Rewriting the Rules

Gallery Telecom Solutions funds all of its own development, refuses to focus only on one area, and has turned down venture capital investment. Where a can-do attitude can take you.

Gallery Telecom Solutions is one of those companies that break all the rules about how small Israeli technology companies think, operate and grow. It funds all of its own development, refuses to focus only on one area, has turned down offers for venture capital investment in the past, and fervently believes that smaller is indeed better.

The company is now, maybe, looking for VC involvement in one of its four areas of activity, but it is doubtful whether GTS, which is 100% owned by one entrepreneur, Avihai Degani, will ever conform to the mold of a venture backed company.

There are only 25 people working at GTS' modest offices in Ra'anana, but its range of activities would be enough for companies 10 or even 20 times its size. "A very senior manager from AT&T came to visit in the same (tiny) office and said at the beginning of the meeting that they could swallow us without noticing it. When he learned what we actually do here, he changed his mind," Degani said. Small as it is, GTS has partnering agreements with technology heavyweights like Bellcore, British Telecom and Dialogic.

In Israel, the company has built major systems for Cellcom and Bezeq, and does not seem to have problems in selling its expertise to major telecom companies abroad. The company has now reached an interesting junction at which the expertise it developed for specific projects has evolved into products and it now needs a lever to gets these products into the marketplace. The four key areas of expertise are in Interactive Voice Response, Billing and Customer care for telecoms, Wireless Local Loop technology, and Network Systems Management, an area where GTS acts more as an integrator than a vendor.

The conventional solution to this problem would be to pour money into the company, bring in a group of strong marketing executives, and decide on one area in which GTS will make its mark on the world. Wireless Local Loop, for example, is a huge market, and if GTS is as good as Degani says it is, then why bother with all of the rest, the venture capitalist would argue.

Degani doesn't want to do this. His company's core skill he says is in really understanding the incredible complexity of telecom systems in a rapidly changing world. It's also not the way he likes to do business. He is no newcomer to the industry. He started developing his communications skills in the army, and then worked in Tadiran, other Israeli companies and Alcatel. The years of working for others taught him a few things. In most companies, he says, programmers don't really understand what's happening outside the little piece of code they were told to write. GTS, he says, stresses a deep understanding of the system with all of the problems involved in integrating hardware and software. As a result of understanding the complexity of an entire system far fewer professional people can do a far better job.

Degani set out on his own in 1989 as a consultant, and started to work on projects in 1992. In 1996 his company started offering solutions and third party systems integration. GTS, he says, is solvent, but not making a profit because he is investing all the proceeds from projects into development.

There is nothing wrong with this history of slow, almost organic growth. It definitely helps keep a lid on development costs since Degani says he knows exactly how he can make one person worth much more than his competitors' vast teams.

The market, however, is not standing still. The telecom world is exploding from the double pressures of new technologies and deregulation. As a result of this explosion, there are an enormous number of new players in telecom who want to take advantage of the opportunities presented by celullar, wireless and IP technologies, to name just a few of the new niches. The new service providing companies have neither the deep teams of professional experts, the money or time to make their own solutions, and are hence in a buying mode. The major established players also have to catch up in a hurry, which creates a situation in which even the largest technology vendors must work with small players.

It's clear that there is a window of opportunity and nobody knows how long it will remain open. GTS is staffed only by developers, except for one marketing professional, VP Michelle Specktor. Degani, stubborn as he might be, knows that he needs money for marketing and has isolated one area, Billing and Customer Care, that he wants to spin off with a VC investment. "There was a parade of venture capitalists here in 1993 and '94," he says, "but we didn't want their money then."

Now that he does want the money, he is still wary of new partners, and one gets the feeling that he wants somebody with the same vision. Degani's main source of pride is the quality of his products and solutions. He says that he installed a major system for the Peru Telephone Company with its own diagnostic and self repairing systems. The maintenance contract was carried out entirely by remote access from Israel and no one has ever visited Peru in the two years since the system was installed. One gets the impression that he wants a partner who will say 'Wow' about that.

Venture capitalists, however, tend to say 'Wow' about incredible growth potential, and technical excellence is meant to be an end to these means.

Degani says that at least three of his technologies are strong enough to build brands. He wants to open offices in New Jersey to help him reach this target. In one area, he thinks he can be one of the three major players in an emerging market. In another area, he thinks GTS can be one of five main players. "We'll do it either with or without an investment," he says. "Without the money it will just take a little longer."

When one visits many start-ups one gets the impression that they are companies out of a box. There is an idea that is slipped into a formula that makes a company with the same attitudes, strengths and weakness. The key strength is usually speed. One of the main weaknesses is often short-term vision that makes a company that at best can be sold to one of the major technology vendors.

GTS is tiny, but, according to Degani, has a culture that derives in a large part from his own experience. It involves staying power, deep understanding of telecom technologies, and a way of developing sophisticated products with very few human or financial resources. This is a culture sorely missing in many companies, and it could take GTS very far if Degani can loosen up enough to swallow the bitter pill of a professional investor with the strings and provisions that can propel him into the marketplace.

Published by Israel's Business Arena February 14, 1999

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