If you talk to any telecom agency founder, you can hear the “when I started the company…” lessons, but what do you really need to know, consider and do before you start an independent sales agency? I spoke with some founders who, like me, recently started their own agencies and found consensus on what you must know before stepping into the agency world.
Set Goals. First, you must have clear objectives to justify adding telecom services to your existing company or starting your own telecom agency from scratch.
For example, if you are a sales professional with a telecom carrier considering starting your own company, you should put your personal goals in writing before drafting your business plan in order to ensure that they are in sync. If your personal goals are to have more time for family and bring on enough customers to replace your previous income, then you will want to consider subagent relationships with larger master agents that provide support resources or agreements with carriers offering enhanced support. You may earn smaller commission percentages, but you will free valuable time required to achieve your personal goals.
In another, completely different scenario, equipment distributors looking to add a revenue stream by becoming a telecom services agency should objectively evaluate the capabilities of their existing sales staff to add services to their product portfolio. The old rule that “sales people don’t sell what they don’t understand” is true. To overcome this, pair service-specific sales staff with existing equipment sales personnel. Many of the major carriers, such as Qwest Communications International Inc. and AT&T Corp., offer a channel-neutral sales policy where the agent’s sales force teams with the carriers’ direct sales force and both receive commission on sales. Similarly, you can team up with sales representatives at a master agency to smooth the learning curve.
If you have no prior telephony experience, your learning curve will be enormous. As an alternative, you might explore affiliate/referral relationships with carriers or master agents wherein you earn a finders fee on referrals they close. If you are intent on become a full-fledged agent, commit to every training course offered by the carriers and attend the training at the twice-yearly Channel Partners Conference & Expo. You also will want to take advantage of relationships with carriers or master agents to team with their direct sales force to learn products, pricing and how to generate a professional telecom proposal. Implementation support from the carrier or master agent will be critically important in helping prevent any problems for your customers during installation of new services.
Get Sound Legal and Accounting Advice. Many new agencies make their first mistakes in the legal area and end up paying for those mistakes for years.
The founder of a 3-year-old telecom agency, who declined to be named, says he is still paying for signing a subagency contract without having an attorney review it. “I had just started the company and needed a relationship with a master for an immediate customer,” he recalls. “I signed an agreement where the master agent or I could terminate the agreement only needing to give 30-day written notice, and the master agent would only have to pay me for 12 months on this customer. Fortunately, my large customer signed a two-year agreement. Unfortunately, I am concerned that the master could terminate our contract and not compensate me on the remainder of the 24-month contract. A good attorney with telecom experience would never have let me sign that agreement.”
Mark Tavitian, president of Boston-based Alpha Delta Inc., advises, “You need two different law firms: One firm to handle incorporation, partnership agreements and show that your firm is ‘real,’ and another attorney knowledgeable in telecom to review carrier contracts and create subagent agreements.” Your law firm can make sure you have all the correct licenses, permits and ability to conduct business legally. Most reputable law firms can handle the basic business legal issues, but ask other agents for references on attorneys with telecommunications agency experience. Many agents advise to watch out for “exclusivity” in any contract, and to assure payment for as long as the master agent or carrier is being paid by your customer.
Similarly, hire a CPA or accounting firm from the start. Just as an attorney will keep you out of trouble with the law, a CPA will keep you out of trouble with the IRS. Your CPA can recommend a bookkeeping service to do your payroll, if necessary. Unless you are a CPA, don’t think that you can do this yourself with Quicken. It’s a lot more complicated than you think.
Develop a Carrier/Service Portfolio. Researching which carriers you will represent is critical to your success and, ultimately, to the satisfaction of your customers. The broader your product and carrier portfolio, the more services you can sell into an individual customer and the greater your revenue. Carefully consider which of the carriers or service providers with whom you’ll have direct relationships and which providers you will offer as a subagent to a master agent.
For example, my firm offers at least 30 providers for local service, long distance, data and conference calling. It is evaluating wireless/cellular providers to add to the portfolio. It has a few direct carrier relationships, but has greatly expanded its portfolio by entering into subagent relationships with large master agents.
These decisions can be influenced by several factors, such as commissions, quotas and support. Several agents told me the best Sprint Corp. commissions are available only through master agents that negotiated their Sprint agreements years ago, so in some cases, it may make more sense to consider being a subagent instead of a direct agent.
In addition, direct relationships with the carriers often include revenue quotas or objectives. Be careful not to over commit your agency. Changes at a carrier, such as rate increases or bankruptcy, will directly impact your ability to sell the carrier’s services and meet quotas.
Weigh the critical variables to find the right balance for your needs. If you are just starting out, it can be advantageous to take less commission for a higher level of support from a master agent or carrier.
“Time is your most valuable asset,” says David Goodwin, co-founder of Advanced Technology Consulting Inc (ATC). Goodwin and co-founder Darren DeMartino started their company after very successful careers at a long-distance carrier. “Deciding which route, master agent vs. subagent, and which carriers you should have in your product portfolio are critical to your success starting out. The more time you spend managing your carriers the less time for acquiring new customers.”
Get Paid. Typically, you will see your first full commission check six months from the time you sign your first customer. You are best positioned when you have one year’s worth of expenses (plus what you plan to pay yourself) on hand. This may be in the form of a bank loan, an equity line, investors or your personal savings.
Also, understand that how much you earn ultimately is tied directly to what your customer’s bill. “Be prepared to make a paradigm shift. Selling a customer is only half the work,” says Goodwin, who notes you must make sure the order is submitted and accepted by the carrier and implemented by the carrier in a timely fashion before you can hope to see your commission.
Keeping close track of the progress of your customers’ implementations with the carriers is key to assuring you maximize your commission. Remember, your commissions are not nearly as important to the carrier as they are to you, so tracking orders and commissions is necessary to make sure you are getting paid for your efforts. Tavitian advises agents to “keep keen track of sales per carrier and train someone, even if it’s yourself, on the carrier portals. What doesn’t get measured doesn’t get managed.”
In addition, Goodwin says, “Make sure you get paid for your time.” If you are an experienced telecom professional, your proposals and recommendations to clients are a significant part of the value you bring to them. Many agents spend hours doing billing and network auditing and analysis for clients, only to have the client take the recommendations directly to the carrier, leaving the agent uncompensated for his or her time and expertise.
To avoid this, Goodwin says, his agency requests clients sign a network services agreement that stipulates that if the client chooses one of the carriers in ATC’s portfolio, then ATC is paid by the carrier, but if the client takes the recommendations to another carrier, the client pays ATC a percent of the savings as a consulting fee. “This way, we are assured of being paid for our time,” he says.
Several agents advise diversifying the commission stream as another way to ensure revenue flow. When I was the vice president of alternate channels at a CLEC, a large master agent told me he could not have more than a third of his revenue from a single source. Ultimately, the strategy proved prudent as one of the agent’s providers filed Chapter 11 and he lost one-third of his monthly commission income immediately. This could have bankrupted his business if he had not had two-thirds of his revenue with other carriers. It follows that your revenue stream needs to be distributed between several carriers and/or master agents. Given the current telecommunications environment you must be prepared for a carrier to go bankrupt with no notice and the revenue from that carrier to disappear.
In addition, you can diversify by selling different products to the same customer. This makes for higher customer retention and as revenue from one service declines, it generally is offset with an increase in another.
Establishing firm goals from which you design a business plan, engaging good legal and accounting advice, carefully selecting your carriers and product offerings and having a realistic financial picture are the four major areas you should cover before starting your own agency. The more of these you address prior to your “opening day,” the sooner you can get to the business of bringing new customers on board. Finally, don’t be afraid to ask other agents for their advice. Agents generally are amenable to helping new agents get started with some friendly advice and referrals to trustworthy professionals.