Rich McBee, CEO, Mitel, Has a Conversation with Jim Burton

15 Jan 2019

In this Executive Insights podcast, BCStrategies’ Jim Burton is joined by Rich McBee, CEO of Mitel. Listen in as they discuss taking Mitel private, what future investments we might see, the company’s views on UCaaS, how Mitel is integrating recent acquisitions into its product portfolio and recommendations for businesses currently on a buyer’s journey.

Transcript

Jim Burton: Welcome to BCStrategies Executive Insights. This is Jim Burton and I’m joined today by Rich McBee, CEO of Mitel. Rich, recently you announced that your company was going to go private and then more recently, you announced that you have gone private. Could you share with us the disadvantages of being a public company and the advantages you hope to gain by now being a private company?     

Rich McBee: You bet and thanks, Jim. I think that at the onset, whether you’re public or private, you’re all about driving value. But how you drive that value and where you focus are some of the main changes that I’ve seen as we’ve made this transition to private and now are.

As a public company, you always have a strategy. You’re always driving to the long-term. But the cadence of the quarterly results are a very important aspect of being a public company. So you’re always balancing investments and timing. Hey, do I make this investment this quarter? Or do I wait a couple quarters or when do I make that investment? Versus as a private company, if you’re going to make an investment that’s going to be a material impact on the long-term, you make it now. So it doesn’t mean that you’re not driving value on both sides.

But as a public company, you’ve really got to be watching what the quarterly impact could be and then because you’re watching those quarterly impacts, one of the things that I’ve actually noticed myself is how my calendar has evolved and changed.

When we were a public company, I would have multiple spots on my calendar in a given week where I was talking to a shareholder or working some kind of shareholder issue. Or getting ready for whether it be earnings releases or those kinds of things.

As we were transitioning into a private company, I noticed that those just kept coming off the calendar. As an executive, you’ve got a finite amount of time and a lot of my time was really taken up managing the public aspects and the shareholder aspects of the company.

As a private company and in the particular case that we are in, Searchlight is a private equity company. There are three of us on the board of directors. That’s a phone call to my board and my shareholders and we can make decisions pretty darn quickly.

I’ve actually found that what I’ve done is I’ve put a lot more time and the organization’s time into focusing on the customer, execution, and our strategy. So the timing aspect of the quarterly cadence, that’s one thing I’ll have to admit that I don’t miss.

It doesn’t mean that we don’t have a cadence. It doesn’t mean that we’re not looking at things monthly, because we do. But there’s a lot more time to be focused on executing your strategy, engaging with customers, and at the same time, you’re just not worried about those public earnings.

You can talk specifically about the things that you’re doing in the business as a private company and improve them. So I’ve looked at it from a perspective of we have a lot more time to execute our strategy. So the key is making sure that as you make that transition from a public company, which it’s about one third of your time is spent on public-related activities.

You can take that third of the time and you can really focus it on execution and advancing the strategy.            

Jim Burton: You mentioned that you’ve got the ability to move things forward, investments, without having to worry about that quarterly number. Is there any area specifically that you’re focusing on now of what you’re looking at? You’ve been known in the past to help consolidate the traditional PBX business. Do you see working in that same effort to go after the cloud PBX business?      

Rich McBee: Well, actually, I look at the market in two dimensions. In the traditional PBX or the UC market, it’s still really ripe for consolidation. So I think you’ll see Mitel coming out of the quiet period as we were transitioning to private much more aggressive in consolidating the market on the UC side.

But on the UCaaS side, what you see is that if you were using a Jeffrey Moore model, you would say that I think that the UC side is kind of in the tornado. And that means a solid customer acquisition. So you’re going to see us doing a lot more investments and feet-on-the-street marketing demand generation and that kind of stuff.

I don’t think that we need to be focused on consolidating the market in the UCaaS space. There are enough people, there’s enough room to run. I think it’s about investments in customer acquisition, not acquiring customers. So that’s where you’re going to see us investing there and I think that’s one of the advantages that we have of being private, is that we can really focus the investments one as a consolidation strategy and one as a customer acquisition strategy. So that’s what you’re going to see us really go full throttle on.               

Jim Burton: If you look at the market, there are a number of people that I would certainly classify as your competitors that are very specifically UCaaS customers. And they believe the whole market is going UCaaS. Now I’ve been to your partner meeting and clearly you have a different view on that and I think it’s a good one to share with this audience about where you see this market headed.

Rich McBee: Well, it’s kind of funny. Clearly, I don’t see it all going UCaaS and maybe the analogy I can give you is the real estate market. The whole market is not going to be going to the rental market. There are still going to be people that want to buy and own their homes and that mix goes back and forth.

But the fact of the matter is there are going to be people who want to buy their systems and there are going to be people who want to rent their systems. So I see both sides of the market as highly attractive. Now the reality is there’s just one pond. Everybody is in one pond.

So the people that are moving to the UCaaS space and I just saw some numbers the other day that were pretty interesting to me. So if you just look at multi-tenant UCaaS, over the next five years, it’s going to grow 100%. But the portion that’s still multi-instance, single instance, and on-premise, it’s still going to be 85% of the market five years from now.

So one’s still going to have huge growth, just massive growth numbers. But when you look at the size and the breadth of the market, there’s still going to be a lot of what I would call private cloud. I do think that from a technology perspective, the question is not whether they’re going to go UCaaS. The question is are they going to move to the cloud? And I think that they are going to move to the cloud and that would be a bullish statement to say that 100% of the customer base is going to move to the cloud. But whether it’s five years, ten years, seven years, the reality is if you’re buying a private cloud or even a PBX instance today, every PBX manufacturer is looking to cloud enable those products.

We’re no different. As a matter of fact, we’re leading in that area. So I think that the hybrid or the private cloud solutions are going to be growing. The whole aspect of having cloud enablement is that you can get access to applications and that’s what customers really want.

So whether you’re going in the rent model or the buy model, the key is you’re going to be moving to the cloud. And you’re going to be doing that so you can get applications that make your business capable of digitally transforming. And when I say digital transforming, it’s hey, leverage these applications that predominantly become very vertical-specific, and then allow you to do a lot more work with fewer people. At the end of the day, that’s what it’s all about. So I think that as our market continues to evolve, the question is not whether they’ll be going to UCaaS. The question is whether they’re going to be going to the cloud and they are.

I think that it’s really interesting that if you look at some of the cornerstone companies in cloud enablement of UCaaS, even the Googles and the AWSs or Amazon Web Services, the reality is in the last couple months, each one of them have made major announcements about their new hybrid or private cloud capabilities. And they’re doing that because that’s what their customers want. So I think that there is going to be both. There’s going to be UCaaS, there’s going to be UC that’s migrating to the cloud, and I think that the rate is going to be continually increasing. But it’s a big boat and it’s going to take a long time to move everybody to the cloud.          

Jim Burton: One of the things at your conference was there were a lot of industry analysts. The industry analysts, we get together and talk about the comments that are made: what we believe, what we don’t believe, where we think the market is headed, and I can tell you that the industry analysts all believe in what you just said. They think that that’s exactly how the market is going to evolve.

So let’s move onto something else. You’ve made quite a number of acquisitions over your tenure at Mitel. The most recent ones being Toshiba and ShoreTel and the big question that always comes is how do you integrate those different platforms?

So the question really is what does your product platform look like now? What does the offer look like? So that those people who said I was a ShoreTel customer, what’s my offer looking like now? Or where will I be headed in the next step of continuing to be a Mitel customer?

Rich McBee: Well, I always look at it in size of customer. So small, medium, and large and we have tailored applications for each and then it depends on are they going to be a UCaaS customer or are they going to be a UC or private cloud hybrid customer?

So you’ll always see from our support folio that the focus is on small customers, medium customers, and large customers. And that basically means that you’re going to have a call control for each one of those. In the consolidation of the industry, we’ve always been really adamant about leveraging the call control of the asset we buy. But moving the UC and the apps to a standard format and then moving the sets to a standard format.

So if you think of the three major components, you’ve got call control, applications, and sets or inputs. So we try to standardize and are always working to make our sets work across the portfolio.

An example of that is our 6900 sets now are fully functional on connect and that was the ShoreTel platform. So now the seamless one set of sets can be used across multiple platforms and then you start standardizing the applications. So we have a MiCloud application that we’re moving everybody on the onsite or UC business to.

And we have basically connected the teamwork platform that we’re moving the UCaaS market to. So we standardized and then once we have the standard platform that we’re going to take forward, we really focus hard on that platform and anybody that comes into the family, we’ll move onto those platforms eventually.

So we start day one, actually start T minus 90 days saying okay, how are we going to get it on one of these consistent application platforms against a set of common sets or endpoints in the marketplace? And then the call control is pretty much I wouldn’t say commoditized but the reality is we can use multiple call controls if the applications and the endpoints are the same. That’s what the customers see.

Jim Burton: Yeah. I actually think that the future is that call control is that other piece of plumbing that nobody looks at or cares about necessary, don’t misunderstand that. But it’s really the other things around it, in particular, the applications, as you mentioned and the common user interface, which everybody really, really likes.

One of the things we’ve done is we changed from UCStrategies where we did a lot of market awareness to help vendors make sure that the market understood what they were doing and all about. But we’ve evolved that and we now call it Business Communication Strategies and what we’re focused on now is helping customers on a buyer’s journey.

It’s confusion, complicated; there are a lot of products out there. So I’d really like to get your thoughts on what you recommend customers consider as they’re going through their buyer’s journey.

Rich McBee: Well, I think a core element of the buyer’s journey is understanding what their digital transformation strategy is. Are they going to own their assets or are they going to rent their assets? Is it a core part of their integrated delivery mechanism? Or is it contextual? Which is, we have to have this or it has to be bulletproof but we really spend our time in this area. If you’re a franchise burger shop, you need phones. But it’s not core to your business. If you’re renting a big call center or a big outbound tele sales center, let me tell you. Your UC and communications are your business.

So it depends on first and foremost, to really understand what’s your digital transformation strategy? Then I think it’s not a question of whether you’re going to go to the cloud. What elements of the cloud am I going to leverage? Do I want simple and standard or do I want complex and integrated?

And that will put you down the path and I think that will also put you down the path of which vendors you’re going to consider. And then you start looking at the second round, which is am I going to have a mixture, which would be a hybrid solution?

So I always like to make sure that people have a clear understanding of what their digital transformation strategy is. What’s their business model? And then we can serve them. What’s the best technology? What’s the best route to market for them in terms of capabilities, what they’re going to use?

Is it highly integrated or highly standardized? Is it centrally geographic or multi geographic and small? So once they have those things put in place, it’s pretty easy to show them the portfolio and the things that each vendor can compete with them on.

But I think sometimes in every company, you run into customers that aren’t satisfied maybe with a competitor you have and you listen to them. And they didn’t have their strategy well architected before they went out to get the system or the unified communications and collaboration.

We see that sometimes people that bought a multi-tenant solution really should have a multi-instance solution because it was heavily integrated, heavy secure requirements, heavy industry-specific certifications they’ve got to have integrated really tightly into a contact center.

And then we see some customers who have this really heavyweight, complex thing and all they’re doing is dial tone. And it’s like ugh, what you really needed was a multi-tenant solution that’s very simple, very scalable, that can just ramp up and down with the number of people that you have. 

So I think that if they really articulate and think through their strategies. First of all, how complex is this going to be and do we want it to be? Are we going to manage it or do we want to just pay someone else to take care of this? Then you can get down to okay, what solution is really right for us? And that’ll save the most time.   

Jim Burton: Well, I think you’re absolutely right. So maybe you could spend a minute just telling us what products you provide for those different applications and different solutions for different customer sets.

Rich McBee: Yeah. For the UCaaS marketplace, our primary product for the classic multi-tenant solution is our connect platform. It’s perfectly tailored to that. We spent a lot of money in innovation and that’s a true go-forward platform for us. If you’re a service provider in North America, Clearspan is our multi-tenant service provider.

It’s built for service providers and service providers only. If you’re in Europe, we use Telepo. Telepo is a platform that’s specifically built for the nuances of a service provider in the European theater and connect is our retail offering in each one of those.

We also have a UCaaS retail offering, which we call Flex. The key to Flex is it’s for those very complex customers who still want to rent their service. It’s for people that have highly integrated, requires network planning, and all that kind of stuff. And it really offers us what we call a UCaaS or a managed service. But to provide a heavyweight system that’s complex for the medium-to-large customer who wants all the complexity and all the integration and professional services associated with setting it up, but then wants it in a UCaaS or a rent model, for lack of a better term and then if you come over to our UC side, there’s really three major platforms. We have the 250 in North America, MiVoice 250, which is really aimed at the SMB classic, really easy to use box.

We have MiVoice Business, which has just been a hallmark of Mitel, which sits right in the middle. Great product. It’s got a huge amount of innovation in it and it’s actually one of the platforms that we continually lead with innovation there and then move it to our other platforms.

And then for the really large customers, we have the MiVoice NX1, which is for really heavy, heavyweight, large, 10,000-30,000 customers. I think our largest customer on that today is basically when we get fully deployed everywhere it’ll be over 500,000 seats.

So we look at our portfolio and we say on the UC side or the private cloud side, we feel really good about small, medium, and large. If we look at the UCaaS side, it’s primarily connect into service provider offerings and the ability to offer a managed service on our Flex for those customers.

Those unique customers who are very complex but still want a managed service kind of offering and those are our platforms. We’re standardizing our sets on the 6900s across them and our collaboration suites are going to be our teamwork suite for connect and MiCollab for the rest of our onsite portfolio. 

Jim Burton: I think a lot of us who have been in this industry for a long time think about Mitel and what a great company they were. But from a market share standpoint, they weren’t always the largest in any particular market. They certainly did well in the hotel/motel market. But where are you today as far as market leadership in the various categories you just discussed?

Rich McBee: Well, the two pieces that are really measured, the UC or the premise side, we’re number three or four in the world depending on the rolling 12 months. Jim, that comes from a position of number 10 when I got here. So we’re very pleased with that.

In terms of seats on the UCaaS side, we’re number two. So we feel good about that. We’ve got strong competitors in that market but we’ve really started ramping up the investment in there. If you ask me where I’m going to be in three to five years, I can tell you what our aspirational goals are.

It’s number one and number one; period. So we work diligently on how do we become the number one UCaaS provider in terms of seats? And that will follow with revenues eventually. It takes a long time to roll the revenues through. But we want to be number one, period.

So all of the things that we’re doing are aiming at that and then on the UC side, we think it’s about consolidating the market. A lot of people, it’s not their core market. It is ours. This unified communications or business communications as you’ve described it is what we do every day.

So we don’t have other businesses around us. We’ve really focused the enterprise to be focused on that. So our goals are clear. Over the next three to five years, we want to be number one on the UC side and number one on the UCaaS side.

Jim Burton: Well, you certainly are on your way and if you could follow that growth path you’ve had since you joined, there’s no reason to think you can’t be that number one and number one. One of the things that if you look at our industry, we went from a straight PBX industry to IP-PBX industry.

We’ve had unified communications. Now we have a number of collaboration types of solutions as part of that. Where do you see this market in three to five years? Because I think as a buyer who’s making a buying decision today, they’ve really got to understand where the market is going to be going.

So they’re not making a buying decision that’s dead ended here in the next 12 or 18 months. So what recommendations would you have?

Rich McBee: So I think from a macro view, what you’re going to see in the market is you’re going to see the leaders. I think call control, everyone’s got that under control. The next thing is the seamless communications and collaboration, which sounds really easy but it’s really hard.

It’s easier to get it within your company but when you go intercompany, seamless communication and collaboration becomes a bigger barrier. But I think that the big change is going to be that collaboration is today predominantly amongst people.

It’s going to move to people and things. So you’re going to collaborate with devices or IOT elements or things like that just as seamlessly as you communicate with people today. So the collaboration piece of this is going to grow algorithmically.

If there’s an ocean of 450 million business users, there’s 818 billion devices today and growing every day. So that collaboration circle is going to get a lot bigger and when the collaboration circle gets a lot bigger and you’ve got more things to deal with in a collaboration environment.

You’re going to have things like artificial intelligence, big data mining. All of those things are going to become so when you look back five years from now, that was a unified communications and collaboration company. They’re going to be heavily involved in unified communications and collaboration and AI and big data mining.

Because their customers are going to be collaborating not only with people but with things. So what that leads you to is if you’re making investment decisions, what you’ve got to be thinking about is the company that I’m going to be investing in, are they considering these things?

Do they have open APIs? Because no company is going to be able to do it all. There are going to be ecosystems around that and you’re going to want opensource things that you can bolt some vertical application that’s important for your law office, a vertical application that’s important for your dental office, for your concrete business.

You can just go every industry by industry by industry. I think that they’ll have horizontal call control. They’ll have some aspect of a standardized UC piece and then there are going to be a lot of ecosystem pieces that tie into that. And again, it all comes back to this thing of digitally transforming the business.

Connecting people to things to information to fundamentally change your business model so that you can operate more effectively and more efficiently. 

Jim Burton: Well, you’ve already shown how you’ve done that with your announcement on your contact center interface with Google and the contact center solutions that they have and some of their AI parts that they have. So you’ve already started that process. So customers should feel pretty comfortable that you’ve got the mindset to have that moving forward.

Rich McBee: Yeah, I feel really good about where we’re at. One of the really interesting things about Mitel. It’s over 45 years old and the interesting thing is when there are technology turns or shift in the market, Mitel has found a way to really lead and innovate in those things.

So I feel really good about even the concept we talked about giving machines a voice, tying IOT and big data and bots into this whole communication and collaboration environment. So I’m pretty bullish on Mitel. I think that we’ve got a good snapshot. We listen to customers.

We take their needs and their unarticulated needs and we innovate in that area. So we’ve got a good track record of doing that and now that we’re really going to be focused on the cloud. Whether it be UCaaS cloud or a private cloud, that’s a huge enabling technology. Or infrastructure of the cloud that allows us to do a lot of neat unique things. 

Jim Burton: Rich, thank you so much for your time today. This podcast, we’re going to transcribe it so people can read it. We’ll have some links back to your website that point out some of these important things we talked about. So again, thank you so much for your time today.

Rich McBee: Thank you, Jim.

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