PBX as SaaS: RingCentral CEO Vlad Shmunis (Part 5)

SM: What year did you finally become profitable after you made the transition from consulting to applications?

VS: I believe it was 1997. We had the answering machine and fax. That was the core business in 1997. We were shipping worldwide and we had a good reputation. I started seeing articles in the press which were touting the $1,000 PC. I could not see how that would be good news for us because we were used to the $3,000 PC, where we were getting $2-$3 per sale. I figured at a $1,000 price point manufacturers would not have enough margin to give out to the bundles like ourselves. I saw the writing on the wall and decided it was time to sell, which we did to Motorola.

SM: How did that happen? Did you approach them?

VS: It was interesting. We had an investment bank involved to help evaluate all options generically. I wanted to know if we should do a micro cap IPO or some other strategic arrangement. Through that we got Motorola as a customer. They liked what they saw when they started using our product, and a particular group of Motorola came and made us an offer, which I accepted.

SM: What kind of revenue did you have and what kind of price did you get?

VS: It was a private deal so I cannot disclose actual numbers. It was not a mega deal. We were doing $5-$10 million in revenue, and we got a standard multiple of revenue off that. We didn’t have VCs and we were a one-product company. We also did not control our channel. My big takeaway from all of this was that we were a dependent company, and in the end that dictates how much leverage you have when you are selling.

SM: Did you go to Motorola? What was your next step?

VS: I went there for a couple of weeks. I then took some time off. In 1999 they contacted me saying they had transitioned to new management and a new COO and decided to start selling everything that did not have to do with cell phones. They then offered to let me buy the business back for pennies on the dollar. I agreed.

SM: I am amazed at the amount of stupidity that goes on in corporate America.

VS: It was not such a bad deal for them because they kept the software team. I guess they paid a very high headhunting fee. They had shut down their modem division, so we were just a small pebble.

SM: When you bought back the business from Motorola, did that get you back into business?

VS: It was a trigger. Motorola kept the OEM business, which was a shadow of what was there before. They were concerned about liability because there was nobody minding those relationships. That enabled me to get a very low valuation. I bought it back with my own money.

Out of pure momentum I continued along the same lines for a while. I did some OEM, but I did not believe in OEM anymore. The Internet was here and I knew that being dependent on a few large customers is not great.

This segment is part 5 in the series : PBX as SaaS: RingCentral CEO Vlad Shmunis
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