[This interview first appeared on NoJitter on August 18, 2013]
In January 2011, Rich McBee became the CEO of Mitel. It seemed like an odd career choice. The stock had lost more than half its value in the past seven months. Just a few months earlier, the prior CEO was honored as CEO of the Year by the Ottawa Business Journal. The prior month (December 2010) Mitel missed its Q2 numbers causing analysts to downgrade the stock, and Microsoft launched its competitive Lync 2010 solution. McBee would be joining the Mitel board which included a company founder and well-established entrepreneur Sir Terry Matthews as well as venture capital investors.
McBee, a 20-year IT and telecommunications veteran, left his position as president of the Communications & Enterprise Group of Danaher Corp. where he managed revenue of more than $700 million. He became an employee of Danaher when it acquired Tektronix in 2007. McBee was hired into Tektronix Product Marketing and over his 15 year term had worked his way up to General Manager.
Prior to joining the private sector, McBee worked in the Air Force which provided him with his Bachelor of Science in 1986. He later received a Master’s degree in Business Administration from the Chapman School of Business and Economics.
Although Mitel is headquartered in Ottawa, McBee has set up shop in Dallas, and now several other executives are based out of the Texas office. He has an 18 year old daughter and 12 year old son that keep him mobile including coaching youth football. He enjoys the outdoors, and along with his wife Alisha they are master fly anglers.
Rich describes himself as a technology early adopter with an extensive collection of computer and electronic gadgets. He also considers himself highly competitive. When it comes to his views on the industry, our conversation went like this:
DM: As a telecom veteran that’s new to our industry, what has surprised you the most about the enterprise UC segment?
RM: One of the biggest surprises for me was how many old systems are out there. I’m a technology gadget kind of guy. I haven’t counted recently but I probably have a double-digit number of personal devices on or near me at any given time, and I want to upgrade as soon as the beta is available, but for many of our customers it takes them a long time to adopt new technology. There are always those customers who want it yesterday, but most are extremely thoughtful and realize the decision they are making they will live with for a decade or more.
There’s a light bulb moment when you realize that our industry is not about technology. It’s about what a technology investment can do to drive growth, revenue, productivity, and process improvements for a business. That’s the same way Mitel runs. We look at every dollar we spend – and I’ll admit we’ve got some museum worthy systems in our company (not our UC!) that probably should be upgraded. But at some point good enough is good enough if it gets the job done. My litmus test for spending on new systems is – do they have customer impact, and, will they generate growth? If so, they get spending priority. It’s the same for our customers.
DM: Your first external message as CEO was that Mitel won’t compete with its channel. Yet Mitel still directly sells both products and its cloud services. Also, Mitel’s cloud services compete with service providers using Mitel technology. Can you clarify your go to market approach?
RM: I made it clear out of the gate that Mitel needed to align with our channel and as a result we have made big changes to move the majority of our direct accounts to our channel partners. We were also clear that there would be house accounts, namely certain accounts that we sell direct to and those accounts that have complex financial leasing programs where it doesn’t make sense to transition them to the channel. I make no apologies for that. That number is capped and will remain capped, and frankly I haven’t heard many, if any, channels confused or complaining about our approach there.
With respect to competing in or for the cloud, I think that’s a red-herring created by the overly analytical. Everybody is seeing a portion of their business go to cloud. If you aren’t thinking about it you’re going to be left behind quickly. Mitel has been a CLEC for years which is an advantage, not a threat, for our channel. Truth is many of our most progressive and ambitious service provider partners are actively planning or evaluating how to offer their own cloud services, powered by Mitel. That we can play both offense and defense is a huge competitive advantage for Mitel, and for our partners.
DM: Mitel has been very aggressive with virtualization, a bit ahead of the market. It’s a lot of change for an established channel network. How do you encourage your partners to keep-up?
RM: Simple age old business 101 principle – follow the money. Mitel channel partners who lead with virtualization enjoy a greater than 20% annual growth rate in their Mitel business, more than double the industry average. Those who don’t leverage virtualization are declining at the exact same rate but in the opposite direction. That’s not because of anything we’re doing – it’s because that is what the market is looking for.
End customers are calling the play for our partners and they are increasingly asking about virtualization. The interesting part is that customers who give us the full drill on cloud or virtualization are as likely to go with an on-premise solution as they are to adopt a cloud solution, but they want to know how they’re going to get to the cloud once they are ready to make the transition, and whether or not Mitel, and our channel, can take them there.
When I got to Mitel, I was really surprised by the longevity of our channel – in some cases stretching back to the founding of our company forty years ago. We value our partners and the people we work with, and we know that a change in our business or offering has a direct impact on whether they remain in business. That’s a big responsibility, so we do everything that we can to get partners up to speed and current through our certification program.
Make no mistake about it though, to compete and win I need partners that are premise experts, cloud experts and virtualization specialists all at the same time – and our partners need that too. Doesn’t matter how big or small you are – it’s a hard truth for all businesses that if you’re not growing, you’re dying. If you’re a vendor or an SMB channel, and you’re not adapting to that market change, you’re competitors are going to send you to the wood chopper.
DM: The industry has gone through some big revolutions: TDM to VoIP to UC, mobility, and cloud. What do you see as the next big transition?
RM: At the risk of sounding simple, simplification is the next big transition for our industry. Making what we’ve got really work seamlessly. The truth is as an industry, we’re not there yet.
I’m less interested in chasing theoretical technical rainbows and more interested in simplifying how customers deal in reality. We can try to predict and guess what the next big technology wave will be all we want, but the only true barometer that accurately gets it right each time is customer demand. So, we follow the customer.
Mitel’s vision is to enable our customers to communicate and collaborate, anywhere, over any medium, with the device of their choice. And we’re passionate about trying to make that seamless which is easy to say but very hard to do. Pants first, then shoes.
DM: Mitel announced an endpoint for both audio and video conferencing. It is unlike any of your other endpoints as it is Android based and SIP only. Why such a different approach?
RM: We went with the Android platform because it allows us to add functionality rapidly, and leverage the work of a massive third party development community. We get much better scale, and frankly better product by working with open standards. It also allows us to look to that development community or potential OEM partners to do customization for specific market opportunities like vertical applications. If you pull that string further, there could be as many uses for that platform as there are android apps.
We went with SIP for the same reason – it allows for connectivity to 3rd party products and cloud services. For instance, we can support video interoperability with Polycom, Lifesize, interop with VidyoWay Cloud video service and interop with 3rd party PBXs and hosted communication platforms for voice.
The other big advantage of going with open platforms is that it opens the door to new routes to market and applications ecosystems that and be can be built around your core.
DM: PrairyeFyre has been a long term partner – why did you acquire the company now?
RM: Business principle 201 – give the customer what they want. The contact center is a $3B a year market – said another way, that’s $3B in customer demand. And all of it is mission-critical and customer facing. As we already discussed, those kind of customer facing applications drive to the top of the funding list. So end customers want it and are willing to pay for it.
Layer on top of that the fact that our partners – who are technically Mitel customers – were telling us that their customers wanted a seamless solution from a single vendor – not a multi-vendor solution with multiple people and processes to deal with. Frankly we were losing business because we didn’t own our own contact center solution.
Then layer again on top of that there is appetite building for contact center in the cloud – i.e. more customer demand.
PrairieFyre was already an OEM provider to Mitel, there was little to no integration required internally or for our partners, it gives us a solid cornerstone development platform to address the growing demand for cloud-based contact center solutions, it creates strong pull-through opportunities for associated sales of our core IP telephony and UC solutions, and it expands our margins. Finally they also had a Microsoft compatible solution so it expanded our contact center solution to that segment of the market. All in all, a pretty compelling business case.
DM: More near term acquisitions likely?
DM: There has been a lot of talk about the pressure on public companies lately. What are your thoughts on being public?
Being public has pluses and minuses. You certainly get a report card every 90 days – which is great if you’re an A student but not so much fun if you run at the bottom of the bell curve. As the CEO of Mitel, I’m pretty fortunate to lead a company considered to be a good student and we also have a shareholder base that understands the market we’re in … and they have been semi-patient.
One of the big pluses of being public, however, is that you to have to run a very disciplined business – I think Mitel has demonstrated the financial strength that comes from business discipline. Make no mistake about it though, a 90 day reporting cycle creates significant pressure inside the business, especially in industries like ours where natural product development and customer buying cycles have a longer cadence. But the quarterly financial cycle is a built in scale that forces you to constantly balance short-term execution versus long-term planning, and keep the interest of your key business drivers – employees, customers/partners, and shareholders – in your direct line of sight. Living with a healthy level of business tension created by that, I believe, is fundamental to good corporate hygiene.
DM: The UC Equipment Sales hasn’t been particularly impressive from a financial perspective for several years now. How do you find growth and broadly speaking, what is it going to take for sector to be hot again?
RM: It takes longer than you would think for the main street business customers to adopt new technologies, so I think we have some of the hype curve meeting the technology adoption curve. The traditional PBX market is relatively stable and a healthy sized market. I certainly wouldn’t walk away from it. And converging voice, video and data will remain the bedrock of our business – it is the golden ticket.
The key is to sniff out the high growth segments underneath that market, keeping in mind this year’s features are next year’s give-aways. I think Mitel has done pretty well identifying what those next features are, by first listening to our customers, then innovating and introducing those feature sets ahead of the competition. We were in the cloud/hosted space when the sun was shining on the on-site, on-premises systems market, and we were in virtualization when it was virtually none-existent.
The key to winning, and sticking around in our industry? When you think you’ve conquered the mountain and are about to plant the flag, start sniffing again, because I guarantee you something is changing.
DM: Mitel recently revealed that recurring revenue was now 23% of total revenue. Do you expect to see it continue to increase as a percentage? How and Why?
RM: Absolutely. Our recurring revenue is driven by three major factors: growth in our Mitel AnyWare retail cloud business, growth in our Powered by Mitel wholesale cloud offering, and growth in demand for software assurance associated with our shift to software. Those are all business areas we expect to expand and drive recurring revenue.
The truth is we’re indifferent to whether we generate revenue from capital purchase or on a recurring basis. We make money both ways. Our objective is to give customers choice and on the terms and conditions that best suit them. I’m good with whichever purchasing model the customer selects – but I’m going to do everything I can to make sure the customer chooses Mitel.
DM: Thank you Rich.