TAG: Thinking About Starting a Telecom Agency?

Posted:
4/2003

Thinking About Starting a Telecom
Agency?
Advice from the Trenches

By Christine Gistaro

If you talk to any telecom agency
founder, you can hear the "when I started the company…" lessons,
but what do you really need to know, consider and do before you start an
independent sales agency? I spoke with some founders who, like me, recently
started their own agencies and found consensus on what you must know before
stepping into the agency world.

Set Goals. First, you must
have clear objectives to justify adding telecom services to your existing
company or starting your own telecom agency from scratch.

For example, if you are a sales
professional with a telecom carrier considering starting your own company, you
should put your personal goals in writing before drafting your business plan in
order to ensure that they are in sync. If your personal goals are to have more
time for family and bring on enough customers to replace your previous income,
then you will want to consider subagent relationships with larger master agents
that provide support resources or agreements with carriers offering enhanced
support. You may earn smaller commission percentages, but you will free valuable
time required to achieve your personal goals.

In another, completely different
scenario, equipment distributors looking to add a revenue stream by becoming a
telecom services agency should objectively evaluate the capabilities of their
existing sales staff to add services to their product portfolio. The old rule
that "sales people don’t sell what they don’t understand" is true. To
overcome this, pair service-specific sales staff with existing equipment sales
personnel. Many of the major carriers, such as Qwest Communications
International Inc. and AT&T Corp., offer a channel-neutral sales policy
where the agent’s sales force teams with the carriers’ direct sales force and
both receive commission on sales. Similarly, you can team up with sales
representatives at a master agency to smooth the learning curve.

If you have no prior telephony
experience, your learning curve will be enormous. As an alternative, you might
explore affiliate/referral relationships with carriers or master agents wherein
you earn a finders fee on referrals they close. If you are intent on become a
full-fledged agent, commit to every training course offered by the carriers and
attend the training at the twice-yearly Channel Partners Conference & Expo.
You also will want to take advantage of relationships with carriers or master
agents to team with their direct sales force to learn products, pricing and how
to generate a professional telecom proposal. Implementation support from the
carrier or master agent will be critically important in helping prevent any
problems for your customers during installation of new services.

Get Sound Legal and Accounting
Advice. Many new agencies make their first mistakes in the legal area and
end up paying for those mistakes for years.

The founder of a 3-year-old telecom
agency, who declined to be named, says he is still paying for signing a
subagency contract without having an attorney review it. "I had just
started the company and needed a relationship with a master for an immediate
customer," he recalls. "I signed an agreement where the master agent
or I could terminate the agreement only needing to give 30-day written notice,
and the master agent would only have to pay me for 12 months on this customer.
Fortunately, my large customer signed a two-year agreement. Unfortunately, I am
concerned that the master could terminate our contract and not compensate me on
the remainder of the 24-month contract. A good attorney with telecom experience
would never have let me sign that agreement."

Mark Tavitian, president of
Boston-based Alpha Delta Inc., advises, "You need two different law firms:
One firm to handle incorporation, partnership agreements and show that your firm
is ‘real,’ and another attorney knowledgeable in telecom to review carrier
contracts and create subagent agreements." Your law firm can make sure you
have all the correct licenses, permits and ability to conduct business legally.
Most reputable law firms can handle the basic business legal issues, but ask
other agents for references on attorneys with telecommunications agency
experience. Many agents advise to watch out for "exclusivity" in any
contract, and to assure payment for as long as the master agent or carrier is
being paid by your customer.

Similarly, hire a CPA or accounting
firm from the start. Just as an attorney will keep you out of trouble with the
law, a CPA will keep you out of trouble with the IRS. Your CPA can recommend a
bookkeeping service to do your payroll, if necessary. Unless you are a CPA,
don’t think that you can do this yourself with Quicken. It’s a lot more
complicated than you think.

Develop a Carrier/Service
Portfolio. Researching which carriers you will represent is critical to your
success and, ultimately, to the satisfaction of your customers. The broader your
product and carrier portfolio, the more services you can sell into an individual
customer and the greater your revenue. Carefully consider which of the carriers
or service providers with whom you’ll have direct relationships and which
providers you will offer as a subagent to a master agent.

For example, my firm offers at least
30 providers for local service, long distance, data and conference calling. It
is evaluating wireless/cellular providers to add to the portfolio. It has a few
direct carrier relationships, but has greatly expanded its portfolio by entering
into subagent relationships with large master agents.

These decisions can be influenced by
several factors, such as commissions, quotas and support. Several agents told me
the best Sprint Corp. commissions are available only through master agents that
negotiated their Sprint agreements years ago, so in some cases, it may make more
sense to consider being a subagent instead of a direct agent.

In addition, direct relationships
with the carriers often include revenue quotas or objectives. Be careful not to
over commit your agency. Changes at a carrier, such as rate increases or
bankruptcy, will directly impact your ability to sell the carrier’s services and
meet quotas.

Weigh the critical variables to find
the right balance for your needs. If you are just starting out, it can be
advantageous to take less commission for a higher level of support from a master
agent or carrier.

"Time is your most valuable
asset," says David Goodwin, co-founder of Advanced Technology Consulting
Inc (ATC). Goodwin and co-founder Darren DeMartino started their company after
very successful careers at a long-distance carrier. "Deciding which route,
master agent vs. subagent, and which carriers you should have in your product
portfolio are critical to your success starting out. The more time you spend
managing your carriers the less time for acquiring new customers."

Get Paid. Typically, you will
see your first full commission check six months from the time you sign your
first customer. You are best positioned when you have one year’s worth of
expenses (plus what you plan to pay yourself) on hand. This may be in the form
of a bank loan, an equity line, investors or your personal savings.

Also, understand that how much you
earn ultimately is tied directly to what your customer’s bill. "Be prepared
to make a paradigm shift. Selling a customer is only half the work," says
Goodwin, who notes you must make sure the order is submitted and accepted by the
carrier and implemented by the carrier in a timely fashion before you can hope
to see your commission.

Keeping close track of the progress
of your customers’ implementations with the carriers is key to assuring you
maximize your commission. Remember, your commissions are not nearly as important
to the carrier as they are to you, so tracking orders and commissions is
necessary to make sure you are getting paid for your efforts. Tavitian advises
agents to "keep keen track of sales per carrier and train someone, even if
it’s yourself, on the carrier portals. What doesn’t get measured doesn’t get
managed."

In addition, Goodwin says,
"Make sure you get paid for your time." If you are an experienced
telecom professional, your proposals and recommendations to clients are a
significant part of the value you bring to them. Many agents spend hours doing
billing and network auditing and analysis for clients, only to have the client
take the recommendations directly to the carrier, leaving the agent
uncompensated for his or her time and expertise.

To avoid this, Goodwin says, his
agency requests clients sign a network services agreement that stipulates that
if the client chooses one of the carriers in ATC’s portfolio, then ATC is paid
by the carrier, but if the client takes the recommendations to another carrier,
the client pays ATC a percent of the savings as a consulting fee. "This
way, we are assured of being paid for our time," he says.

Several agents advise diversifying
the commission stream as another way to ensure revenue flow. When I was the vice
president of alternate channels at a CLEC, a large master agent told me he could
not have more than a third of his revenue from a single source. Ultimately, the
strategy proved prudent as one of the agent’s providers filed Chapter 11 and he
lost one-third of his monthly commission income immediately. This could have
bankrupted his business if he had not had two-thirds of his revenue with other
carriers. It follows that your revenue stream needs to be distributed between
several carriers and/or master agents. Given the current telecommunications
environment you must be prepared for a carrier to go bankrupt with no notice and
the revenue from that carrier to disappear.

In addition, you can diversify by
selling different products to the same customer. This makes for higher customer
retention and as revenue from one service declines, it generally is offset with
an increase in another.

Establishing firm goals from which
you design a business plan, engaging good legal and accounting advice, carefully
selecting your carriers and product offerings and having a realistic financial
picture are the four major areas you should cover before starting your own
agency. The more of these you address prior to your "opening day," the
sooner you can get to the business of bringing new customers on board. Finally,
don’t be afraid to ask other agents for their advice. Agents generally are
amenable to helping new agents get started with some friendly advice and
referrals to trustworthy professionals.

Christine Gistaro founded
TeleStrategy LLC, a boutique telecom agency and consulting firm serving medium
to large businesses, about one year ago. Gistaro is former vice president of
alternate channels sales for Net2000 Communications Inc., a CLEC sold to
Cavalier Telephone, and held various sales and sales management positions with
Cable & Wireless USA from 1987 to 1997. Gistaro can be reached at [email protected].