Rob Hale thinks he's an unlikely person to listen to when it comes to dealmaking. After all, he became a billionaire and lost it all by the age of 35.
But Rob rebounded from the failure of Network Plus to co-found Granite Telecommunications, which made him a billionaire again and made it possible for him to become a co-owner of the NBA's Boston Celtics.
That failure and subsequent rebound yielded three essential business lessons that Rob shared with attendees at the 2023 Boston Smart Business Dealmakers Conference:
- It's OK to fail.
- Keep your integrity.
- Get close to your customers.
Below is a transcript of the podcast's condensed conversation, edited for easier readability.
Rob Hale, co-founder of Granite Telecommunications and Copley Equity Partners; co-owner of the Boston Celtics
First of all, it's a deal conference, right? And the last deal that I did, the only public deal that I did, it ended in bankruptcy. And I lost a billion and a half dollars. So, I'm thinking, Lee, is there still time to get a rebate? Like, honestly, if you guys paid good money for this deal advice, you're probably going to get shortchanged.
My life business is in large part deals, but two primary deals. Maybe we'll talk a little bit about both of those deals.
To give you the backdrop, maybe I'll back up and explain from whence I came.
So I graduated in ‘88. I went to work for MCI in sales, the long distance company.
I do see, half the room is about my age. So those of you my age, just nod like you know what MCI was. My father was an importer and manufacturer of women's apparel to the United States. I was raised in a very entrepreneurial environment. While I was at MCI a couple of customers asked me, ‘Hey, what is this aggregation?’ And I said, ‘I don't know. But I'll look into it.’
As I looked into it, I said to my dad, we can do this. And so my dad and my mom put up $400,000. Not trying to sound cavalier, but $400,000 probably doesn't make or break me right now. What we're talking about is my parents’ nest egg. They bet the farm on me.
At the ripe age of 23 in 1990 we started a company called Network Plus. My folks were the funders and I was the founder.
In 1990 we lost money. From ‘91 to ’98, we grew profitably. This is the onset of my first deal.
In ‘98 Goldman Sachs cold calls me and says, ‘Hey, you want to do a bond offering?’ And I say, ‘Listen, I'm a phone guy. I'm not a finance guy. I don't even know what a bond offering is.’ They say, ‘If you do a bond offering, you can do an IPO and you will be a billionaire.’ And I said, ‘I love bond offerings. Let's do a bond offering.’
So we did what they said. To be honest, what they said was going to happen happened. We did an IPO.
This was 1999. These are the sexy times of CLECs [competitive local exchange carriers]. Some of you are old enough to know what's CLECs were. In ‘99, we were one of the more sexy things in all of Wall Street. We were one of those stocks — remember a couple years ago, and all of you are old enough to remember this couple of years ago, when the demand was so high for an IPO, the stock was supposed to start trading at a certain level; the demand was so high, it didn't trade ‘til a much higher level — that's what happened to us.
We were supposed to open at 16. We didn't open ‘til $26 per share. Over the next eight, nine months, the stock got to 63. I had 24 million shares, so I had $1.4 billion next to my name. According to Forbes at the time I was the seventh-wealthiest guy in the world under 40.
It's ironic how the world turns, but a bubble burst in March of 2000. That bubble felt like it burst primarily in my face. The stock for eight or nine months, it could only go like this [up]. For the next 18 months, literally, it only went like this [down].
Fall of 2000, Goldman and Fleet and CSFB, which are our banks, call us and say, ‘Hey, you have a credit line, it's going to expire. And we're not going to renew it.’
We were EBITDA positive. We'd never missed our covenants. They just said we don't bank CLECs anymore. February 4, 2002. I hit bottom. February 4, 2002, we went bankrupt. So that stock that had been a $1.4 billion, for me it became officially and finally zero. And I'd never sold a penny a share. It was over.
That morning, it got worse. At heart, I'm a sales guy. There were 400 sales guys that work there. I think and I hope most of them joined because they trusted me. We got debtor-in-possession financing, which is financing you take into bankruptcy. The contingency of that was I had to let go the whole sales force.
February 4 at 10 in the morning, I had to run a conference call with 400 people and say, ‘Listen, you guys trusted me. I've betrayed you. You don't have jobs anymore.’
It gets worse that afternoon with the phone calls, my wife's at home with a 2-year-old, 4-year-old and a 6-year-old. She picks up the phone and the guy on the end of the call says because of what your husband has done, I'm coming to kill you.
First lesson that I learned in deals. First, keep your integrity — and we'll talk about that in one minute —but second, it's okay to fail.
As Jerry mentioned, some cool things have happened in my life. They all happened after 2002. And if we're really entrepreneurs — and I think most of us in this room are — unless you push a hard, you won't fail. But if you don't push hard, then you're not going to fail. Don’t worry about it. As long as you keep your integrity, you can compete again.
So lesson No. 1 for me: Don't fear failure.
Lesson No. 2. At the end, that last couple of quarters, we're a public company. Anybody who's run a public company knows, I call it the 90-day guillotine, you just got to make your numbers. The CEO of Qwest, other leaders of Qwest, call me and they say, ‘Hey, listen, you want to do fiber swaps.’ And I don't really know what they are. I won't get into great detail. It's a way to take CapEx and make it up OpEx. That's what it is. So, I say, yeah. I mean, like a couple of million in easy earnings. Why wouldn't I want to do that?
I asked our CFO — and I'll be forever indebted to him, Bob Cobuzzi, an old salt — he goes, ‘I don't think we should do that, but I'll ask PwC.’ PwC comes back and says, ‘I don't think you should do that.’
I go back to Qwest and I said, I don't think we should do this. Why? And I explained, he said, ‘Listen, let's be clear. You're a $250 million pissant and we're a $20 billion CLEC. Arthur Andersen is the same thing as PwC. And they say you can do this, so what difference does it make if another Big 5 firm says you can't?’
I go back to my guys and I say, ‘Listen, Bob, you sure? This is an easy $2-3 million a quarter. Like this really helps.’ ‘I'll ask again.’ PwC: ‘Rob, we strongly advise you not to do that.’ And remember, I'm CEO, so it’s my choice.
We don't do it. We went bankrupt. And I'm certain we would have gone bankrupt just a quarter or two later. CEO of Qwest? Jail. Guys who ran those transactions for him? Banned from public industry for life. Arthur Andersen? They're not here today are they?
So lesson No. 2: ‘Rather fail with honor than succeed through fraud.’ It's okay to fail. If you keep your honor, you can compete again.
Topic No. 3. Granite. February 4 of 2002 we went bankrupt. March 15, 2002, we got sold at auction. June 3, 2002, we started Granite. We were going to do essentially the same thing.
Our industry and Wall Street said the only way to create value in the phone business is to build switches and network infrastructure to control the customer. That's how you create value. That's what everyone had always done. And honestly, that's what we set out to do at Granite.
We got very lucky. We didn't have any money. My father and I loaned a million bucks to Granite.
There were 43 public CLECs; 41 had gone through restructuring between ‘99 and 2002. You couldn't have raised money in the public markets if you had the fountain of youth. Whatever you had is what you were going to play with.
We did a wholesale deal just to get into the game. We wholesale phone lines.
Walmart [and] Walgreens, said let's test this idea. We tested it in Boston stores. Then they said let's consolidate and discount all of New England. And they said let's consolidate and discount aggregate all of the Northeast.
Almost the same day they brought us back to Bentonville and Chicago and they said, ‘Hey, this wholesaling, this is good. We're going to do this for the rest of the country. We may or may not do it with you, but we're going to do it for the rest of the country.’
So by the time the wheels touch home, we — I — had to make a decision. Are we going to do what Wall Street and our industry said is the way you create a company? Which is to build regional structure, physical network. Or are we going to become essentially a national aggregator?
So as we sit here today — and as Jerry mentioned, I'm very lucky to have a lot of cool things in my life, and we've created 2,500 American jobs and we get awards for Entrepreneur of the Year and all that stuff — people say to me, ‘How'd you get that great idea?’ We didn't? They did. We listened to them, and then followed that path and just worked our tails off.
So final lesson I would give to dealmakers: Get close to your customers. They'll tell you what matters.