My Lunch with Andy Ory: Acme Packet CEO Talks Startup Lessons, Growing Pains, and Building the Next Great Boston Company
It’s not every day I get to dine with the CEO of a public company worth $5 billion. Last month I sat down with Andy Ory, founder and chief exec at Bedford, MA-based Acme Packet (NASDAQ: APKT), for an in-depth chat about his company’s strategy and outlook in the area of networking technology.
The setting was The Friendly Toast in Cambridge, MA. Ory has a soft spot in his heart for the Kendall Square area—back in the late ‘80s, he worked at Boston Technology, the voice-mail pioneer whose office was next to where Friendly Toast sits today. (If you ever get a chance, ask him about the story of using the local pay phone for product testing.)
Over a BLT and huevos rancheros (if I recall correctly), we talked about everything from Ory’s startup lessons to big-company concerns and business regulations, from Microsoft’s acquisition of Skype to how Acme Packet is like Cisco back in 1993. (Ory is speaking tonight at a Boston-area event with Founder Collective’s Eric Paley; he will talk about Acme Packet’s story and his broader experiences in building companies.)
Ory is a leading light in the tech entrepreneurship scene. Before founding Acme Packet in 2000, he cut his teeth at Boston Technology and then founded Priority Call Management, which sold to LHS Group for over $160 million in 1999. Over the past decade, he and his team have built Acme Packet into a leader in session border control—technology that helps telecom network operators and big companies manage voice-over-IP (VoIP) and other communications and services over the Internet in an efficient and secure manner.
Yet things have not always been rosy for Acme Packet, which went public in 2006 and now has roughly 700 employees (about 450 in Bedford). The company’s stock fell below $4 in late 2008, before rebounding and rising strongly in the past year and a half, to around $70 in recent months. I wanted to hear about that dramatic comeback too.
Ory didn’t disappoint as either a lunch companion or an interview subject. It helps that he is a charmer and a natural-born storyteller. Consider how he explains where Acme Packet sits today:
“Imagine you were visiting a company back in 1993 called Cisco Network Systems. ‘What do you guys do?’ We make a router. You might say, ‘what’s a router?’ It’s a piece of hardware and software. The reason is enterprises are converting their infrastructure to IP [Internet protocol] because of e-mail. If enterprise A wants to send e-mail to enterprise B, they need a router between them. Well, you might say, ‘what percentage of enterprises are going to do e-mail?’ And they’d say, every single one on the planet. ‘And how many e-mail messages fill up a router?’ To figure out how many routers you’re going to sell. What was really interesting is, when you connect all these networks together, a network effect ensues. Of course I couldn’t say to you, Amazon, Yahoo, Google, Napster—I wish I could have,” Ory says.
“Now let’s fast forward 18 years and you’re visiting my company,” he says. “We make a session border controller. Enterprises and service providers are converting their service infrastructure to IP so they can do voice over IP. When they want to make a VoIP call from one enterprise to another, they need a session border controller to connect those two enterprises. So you’d say, ‘what percentage of enterprises and service providers are going to do VoIP?’ And of course my answer is, every single one. ‘How many VoIP calls fill up a session border controller?’ And that’s when I look at you and say, it’s not about VoIP. When you connect the service infrastructure of every single enterprise and service provider, what you end up with is a session overlay network that’s extensible to applications that are far more interesting.”
He’s talking about things like online video, multimedia, and other kinds of data that are becoming pervasive. “We’re living in a time where there’s a reversal of the normal trends,” he says. “It used to be that technology would start inside of enterprises and move out to the consumers. Now it’s the consumers who are bringing technology to the enterprises. There isn’t a clear delineation of my applications data and technology that I use at home versus what I use at work. The Apples and the Googles and the Microsofts and the Yahoos—they’re able to market through the consumer, and then the consumer starts bringing this technology into the enterprise, and the enterprise needs to deal with it.”
And that’s what Acme Packet is trying to provide on a huge scale—a secure, trusted, regulation-compliant way for businesses to communicate with customers (and other businesses) over existing networks. By selling its “session oriented network” software to big companies and network operators like Verizon, AT&T, and British Telecom, Acme Packet hopes to be the glue that binds together application developers, businesses, and network operators in a brave new online world.
“Our goal is to exist at every single service-island interconnect point—hundreds of thousands of them—and make them all work safely and securely, and make it extensible to the application folks who want to write their own applications,” Ory says. “I am convinced there’s a great business here.”
Investors seem pretty convinced too. The company has shipped some $850 million worth of products and services since its inception, and Ory says it will pass the billion-dollar cumulative mark this year. “And it feels like you’ve got your foot in the water, or even less,” he says. “Of those hundreds of thousands of interconnect points, we’re at less than 10,000. That to me is really energizing.”
Like most successful companies, though, Acme Packet has had at least one near-death experience. In November 2008, the company’s stock was down to about $3, and the vultures were circling. The recession was in full swing—yet that actually had a lot to do with the company’s resurgence, Ory says.
“We decided to invest more heavily in our go-to-market. We put more sales people, put more channels in place,” he says. “But the biggest difference was the external marketplace, not us. I believe that markets create companies, not the other way around. In the second half of ’08 this disruption occurred where Henry Paulson was white-faced looking in the abyss, saying the economy is going to seize up. People started thinking differently. We started going back to these service providers. After November ‘08, people realized they could get laid off if they hitch their wagon to something that’s not lower cost, higher revenue. The status quo may not suffice. We saw our business really pick up in November ’08, and then it accelerated again in the second half of ’09.”
But why is that—what was the key to the turnaround? “My philosophy is all job security is local,” Ory says. “If you’re a telecom guy, the way you’ve been keeping your job is to say no to everything. You’re basically bureaucratic, in the name of security, flexibility, functionality. But imagine there’s five of us who eat every day in the Verizon cafeteria, and we’ve all been saying no to those marketing weenies who want to do all this interesting stuff. Now we realize some of us are going to lose our jobs, there’s going to be downsizing. The ones that are going to stay are the ones that actually help those marketing folks offer new services and generate new revenues—it can only happen on IP. That notion of disruption and localized perception of job security enabled, finally, breaking the logjam of bureaucratic no-no-no in the IT organizations.”
So it sounds like the recession shook up the telecom network operators enough that they were willing to try something new—Acme’s services. And the company’s business picked up major steam from there.
Now Acme Packet faces new challenges. Fending off buyout offers might be one of them, as Ory continues to try to build the next great New England company—and keep it local. “I do think Massachusetts needs some great businesses. That’s where the spinouts occur,” he says. “When we lost three of the top 10 computer companies—Data General, Digital Equipment Corporation, and Wang—that really hurt. That was painful. I’m cognizant of the fact that we exist because of them. We stand on their shoulders. And there is an obligation for us to give back to the community so there are businesses that stand on our shoulders.”
“That all being said, we’re a public business,” he says. “Part of the issue of deciding to take your business public is the moral and the financial responsibility that if somebody pays for enough of your future value, what you want to have happen becomes a lot less relevant. We’ve been very lucky that we’ve been able to articulate a very healthy valuation, which sort of acts like an inoculant. When the stock was down at $4 a share, I was very nervous. We bought back as much of the company as we could. Now at [around $70] a share, I feel like it’s harder for people to pay a significant premium. The quicker we create value, the more that’s reflected in our market price, the harder it is for someone to pay a premium.”
Ory also thinks uncertainty in the market has helped keep Acme Packet from getting overexposed. “Complexity is increasing,” he says. “Part of what a session delivery network does is it normalizes and mediates complexity to allow for simple delivery of services. Complexity causes people to be unsure of what to do. In that world, the phone companies are unsure of what they sell and what their services are. The equipment manufacturers are unsure of what they’re going to need to sell. The application providers are unsure of what technologies they’re going to use or what people are ultimately going to buy. I think that confusion has acted like a little cloud to keep us hidden. We’ve been allowed to, and continue to want to, grow a great independent business.”
A few more rapid-fire questions for Ory, as we finished our meal:
—On what he looks for in new hires: “Happy people do great things. Unhappy people are just miserable. That’s a big thing I look for in the hiring process. Attitude, aptitude, and are you happy?”
—On advice for entrepreneurs: “A lot of it gets down to a can-do attitude, a tenaciousness, a willingness to do whatever it takes. I remember one time in my first business, I had to paint the conference room one weekend because I wanted to hire a sales guy and I wasn’t well funded, and he was a real sales guy. And he was going to bring his wife up to see the facility, to see whether or not she’d let him take the job. You do whatever it takes.”
—On startup education: “It’s important to understand the market landscape—the technology, the service, the customers. You need to educate yourself somehow. Hitching your wagon to a company that is involved in the industry you want to be involved in, and they need to be entrepreneurial and dynamic, you can really learn a lot. Go right at another startup enterprise, do a great job, work hard, learn, and slingshot out of it and spin out what you want to do.”
—On Microsoft’s $8.5 billion acquisition of Skype: “Microsoft could effect an awful lot of communications without relying too heavily on any type of carrier. I do think Skype as a brand is incredibly valuable to them.”
—On what keeps him up at night: “We’re hiring so many people that the cultural implications get to me. I’m starting to explore that. I’m going to be much more strategic about human resources than I have been in the past. I’m pretty thoughtful about it, but I’m not nearly as strategic as I need to be. I still interview almost every single person that we hire in North America. So that takes a lot of effort, and that’s not scalable.”
—Lastly, what pisses him off: “I think the way we’ve decided to regulate businesses is nuts. It’s really important that successful startup ventures be able to go public. But because of Enron and Andersen Consulting, we have these rules and financial regulations that are so complicated and so onerous, they don’t make for a more transparent business or help an investor figure out ‘is this worthy of putting my money in.’ I think the ethos of the nature of regulation and how it’s being interpreted is actually damaging to enterprises and it also makes our country less competitive. And I think that’s a bad thing.”