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September 1, 1997

8 Min Read
Endeavors

Posted: 09/1997

Endeavors

Walking in the Shadows of Giants, a Small
Business Takes Big Steps

By Peter Meade

The entrepreneurial spirit, aggressive marketing savvy and
bottom-line sensibility behind Genesis Communications
International Inc.’s humble beginnings lie with Derek Gietzen and
his wife, Thalia. They put everything they had on the line and
used a differentiating system-to-system network interface to
place Genesis in the local market alongside telecom giants.

Derek is the marketing wiz. Thalia is the budget-conscious
business planner. Derek started out as a marketing manager for
the 1+ division of a long distance reseller. He helped Com
Systems grow from $30 million to near $200 million before he
left. His next stop, Communications TeleSystems (now
WorldxChange), was in its infancy when Gietzen joined as vice
president and general manager of its 1+ division. There, he
targeted the Hispanic market as an under-appreciated segment that
was prime territory for purchasing long distance. In less than
two years, Gietzen grew the operation from a staff of 12 doing
$1,500 a day to 450 people doing $30,000. Thalia, at the time,
was a corporate finance officer.

Despite their achievements, there was still something missing.
The Gietzens say they yearned to apply all they had learned in a
more positive atmosphere where they could give customers the
quality of service and respect they deserved.

A Business Plan

To do this, they resigned from their jobs in late 1994 and
began composing a business plan that included everything
"right down to the number of pencils and paper clips,"
Derek says. Their goal was to raise $1.2 million. But after six
months, they couldn’t find backing for their own business.

So Derek resorted to sending out resumes, one of which ended
up with his next-door neighbor. A successful entrepreneur, the
neighbor suggested rewriting the business plan and boiling down
all the details to the bare minimum. Then, he told Derek to call
everyone the Gietzens knew.

The Gietzens set out to raise $400,000 but secured only
$50,000. After their credit cards and a third mortgage yielded
$100,000, they incorporated Genesis in March 1995 with Derek as
president and chief operating officer and Thalia as chief
financial officer and vice president of corporate finance.

The next month, the Gietzens hired their first employee, a
longtime friend who was an AS/400 programmer. With a rented
AS/400 parked in their study, the Gietzens created the company’s
telecommunications data management system (TDMS), which was to
become the technical cornerstone of their fledgling operation.
"Our billing package is the core of the company, something
we must have control over," Derek says. "Having our own
source code is invaluable and lets us react immediately,
especially in a start-up situation."

Genesis performs its billing in-house. This gives the company
the opportunity to do its own inserts as well as customer
surveys, Derek says, and doing these surveys gives Genesis a
better opportunity to understand its customers’ needs.
"We’re trying to understand the gap between our customers’
expectations and reality," Derek explains. "How can we
become the provider no one can ever displace?"

Moving quickly, by the second quarter of 1995, the company was
ready to move from the Gietzens’ home to a 1,200-square-foot
office. Once there, the Gietzens set out to improve on the
success they had previously selling long distance services to the
Hispanic market. "I always felt it was an undertapped
market," Derek says. "There was a great opportunity to
put far more value into a competitive telecommunications package
for customers whose first language was not English." To
reach this audience, he put together a bilingual telemarketing
staff. Gietzen attributes their success to their ability to speak
their customers’ language.

In May 1995, Genesis began offering long distance service in
Texas. The first customers were signed the following month, just
as the company added its second employee, a specialist on
operations and customer care. Soon after the first revenue was
recorded in July, the company became certified by the FCC to
offer long distance service in California.

In October 1995, long distance service in Illinois,
specifically the Chicago area, was added. Despite the excitement
over the new offerings and their previous track record, progress
toward profitability was going slowly. "We were getting down
to a real cash crunch," recalls Thalia. But thanks to the
holiday spike in call traffic, business soared, and Genesis
posted its first monthly profit in December 1995 after just six
months of business.

Genesis’ strategy was to start out as a shared-facilities
reseller with its own carrier identification code (CIC). This
allowed Genesis to distinguish itself from a myriad of other
resellers and perform its own provisioning. "So it looked
like we operated our own network even when we didn’t," Derek
explains.

In April 1996, Genesis expanded its long distance service to
Arizona. By the end of the year, its customers totaled 37,000. At
the beginning of this year, Genesis deployed its first switch, a
Stromberg DCO, in Los Angeles. The company now has its own
circuits in California, utilizing Contel, GTE and PacBell.
Genesis will soon backhaul traffic from Arizona to the California
switch, which can process 20 million minutes a month and is
currently doing 6 million to 7 million minutes a month.

New Opportunities

Genesis’ roots remain firmly planted in the Hispanic market,
but passage of the Telecom Act has allowed the company to
springboard to the next opportunity. Genesis is vying for market
entry into local telephone service.

Betting the Telecom Act eventually would be approved, Genesis
acted quickly to become among the first companies to be approved
as a local service provider. Its key move: To bypass the unwieldy
subscription form that thwarted many potential players, Genesis
worked closely with Pacific Bell to come up with a way to process
orders electronically for local residential service.

Genesis began its foray into this new market in August 1996,
and it has become one of the fastest growing segments of
business, he says. Thanks to its electronic edge, Genesis had
5,000 local customers by December 1996. "This put Genesis
six months ahead of companies that were not anticipating the
passage of the Telecommunications Act," he says. "It
has always been our personal belief that competitive spirit would
prevail."

Going Local

The company’s strategy is to offer local service in California
as a vertical feature for all interested long distance customers.
"Local service by itself is a money loser," Derek
explains. "It will get better, but it’s still years
away." Experience has shown Genesis that bundling local with
long distance services results in 50 percent less customer
attrition. "Half the attrition means lots more margin,"
he adds. To further the staying power, Genesis is offering
calling cards and 800 service to its customer base. Since signing
its first local customers in August 1996, Genesis has added some
15,000 customers and is currently processing 150 to 200 orders
for local service each day. Genesis recently began offering local
service in Colorado, with Oregon also on the schedule. Washington
and New Mexico are expected to join shortly.

Big Step

In June, Genesis expanded its long distance product services.
The company had previously offered its customers a guaranteed
savings on domestic and international calls with competitive
rates to Mexico as well as Central and South America. But as the
company’s customer base grew, Derek says Genesis needed a new
strategy to meet the diversified needs of three emerging customer
profiles:

  • Callers who use domestic services almost exclusively and do not benefit from the low international rates;

  • Callers who use international services but do not use the domestic rates; and

  • Callers who have low volumes but pay a significant service charge. To meet these needs, Genesis rolled out the following plans: The World United (Mundo Unido) flat-rate plan, which offers low international rates at any time for callers who spend at least $15 a month with a $2.95 monthly service fee.

  • The Domestic United (Domestico Unido) flat-rate plan, which offers around-the-clock calling for customers who make at least $15 a month in long distance with a $2.95 monthly service fee.

  • The Basic Saver plan, which targets customers who spend less than $15 a month to keep their bills low. The plan details different rates for daytime, evening and night/weekend calling, with no monthly service fee. "Ultimately, price is the best differentiator," Thalia says. "People may be able to get the same services elsewhere and perhaps similar quality, but we deliver value."

Small Business

Genesis is now poised to make its biggest move yet into the
small business market. With its new thrust, the company is
targeting businesses that spend at least $500 a month for their
telephone service, including Internet access and voice messaging.
Even though Genesis now has more than 50,000 customers, the move
to small businesses represents a major step.

As for what’s ahead, Derek says he sees Genesis moving toward
becoming a one-stop shop. Toward that goal, he is investigating
such options as wireless, paging and facsimile services. In
addition, he’s intrigued by PCS resale.

"But (these things) will happen only as our market
dictates," he cautions. "After all, it’s best to stick
to what you know."

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