ShoreTel CEO Sees 'Pipeline Of Prospective Partners We've Never Had Before'

When ShoreTel CEO Peter Blackmore took the stage at ShoreTel's recent Champion Partner Conference in Chicago, it was the first opportunity many ShoreTel VARs had to see him in action. How would he motivate the company's partner base?

Blackmore's message, as succinct and determined, couldn't have been more clear.

"We're building momentum, we can sustain that and improve it, and with mobility, we can exceed even our wildest dreams," Blackmore said during his keynote. "It's a really exciting time."

It was a clarion call for ShoreTel partners to get aggressive as major UC competitors like Cisco, Avaya and Microsoft work through restructuring, acquisitions and internal channel issues.

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"The whole industry is distracted," Blackmore said. "Eventually competitors will get their act together. Let's not miss out on this opportunity."

Blackmore has good reason to be excited about the company he took over last December. ShoreTel returned to profitability in its fiscal third quarter, ended in March, and has grown revenues not only quarter-over-quarter, but by 30 percent or higher on a year-over-year basis every quarter for the past year.

Earlier this week, ShoreTel reported revenues of $56.5 million for its fourth quarter, a 34 percent increase over the previous year's fourth quarter and a number that extends that 30-percent-or-higher growth streak to five quarters. Overall revenue for ShoreTel's fiscal 2011 was $200.1 million, a company record and an increase of 35 percent over ShoreTel's 2010 number.

Blackmore, a veteran of UTStarcom, Unisys, HP and Compaq, was named ShoreTel's new CEO in December. At the partner conference, he told partners that ShoreTel will focus on building its presence in the U.S. as well as abroad, bringing ShoreTel into the cloud era as it evolves its products, pushing upmarket into mid-sized and enterprise-level accounts, and, perhaps most crucially for partners, building on a mobility strategy ShoreTel kicked off with its game-changing acquisition of Agito Networks last fall.

ShoreTel VARs are excited about the company's priorities and have been universal in their acclaim for ShoreTel's channel gains, and according to Blackmore, there's no reason to change course when so many things are going right.

Blackmore joined CRN Senior Editor Chad Berndtson in Chicago for a discussion of his vision for ShoreTel and how the company will sustain that momentum in its fiscal 2012. Excerpts of the conversation follow.

Talk about your strategy for keeping ShoreTel growing.

The first part is in the U.S., because that's our home base. The company has clearly has a winning formula, so my philosophy there is don't change too much and if anything, increase it. That winning formula, as I'm sure you understand, is aggressive partner engagement. Adding two-tier [distribution] was a big change in the U.S., and that's going very well and has been very well-received by partners. And then adding more resources to enable us to work well, manage and support and continue to have leadership in R&D.

It's a simple premise: If your win rate when you're properly considered is above 50 percent -- and ours is -- you've got to get your consideration rate up, because then the arithmetic woks in your favor. It's hard for people to challenge our win rate because of the 50 percent cost of ownership advantage we have against all of the competition. Add to that the fact we've got a very evangelical user base who really like the simplicity and the fact that you can roll these systems out very fast. So you'll see more of the same in the U.S.

You then take what we do internationally, and we've got even more to do. Because we're here, if you add one more person in the U.S. and one more person in the U.K., it's still going to be more productive in the U.S. But every other dollar we have will help us grow internationally. We're getting a lot of traction in Canada, and a lot of traction in the U.K., and a lot of traction in Asia. We will be expanding into other countries and doing it in a very disciplined way, because my philosophy of growing internationally is that you've got to go in there with credible, critical mass. You can't do it everywhere at once.

NEXT: ShoreTel's Blackmore On Mobility, Cloud And Competitors

On mobility, [Agito] was a great acquisition. We see huge potential. The company we bought was obviously very strong on intellectual property, but didn't have any depth of revenue because it was a small company. So we spent a lot of time training our partners and adding a lot more R&D, not because the R&D was acquired was not complete in many ways -- it was, and we've lost nobody in R&D, the two [Agito] co-founders have stayed -- but for us to be a major player we've got to greatly strengthen the R&D team so we can remain PBX-agnostic and smartphone-agnostic. The cycle of what happens with smartphones is very fast, and you've got to have releases shortly after people put new systems out. We think we're getting that right.

We're also looking at new types of partners. You can't automatically get the mobility authorization, you have to go through a different process. We're looking at partners that can legitimately target Fortune 500 companies. A lot of our partners are built on VoIP systems sold to 50 to 5,000 seats. With mobility, we're not constrained by that. You're not putting it on a ShoreTel PBX, at least initially, but you are putting ShoreTel on a competitive PBX, and that's fine, that's what Agito designed. It's our Trojan Horse because we can enter these companies very effectively, find them a high return on investment with a cost effective system, and then ShoreTel becomes a branded name in that establishment, whereas today we're not yet known.

The partners that can do it are some of our current partners, and also new partners like Dimension Data who came to us purely because of mobility -- they're a big Cisco partner, as you know. So there will be growth in our partner ecosystem, and we're quite ambitious there.

The other area to keep an eye on is hosted. Our system does work in a private cloud and we have partners that sell it today and it's fine, but I'm sort of keeping a watchful eye on this just to see how quickly it takes off. It's taking off in the below-50-seat [businesses] quite quickly, but it's not yet showing high growth in the midmarket. I'm cautious because as still a small company you don't want to put investments anywhere until the time is right. It's not a lack of R&D -- we could have the capability -- it's how much we push that versus on premise. I'll be guided by a lot of what our partners tell us as to when the timing is right.

We see a unique time in this industry -- one in which we've got a unique value proposition and one I think justifies the customers' and investors' confidence in us. But also our competitors, and no disrespect to them, are distracted to one extent or another. It's an extraordinary time in the industry where we have momentum and they have other things to worry about, let's put it that way.

ShoreTel traditionally has been known as an SMB-focused company, but now that you have the mobility capability with Agito -- that's the Trojan Horse as you said -- it gets you into Fortune 500 accounts. As you go after enterprise accounts, do you want the established ShoreTel partner base to be the ones challenging for those accounts or do you see it more the partners who are approaching you or that you're approaching with a global focus, like a Dimension Data?

It's both. One of our largest partners is putting very aggressive mobility plans together, and they sell some Avaya and they're quite happy to sell ShoreTel into that base. There's a need to complement our channel. It's not "instead of," it's "as well as." Remember we are still growing the channel so we are looking for partners who can grow upmarket for us.

A lot of partners, they're sort of happy with the revenue stream they have and good luck to them, we're happy with them. But to help us meet our ambitions we need partners who will scale with us, and we need more of them. It's quality, not quantity as you know. You don't want lots and lots, you just want the people who can really help you and who also have the balance sheet to allow them to make investments with you along the way.

NEXT: Competition and Hosted Telephony

You've mentioned the fact that your bigger competitors have lots of distractions. Cisco's are well-documented, so are Avaya's, and you do see quite a few partners looking to make their line cards more strategic and align themselves with fewer vendors who can support them in more strategic ways. How is that trend helping ShoreTel right now?

I think it's helping a lot, and our credibility is helping a lot. It's yin-and-yang: we're more aware to them because of the growth of the last 18 months, and we also have a more aggressive philosophy. If you talk to our partner team, we have two sales forces in the U.S.: one to grow the business with the installed partners, and the other to go after new partners and look after them in the first 12 months and make sure things are going well.

We're going to continue on that trend, and what the team would also tell you is, there are certain partners that wouldn't have returned our phone call 12 months ago. Now they'll return our phone call. Doesn't mean we'll be signing them up but the openness, the willingness to have a dialogue is just extraordinary. We've got a pipeline of prospective partners that we've never had before. We want quality, not quantity, but the fact that it's happening illustrates our point.

Hosted is obviously something many partners are experimenting with and looking at in terms of the raw potential, and we do see that take-up in the sub-50 trending along the same way all hosted and cloud based solutions are, with that bottom of the SMB embracing the model fastest. How are you going to grow ShoreTel's hosted business?

The take-up depends. You can't dictate to a CIO the way they want to go. They're going to write the RFP the way they want it, so either we're going on-premise or hosted. I've never seen an RFP come out that says, "I don't know." The CIO normally says what they want, and that almost defines the market. Then you have partners that have both capabilities that can respond to both, and the partners that don't have to drop the bid or go after something else.

To be fair, it's building very slowly, and even people like Gartner are saying maximum 15 percent [penetration] in five years time. So that's not significant. But they could be wrong, that could change, and I don't want to miss out on a very natural opportunity if that accelerates, so it's just being very aware.

Are there holes in the portfolio from a product perspective?

Video, obviously, we have a point-to-point through presence and standard software, but for the large on-screens we partner with Polycom and others. Call center we have a very capable offering. The level of product sophistication improves every release, and we have a very disciplined release schedule. We just released 12, and one of the big ones there was that we scale up to 20,000 seats in the unified messaging. That takes us well into the enterprise space and removes us from having a glass ceiling. The 50 to 5,000 seat market is 70 percent of the market, and when you've only got 9 percent of market share, 70 percent of the market is your sweet spot, so you should continue to focus there. But we will go upmarket at the same time.

Will you look to make additional acquisitions?

If appropriate, yes. Something like Agito was very thoughtful, filled a clear need in the market, and made us very much more relevant to everyone because the world's going mobile. We did have a mobile offering but it was nothing as good as the Agito.

Is your management team where you want it?

The management team's good. I joined the company and I was able to do a lot of due diligence. The management team's very solid and obviously performing well -- the results speak for themselves. I did add one person in services; we brought in a very good Avaya executive, Don Joos. But I'm pleased with the team, and the board is excellent for a company of this size, offering very good guidance and help to me.

Let's just grow the company. It's fantastic to have a situation like this because it many cases you've got a great opportunity but you've got to fix this and fix that. I've just got to grow the company. I'm oversimplifying, but there aren't too many distractions.

NEXT: What Blackmore Is Hearing From ShoreTel Partners

Talk about some of the feedback partners have given you in your first few months.

They like what we're doing. A lot of it is, 'Can these features be in ShoreTel 13 and be accelerated?' Or, they'll ask, what more can you do to drive attacking the competitive base and what other programs can you come up with, or where are you expanding the channel. They're a plenty motivated bunch.

They are. They are evangelists for you and many of them have been for a long time.

They get a very good return. We have no plans to do anything but be 100 percent channel. We're not trying to take services revenue away from them like so many of our competitors are. Avaya has been quite aggressive in doing that, we're not doing that. We're finding new revenue opportunities for them by expanding the capability, and adding things like mobility. They've got no lack of growth if they want to invest in doing it. We're easy to do business with, is the mantra, and we want to keep it that way.

We've talked about cloud's role in changing PBXes and the UC market, but looking out a couple of years as the industry's changing, what trends are you keeping an eye on?

I think unified communications is, to a certain extent, coming of age. It's been around for a long time, but I think people sought to dumb it down and say, hey, will put in a voice-over-IP system and get a good return because it's cheaper than the alternative and that will be it. But the productivity needs that all companies are going through are not going to go away, and they really want to make their most valuable employees more productive.

So getting all their UC tools effectively used is a big deal to them. And then getting the mobile components and enabling all the UC tools to be used from a smartphone device is a big deal for them. So what we see is the fact that where people used to talk about doing presence, and doing this, or doing that, they're now really doing these things. The fact that our system, is so simple is one of our strengths. You'll see more integration and more effectiveness in the industry.

I'm not sure how much hosted you'll see. I don't know. Nobody does. I don't have a crystal ball, but keep your eye on that one. I do see a big growth in mobility because that's the nature of the beast -- how many 100 million smartphones are installed every quarter? CIOs have lost the ability to control what device you bring into the company. You turn up with what you want and you say to them, connect it.

We've been talking about presence and video and the adoption of these technologies, especially in the enterprise. People are finally using all of these things so what changed that finally got us to that point?

I think a lot of the devices changed. Having an integrated, smart device is all you need to have a video conference, and that's what's driving it as much as anything. What's ubiquitous is that the way I pick up a smartphone today, I can now have a video call instead of just a voice call if I want to. And because you go through the Wi-Fi instead of the 3G or 4G, the roaming charges drop, so it's more affordable.

On video specifically, you do have the relationship with Polycom, but no plans to build a branded ShoreTel video product? Why not expand?

We partner with them, and we also have a relationship with LifeSize. It's working out well, and you don't necessarily have to own every part of it. I'm happy where we are.

We've known you since your HP days. What ultimately brought you to ShoreTel?

I'd just come back from China [in the CEO job at UTStarcom], and I wasn't really looking. I'v done many things in my life, but this one was too good to miss. It's the opportunity to turn a really good company into a great company. And it's a lot of fun. It's a small enough company where you can have a huge impact.