Mitel CEO Rich McBee On Where He's Placing His Bets And How Consolidation Is Fueling Growth

‘We just celebrated our 46th anniversary as a company. And as a technology company that’s been around 46 years, you have to reinvent yourself,’ Mitel CEO Rich McBee tells CRN. ‘We as a company have been reinventing ourselves with every technology turn, and this move to the cloud is the big technology turn.’

Mitel In The Driver’s Seat

Mitel has been in the news lately as a rumored suitor for rival unified communications player Avaya.

While CEO Rich McBee would not talk about that when he sat down with CRN, he did talk about the company’s M&A strategy and how consolidation is fueling growth for Mitel.

McBee has been leading the Ottawa, Canada-based company for 12 years, which means he’s been in the corner office for about a quarter of the time Mitel has been in existence. He said he’s seen technology trends come and go, but the companies that remain have learned to adapt.

“We just celebrated our 46th anniversary as a company. And as a technology company that’s been around 46 years, you have to reinvent yourself,” he said. “We as a company have been reinventing ourselves with every technology turn, and this move to the cloud is the big technology turn.”

McBee delivered the keynote when the Planet One Tech Tour hit Newport, R.I. He talked to CRN about the company’s plans for the rest of 2019 and where it is placing its bets.

What are some of the big bets Mitel is making this year?

The big bets for us this year are the continual transition to the cloud. There are two pieces to the cloud: There’s public cloud and private cloud. Public cloud is usually called UCaaS, and UC, or unified communications, is the private cloud. We have just taken our business and we split it in two.

We have dedicated general managers, sales organizations, marketing organizations, engineering organizations for each of these businesses. We’re really unique in our industry. As we talked about earlier, there’s people that just do UCaaS, there’s people that just do UC—we do them both.

You see the growth rates for the companies that are in the UCaaS space are huge. It’s all coming from one pool. Some of them are going to stay in this private cloud environment, but a majority of them are going to move to the UCaaS environment. So our big bets are around making sure we’re taking care of those that are migrating to the private cloud, but taking advantage of the huge number and very fast growth in the UCaaS business. That’s where we’re really focused,.

What are some of the differences in terms of how you approach those two divisions, the UCaaS versus UC?

When we look at going down the UCaaS path, there are some real fundamental differences from the traditional UC business. Those are your go-to-market, your investment in channel, and how you serve the customer.

Now, [with UCaaS], you’re getting a report card every 30 days. As they get a bill, you get a report card.

On an on-site system, they bought the system. They own it. They’re going to keep it. The report card comes every five years, not every month. So all the interworking systems that you have, how you do customer care, how you do provisioning, speed, even the difference between how fast orders happen on the UCaaS side is remarkably different than how things happen on the UC side.

The sales cycle on the UC side can be six to 12 months. On the UCaaS side, it can be 20 days to 60 days. So very different environments. So part of the strategic things we’re doing this year is making sure we have the infrastructure that is optimized for both of those kinds of markets. That’s why we created the two divisions.

A lot of vendors who are transitioning from selling legacy products to selling cloud struggle with compensating salespeople. Have you figured that out?

We take the total contract value of the cloud deal and that’s what we pay out. What it does is it normalizes, ‘Hey, if I sold a system, not in the UCaaS model, but in the UC model, I’d get $100,000.’ If you look at the total contract value over three years—we use a three-year model—it’s about exactly the same. We try to take all the difference off the deck and say, ‘Hey, sell what’s right for the customer, and the rest of it is going to take care of itself.’

Now, what we also do is we commission them and by splitting the organization, the UCaaS guys, they’re purely on TCV [total contract value]. The UC guys are purely on the sales. There is overlap between CAMs, or channel account managers. What we do is we have a hybrid model there and this is where we use the TCV or the contract value so it’s neutral for them.

Mitel has been acquisitive. Any M&A announcements you can share?

You asked me earlier about Avaya, which is a company out there and we as a policy do not comment on M&A, but I can tell you about the strategy we have.

We are one of the consolidators in the marketplace. Probably the only company that is a consolidator in the marketplace today which is taking the old, legacy, premises-based equipment. Everyone who is in that business is either getting out or moving to the cloud. We like those old businesses. The reason we like them is we can convert their customers to a UCaaS or private cloud deployment.

We’re out there, I can’t say who or what, but publicly we’ve been out there saying, Look, we’re going to consolidate the market.’ We’ll look to grow that base of 70 million users we have. If we can make it 100 [million], if we can make it 200 [million], that’s fine, because we know a portion of those are going to stay in the private cloud, but a big portion of those are also going to move to UCaaS. Incumbency matters.

So there’s little things in our industry. You have a set. A set is an endpoint, or what we call a phone. So you have a set. If I can keep my set, and then change the underlying infrastructure underneath it, the most visible thing to all the employees in the companies we serve is that set on the desk. They don’t know about the magic that happens in the data center or any of that stuff, but if we don’t interrupt their business cycle, and we can leverage that install base, that’s a huge advantage for us.

Any time you’re in business the cost to acquire a new customer versus migrate an old customer is 10 times, so by owning a large install base and turning that base to the next generation of technology is a very low- cost way of gaining share in that market. So whether it be Avaya, or anyone else, we’re always looking to increase that install base that we have and we’ve done it multiple times over the past eight or nine years.

How big a deal is security in the UC and UCaaS space?

Every day. Every day. It’s the old classic military expression about counter-measures, counter-counter- measures, and counter-counter-counter measures.

You might be in the real estate industry, you might be in the hospitality industry, or the banking industry, and you say, ‘Look, I still need my communications or my collaborations, but I need it to do this. I need it to take this kind of security or that kind. My major threat is here, not here.’

And because we’re building applications we can use the same horizontal communications and collaboration, but we can tailor it to vertical applications specifically to their need, and that is what is highly powerful about the cloud.

We have in-depth security groups. So we have a whole host of our own security things that we do, we have our own security teams by product and by company. We run our security capabilities in a five-level security council. You have guys building products, you have guys that are concerned about the network. You have folks concerned about every layer of it. Both ingress and egress. We have NOCs and within the NOC is the SOC.

For us it’s daily hygene. It doesn’t have to be a big bet. It’s an explicit expectation. Security is a 24/7 all the time, always concerned about it. Always looking at it.

Late last month, the company said goodbye to longtime CFO Steve Spooner, who retired after 16 years with the company. Stepping into the job is Vanessa Kanu (pictured).

She came from within the company. We ran an exhaustive search inside and outside the company. We told the internal candidates, my job as CEO is to make sure we have absolutely the best candidate for the job, so we’re going to bring in outside people, and were going to take the people inside and we’re going to run them through a fair process, and we did. She came out on top.

I’m really proud of her. She had done a lot of the functions within the company, but she’s a first-time CFO, and there’s nothing like the first time. You think it’s going to be easy, ‘Oh yeah, one step up’ but it’s totally different. You have no idea. She’s smart as a whip and very detail-oriented.