed printing.
IBM. Not only were they the name for big computers, they were the leading providers of home computing – for a while. By not embracing Microsoft’s operating system, they created a huge opportunity for no-name companies to achieve leadership.
For me, the number one question becomes how can a dominant company retain a non-dominant “hunger” to innovate? How can you avoid becoming content? How can you let the expense side of the business (especially fixed expenses and those on wages not connected to company success) gradually creep up to destroy the company’s ability to withstand competitive price pressures?
What in your background gave you a unique ability to see potential opportunities and capitalize on those opportunities?
Since you are a product of “everything that doesn’t kill you” every person has the potential for a unique take on a situation or problem. And you may have to go through a lot of potential ideas before one really takes hold, but I believe the seed for a potential business is in each one of us. The key elements are doing a personal asset inventory, starting to look for potential opportunities and having a grasp of the business planning process.
Here are some elements in my background that helped me…
Technology: While my college degrees were not in a technical field, I had experience building and using electronic equipment in the broadcasting field, I learned computer programming, and acquired my own personal computer when they first came on to the market. It was easy for me to see how computer technology and programming could make our company more efficient. We were the first teleconferencing company to move away from paper & pencil scheduling to a computer based model.
Experimental design: The college courses in statistics and conducting experimental studies gave me valuable insight into problem solving: how to formulate good questions, how to look for and control variables and how to analyze results to determine trends.
Broadcasting: Attention to delivery details when providing a service. Coaching staff on how to view telephone conversations as “live radio broadcasts” that needed planning and focus. How to capitalize on live events by recording and editing them for distribution to secondary audiences that could not be at the live event. How to make use of Internet “streaming” used by radio stations for the distribution of teleconferencing. How to establish a “ratings” system to determine the perceived quality of our service offerings.
Communications skills: After teaching courses on public speaking, listening and persuasion, I found myself talking to clients about problems they were facing in their jobs and developing solution sets to address those problems.
Creative use of financial data: I wrote computer programs that would give me information on how and why people would use our services. In addition, I found ways format the information into graphs that I could understand more quickly than rows of numbers. I found ways to use the financial data as feed-back to the client on how our service was being utilized – by department and by use.
Thanks Bob for the great insights and for sharing your thoughts on how to be a successful business person! Let me take a moment to summarize some of the main points besides the three I mentioned above:
1. Utilize free PR as much as you can to get your company name and services out to potential clients.
2. Make sure you are constantly aware of what is actually being sold and that it syncs with your service capabilities.
3. In a fast-growing company on-going employee training is a must.
4. Focus some or all of your trade show efforts on the smaller regional conferences where you might be able to be a speaker and spend more time talking with clients and prospects.
5. Do what you are passionate about and use your knowledge of that area to carve out your niche.
6. Instill a sense of service/product quality from top to bottom.
7. Never be satisfied with your success, always look for ways to improve.
8. Teach all employees to understand the financials of the business and how each contact with a client can impact key metrics.
My thanks, again, to Bob. Hope you enjoyed the post.