Deep Dive with Alan Masarek

INTRODUCTION: Welcome to The Daily Bolster. Each day we welcome transformational executives to share their real world experiences and practical advice about scaling yourself, your team, and your business.

Matt Blumberg: Welcome to The Daily Bolster, I'm Matt Blumberg, co- founder and CEO of Bolster, and I'm here today with my friend Alan Masarek. Alan and I have been in a CEO forum together for 15 years, 18 years?

Alan Masarek: Oh, every bit. A long time.

Matt Blumberg: A long time.

Alan Masarek: It's great to see you Matt.

Matt Blumberg: Alan is currently CEO of Avaya, which is an enterprise communications and customer experience company. Reasonably fresh off of a six- year run as CEO of Vonage in the telco space, and before that, had done a couple of raw startups, one called Adoutlet, and then one called Quickoffice, which got acquired by Google. So Alan, it's great to have you here and would love to hear a little bit more about your story.

Alan Masarek: Well thanks Matt. I appreciate it. It's great to be together.

Matt Blumberg: Yeah.

Alan Masarek: It's great to be together.

Matt Blumberg: So I want to start with the first time you and I met, so you and I met in the office of our mutual acquaintance or friend, Michelle James, when you had just started Adoutlet and I was running the online business at Moviefone, and I was actually just looking at your LinkedIn profile to figure out how to introduce you. I'm not even sure I realized that you had run a couple companies before Adoutlet that were in completely different spaces. But let's start with how did you get into Ad Tech in 1995 or 6 or 7?

Alan Masarek: Well, it's funny, you got to look at the arc of your career in many ways. I think of it as in thirds, in a sense, so if you go back prior to Ad Tech and even the startups before that, I had that foundational time in my career. I was an accounting major in college, worked as a public accountant at Arthur Andersen for five years, went back to business school, worked at a private equity firm in New York. That whole underpinning, that foundation, started me on a career trajectory that no one ever could have predicted. Nothing goes in a straight line as we know. When I was at the private equity firm, I got my first opportunity to run something as an operator, which I found I really enjoyed. And it was just one of the portfolio companies and I probably had no business running it, but the senior partner kind of plopped me in there. As I was working now in operating roles, as in president level roles, then I had my own... I look back in that experience and how the heck did I get into startups? Well, I got fired. I got fired by a board that I was fighting with. I didn't realize politically how to handle that board. And I'm 33 years old and I get dumped after running one of these companies, not the company that was part of the portfolio company, but I'd gotten headhunted out and was running something different. Long story short is all of a sudden, by default, I became a startup guy because I had a friend from business school that convinced me to come in with my finance background initially as CFO, and then president and CFO of my first startup, which predates Adoutlet. So the middle third of my career is going through, all of a sudden I became a startup guy and over the course of almost 20 years did three distinct startups in different industries. What's interesting about it is one, there are different industries, so the first one was in healthcare and technology. Second one, as you said, it was in Ad Tech, and the third one was mobile applications-

Matt Blumberg: Mobile. Yeah.

Alan Masarek: My results were, first one we got public really quickly and the stock went up and that was great, and then it came right back down, which was less great. The second one, Adoutlet, lost my shirt, got crushed. The third one was a very, very successful exit to Google. So you have the natural craziness and dynamism of startup land was really interesting, and you learn so much through those challenges. Those of us who've been startups, we know this is not easy. We all know that's not easy at all. And then interestingly, I was at Google. I'd sold the company to Google, had to spend two and a half years there and was a bit of a fish out of water and got recruited now to run Vonage, and Vonage was a transformation. I think of that, Vonage for six years almost, and now here at Avaya, which is now this next third, which is now, not doing startups, I'm running big companies. And big companies that are in transformation. But I think it's really interesting is the startup experience, where everything's a clean sheet of paper, is there's a lot of analog between that to transformation, where quite frankly, you're having to act like it's a clean sheet of paper. And it's been a very different experience. A lot of the skills transfer, a lot of skills you got to learn new things.

Matt Blumberg: That's right.

Alan Masarek: I'm much better at it now here at Avaya than I was at Vonage, just because you go through it once and you learn it. How you get here is never a straight line.

Matt Blumberg: Never. So let's zoom in on the middle section for a few minutes, right? Because more of the people who are listening to Daily Bolster are startup and scale up people. Although I do want to get to Vonage and Avaya because that's fascinating too. Let's talk a little bit about the fact that you did startups in three completely different industries, so that's kind of what I've done. I did movies, then I did Email and martech. Now doing recruiting and people tech. How did that work for you? What did you like about that? What was hard about that?

Alan Masarek: Well, I think, I tell people... People ask me about this so often and I go, " I wouldn't recommend it, honestly," because I think that while so much of business translates, good leadership, understanding the importance of culture and talent, clarity on strategy, executional focus applies everywhere. There is challenges in my view. Now, in hindsight of not having the domain expertise that lets you be able to trust your gut, right out of the gate, because you don't know the industry. The subtleties and the relationships in the industries are very different and super important to have those relationships. So there it makes it interesting and challenging, but it creates a friction point because it's harder to scale as quickly. My experience now, Vonage, we moved into the same enterprise communication categories that Avaya sits in today. So I knew the industry very well. I am moving at warp speed here compared to Vonage because I didn't know enterprise communications. So there is just a practical advantage of knowing your space.

Matt Blumberg: Yeah, that's for sure. And look, I remember at Quickoffice, you guys did a pretty significant pivot from where the company started and even it had a different name. It was like those memory cards right, into-

Alan Masarek: Mobile digital media. Yeah.

Matt Blumberg: MDM, right. So presumably that was part of the learning curve, although mobile was in such a rapid, dynamic mode the years that you were there, when did you start that company?

Alan Masarek: 2002.

Matt Blumberg: 2002, started a mobile company.

Alan Masarek: We sold it to Google in '12.

Matt Blumberg: Right, so starting a mobile company in 2002, you're five years before the iPhone? Six years before the iPhone?

Alan Masarek: Five years before the iPhone.

Matt Blumberg: Yeah, so you were on the Palm Computing Platform.

Alan Masarek: Exactly right.

Matt Blumberg: It probably didn't matter as much in that one of you knew the space or not, because the space didn't exist. The space was just so adnascent.

Alan Masarek: It's so funny. I can remember... Those who are going to listen to this podcast are fairly going through, I'm sure, rounds of financing with the various VC community. And, my goodness, Matt, you and I have done our runs up and down Sand Hill Road a bunch of times in our backgrounds. I can remember sitting there with a very, very smart, sophisticated VC, on Sand Hill Road in the early days, and the guy looking at me saying, " No one's going to do productivity on a small screen device." I mean, it's just the world changes, and that's the challenge of startups. Those who have done it know, we are rarely too late. Typically, we're too early,

Matt Blumberg: That's right.

Alan Masarek: And then we run out of money because the market takes too darn long to evolve and to develop.

Matt Blumberg: Do you feel with Quickoffice, you got there at the right time, or you were at least in the right place at the right time, as mobile started to explode?

Alan Masarek: Yes, but... Well, 2002 till 2006 were lean years for us.

Matt Blumberg: A lot of thrash. Yeah.

Alan Masarek: There's a lot of thrash. It's a long period of time and you're betting on a category that's coming in smartphones. Often, in startups, in my experience is, you got to do the right things, but you also have a little bit of luck. So while we had started with the Palm PDA, and then moved into Blackberry, because Blackberry was doing so well at the time, Nokia was our biggest customer and we were in all those. Back then, the operating system was called Symbion, but when the iPhone came out July of'07, things started to improve for us. But we have to remember, it didn't happen automatically because the App Store for iPhone didn't come out until July of'08. The very first Android device was not until December of'08 So you have this period, it's lean years, and you're just trying to figure out which ways... How do I create some escape velocity? Then you get some luck involved, which is the iPad came in April of'10, and all of a sudden the notion of doing mobile productivity just went on turbo boost, and we rode that wave very successfully. So you got to be there in order to have an opportunity to ride the wave. But my goodness, in hindsight, if we'd started the company in'04, I'd have saved two years maybe, because we weren't making a great deal of progress in the first couple years and the business model was completely different and we changed the name of the company, et cetera.

Matt Blumberg: Yeah, I mean, I always say the role of luck and timing in startups, you can't pay for it.

Alan Masarek: Exactly right.

Matt Blumberg: But it's just so critical. I mean, MySpace was there way before Facebook, Friendster was there way before Facebook. Plaxo was there before LinkedIn. You can just run down the list. Palm Pilots, right?

Alan Masarek: Sure.

Matt Blumberg: Palm Pilots were going to change the world until no one ever heard of them.

Alan Masarek: Yeah, exactly. Exactly. And it's stunning to think back that it wasn't that long ago.

Matt Blumberg: It was not that long ago. That's right.

Alan Masarek: It's 20 years ago. It's crazy what's happened in 20 years.

Matt Blumberg: That's right. Talk about Google a little bit. What was it like to be acquired by Google? You said you felt like a fish out of water. I mean, I've heard from a lot of CEOs that have gotten acquired by Google that they show up on day one, Google locks them in for a few years, and then takes away their whole team.

Alan Masarek: Yeah.

Matt Blumberg: What was that period like for you?

Alan Masarek: Well, I mean, you lived through that with me. I think I remember you guys on the CEO group that we were in at one point were telling me, " Just shut up and invest in peace." That was my good friend Matt and others in our group told me, because what happens, this is the way I describe it-

Matt Blumberg: And you were training for an Ironman at the time, I remember.

Alan Masarek: Yeah, I was doing a couple of them at the time because I was bored. I had some some time on my hands, but they are a serial acquirer and they do that really well. But at the same token, they're going to take your company and rarely keep it as an autonomous or semi- autonomous unit. In my instance, we were about 300 people who got distributed into the various engineering and product organizations. So they're very benevolent to the founder and CEO because, quite frankly, they've done this so much, as being a serial acquirer, and often actually, you look back, they have bought, in times, multiple companies from the same acquirer over the course of their now 20 X, 25 year history. If you're my age and a true general manager, you do feel, at least my experience, you've been dropped into a completely foreign landscape. I always say if you're 30 years old and you're an engineer and you get there, sometimes you feel like you've died and gone to heaven because it's great. But it was a weird for me. It was uncomfortable. But they were wonderful and I learned a lot, and made great friends and they certainly attract a lot of smart people. But when the recruiters were coming and ultimately, the opportunity at Vonage, I was ready. I was ready because I had taken a break in some respects. I had recharged my batteries and was looking for the next challenge.

Matt Blumberg: Do you think Google does that with CEOs as an insurance policy? They don't give you a media operating role unless you want one. Well, presumably if you wanted one, they would've moved you into something else, but they want you there in case something goes wrong with what they bought or what's the philosophy there?

Alan Masarek: Maybe some of that. I think their history, it's a little bit self- fulfilling in the sense that, those of you who are listening to this, we are, and I've been running big companies for now a bunch of years, but I still consider myself a startup CEO. And if that's who you are, you're going to go back and do that again. So in Google's situation, they're not going to move that startup CEO into this core operating role just to have this person leave. What happens often is, you tend to be on the bench in case something bad happens, to your suggestion so you can pop back in. But unless you really throw yourself into it, and you really now are going to be a Googler, I think the expectation is you're going to go be a startup CEO again and that's the experience. The other thing, it may have changed in the last 10 years since I've been there, but I'm a general manager. Period end, so in my role as CEO and president of various companies throughout my career, you're obviously bringing all the functions together. What Google was doing 10 years ago was separating creativity, product and engineering, from commercialization, sales and marketing. And they did that by design because they didn't want product and engineering, the creative side of the house to be impaired or suppressed by what it took to commercialize it. And I get that. It gives you the ability to think in these 10 X terms, but as a general manager, that was difficult for me because that's not who I am and how I think. It doesn't mean one way is right and one way is wrong, but that was just the philosophy that they used back in the day when I was there.

Matt Blumberg: Right. Yeah, it's such a really interesting chapter in your life. So let's move forward now to Vonage.

Alan Masarek: Okay.

Matt Blumberg: So Vonage, for people who don't remember, started off as the original IP phone. We were a... We actually might still be a Vonage customer, I don't even remember. You got a Box, you moved your phone number to the Box, you could take the Box with you.

Alan Masarek: Correct.

Matt Blumberg: You could take it on vacations, you could take it to a second home, you could take it when you move, and so consumer IP telephony. So you got there. The company's public. The consumer IP telephony business is in terminal decline.

Alan Masarek: Correct.

Matt Blumberg: They had started, if I remember correctly, they had started a little bit of business transformation to B2B virtual telco, virtual PBXs, and they basically said to you, " All right, public company, you got to execute a massive business transformation from B2C, where you're milking the cash cow, to B2B where you're trying to disrupt new space and you got to do it in the public eye."

Alan Masarek: Yep.

Matt Blumberg: That was the thing that fascinated me about that journey because that's the classic case where you expect the buyout guys to come in, take the company private, lets you fix it up, and then get it back public again. But you had to do it in the public eye, first time public CEO and self- described startup guy, so talk a little bit about that journey.

Alan Masarek: So first of all, I think there's a lot of parallel to how we as startup folks are managing boards often that are investor led, VC led, which have sometimes a different view. So let's just go back to the situation. Everything looks clean and pretty in hindsight. The chairman who hired me was the founder of Vonage. He was not ready to give up on the consumer business and the consumer business, the residential telephony business, was 90% of the revenue. The B2B side had happened through an acquisition that predated me by about a year. So we were about 850 million in total revenue. 775 was the legacy residential business, and about 75 million was this the business segment, the B2B side. First, it was how do we fix the 775 which, when I got there in the fall of 2014, was already in its sixth consecutive year of decline. Because again, in hindsight it became obvious that this was in terminal decline, but what happens in situations like this where you have a melting ice cube, at times it doesn't look like the ice cube is melting one that it's terminal. That it's permanent. Two, it's happened in very slow, insidious tiny little baby steps along the way. It's like the parable of the boiled frog. You got boiled slowly. So there's the belief at all times about, well, we can turn it around. It's interesting, as I've handled board meetings, I always write a memo to the board in advance of the board meeting talking about what is the theme, what are we trying to cover in this next board meeting? Because obviously we can all do a hundred PowerPoints and you can't see the forest through all those trees. Thematically, those first two board meetings I had, the theme of that memo was bend the curve. How do we take a six- year decline and bend the curve back up? We were declining at a 10 to 15% negative CAGR. By the third meeting, the theme was don't invest to try to defy gravity. Don't invest to try to defy gravity. Gravity, because we had come to the conclusion that this was in fact a melting ice cube, that we weren't going to develop a feature or a go- to market or a pricing plan that was fundamentally going to turn and bend this curve back up. That's why, by the way, it's important to change out CEOs every number of years because my predecessor, very capable guy, but in a sense was part of the boiled frog phenomenon. He had been fighting the good fight for six years, but had been having slow and steady decline. Now, to his credit, he led that acquisition to buy the B2B side-

Matt Blumberg: But he left the work of bringing the founder and the board along for the ride with business transformation to his successor.

Alan Masarek: Correct, so he set me up from that perspective. Then it's going through and having... You have no particular allegiance to the past strategy. The reason it's important to have a new CEO is you're looking at things very objectively and saying, " Huh. What is the likelihood that I can bend this curve back up?" And the conclusion by the third meeting was, boy, it's a gravitational pull. I would be trying to invest, believing that I could defy gravity. That's not a very good bet. So that created clarity of where we're going. Then it was about tactically, what do you do? So I'll tell you one quick thing we did is we functionalized what had been a business unit structure, because the 90% business unit was going to fight like hell to avoid resources going to the 10%. By functionalizing, it basically then became a dollar of incremental investment. Where was the next best dollar spent? And it was clear, it was on the B2B side. It's interesting, once the line's crossed, and it took about three years before business through organic and inorganic growth was larger than consumer, then we went back and redivisionalized or business unit it, because then you wanted to then treat it, the old residential, as a pure cash cow. So even managing the workforce along the way, there's things I could say in the third year in a global, all- hands meeting, that I couldn't say six months in, because the people who were on the 90% side, you're going to be saying, " I'm working for something that's dying, or the cash cow."

Matt Blumberg: Right.

Alan Masarek: So it all had sorts of challenges, but we were very fortunate to make the shift, and now what was the company, after I left, a year and a half later, was sold to Erickson for about 6 billion. When I got there, the market cap was about 725 million. Now again, under my watch, we only got up to about four and a half billion. But we, again, took something that was dead and dying, and completely repositioned it, and ultimately, got a great exit. And at your point, doing it in the light of day as a public company, is hard.

Matt Blumberg: When you think about that transformation, which incredibly successful transformation, I love how you just talked about the shift in organizational design and how that driven by and supported the strategy at a couple different points, are another one or two big execution steps you could point to that helped support that transformation? So you got the strategy right, it took a bunch of years to execute, you did a bunch of M& A, reorg, anything else in there that's maybe valuable to reflect on?

Alan Masarek: I think once we became very clear of where we're going, and again, it will sound almost trite, but it's being super simple and clear, being unambiguous of where we're going. Because I think running companies, my own experience, it really distills down to will and skill. Will and skill. You find folks who are just, they don't have the will to change. They're going to be the obstructionist to the change, and if you don't have the will, then you got to leave. Then there's a function of skill and you may have an opportunity to coach up certain people and often you can't, and then you still have to make changes. But my own experiences, be super clear and unambiguous of where we're going, the bus is going this way. You're on the bus or off the bus. That's the will issue. Then it's a function of skill, which again, is a longer process. That helped because I think it all comes down to the humans, quite frankly. We're all human. I mean, change is so inherently unsettling that we like to sit back and say, " Everybody's going to appreciate nuance." I think, from our jobs, running companies, you clearly manage through nuance at times, but you have to set objectives in a very un- nuanced way, because I think it helps people... It helps people's comfort with change, because if you lay it out in a nuanced way, I don't think they'll get it.

Matt Blumberg: Yeah, I think clarity of purpose is super helpful for the organization. It's essential for the organization.

Alan Masarek: Yeah.

Matt Blumberg: Let's talk now about your transition to Avaya, and so question I want to ask you there is, I know you know left Vonage, you took some downtime, you rode a bike across America, which we'll talk about in another podcast, and I know you were thinking about doing some totally different things like some nonprofit things, some things around civic engagement, et cetera. What made you go back into the fire?

Alan Masarek: So other than my wife Patty referring to it as a character flaw, the reality is I think, it's the old expression, those who can, do. I'm wired this way. I fundamentally enjoy it. In the two years that I was retired, I look back with enormous gratitude over that period of time. There was a sense of renewal and personal restoration, got to do my bike ride and a whole bunch of other stuff philanthropically and otherwise. But I enjoy this type of craziness. The joke though is be careful what you ask for because Avaya is a very large business, very, very global, so in the enterprise communication space, it's the granddaddy. It's lineage goes back to AT&T and Loosen. We were a pretty darn broken company, both in terms of seriously over levered and bloated in terms of cost. So it needed a big financial restructuring, which we did through a Chapter 11 that we went in and out very quickly. Then a fundamental business repositioning, which is your classic, realigning product and go to market strategy, aligning the organization in support of that strategy and revitalized culture. Because somewhere to the Vonage situation, we had been in decline for a number of years, and what happens is when companies and people aren't winning, it's very dispiriting to the organization. So how do you take an organization that is dispirited and clean it up? So the restructuring is two big pieces. We're blessed in the fact that the financial restructuring is done. So through a Chapter 11 had a beginning and an end, we emerged two months ago and we now have a go on offense, capital structure. We're really, really well capitalized. Along the way, we had to make some very painful decisions about cutting costs. Half billion dollar cost program to right size to the current revenue. Now even in the midst of that, and that involved a lot axing a lot of people, you have an organization that has a much greater spring and its step today because I think it believes in the strategy, people see where their role is in the strategy, the product strategy is clear and unambiguous as is the go- to market. We've aligned the organization underneath it and spending a lot of time trying to revitalize the culture. The financial restructuring has a beginning and an end. The business restructuring is ongoing. So we have a great deal of execution work to do, but I always say, for those who are startup folks, we always have execution risk. We have to come to work every morning. We all have execution risk. In the startup land, we all know we have risks that things sometimes we can't control, where financing risk, the market could shut on us from a VC point of view. We have market development risk. Go back to my smartphone experiences before. When does the market actually get large enough to support what I'm trying to do? We can see it, but it takes, let's say, years longer and you run out of capital. So those are risks that are extraneous to what you can control as the operator. What we've gotten to now is, we have execution risk, but every company has execution risk. I always sit back and say, " I'll take execution risk every day of the week."

Matt Blumberg: Any day.

Alan Masarek: And that's what we're going to do.

Matt Blumberg: Yeah. So interesting. Well, it's going to be great to have a front row, or at least second row seat, to see how that unfolds over the next few years for you.

Alan Masarek: I appreciate it.

Matt Blumberg: Let me close with this. What is one piece of advice that you would give your younger self in your first CEO job or your second CEO job, knowing what now at this point in your career?

Alan Masarek: This may sound harsh and it's not intended. I think what I have learned is, relative to, at times, team members, that leaders, that if it's not working out, make those decisions more quickly than I've done in the past. Everybody tells you that. I mean, the fact that I'm wiseneder. I have the wisdom of being in my career for a long time. I'm old. I can trust my gut, but I think you just need to develop a gut. But when the person's not right, often or almost always, you're not coaching up. The old expression, you can't turn a three into a nine, and so make those decisions and move forward. My younger self, could have done a little better job at that.

Matt Blumberg: All right. Alan Masarek, thank you for sharing your story today.

Alan Masarek: Thanks, Matt. Great seeing you. Thanks all.