Meanwhile, to keep prices down, Glickman was constantly hitting up every international-phone-service provider he could get a hold of to try to lower what he paid for termination, which accounted for 70% of Justice's costs. Cheap termination was the name of the game; it was what allowed Justice to undercut competitors and protect its gross margins, which averaged around 40%. He promised providers long-term, exclusive deals if they would shave their lowest prices for Justice. "I told them they should be selling to me at a lot less than they sell to big phone companies, because we're exporting the capacity--we don't compete with them in their home market," he says. He was so intent on making his case that he once sneaked into an invitation-only communications conference with bogus press credentials so he could buttonhole bigwigs.
It worked. Other industry executives told Glickman they were stunned to hear how low he had driven his termination costs--he says that he was sometimes paying less than half what major carriers were paying for equivalent routes. To leverage the cost advantage, Richter learned how to monitor constantly fluctuating prices and reroute calls on the fly to chase the bargains, like a financial trader moving money from one currency or commodity into others in sync with the complex ebb and flow of the market. He had his staff spend two years and close to $2 million building a complex computer program called Pipeline, which tracks the cost of every second of every call so that he can find and stamp out any inefficiencies hiding in the traffic. The program also tells salespeople minute to minute how low they can cut their prices and still preserve a profit.
Then, about a year ago, it suddenly occurred to Glickman that he could make money off other phone companies' envy of his cheap termination. He'd sell it to them. That is, instead of buying termination cheaply just for use by Justice's customers, he could buy everything he could get his hands on at a great price and resell the extra capacity to other phone companies, wholesale. Though officially launched just last May, Justice's wholesale termination business, to which Sandler is now devoting all his time, has mushroomed to the point that it accounts for 60% of the company's revenues.
With revenues exploding, Glickman finally grudgingly admitted that it was time to act like a conventional business in at least one respect: managing finances. He needed a seasoned chief financial officer. Through a friend, he heard about a woman named Kate Greenberg, who had recently left a large company to seek a slot with a more entrepreneurial business. He contacted her, but Greenberg told him she was already mulling over offers from four terrific small companies. "The next thing I know," recalls Greenberg, "I'm getting swamped with these really sweet E-mails and calls. Finally, knowing that I was thinking of getting a dog, he sent me flowers with a note saying that Justice wanted me and my puppy to join them. I said yes. Wendy would come to Never-Never Land to help Peter and the boys clean up their rooms."
Although she expected the worst, Greenberg was still stunned by what she found: accounts payable kept in paper form in an employee's desk drawer; no lines of bank credit; routine loans from "the bank of Dave" to the company; no plans for raising capital. Then, upon asking Glickman if she had his OK to start developing relationships with banks, she was abruptly introduced to his management philosophy. "What are you asking me for?" he told her. "You're the CFO. A year from now I'll be reviewing you on how strong our credit access is. What do I care how you do it?" Having since set up lines of credit, Greenberg is now trying to set the stage for Justice's inevitable transition from a bootstrapped company to a well-capitalized one. That will probably mean either accepting a buyout offer or going public, she says. "Knowing David, I'm not sure his philosophies and style will be all that compatible with the restrictions on a publicly held company," she says. "But I want to make sure he'll have that option."
In the meantime Justice is jealously guarding its countercultural culture. If the sun and the waves are right, Richter and Jarvis still take their first meeting of the day on surfboards. And Glickman is adding a three-story phone, which will cost hundreds of thousands of dollars, to the front of the building. "It will be the world's largest working phone," he says, beaming. "There'll be a small booth at the bottom where anyone can make a free call to anywhere in the United States."
And despite the new emphasis on wholesale termination sales, Justice hasn't stopped jumping at new niches. It's aggressively developing a phone-via-the-Internet service and, Glickman says, recently helped set up U.S. TelePacific Corp. to go after--of all things--conventional local phone business. It's starting off focused on L.A., with the intention of growing along the California coast and then the Northwest coast. And from there, who knows?
As for Glickman's penchant for turning the company upside down to deliver on impossible promises, there are signs that, for better or worse, a certain pragmatism and even maturity may be setting in. Recently, a $30-million account came up for grabs, and Glickman told his team he wanted to go for it. As usual, everyone howled in protest, insisting that trying to service that large an account all at once would wreck the company. To everyone's amazement, Glickman backed down. "Not only was it the first time I listened to them about one of these deals," he says sheepishly, "but it was the first time I even asked them."
On the other hand, Glickman found out that the state of California had put its billion dollars' worth of business up for bid. "If I had known about it," he says, "I would have definitely gone for it, and I would have won it, no matter what anyone said, no matter what it took. If you're not willing to do that sort of thing, why stay in business?"
Apparently, the adventure continues.
David H. Freedman is a contributor to Inc.
