TEOCO (The employee owned company)

 Founder: Atul Jain from India

 Company provides software for the telecommunication industry
 Finalizing partnership agreement with TA Associates (equity firm)
 Founded in 1968
 One of the largest private equity firms in the country
 Managing more that $16 billion in capital by 2009
 Chairman: Kevin Landry
 TA had made a minority equity investment in TEOCO of $60 Million
 300 employees
 One of the fastest growing businesses in the telecom software industry
 Had a fear that external investment might impact the culture and values that Atul wanted the
company to “promote and cherish”
 Wanted to set up a enterprise based on a model of shared success
 Made a conscious decision to not accept venture capital
 Size of the telecom cost management business is no larger that $100 million per year
 Focus on niche markets (this limits market potential but keeps sharks away)
 Until now the primary focus of the company had been on the North American telecom carriers
 But there was an anticipated consolidation of the telecom industry in North America
 TEOCO needed to focus on international expansion
 And enter global business support system/operations support system (BSS/OSS) market
 Only three exit options: it could get listed, sold, or go bankrupt

Background

 TEOCO’s predecessor Strategic Technology Group (STG) was founded as a S corporation in 1994
 Focus was providing high quality consultancy for IT projects
 Name was changed to TEOCO in March 1998
 Switched its business to product development and focus on telecommunication industry
 Achieved through acquisition of a fledgling software product that processed invoices of telecom
payables
 BillTrak Pro became the company’s top selling network cost management software
 Changed to a C broad based employee ownership company when the maximum number of
shareholders was reached (75)
 Invested substantial amount of capital in three startups: netgenshopper.com (online auctions,
Eventrix (event planning portal) and appreciateyou.com (support employee retention)
 Registered its first year of loses in 2000
 Made a judicious decision to refocus its activities on its core industry expertise and its largest
clients
 Improving its services and developing new products
 In 2004 throu R&D the company patent4d XTrak technology the core of the companys invoice
automation solution and migrated to a lucrative software-as -a-service model
 In 2006 acquired Vibrant solutions bringing in a cost management business intelligence assets
  Aided in the development of TEOCO’s Sonar solution for cost, revenue, and customer analytics
 2008 Vero systems was acquired
 Portfolio now had 3 major activities: cost management, least cost routing and revenue
assurance
 50% of revenues from cost management, 25% from revenue assurance

Cost Management

 Include invoice automation and payable processing

 Process over 1 million invoices annually
 Facilitates the audit and analysis in current billings
 Audit client invoices, comparing rates, inventory and usage with other source data to identify
and recover additional savings
 Manage disputed claims on behalf of its clients from creation through resolution

Least cost routing

 Help telecom companies determine the optimal route between two customers with regard to
cost, quality of service, and margin targets
 Monitor call detail records in real time to identify bottlenecks, reroute traffic, and improve the
quality of services

Revenue Assurance

 Supports switch to bill reconciliation

 Combines specialized industry expertise with high capacity data warehouse appliances to create
a unified CDR and makes a high volume of current and historical CDR data available on a single
platform
 Helps uncover billing discrepancies, detect fraudulent behavior, reveal usage patterns, conduct
margin analysis, and determine financial viability of reciprocal compensation agreements

Competitors

 Main competitors: Razorsight, Connectiv, and Subex, cVidya and Wedo

 In the least cost routing segment: Pulse Networks, Global Convergence solutions, and Telarix
 Difference: TELOCO brings end-to-end solutions to reach all categories and focus on internal
cost management
 Begins the year making conservative revenue plan for the year and then manages expenses to
be a fixed percentage of the projected revenues
 Subex is the only competitor to operate in the same three business segments as TEOCO
 Subex doesn’t provide a domestic least cost routing in North America
 Consequence: consistently profitable, enables the company to focus its energy on clients and
innovation

Clients

 In this industry where clients are known and clearly identifiable

 Solutions have a strong ROI
  Products quickly pay for themselves then begin to generate profit for the companies
 Discreet customer list or target list
 65% of TEOCO’s domestic revenue: Verizon, AT&T, Sprint, and Qwest (Platinum accounts)
 35 other companies account for the rest (Cricket, Global crossing, Metro PCS, Level 3 and Bell
Canada
 TEOCO Summit: Annual user meeting, able to talk one on one with not only reps from the
company but also other customers

Growth Strategies

 Two other ways to grow: the business is cultivated

 Company can either “productize” its current services or acquire a competitor with a different
client base and cross sell its products
 Charter to grow revenues with its smaller customers
 Adopted a more cohesive approach to expand client base, including leveraging its reputation for
excellence and for having the technical ability to solve problems across various business
segments
 Spidering: with each additional organization that we enter into the stickier we become

Acquisition Strategy

 Atuls view: acquisition and growth financed by external funds represented a risky development
strategy that could dilute a company’s culture
 Internal growth through innovation had been slow and limited in scope
 Acquisition of Vero (2008) brought the company closer to the network and strengthened its
position in the marketplace
 Guidelines for the kinds of companies to target


 What does TEOCO bring to the table?
 Solid core of business that generated a positive and stable cash flow
 Well established strength in cost management
 Disciplined approach to the management of human resources

TTI Acquisition Rationale

 2010 acquired TTI Telecom

 Isreal Based global supplier of service assurance solutions to communication service providers
 Listed on NASDAQ
  TEOCO gained access to a wide array of intellectual; property including Meditation Platform,
Fault management, and performance management systems and valuable expertise in 4 G and
data centric networks
 Wanted to improve the economics of the data TTI collects for their customers

Challenges to the acquisition


 TTI remained an entity that was managed separately


 Exposed the business to a pool of larger competitors that compete on a global basis
 Blue chip companies with well-organized brands and money were aggressively marketing their
services


 Meetings end with a segment on benefits and concerns
 All questions are formed on a “I wish I knew” basis
 Atul said this protocol ensures concerns are presented in an impersonal and non-offensive
manner

The “A” team

 A standing group of employees representatives who meet every month

 Serves as an interface between the employee owners and the leadership team
 Comprised of 12 people, 8 full time and 4 alternates
  Mechanism to involve employees in governance of the business and provide voice to the
employee-owners
 Members rotate each year and outgoing members choose incoming members
 Includes a cross section of members: Single, married, from all geographic areas and from
different levels of the organization

Bonus and Stock ownership


o 12 percent---Principal
o 8 percent---all other employees
o Titles are determined on the employees value to the company
o In 1994 the only ownership vehicle was for employees to purchase stock outright
o Following that traditional stock options were awarded
o Atul believed that option holders are not the same as shareholders, because the
granting of options does not create ownership
o Employee options: making annual bonus in stock up to a max of 60%, the other 40 is for
paying taxes
o Company can repurchase stock with two exceptions

o
o 2007 company replaced their 401 K plan with an ESOP (employees stock ownership
plan)
o Atul believed ownership means wealth and the real benefit would be realized if the
company was sold or went public

A philosophy of total compensation

o Base salaries should be in the range of 0-10% below the going market rate
o Trade off for a respective and supportive work environment, along with the benefits
of employee ownership
 o When employees own company stock, receive annual bonuses, and generous
benefits they feel that they are not underpaid
o Benefits are highly valued and appreciated by employees
o Extra vacation time, a casual work environment, and flexible scheduling were all
seen as non-monetary incentives

Award systems as compensation

o
o Look at p 203 and use table 10.5 in presentation

Human Resources as a strategic function

o TEOCO main asset is its HR

o Has become the principal means of cultural transmission and reinforcement
o Culture revolves singularly around the principle of employee ownership, its embedded in the
language the policies and practices, in the daily activities and the rituals at TEOCO
o Policy of “less is more” is in place, wants as few rules as possible and doing the right thing by the
customer at times may involve violating the policy
o Interpersonal relationships are very important, another benefit that can’t be seen on paper or in
a contract
o Mission of HR: help shape employee perceptions as it relates to employee ownership and to
impress upon employees the core value of “driving for progress through ownership”
o Serves to recruit, motivate, and retain the workforce
o CEO interviews every applicant before the hiring decision is finally made

TA, TTI, And the future of TEOCO

Impact on shared leadership

o TA added two influential directors to the board
o TTI added another exec (Eitan Naor) into the leadership mix
o Atul’s skill in hiring and motivating employees may not be beneficial or essential to TTI

Impact on the culture of employee ownership

o Avi claims the cultures have nothing in common

o Some degree of change is inevitable
o The TTI acquisition and the investment of TA enhance the likelihood that within 3 years
TEOCO may be acquired by a larger corporation, go public, or some other organizational
realignment
o Atul went to the employees for consent prior to the acquisition
o Ownership mix shifted significantly with the TA investment
 o Post TA, the employee share was halved, and they were offered 60% liquidity on their
previous ownership
o And nearly doubled the number of employees
o Despite the lower total employee ownership, the liquidity has strengthened the culture
of ownership
o Employees bought in to the shared value and continued success of the company even
after the acquisition
o Payroll deductions (to purchase stock) increased because the employees see a success
story
o Stock purchase price has increased

From the book for class p 62

P 63