Optelian - high quality optical transport with a strong customer focus
June 18, 2010		Email this page

Interview with President Mike Perry

Introduction

Optelian, founded in 2002, is a privately-held supplier of optical transport systems with manufacturing facilities in Ottawa, Canada and sales and marketing operations in Marietta, near Atlanta in Georgia.

Optelian markets its products to telecom service providers, utilities and enterprise customers in North America and, via distributors, in a number of countries worldwide.

Q: Could you begin by giving some background on Optelian and describing what the company does?

Optelian is a nine-year old supplier of optical transport solutions, which is profitable, has around 150 customers and to date has grown organically rather than through buying up companies or assets.

Optelian was originally set-up with the aim of delivering high quality optical transport products, and this focus continues. The company is now one of the few remaining North American suppliers to still design and manufacture its own products, with final assembly and testing conducted in Ottawa, Canada.

The company is currently adding customers at a rate of around 2-3 per month, mostly gained via word of mouth rather than through advertising.

As an example, Optelian supplied a system to a service provider in Georgia in 2009. Recently a similar company based in Mississippi, having spoken with this operator, contacted the company requesting the same solution and the same customer service.

This low-profile approach is in part intended to avoid attracting too much attention from the major vendors that Optelian competes with.

However, this should not be taken to mean that Optelian is on the periphery of the market - it has one of the largest RBOCs as a customer. This carrier has been an Optelian customer since the company launched its first product. Notably, Optelian has never lost a customer.

Q: Why has Optelian continued to manufacture its own products?

One reason for retaining manufacturing in-house is that it enables the company to closely control both quality and lead times.

Many of Optelian's competitors have lead times of 8-12 weeks partly due to the practice of building products only when a customer order is received - a practice that is increasingly common since the downturn of 2002/2003.

This means that Optelian can often deliver an order more quickly than other suppliers, and this can be a competitive advantage.

Q: Why did you start the company when you did, given that a decade ago there was no shortage of optical networking systems suppliers?

I and business partner David Weymouth simply believed we could design and deliver optical transport systems that were better than most of what was available on the market. In particular, we felt it should be possible to offer a better overall customer experience.

David and I both have backgrounds at large companies such as Bell Canada, AT&T Canada, JDSU and Fitel and each have around 30 years or more of experience in the industry.

Before founding Optelian we were both working at JDS Uniphase after that company was formed via the merger of JDS Fitel and Uniphase Corporation in 1999. Specifically, we were both working in the Fitel-PMX division.

As regards actually establishing and running a company, it has been a huge learning experience and far more difficult than I had imagined. However, Optelian is successful, at least insofar as it is still in business after nine years and it is profitable.

I believe the company's success is based on Dave's expertise in optical systems - in my opinion he is one of the best optical systems specialists around - while my background is sales and marketing.

I should emphasise that Optelian was not founded with a view to reaching an IPO or selling the business at a vast profit. The company was set-up to produce good products, to that end it has a highly professional and committed staff and sees very little turnover in employees.

Q: What exactly did you aim to do better?

Basically both David and I thought that purchasing an optical communications system should be a better experience for the customer than often seemed to be the case, from product design and quality through to delivery and support.

During my time in the industry it seemed that a consumer buying a basic item at a local store could expect a better standard of service than some of the optical communications equipment suppliers were offering.

Another element is my background with Bell Canada, where there was an ethos of doing a thing right and making sure that it was done right.

As an illustration, when installing a DWDM system the ROI for the carrier can be almost immediate. However, if the system is delivered late or there are delays because it does not initially work properly it can cost the customer a lot of money.

It is therefore essential to ensure that such a system is supplied and operational on time. Beyond that it is important to fully understand what the customer needs and expects at the start of a project.

At a more personal level, I like to do the best job possible and believe that we all live and die by our reputation, both in our work and our private lives.

Q: How is Optelian funded?

Funding was provided by David and me. The company has always specifically eschewed venture funding, although VC firms regularly contact the company with regards to potential financing deals.

Q: What type of company is Optelian, i.e. does it seek to be a technical innovator or is the focus more on delivering an effective product?

Optelian certainly falls into the latter category. The company aims first and foremost to deliver the best possible solution for the customer, which will not necessarily be the most technically advanced solution.

For example, Optelian does not offer a 100 Gbit/s product and at present does not have 40 Gbit/s product, although it is developing the latter and expects to launch a 40 Gbit/s system in 2011.

The bottom line is Optelian simply does not have the resources to develop technologically advanced, innovative products, particularly if they do not then sell for whatever reason. The aim is to develop and sell products that work and deliver what the customer needs.

However, this is not to say that Optelian simply churns out low specification systems that it can sell at a low price.

With each generation of the LightGAIN product the company aims to deliver a system that is smaller, consumes less power, is less complicated and more cost effective than rival systems on the market. This is the objective the company works to and it usually manages to meet it, although hitting the price point is becoming increasingly challenging.

Q: Does Optelian compete on price?

Of the four objectives cited above, the price target is the most difficult to meet and the one most often missed. It is also getting harder to meet.

However, it is the company's overall value proposition - particularly quality and customer service - that keeps customers coming back, not simply the ticket price.

Q: What differentiates Optelian's product?

Two key features of Optelian's system are scalability and the fact that it supports hybrid CWDM and DWDM technology. Beyond that, the product is also very compact.

The closest vendor in terms of product offering is Transmode, although that company is larger than Optelian. Transmode is a company Optelian tracks closely and it is always good to read that it has won a contract against an established systems vendor.

Q: To what degree do large customers dictate the specification of products that Optelian is supplying?

This varies considerably from contract to contract and customer to customer.

As one example, Optelian is currently involved in a project in India with a customer that cannot be named where, if it were to adhere to the customer's wishes, it would be dedicating 90% of its entire resources to the project. This is obviously not feasible as Optelian has many other customers and projects to support. In situations such as this the customer's expectations have to be carefully managed.

On the other hand, there are occasions where developing a capability for a specific customer can prove extremely valuable.

It is interesting to note that when working in some overseas markets - South East Asia for instance - one can find customers building systems more advanced than exist in North America, partly because the operators are not bound by existing infrastructure and so it can make sense to use the very latest technologies.

An example of this is OTN technology. Several years ago the company participated in a bid involving OTN in India, before it had ever come up in a contract for a North American customer. Optelian subsequently developed muxponders for this application.

OTN is now a big thing in North America and Optelian was ahead of the game due to its work in international markets.

Q: Does Optelian face the problem of large carriers being reluctant to buy from it as a small company, even though it is not a start-up?

Obviously Optelian has overcome this issue to some extent as it counts a large RBOC as a customer, but it can still be an issue. It basically comes down to the 'nobody ever got fired for buying IBM' mentality.

This mindset can sometimes be countered through highlighting the issues of vendor lock-in, which some large vendors practice, and pricing differences, but it is certainly a factor that has to be overcome.

Another tactic for a small supplier can be straightforward persistence. There are occasions when Optelian has failed to win contracts with a certain company two or three times, before finally winning the business at a fourth attempt.

Q: Optelian appears to have distributors in all parts of the world, how does it sustain this?

Optelian has revamped its distributor network to address perceived problems. At one time the company had around 16 distributors across the world, these have now been slimmed down to seven. It would be true to say that Optelian has not always chosen its distributors wisely, but it has certainly learnt in this respect.

The key factor is distributor selection. It is vital to ensure that those selected have the necessary expertise to sell optical systems such as Optelian provides, or the supplier can end up spending time and resources doing work that the distributor should be handling.

Q: Do you think it was a mistake for Optelian to expand into overseas markets when it did, around four years ago?

In hindsight it may have been a good idea to wait a couple of years. That said, the sales cycle for optical systems is long, so to some degree the sooner a company can manage to move into international markets the better.

In North America the sales cycle for Optelian's systems ranges between 6 and 18 months, internationally it is probably another 6 to 12 months on top of that.

Personally I enjoy the challenge of competing for business in new markets because sometimes the small supplier can win. On top of that it often provides valuable experience.

In large parts of the world there are currently two big Chinese vendors that pretty much have the field to themselves as many of the large established systems vendors seem to avoid competing with them, or are nervous about doing so.

Optelian might sometimes bid for a contract simply because there is only one Chinese company in the running, partly to make things a little more interesting. But every so often Optelian wins the business.

Even so, it should be noted that international sales constitute a relatively small part of Optelian's operation - the bulk of its business is still in North America - but it is persevering in this area and making progress.

In addition, aside from the straight revenue potential of overseas markets as noted above, Optelian always learns something from its involvement in overseas markets.

Q: Does the company experience difficulties getting paid for overseas projects?

Generally, no. Whilst a contract with a North American carrier can be seen as cash in the bank, overseas projects tend to be more risky. However, Optelian will have accounts receivable insurance, which is backed by the Canadian government, for contracts in other countries. In any case, it is usually the local distributor that is the direct customer.

Q: Optelian has not bought or merged with any other businesses, is there a specific reason for this?

There are a number of reasons, including all the usual ones such as wishing to avoid risk, the fact that business combinations often fail or do not work out as planned, and straight lack of money for buying assets, even failed or failing companies available at bargain prices.

However, a major factor is that the company is simply extremely busy doing business!

Q: How would the company go about raising capital if it were needed?

I would answer that by saying Optelian is very careful as regards how it spends its money and seeks to use it efficiently when it does, so to that extent the company aims not to need to raise capital. In addition, it banks funds to help it through difficult periods. Apart from any other factors, the company feels a tremendous responsibility towards its staff.

Returning to the subject of expenditure, Optelian has the resources to execute four major projects per year, plus perhaps another four or five minor projects. These projects are selected very carefully following consultation with both clients and staff.

More broadly, both Dave and I are primarily interested in doing what we do well rather than building up a large company. I would prefer to run a small or medium-sized business that is very good at what it does than a large operation that perhaps loses sight of its original values.

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