Minnesota Business Magazine, Vol 15 #10 [February, 2006] – Being in the internet business in the late 1990s and early 2000s was akin to running Pets.com just when the dot-com boom went bust- sure, the idea was good, and the need was there, but the market became a cold, punishing place anyway.

Not every company turned its belly upward, however, as CP Internet demonstrated. Rather than follow its competitors into bankruptcy, the company not only survived in the midst of the downturn; it actually thrived.

But now the company wants more than just revenue growth. After switching its name to CP Telecom, the firm seeks to reinvigorate the telecom industry in Minnesota, and with a seasoned management team and string customer service focus, it's possible that CP Telecom could just be the spark needed for re-ignition.

SWITCH HITTERS
Some company histories sound like the business equivalent of rollercoaster rides, but CP Telecom is more like a sedan barreling down the highway.

Founded in 1994 in Duluth by Chad Braafladt and his wife, Mary McClernon, the company was originally a consulting firm, but quickly evolved into the largest locally-owned Internet services provider (ISP) in Minnesota.

The move from consulting to ISP work was a necessary one, Braafladt notes. At the time, large firms weren't interested in the kind of IT services that the company offered, but they did crave a way to get wired. By offering dial-up service, CP Internet got noticed and, more importantly, got clients.

By October 2000, the company landed on Inc 500 fastest-growing list, revenues were at $6 million, and the company began focusing on acquisitions.

After two minor acquisitions, the company purchased the dial-up Internet division of Hibbing-based Befera Interactive Cablenet, adding 4,000 customers in Ely, Grand Rapids, Hibbing and Virginia.

The next acquisition, the company out of being up normth with the purchase of ISD.Net, based in the Twin Cities, adding another 10,000 subscribers. The last, and largest, deal was in February 2002, when the company bought Mankato-based Prairie Lakes Internet, gaining 13,000 customers in southern Minnesota.

But in the midst of the acquisitions, the dial-up Internet business began to stagnate as more competition came into the market, and getting new customers was proving tough. The company decided to take a different route, and started up CP Telecom, a local telephone service provider.

The move was possible with a $2.8 million in debt financing, which the company used to buy ultrahigh-capacity call-switching technology, and go head-to-head with incumbent phone utilities. Also called a softswitch, the technology allowed CP Telecom to avoid the fees that local service resellers have to pay to utilities like Qwest.

Before then, no one had tried to spur telecom revenue using a softswitch, but CP Telecom was able to leverage the technology to gain an edge over rivals. That put the company in good position in 2002, when the telecom bubble burst. That year, many of CP Internet's competitors began to downsize or simply go out of business. Because the firm was always been bootstrapped, however, it stayed afloat when others sank.

"We've never run on debt or equity capital, so we were able to weather the downturn because we didn't have the high obligations that other companies did," Braafladt says. "Also, other companies were focused on growing sales. That's a great thing, but if you don't also focus on making money, you won't be in business for long."

TOMORROW LOOKING
Now that the company has decided on being a telecom leader, Braafladt believes that it can capitalize on a number of strengths and new initiatives.

In addition to changing the name CP Telecom, the company implemented an indirect sales channel for service, with more than 100 agents selling service across the state.

The primary focus of the effort is small and midsize businesses, a sector that the company served in the past but has become increasingly interested in wooing. Such a strategy will lead into competition with other local exchange carriers such as Eschelon Telecom and Integra Telecom.

Nevertheless Braafladt believes the company's strategy shifts will serve it well into the future, since it's had to refine its customer service communication along the way. "We go out of our way to communicate personally," he says. "Everyone says they have great customer service, but we feel that ours really does set us apart. It drives everything here."

Of course, having strong management doesn't hurt either. In September, the company added Tim Devine [Cover February 1998] to its exectutive roster. Devine founded successful telecom start-up Ovation Communications in 1997, and built one of the first fiber optic networks in the Twin Cities, before selling the company for a princely $400 million.

Even for those of the non-executive rank, the company just feels different, Braafladt thinks. "There's a culture of openness here, a bootstrap culture that gives us an advantage," he says. "Our competitors are staffed with people who came out of large monopoly telephone companies that didn't have to compete for 50 years before now."

With the changes, though, come some cuts. In 2004, CP Telecom had to divest its information technology consulting and Web development businesses in order to better focus on Telecom. As Braafladt describes the divestiture, there's a certain nostalgia in his voice for the company he founded over a decade ago, and now had to let go, but it's soon replaced by that clear, full-speed-ahead tone that marks most of his speech.

"We're constantly refining our strategy, because you have to serve customers better," he says. "In making company changes, we look at what we're trying to do, and the best way to deliver service, and right now, that's to focus on telecom.

~Elizabeth Millard [MinnesotaBusiness Magazine - Feb. 2006]