By Peter Longini, Managing Editor

At first blush, it's a little hard to think of a billion dollar technology company with more than 3,000 employees worldwide playing David to anyone's Goliath.  But in the Bromdignagian world of telecommunications, where waves of M&A activity have seen giant telecos eating one another for breakfast, a mere billion dollar enterprise is pretty small potatoes.  At least so it seems to Rafael Francis of ECI Telecom - a company with headquarters in Israel which has itself pursued a strategy of acquisition, including that of Laurel Networks in 2005, where Francis serves as director of product management for what is now ECI's data networking division.

Out of this global consolidation have come a comparative handful of colossal companies with tens of billions of dollars in market capitalization, a number of smaller, often rural, telecommunication carriers and niche suppliers as well as a revolving door of startups and specialty firms, most of which either fail or become acquired within their first few years of life. 

Not surprisingly, it's hard for a smaller company to compete successfully against the giants - particularly in the monster jam arena of end-to-end network solutions.  But profitable co-existence is possible.  And early in its seven year history, Francis' division of ECI devised a series of interrelated strategies which have enabled it to prosper in an industry dominated by giants.  But getting to that point wasn't cheap.

"We learned from our mistakes," Francis acknowledged.  "We were trying to move in too many different directions with the product and, as a startup, eager to get customer wins - going after every opportunity where an operator would spend time speaking with us.  What we soon realized is that if you do that, you can overextend yourself and deplete your resources pretty quickly. 

"You need to be much more selective about which customers, which markets you go after, and whether you can do that directly or through a partner.  And from an application standpoint, you need to be selective about which features to focus on in your product," he said.  "You can't possibly sell your product into every type of application."

Find your niche

That realization meant giving up the pursuit of what at first seemed to be a number of prospective customers and breakthrough applications.  But once the imperative of making choices became clear, what emerged was a three-pronged strategy referred to internally as ‘focus.'  Part One is to identify the market segment you are best equipped to serve.  Originally Laurel Networks, with a staff of just 150, tried to target the same operators the Goliaths served, according to Francis.  But it was a mismatch, and the company had difficulty convincing large operators to invest in the startup's products. 

"What we learned was that we needed to identify segments of the market that were underserved by these larger competitors.  So rather than focus on the Tier Ones, we identified an underserved market.  In our case it was the Independent Operating Carriers.  These are smaller players in telecom markets where, for whatever reason, the larger suppliers don't play. 

"We found a way to go after them and do it successfully.  We started attending their trade shows and hiring sales guys who were accustomed to selling in to that market space," he said.  They also identified leaders and bellwethers in the targeted market segment - companies that their peers would often base purchase decisions on, and they worked to establish these leaders as reference accounts in helping the company gain traction in the market. 

Dare to be different

The second element of the strategy is what Francis refers to as choosing a vector of differentiation.  "Laurel initially tried to go after too many different applications with our product and to enhance our product in many different dimensions.  What we found is that as a smaller company with a limited size R&D team competing against these much larger companies, you really need to focus your product.  You can't hope to compete against the entire product portfolio of the Goliath-type companies.  You need to pick an area of your product that you want to differentiate, and continue to enhance that feature," Francis said.  "You don't pick a single point of differentiation at a point in time and say, ‘okay, in this release this is what's unique about our product and in the next release it might be something different.'

"In our case it was to focus on the market segment of ‘edge routers' and to build in ‘quality of service' capabilities that would enable them to deliver real-time services such as voice (VoIP) and video (IPTV) with guaranteed levels of quality." But you need to pick your own vector of differentiation - an area in which you want to differentiate.  It might be price, it might be a certain feature or capability.  The reason it's called a vector is that you want to continue to enhance the product along that same direction.  You don't want to stand still.  You want to become recognized within the industry for it," Francis said.

"How you pick that vector of differentiation is very important because you need to make sure it's the right one.  It has to meet two very important criteria.  One is that your company has the core competencies that allow you to achieve differentiation across that vector," he said.  "Second, it has to be a vector that the market values, one which customers will base their buying criteria on.  So that becomes very important.  And it can differ depending on which market segment you're targeting."

Pick a partner

The third component of ECI's Focus strategy is channel partner selection.  One advantage of partnering, according to Francis, is that selecting a larger, better-known partner can help both to make your company appear larger in the eyes of its customers and to provide them with a stronger support infrastructure than a smaller company alone could offer. 

"We originally signed up Marconi as a channel partner.  We did that to sell our product into the federal government space because the only way you can compete with a Cisco, who has a large presence in the federal government, is to partner with somebody else who knows that market, who has an installed base, who has the right contacts.  For us that was Marconi, and they actually re-branded our product.  So as far as the customer was concerned, they were buying a Marconi product, and calling a Marconi support line. 

"We had another partner, also an established player and service provider, who sold to a lot of Tier One telecom service providers.  Although they didn't re-brand or OEM our product, they would resell it into some of their target operators and customers.  That was another key part of competing with some of the larger guys."  

But you need to pick those partners carefully.  "It's essential not to have any internal conflicts.  You want it to be complementary to their existing product so you can piece together a solution," he said.  "It has to be a win-win situation.  For us, the win was that they provided us with the bigger brand and deeper pockets - a larger company that bigger operators would want to deal with.  What they were gaining from us was the ability to complement their product portfolio and fill a gap.  Now they're able to offer a more complete solution.  That might involve multiple products - products from their portfolio and products from our portfolio.  It allows them to compete better."

Take a risk

At the same time, however, there are some downside risks to the Focus strategy, Francis acknowledged.  For example, when a larger channel partner is the only face a customer sees in connection with your product, the voice of that customer can become a bit muffled when deciding which requirements to prioritize for a subsequent release. 

Then too, with the recent frenzy of merger and acquisition activity, a promising Tier Two customer can abruptly become a fast lunch for a Tier One which is seeking to establish a footprint in a new market space.  That can quickly shift the dynamics of a sale in favor of a larger competing supplier with larger share-of-mind, particularly among other Tier One telecoms. 

But Francis remains unfazed.  "Every successful company has to take on risk and make difficult decisions.  That's nothing unusual," he said.  "It's just part of what you're signing up for."

About the Author:

Peter Longini is the Managing Editor for Inside Product Strategy™. He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

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