Innovation

Sir Terry Matthews

Written by PROFIT staff

Chairman — Mitel, Mississauga, Ont.; March Networks, Ottawa; Wesley Clover, Kanata, Ont.

Career highlights

  • Grows up in Newbridge, Wales, where as a boy he enjoys taking cars apart and building electric motors. Receives honours degree in electronics from University College of Wales, Swansea, in 1969.
  • After apprenticing at British Telecom, he moves to Canada and joins chip-maker MicroSystems International in Ottawa, where he meets Michael Cowpland.
  • Matthews and Cowpland form Mitel in 1973. Its digital PBX switches revolutionize business telephony. After BT buys controlling interest in Mitel in 1985, Matthews founds Newbridge Networks to produce data-networking products. It is acquired by France-based Alcatel in 2000 for $7 billion.
  • Matthews goes on to launch March Networks, an IP-video company, and to regain control of Mitel’s communication systems division in 2001. He is knighted that year.
  • Other Matthews initiatives include two investment companies — Celtic House and Wesley Clover — and 60-odd technology startups.In October, Matthews’ 567-hectare Celtic Manor Resort in Newport, Wales will host golf’s Ryder Cup tournament.

    Q&A

    You’re well known as a technology entrepreneur and began your career in that sector, but your first business started out in lawn mowers. Why?

    Mike Cowpland and I started our first business in 1972. We called the company Mitel, for Mike and Terry Lawn Mowers. I started it up by borrowing $4,000 from Bank of Nova Scotia.

    It was Mike’s idea that we could get early revenue simply by being the Canadian representatives of HC Webb & Co., the first company to make a cordless electric lawn mower. We had quite a few interested distributors take the product. The problem was the shipping company lost the container. We heard that the container might have been washed overboard, but the truth is that all of the documents that went with it got washed away. We finally found the container at the end of September.

    I can tell you, there’s a big learning there: timing is almost everything in life. In Canada, in October, you can’t give away lawn mowers. That killed that. It taught me a very important lesson about timing. I could have been the lawn mower king if the stuff had arrived in January. But it didn’t.

    Mitel eventually focused on telephony. How did you identify that opportunity?

    What I did was discuss with customers, right up front, the area of most interest for them. And I had an area of interest that they wanted: Touch-Tone receivers.

    We developed the world’s first single-card Touch-Tone receiver [a tone-to-pulse converter for central office use, based on Cowpland’s PhD thesis]. No one had ever done anything like that, but we cranked it out in nine or 10 months. I’ve still got the first circuit cards we put together. We sold those products for about $150, compared to AC receivers from ITT or what was then Northern Electric, which were $1,500 each. And even then, we made 80% gross profit.

    Once we had prototypes that worked and clients liked, we borrowed $120,000 from friends and family. For every $1,000 loaned, the lenders got the right to a $1 share.

    The $120,000 was paid back in three years. But here’s the important thing: 10 years later, each $1 share had turned into about $2.5 million.

    So, the people who got stock options working for Mitel for almost nothing, they didn’t complain when each $1 option turned out to be about $2.5 million.

    Is the startup lesson from Mitel to look at creative forms of employee compensation in your business?

    That’s right. And on top of that, you’ve got people who are committed because they have ownership. There were other lessons there, too. One, new grads can work very, very hard if they’re turned on, and they will accept very low salaries in return for ownership.

    The biggest lesson was to connect with clients up front before you develop something, and then there’s no speculation in the development. It’s so much better if you’re developing something where there’s a known client who will buy it when it’s finished. Engagement with clients, right up front, is incredibly important.

    How did you build credibility with big clients when there were just two of you?

    When you start a business, start in a professional manner. Most clients never visit your business. But they’ll call. So, let’s assume you’re in business, and there’s a phone call: “Ring, ring!” “Hello, the Mitel Corporation.” “Yes, I’d like to speak with Terry Matthews.” “That will be extension 1179.” Now, what image did that conjure up? A professional image. There were only two people in the company, but I conjured up an image that is pretty significant.

    What you don’t want when you start a business up is: “Terry Matthews, please.” “Terry! Pick up the line!” What image does that conjure up? A very small business.

    Image, as part of marketing, is very important. The important thing is not to lie. As long as you deliver a good product, as long as the literature and the things you do are professional, you didn’t lie — but you probably won the business. The key is to win the business.

    Your partnership with Michael Cowpland was successful for many years. What did you learn about the pros and cons of working with a partner?

    First of all, Mike is probably one of the best electronics designers I’ve ever met. He’s a pretty aggressive individual. But then, I’m pretty aggressive, too. I’ve found that the common goal of building a successful company pushes you into a mode of being flexible — although “tolerant” might be a better word.

    You do what you have to do to make a successful business. It teaches you very quickly to be tolerant, because the different characters involved will have different strengths and weaknesses and, hopefully, combined, they can create a successful company. In my case, I was very good in terms of interacting with clients — much better than Mike — and Mike was a much better designer in R&D than I.

    The Canadian venture-capital industry is characterized as being anything from “struggling” to “on life support.” What is plaguing venture capital in Canada?

    What venture capital in Canada? Well, first of all, we were starving under Section 116 of the Income Tax Act [red tape that discouraged foreign investors from doing venture-capital deals in Canada; the 2010 federal budget promised to reduce these barriers]. It took a long time to get that fixed. Now, people outside the country can invest in Canada without also being a Canadian taxpayer.

    Still, the pension funds have no obligation to invest in Canada, and the returns [on venture capital] have not been very great. So, the truth is, in that asset class, they’re not investing. Personally, I think there should be some sort of a hook that says Canadian pension funds have some kind of obligation to invest in Canada.

    In your opinion, is Canada an innovative country relative to its competitors? And what can be done to make it more innovative?

    Over the years, Canada has been a very innovative nation. My own startup, Mitel, was the first company in the world to make a microprocessor-controlled, software-driven, private-branch exchange. And then there are other areas, on the medical research side: insulin came out of Canada, right? We were the inventors of medical isotopes. Canada has a long history of being extremely innovative.

    If you look at the statistics, Canada spends more money, proportional to GDP, in university-based research areas than any other country except Sweden. But I would argue that there’s another side to that, because we are very much down the list in direct support for industry. It isn’t that we’re not innovative. It’s in commercialization that we fall down.

    Which Canadian firm, other than one of your own, do you admire the most?

    Bombardier seems to be a terrific company. Look at its growth over the past 40 years in the transportation sector, whether it’s aerospace or rail, with lots of innovative products. They’ve made some mistakes, of course. But over a long period of time, they’ve shown themselves to be extremely innovative and progressive.

    If you could be any other entrepreneur for a day, whom would you choose?

    Richard Branson. He’s definitely somebody who pushes the limits and gets after stuff and understands branding and promotion. And he’s a fun-loving kind of guy.

    Now that you are a legendary entrepreneur and billionaire, what keeps you motivated?

    I enjoy business. I enjoy starting companies up and going into battle against competitors and sometimes coming up with things that are unique.

    I start about four or five companies a year. I don’t plan to stop, because the new graduates in Canada are probably the best I find on the planet. They have a good work ethic and, if guided properly, they are total winners.

    You know, in my career, I’ve started up over 80 companies, and only lost on about five or six. Actually, six — but that depends on your definition of “lost.”

    What is the best advice you would give somebody starting a business today?

    There is never a substitute for hard work. And you have to demonstrate that hard-work ethic throughout the company, to anyone working with you. You need to be persistent, too. Never give up.

    It also helps to have an early connection with clients rather than develop something and trying to connect with clients later. You connect with clients first.

    Forgive the question, but how would you like your epitaph to read?

    Who said anything about dying? My Auntie Jane lived to be 108, so you’ll be a long time waiting for that.

Originally appeared on PROFITguide.com
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