Netaxs Building Long Term Business Success

We called up a regional ISP and asked management for the secret of its success. Learn what this tenured group of ISP executives is doing to thrive during challenging economic times.

by Alex Goldman ISP-Planet Associate Editor [January 8, 2002]

Last year was pretty tough on large, global Internet service providers and broadband access providers. But Netaxs, a mid-sized ISP based in Conshohocken, PA, just outside of Philadelphia, is bucking the trend. The company reports that it attained a 350 percent growth rate over 2000 annual revenues.

Naturally, we sat up and took notice since this type of astronomical growth has not been attained since the heyday of dialup a few years back. How did Netaxs do it? What's the company's secret to success—during a recession, no less?

Jeff Pasquale, Netaxs chief executive officer and co-founder, provided some insight as to the company's business methods that made 2001 a banner year.

Who's who
Netaxs' executive leadership reads like a dream team, but the presence of tenured ISP experts does not necessarily translate into a guaranteed business success story. The company set realistic sales expectations and planned for the long term, not expecting instant riches. Pasquale founded EarthStation Inter.net in 1995 and in 1999 it merged with Avi Freedman's Netaxs, which Freedman established in 1992.

In order to make the most of the company's brain trust, Netaxs was built around its tenured leaders who each have separate areas of expertise:

• Jeff Pasquale: As CEO coordinates business and is well-respected locally, sitting on the board of the Philadelphia Chamber of Commerce and also on the board of the local chapter of the Red Cross.
• Avi Freedman: The routing guru acts as Chief Technology Officer. Freedman is also Vice President of Network Architecture at Akamai Technologies and a part-owner of Haven Co., founded in the nation of Sealand. Freedman speaks at conferences around the world, and will be a keynote speaker at INT Media Group's ISP Business Expo 2002.
• Elbert Basolis: As Chief Financial Officer, Basolis handles the money and real estate sides of the business. He co-founded EarthStation Inter.net with Jeff Pasquale and also owns consulting and real estate businesses. Basolis is on the Board of Directors of Yardville National Bank and chairs the bank's Technology Committee.

The executive leadership at Netaxs continues to attract favorable attention and awards. The Wharton Business School ranked it 22nd out of 1,900 local small businesses in terms of revenue growth for the period 1998-2000 and 27th overall during the period 1997-1999. The company was runner up for the award of small business of the year at the Main Line Chamber of Commerce Awards Dinner in June 2001.

Execute the plan
Pasquale explained that the key to Netaxs' success to date is simple—although challenging to replicate.

"We use old-fashioned business rules," Pasquale said. "We have a business plan. We stick to what we do best, selling IP connectivity and collocation. We started out as a regional player, and we're growing quickly, but were not just trying to spend money."

Early on in its growth surge, Netaxs' leadership realized that its network was large enough to support the leasing of dark fiber from Metromedia Fiber Network (MFN) instead of individual circuits.

Pasquale said that controlling operating costs has been and will continue to be imperative for Netaxs.

"Once you start to need a certain number of circuits between several cities, the overall costs escalate fast," Pasquale said. "After the change, our total monthly cost of network operations was much lower."

But cost controls don't stop at buying bandwidth. Pasquale said the company looks for ways to manage equipment expenses, too.

"We bought most of our equipment. We did lease some equipment on our last buildout because we were able to realize an immediate cash flow on the leased assets, but we wouldn't do it all the time," Pasquale said. "We're always searching for deals on equipment, both new and refurbished."

In areas where Netaxs does not yet have a critical mass of customers, it leases collocation space in others' facilities. As a result, Netaxs has a small colo presence in Japan, Sydney, London, and Frankfurt. Pasquale said this allows Netaxs to build revenue in an area and then come in and do its own deal.

"The big boys built and bought facilities everywhere before they had revenue there and then they closed them down," Pasquale said. "We're looking at opportunities to buy those facilities at a highly discounted after-chapter 11 price, with new equipment that's barely used."

In fact, Pasquale notes that the dot-com bust has helped the company in several ways.

"A customer who was a victim of the dot-com bust might have used our data center for a year and then gone out of business, but their former employees are still working, but they're at other companies ... and they're coming back to us."

As to Netaxs sales plan, the company prefers what Marketing Director Scott Carlisle calls "handshake opportunities," like at trade shows.

"We sell to ISPs, so it's important that the ISPs know us," Carlisle said. "It's also important for our sales consultants to tell the Netaxs story. We like to work with regional technical councils and chambers of commerce, and we like to bring customers to our data center cites. Finally, we have 10 years of service and great customer testimonials."

One of Netaxs' highly regarded independent ISP customers is Panix, the New York City-based provider whose name stands for Public Access UNIX. Founded in 1989, Panix is one of the oldest ISPs in the world.

Longevity
When asked what the future holds for Netaxs, Pasquale indicated that it would continue to grow the business slowly.

"We've got sixty employees, and we're hiring a few more," Pasquale said. "We need to grow slowly, and we rely on our managers to tell us when they need more people. We've never had to lay off a single person and (knock on wood) hopefully we never will have to either."

In the end, Netaxs secret to success is no secret at all. The key to building a successful ISP business is rooted in getting strong leadership from tenured management that strictly enforces operational cost controls and likes to get eyeball-to-eyeball with potential clients.

Then, take it slow—set realistic sales expectations and get involved in local community organizations. After all, the real secret to success is longevity. And it looks like Netaxs is going to be around for the long-haul.

—End