Summary of "1999-10-19: Smart Communications: The Next 10 Years"

Summary of Business-Specific Content from “1999-10-19: Smart Communications: The Next 10 Years”

Presenter: Terry Matthews, entrepreneur and founder of multiple technology companies including Mitel, Newbridge, Cambrian, and others.

Company Strategy & Entrepreneurship

Entrepreneurial Mindset & Risk-Taking

Emphasizes the importance of taking risks, being innovative, and “making noise” rather than being a passive employee.
Advocates for an ownership culture: employees should have stock options (Mitel offered ~8% of shares to employees) to create commitment and alignment.
Philosophy: Better to own a small percentage of something big than 100% of something small.
Strong focus on international markets and scaling companies globally (Mitel sold PBX systems in 100+ countries).

Company Creation & Growth

Started 32 companies; only 2 failed, with technology absorbed by other firms.
Early example: Mitel’s tone receivers for touch-tone phones disrupted a $1200 market with a $150 product at ~80% gross margin.
Developed the first microprocessor-based electronic PBX in 1976, enabling software customization per country and rapid international expansion.
Newbridge grew rapidly through aggressive R&D and went public simultaneously on NASDAQ and Toronto Stock Exchange.
Cambrian developed metropolitan DWDM technology, sold for $450M after 2 years on a $3.5M investment.
ITF Optical developed innovative fiber-optic components with low insertion loss, attracting major global telecom companies.

Crisis Management & Operational Tactics

Faced a sudden loss of $130M PBX sales in 1983 due to US Justice Department breakup of AT&T, requiring rapid and deep workforce reductions (from 6,900 to 4,900 employees).
Learned to make fast, decisive cuts rather than incremental trimming.
Cash flow management is critical; banks will not bail out companies without collateral.
Used strategic equity sales (sold 51% to BT for $350M) to raise capital and stabilize business.

Product & Technology Strategy

Product Development & Customer Feedback

Advocates an “overhang” strategy: present product datasheets as if complete to attract customer feedback and refine R&D accordingly.
Customer input is critical to aligning product features with market demand.
Example: Despite initial client demand for a 50 Gbps switch, prioritized development of a 450 Gbps switch, which later proved to be the right call.
Emphasizes the importance of quality of service (QoS) in multi-service networks (voice, video, data) to maintain service integrity.

Technology Focus Areas

Transition from copper to fiber optics, broadband wireless (LMDS), DSL, passive optical networks.
Optical networking advancements such as Dense Wavelength Division Multiplexing (DWDM) for metropolitan areas.
Multi-service switches capable of handling IP, frame relay, ATM, MPLS, and private line services.
Development of application-level networking (applications on demand) that classifies and manages packets based on content, priority, and customer contracts—moving beyond simple connectivity to value-added services.
Security and VPNs using IPSec and encryption for enterprise networks (e.g., automotive supply chain network).

Innovation & Market Timing

Technology must lead to sales and profits; basic research is less interesting unless it results in marketable products.
Willingness to pivot product directions based on customer feedback and market realities.
Example of a failed acquisition due to chip yield problems that delayed product launch and lost 90% of clients, underscoring risks in product development.

Marketing & Sales

Market Entry & Competitive Strategy

Entered markets dominated by large incumbents by offering dramatically lower-cost, smaller, and higher-margin products.
Used targeted marketing by initially focusing on Canadian companies before expanding internationally.
Leveraged perception management (e.g., using a phone exchange number to project a larger company image).

Customer Engagement & Sales Tactics

Personally conducts intensive client visits (up to 15-16 cities in a week via private plane) to build relationships and gather market intelligence.
Stresses importance of communication skills combined with technical expertise for high-value roles.
Encourages employees to engage deeply with customers to understand needs and create ownership of product success.

Organizational & Leadership Insights

Leadership Style

Prefers to be a leader recognized by the community rather than self-appointed.
Values privacy and low profile despite personal wealth.
Focuses on building teams that enjoy their work and share in the success through equity.

Human Resources & Culture

Early adoption of employee stock options to foster ownership and commitment.
Advocates for hiring smart, focused teams and avoiding spreading efforts too thin.
Believes in hard work and continuous learning, especially through cooperative education and real-world experience.

Frameworks, Processes, and Playbooks

Overhang Strategy: Publish product specs as if final to generate customer feedback and refine product direction.
Equity Participation: Use stock options and equity placements to align employee incentives with company growth.
Crisis Response: Rapid, decisive cost cutting with a focus on cash flow preservation.
Customer-Centric Product Development: Incorporate direct client feedback into R&D prioritization.
Multi-Service Network Architecture: Design switches and networks that handle multiple protocols and QoS requirements.
Applications on Demand Model: Move beyond connectivity to value-added services with dynamic packet classification and management.

Key Metrics & KPIs

Mitel tone receiver gross margin: ~80%
Product price reduction: from $1200 (competitor) to $150 (Mitel)
PBX sales peak: $130 million annually (lost in 1983 due to regulatory changes)
Newbridge sales growth: $1.3M first year, $16.8M next quarter, $68M following year
Cambrian investment: $3.5M → sold for $450M in 2 years
Packet processing: 1.5 million packets/second at <$1,000 cost for packet classification algorithm
Newbridge quarterly revenue: ~$160M in TDM, comparable in frame relay
Switch capacity growth: from 800 Mbps to 5 Tbps planned

Actionable Recommendations

Take calculated risks and be prepared for setbacks.
Insist on equity participation to align incentives.
Use customer feedback aggressively to guide product development.
Manage cash flow tightly, especially during downturns.
Build multi-service, QoS-aware network products to meet diverse client needs.
Cultivate communication skills alongside technical expertise.
Focus on medium-sized companies for career growth and experience.
Be ready to pivot product direction based on market intelligence.
Maintain a low profile personally but be aggressive in business execution.

High-Level Investing & Market Notes

Recognizes the impact of regulatory changes (e.g., AT&T breakup) on business.
Highlights the importance of timing and technology adoption in market success.
Notes the structural revenue imbalance between voice (80%) and data (12%) despite data growth.
Discusses public offerings and capital raising as key growth enablers.

Sources

Terry Matthews, Founder & Chairman of Mitel, Newbridge, Cambrian, ITF Optical, and other ventures.
Audience Q&A session with students and university representatives.

This summary captures the core business strategies, operational lessons, product development frameworks, and leadership insights shared by Terry Matthews in his 1999 talk on Smart Communications and the next decade of technology entrepreneurship.