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August 2004

Rich Tehrani Insider View On Teleservices Industry Evolution

By Rich Tehrani
Group Editor-In-Chief, Technology Marketing Corporation

Ray Hansell is the cofounder of RMH Teleservices, a company that has been ranked on Customer Inter@ction Solutions'' Top 50 Teleservices Agencies ranking for over 20 years. In the early 1980s, RMH launched its business by offering consulting services to in-house telesales operations. They then complemented this business by forming a small teleservices outsourcing agency, which opened in 1984.

From its inception as a regional teleservices resource, RMH grew to employ more than 10,000 employees and has, as of late, been posting annual revenue figures exceeding $200 million. RMH went public in 1996, and Ray and his partner Marysue Lucci gradually transitioned out of their roles as CEO and COO. For their contributions to the industry, Ray and Marysue were awarded the Pioneer Award at a recent American Teleservices Association (ATA) national meeting.

Last year, we met with both Ray and Marysue at our office in Norwalk, Connecticut, and we reviewed the progress of their latest venture, MaraStar Communications, a software firm that develops and distributes patent-pending animations for business training and communication.

The following represents an extract from a recent conversation I had with Ray regarding his thoughts on the industry's past, present and future and his perspective as a past provider, and now a client, of teleservices agencies.

RT: How do you view the evolution of call center outsourcing?

RH: Perhaps the best way for me to answer is to trace our entrance and exit into and out of the industry relative to the typical product lifecycle of any industry.
When we entered the industry in the mid-1980s, the service agency industry was beyond its infancy ' it was at the 'adolescent' stage of the product lifecycle. In many ways, the industry behaved just like a teenager, growing in leaps and bounds.

In the beginning, we had to educate our prospects about the value of outsourcing their telemarketing, but over time, this shifted to differentiating RMH from other telemarketing competitors since outsourcing telemarketing was by then a more accepted practice and the marketplace was more crowded.

By the end of the 1990s, the industry was fully mature and possessed all the characteristics of an industry in its mature stage: tighter margins and consolidation, which led to fewer large competitors.

Unfortunately, a lot of talented pioneers have departed from the industry, leaving their mark behind; however, I do believe that as the industry continues to evolve, call center outsourcing will continue to grow in more integrated ways into mainstream corporate marketing.

RT: How has the perception of the outsourcing industry changed?

RH: Over the past few decades, outsourcing has become a more acceptable business practice to corporations. Many U.S. companies had been outsourcing vital business functions such as payroll for years. Eventually, by the mid 1980s, it began to make sense to outsource direct marketing functions (such as telemarketing) that employ a lot of workers.

During this time, jobs were shifted from inside a single company to different locations within the U.S. Barriers such as culture, language and technology made serious consideration of outsourcing offshore less viable.

Over the past decade, most of these barriers have disappeared. Jobs are now shifted from the U.S. to India, Pakistan, Ireland and Jamaica, to mention just a few, and many pundits say, 'They ain't coming back.'

Perception of outsourcing, formerly viewed as a relatively harmless shift in jobs within the U.S., is now being viewed in a far different light by the general public as well as by representatives within the U.S. government.

RT: How has the political environment changed?

RH: In the early 1990s I was involved in grass roots efforts with Congressional representatives to demonstrate the extensive quality controls that agencies like RMH utilized to deal with consumer complaints and to illustrate the jobs created by teleservices throughout the various Congressional districts. In this way, I was able to put their concerns into perspective.

Back then, it seemed that much of the noise was being made by a few outspoken representatives, but the vast majority of Congressional representatives were not presenting formidable obstacles.

Over the past decade, the volume of calls and subsequently the volume of consumer complaints has risen dramatically and created what appears to be bipartisan support for the legislation that we have in place today.

Even our pop culture establishments, such as nationally recognized television shows such as 'Seinfeld' and 'The Sopranos' have used telemarketing as a 'whipping boy' to vent consumer anger over unwelcome phone calls at home.

RT: What about offshoring? What has that done to the industry?

RH: Since many jobs have been outsourced to foreign countries, the standard 'rebuttal,' that the telemarketing industry is responsible for growth in the U.S. job market, is no longer valid. In effect, offshoring has eliminated one of the strongest arguments we had to mitigate consumer complaints.

In addition, due to the current protracted economic period of uncertainty following the recession, a lot of emphasis has been placed on laying blame. In effect, the thought process is, 'Let's find out who is responsible for all the lost jobs and punish them.'

Companies are being vilified for their offshoring strategies, which adds yet another black eye to outsourced teleservices agencies because they are being held responsible not only for consumer complaints, but are also depicted as the bad guys who are sending jobs overseas.

RT: In the past, you provided teleservices to companies; you now use the services of outsourcing agencies. What has been your experience on that side of the fence?

RH: On the one hand, we can certainly relate more to the challenges that agencies experience with clients, and I believe that we know what constitutes reasonable expectations, having dealt with similar client demands ourselves.
On the other hand, we also demand the same level of service and accountability as clients that we were expected to provide to our clients, and we're not happy if we don't receive that.

We are also seeing much lower rates for business-to-business teleservices than when we left the agency business in 1998. It seems that as margins have shrunk on the business-to-consumer side, competition broadened so that margins eventually eroded, leading to lower prices for all related teleservices.

Aside from these observations, it is interesting to see that even in the business-to-business world where we operate today, the business contacts we make become just as impatient as consumers do when the call is unwelcome, poorly purposed or inappropriate for them.

RT: You have been both a public and private company. How have the challenges and opportunities changed?

RH: Taking our company public in 1996 was both an exhilarating and exasperating experience. Overcoming the challenges posed during due diligence and arriving at a successful conclusion with the ticker RMHT being traded on NASDAQ was certainly an accomplishment, especially when you consider the limited number of agencies that succeeded in doing so.

However, as founders, sharing control of the company created challenges that were more difficult than we anticipated. The entrepreneurial instinct to seize the day and act in a decisive, timely manner is severely restricted when the control is shifted to committees and boards.

In addition to challenges of control, being a public company adds the necessity of having to please investors as well as customers. Balancing 'Wall Street' expectations for quarterly results with the ever-increasing demands of 'Main Street' customers is a very stressful game, particularly when you consider that over the past eight years, the majority of public companies in this sector have not played well.

In retrospect, I believe a public offering is a great way for founders to exit the company, but not as good a vehicle if the founders want to remain with the organization, unless they can manage to maintain a control position in the process.

RT: What about timing? Did you leave at the right time?

RH: Many folks in the industry have told me that our timing was just about perfect and I agree with that assessment.

Although the industry was still growing in 1998 when we left, most participants will agree that by the end of the 1990s, much of the growth in volume was largely at the expense of sharply eroding margins. The window of opportunity for an IPO was closed by then, and the agencies that were public were under unrealistic pressure to grow revenue and profitability while still remaining competitive.
In addition, public perception of the industry had shifted dramatically; while the nature of consumer complaints remains the same, the sheer volume related to increased calls is far greater.

I think that the 'golden era' of the teleservices outsourcing industry was during the 1990s, and that we are now on the other side of that era. Given the mature state of the industry, I believe the timing of our departure was appropriate.

RT: What prompted you to reenter the entrepreneurial world?

RH: I guess my partner Marysue and I are what you might call 'serial entrepreneurs.' Having spent over 15 years in the industry, we both retired for about 15 days'tops!

The desire to create and build is just too strong, especially if you've done it before and have been successful as an entrepreneur.

Initially, we were looking to invest in private ventures as 'Angel Investors,' though perhaps with a more operational role. One of the ventures we investigated involved the use of Macromedia's software 'Flash and Director' in a multimedia service company that developed custom animations for businesses.

We immediately saw a unique application for these software programs and envisioned them more as a way of creating an attention-getting training and communications library of humorous animations targeted at call centers, human resources and sales managers. We thought they could be very useful to call center and customer service trainers to e-mail humorous 30-second animated messages to call center staff or to use in a training session.

We created samples of these and showed them to corporate decision makers via extensive focus groups, which enabled us to gauge the market interest as well as develop the appropriate pricing and packaging options that we used to build the products we distribute today.

RT: What products do you offer at MaraStar?

RH: Basically, MaraStar creates short (30 second) animations that are used in either corporate training or corporate communications. The training animations, called 'Toon Ups,' are used in classrooms via PowerPoint or are delivered via the Internet to the desktops of employees as a way to tune up soft skills and reinforce appropriate behaviors. Corporate trainers use them to fill in their PowerPoint presentations and can also print them onto posters to be displayed. They can also post the actual file to their company's Intranet for employees to view.

These managers like the fact that the messages deal with important call issues that need to be addressed. The call center representatives liked them because they are short, humorous and to the point ' a way to give directions without criticism and also provide a little chuckle. This proved to be our unique selling proposition.

Companies as diverse as ADP, MCI, Ford Motor and Florida Power & Light are using these animations to support their call centers and customer service training initiatives, and through the use of humor, deal with behavioral and operational problems more effectively.

The second major use of our animations is for corporate communications to both customers and prospects. These animations are sent out to say 'thank you' to customers, to open doors for salespeople to prospective accounts or to send a reminder to customers/prospects in a positive and humorous way. All of these are customizable, so companies can personalize them to their specific situation
Sales and service personnel throughout the country are using these animations to elegantly and tastefully differentiate themselves by enhancing the way they communicate the common messages they frequently send to their customers. These messages are Web-based and require no software to install and no file attachments to download.

Thus far, feedback from our customers on both of our major product libraries has been very positive.

RT: Can you compare and contrast selling a product like yours to selling a service like you did at RMH Teleservices?

RH: Selling telemarketing services as an outsourcing agency in the 1980s and 1990s during the 'boom-boom' growth period had the upside of rapid volume; however, the downside was always that we technically did not control our destiny since we did not 'own' the products or the markets. Our customers did. During our time in the agency business, we would frequently ponder, 'What if we could market our own products to whatever markets we want, whenever we want?'

We now own the products and related patents as well as the customer base, and we are responsible for these factors. Of course, this places the burden and risk of developing the marketplace squarely on our shoulders. This is both the challenge and the opportunity.

In addition to these challenges, the products we now sell are in the infancy of their lifecycle, especially given their unique qualities. This situation requires a more patient educational sales process that is focused on the innovators that typically buy at this early stage. The mainstream population of buyers usually appears later in the lifecycle, and much more time is required, along with a lot of seed planting and cultivating, to reach the harvest ahead.

Currently, we are exploring ways to partner with companies whose product/markets complement ours, but whose lifecycle is further along, enabling MaraStar to accelerate its growth. Examples of these include, but are not limited to, customer relationship management, workforce management and corporate training and development organizations.

Though we entered this venture at an earlier timeframe than the last, we remain optimistic that as the market matures, our 'first mover' advantage will eventually provide rich rewards for MaraStar as well as our partners.

RT: Where do you see the industry heading?

RH: I think the industry is heading into a different landscape. In the past, agencies were known for their emphasis on inbound, outbound or some other specialization. Going forward, I believe we will see more integrated functionality ' agencies will need to offer a host of services that will seamlessly enhance these various integrations.

Smaller, 'boutique' agencies under a million or so in revenue and with narrow specialties, as well as regional or industry focus, will probably always remain a viable force.

Larger service agencies will need to continually make significant investments in technology to better enable themselves to offer clients a wider variety of integrated direct marketing services that are most suitable for outsourcing.

The mid-sized agencies with 10 to100 million in revenue have the most difficult challenge: to be able to compete on price with the features offered by the larger agencies but without the access to capital they need to create those features.
Additionally, all practitioners face the ongoing challenge posed by consumer complaints and further complicated by calls coming to them from foreign countries. Never before have the nature of the call, the source and affinity of the caller and the quality of the contact being made been more important to the continued growth and vitality of the industry.

In the future, I believe we will see more consolidation, leaving fewer agencies. However, I also believe that as outbound non-affinity/cold-calling programs dry up, consumer confidence will be restored and the future will be bright for quality providers and practitioners in the industry.


Rich Tehrani
Group Publisher, Group Editor-in-Chief
[email protected]

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