The Marketeer

When Furst Group founder John Streep saw how deregulation remade the way long-distance phone service was sold, he saw a huge opportunity. Now if only he can stay friends with AT&T

In John Streep you're looking at a middle-aged man from South Jersey who is mostly bald, has brown puppy's eyes, wears loud braces under his suit coat, drives a fast car, races a fast boat, dreams of one day bagging a seven-by-seven bull elk, and, if he were an actor (like his distant cousin, Meryl), would be Danny DeVito. As for his vocation -- or his avocation, for that matter -- if you guessed sales, that would tickle Streep. "I'm just a dumb salesman," he says, grinning.

Right. Dumb enough to have built the Furst Group, number 4 on last year's Inc. 500 list and number 1 this year, with sales of $92.2 million, an increase of 42,389% over sales in 1990. His bottom line does OK, too: $12 million in 1994. So, dumb he is not. But the part about his being "just a . . . salesman" speaks to a plain truth about Streep and the company he created.

The Furst Group is sort of a long-distance telephone company. It mails phone bills every month, issues calling cards (credit and prepaid), assigns 800 numbers, and otherwise competes with AT&T, MCI, and Sprint. However, the Furst Group lacks certain capital assets that its larger competitors possess -- namely, poles, lines, and switches. It doesn't need them because it's not a carrier; it's a distributor, known in the industry as a "switchless reseller." It buys long-distance minutes in bulk from the carriers and resells them at a discount, mainly to small- and medium-size businesses. Very simple, very clean. "If you take our entire corporation," Streep says, "and you throw us into a big old paper bag and shake it up and dump it out, we're a sales organization. That's it."

Hundreds of long-distance resellers -- some with switches and some without -- have entered the market in recent years. Today there are at least 1,000, according to the Telephone Resellers Association, and 13 besides the Furst Group made this year's Inc. 500 list. Intense competition in an immature market has led to abuses by some companies, tainting the industry's reputation. Most complaints -- including some directed against the Furst Group -- have to do with "slamming," signing up customers without their permission. "I can't think of a company that doesn't have a slamming problem or complaints against it," says an official at the Common Carrier Bureau of the Federal Communications Commission.

Switchless resellers like the Furst Group didn't exist until recently. Then, almost overnight, through a confluence of technological change, partial deregulation, and competitive turbulence, a market vacuum developed that Streep and others rushed to fill. In hindsight it was a "screaming" opportunity, too good to be true, the experts thought. "When I first heard about it, I dismissed it," says Robert V. Bolen, a telecommunications analyst with J.C. Bradford & Co., in Nashville. "I went, 'Oh, man, here's another get-rich-quick scheme that's going to blow away in the wind."

What's happened since then? Well, a lot of resellers have blown away. Some never accumulated enough cash to sustain operations. Others evolved into independent sales contractors -- in effect, reselling for the resellers. Still others were absorbed by competitors as the industry consolidated. What's interesting, though, is that so many have survived. Some, like Corporate Telemanagement Group (#128), in Greenville, S.C., invested in switching equipment and built their own regional networks, heading down a path pioneered in the 1970s by MCI and Sprint. Others, like ADNET Telemanagement, in La Mirada, Calif. (a three-time Inc. 500 company, #92 this year), have repositioned themselves as telecommunications consultants, offering technical expertise and referral services to clients paralyzed by too many choices.

A handful of switchless resellers -- including the Furst Group and EqualNet, a $120-million Houston company that went public in March -- have focused purely on sales and are prospering. But margins in the industry have begun to erode, and that's before any competition from the cash-rich Baby Bells, whose eventual entry into the long-distance market is a foregone conclusion. Consequently, despite its astronomical sales growth, the Furst Group today still faces questions that have dogged resellers since the beginning: Can a company that sells only products that others create and sell themselves sustain itself as a business? Can a sales organization -- a telemarketing sales organization -- compete in a high-tech industry that's driven by product innovation? Is Streep an entrepreneurial businessman or just a lucky opportunist?

When the reselling opportunity knocked, Streep was in Shamong, N.J., deep in the pine barrens east of Philadelphia, running a little consulting company called Furst Energy, which he had founded in 1980 with his former partner, Rick Furlano. Earlier, back in the days of rotary phones, Streep had been a telecommunications consultant. It was through old phone-industry contacts that in the late 1980s Streep first heard about aggregation. An aggregator rounded up enough small-business phone users to qualify for an AT&T volume discount on 800 service. It turned its customers' names over to AT&T, which provided the service. Customers would get two bills: one from AT&T for the discounted service, the other from the aggregator. In short order the (newly renamed) Furst Group joined the aggregation movement. "It was found money," says Streep.