On the Line

REVIEW SUMMARY
Business. Star2Star Communications, Manatee County
Industry. Phone, telecommunications
Key. Firm, which has rapidly grown from startup to nearly $20 million in sales in three years, projects more fast growth in the next three years.

A major letdown awaited Norm Worthington the first time he launched an innovative phone communications and software firm.

That was in 2006. That's when Worthington, a semi-retired Sarasota veteran of a dozen previous startups, founded the business with $1.5 million of his own money. Worthington thought the concept of talking on the phone over the Internet — Voice over Internet Protocol — lacked cohesion. And, by extension, it lacked widespread customer demand.

So Worthington and fellow technology entrepreneur Joe Rhem set out to build a VoIP phone system that could provide businesses everything from hardware and software to setup and support. The entrepreneurs got started in Rhem's garage.

But the beta test, Worthington says, was a debacle. Calls were dropped. The service was ungainly, and unprofessional. “It absolutely failed,” says Worthington. “It was a complete disaster.”

Worthington, though, didn't quit. He put another $500,000 into the firm, Manatee County-based Star2Star Communications. The technicians and engineers reconfigured some parts of the system, and tinkered with other parts. In doing so, the team, says Worthington, built a system that integrates the best of the two most prominent VoIP business models.

“You can either create a creative destruction or identify one and exploit it,” says Worthington. “This is a case of the latter.”

So much so that now Star2Star is a bright light in a universe of dozens of local companies slowed by the recession. Annual revenues at the firm are up almost 3,000% since 2007, from $653,943 to a projected $20 million in 2011. Profitable since the third quarter of 2009, Worthington says $50 million in revenues by 2014 isn't farfetched.

The firm made the Inc. 500 list of the country's fastest-growing companies this year, too, which tracks revenues from 2007-2010. Star2Star ranked 195th overall, and it was the fourth fastest-growing telecommunications company. Forbes magazine also recognized Star2Star, naming it one of America's most promising 100 companies in a recent issue.

Star2Star, furthermore, is a hiring machine. It has gone from 30 employees in 2008 to 100 this year. About 85 of those employees work out of the firm's 45,000-square-foot facility, near the Sarasota Bradenton International Airport. The rest of the employees work in satellite offices nationwide.

Even better news for a jobs-starved region: Worthington says Star2Star plans to hire at least another 100 employees in 2012.

About one-third of the current employees work in software development. Other employees focus on sales, marketing, and on training the firm's network of dealers how to use the cloud-based technology. “We look like a telephone company,” Worthington says. “But we are really a software company.”

The software, Worthington's exploitation of creative destruction, is what Star2Star calls Blended Architecture. It's a trademarked, proprietary and patent-pending system the firm says “overcomes the limitations of other Internet phone technologies.”

The forefront
Star2Star leverages that technology in two ways. One, it markets the service to businesses that seek a way to cut expenses, which is virtually any company, given the recession. A typical Star2Star sales pitch holds that a client can save about 50% on a monthly phone bill — savings the firm says normally offset what it costs to buy and implement the system.

The second angle is the company has reached out to a small army of business phone dealers, a group that has been especially hammed by the economic downturn. These dealers, trained in Star2Star's headquarters, have turned into a sophisticated sales force that can help penetrate new markets, executives say.

The technology begins with VoIP, which goes back to the 1970s and uses systems other than public switched telephone networks to make and receive calls. The technology became a viable alternative to landline phones for both residences and businesses starting in 2004, with companies like Vonage at the forefront.

Since then, the industry has mostly stuck to two models. Some VoIP providers focus on voice mail and other behind-the-scenes services, but don't actually do the connecting and call-to-call work. Those firms offer what the industry calls a private branch exchange, or PBX, which allows multiple phones in multiple locations to work with each other — the heartbeat of many businesses. Other VoIP providers make the call-to-call connections, but without the PBX services.

Star2Star, says Worthington, does both models. The technology is normally delivered to clients in a small case, no bigger than a shoebox. Tens of millions of minutes of calls a month are connected through a private network or carried long distance by L3 Communications, the company says. All of the calls over the Star2Star network are monitored by one of several data centers the company operates.

Worthington says the company's dual-sided approach to VoIP makes it the only one in the industry that combines hardware and phone service with call monitoring and line management. “We have a solution that's much less expensive and much more feature-rich,” Worthington says. “We're changing the dynamics of the industry.”

Adds Worthington: “We are the only national full-service business phone company. It sounds pretty audacious, but it's true.”

Winning the future
The audacious power Worthington speaks of could be found in the company's list of clients that have signed up for the service since 2007.

That list includes Dollar General and Kentucky Fried Chicken. One client is a Texas-based Pizza Hut franchisee, where Star2Star handles phone calls for nearly 400 restaurants. Dollar General is the largest Star2Star client by sites, with nearly 10,000 stores on the system.

The business-to-business VoIP services market is a big target for Star2Star, says Worthington. It potentially approaches $100 billion. But Worthington's central focus is to balance the current business model with what he believes Star2Star should look like in five years.

The future is winning. Worthington says he spends liberally on nearly a dozen projects that would take Star2Star's core VoIP offerings in multiple new directions. More than 20% of the firm's payroll, says Worthington, goes toward new product development.

Some projects are secret. The ones Worthington disclosed include a new interface for inbound calls; a project called StarPhone that would allow clients to use iPhones and Android-based smartphones as a Star2Star telephone; and StarFAX, an Internet-based fax-to-desktop service that lets users send and receive faxes on the computer.

That focus on the future is also Worthington and Star2Star's biggest challenge. “We have so many channels and so many sales opportunities,” Worthington says, “that a mistake would be to try to do it all rather than be the best at one thing.”

A 'dominant player'
Doing one thing hasn't defined Worthington's career prior to Star2Star. One of his first firms was Software Toolworks, a consumer software firm Mattel bought in 1999. Products that firm created include the Chessmaster series and Mavis Beacon Teaches Typing!

A native of New Jersey and a graduate of New College in Sarasota, Worthington founded several other business after Software Toolworks. He launched one company, which also did software development, while he was a student at Northwestern University School of Law. He says only one of his startups was a hit right from the start. “Usually,” says Worthington, “I've had to pivot and attack and adjust.”

Worthington met Rhem, now Star2Star president, when they both worked in a joint venture with Computer Associates in the 1990s. That relationship led to the formation of Star2Star.

Now, with early startup hiccups behind it, Worthington hopes the firm will capitalize on good timing to continue its explosive growth track. He believes Star2Star's advantage is it has the right product and service in a promising and large industry.

“We are in the midst of a storm. The old way of doing voice is going away,” says Worthington. “We think we are in a position to be a dominant player in the industry.”