Name: David R. Paolo
Position: Chairman, chief executive officer Log On America, Inc.
Background: Warehouse manager at Interstate Trading (1986-1988); sale representative at Horizon Distributors (1988-1989); became sales manager at Horizon Distributors, responsible for more than $5 million in sales (1989-1992).
Education: Roger Williams University (1990)
Age: 32
Family: Married; three sons
Residence: Scituate
DAVID R. PAOLO: ‘We found our iche in 1994, 1995 in delivering high speed Internet access to major corporations and universities.’
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
PBN: Why don’t you describe Log On America.
PAOLO: Log On America is a super regional Northeast advanced broadband telecommunications provider. We’re focused on the New England states because that territory is very quantifiable. The bankers like it because they can quantify the region. They know there are a number of central offices within the region and they know exactly how much money it is going to take to build out a network. They know what their capital requirements are – and their liabilities. An advanced broadband telecommunications provider is really a technical termWhen you get down to the nitty-gritty of it, we’re a local telephone company. We provide local dial tone. We do it on our own facilities. We also offer long-distance telecommunications service. And we offer broadband Internet access, which is high-speed Internet accessing using DSL. We market that to the small to mid-sized businesses, as well as the SOHO market – the small office, home office market. That makes us different, because a lot of the players in my space – my competitors – do not go after the residential or the SOHO side of the business.
How does the company break down in terms of percentage of telephone business versus Internet?
We’re still in the developmental stage. Keep in mind, the company was developed as an ISP (Internet service provider) back in 1992 – premature of the whole Internet industry. We have always been on the edge of pushing technology. I would say 60 to 65 percent of our business right now is Internet related – traditional dial-up and Internet accounts. As we move forward, we will see that come to more of a 50-50 level. Our organic growth with the phone side of the business has just exploded. You may be aware of a study by the University of Rhode Island that said that 56 percent of Rhode Islanders would change from Bell Atlantic today if they had an alternative. Right now, we are the alternative on the residential market side for phone service.
Who are your customers?
We have two distinct markets. The first is the commercial market. What we are doing is developing enterprise type solutions. We are not the kind of company that says; ‘This is our bag of products we have to offer.’ What we have is an enterprise solutions team that will go out to one of our customers. For instance, one of our customers is Providence College. Out team will go out and find out what the needs are. We will develop the solution for them. We will bundle it all together in a nice package, and bill it under one nice billing structure that is easy to read – and then support it with world class customer care. The company has done that by bringing in key strategic managers and executives in those roles.
You started LOA with $30,000 — tell us about the company’s roots?
The company was founded in 1992 by myself, and my partner – my father, Raymond. He was a vice president at Citizens Bank and handled all the financial aspects of the company. He now mainly handles the facilities and the HR side of the business. He and I were the guys in the trenches. He handled the financial side of the house, while I was on the developmental side and growth side of the business. So we started the company in 1992 when there wasn’t much of an Internet business. But we struck a deal with Channel 10. We were the first company in the world to put a television station on the Internet live. There were no graphics at the time. It was all text. We were taking live feeds from Channel 10 and putting them up on the Internet for people to see – news, weather, sports, entertainment, Mr. Food’s recipes, Health Check reports. All of that was live and on-line. When President Clinton did the 10 Town Meeting, we were the first company to address the President over the Internet. All of that was nice, but none of it was generating revenue. It was all sizzle, sizzle, and sizzle. The company was really trying to find its niche.
Did those projects tell you that there was something there?
Absolutely. It was feeding the vision of our future. I was trying to get a feel for the landscape, for just where this was all going to shake out. Because I had a computer background and was a businessperson – we found our niche in 1994 and 1995 in delivering high speed Internet access to major corporations and universities like Roger Williams and Providence College. We were delivering T1s, frame relay and ISDN to all of these entities. It was much different than what was out there.
How was it different?
There were two types of executives that evolved out of all this. There were the computer nerd types, who turned a hobby into a business out of their home. But many of those people didn’t succeed because they did not have the business savvy to nurture it into a business. And then there was the executive that started it out as a business. We found that nurturing in the technical side, the high-end side, being able to talk to CIOs and COOs of major corporations gave us a real advantage. So we were delivering high-end circuits to all of these companies, like Toray Plastics, Cookson America. While that was occurring – in 1995 – we had all of these data circuits all over the state running back to our office. At that time, Carol Grant, an executive at NYNEX, asked what we were doing. We had lunch and then I was invited to a NYNEX advisory board meeting. At that advisory board meeting, everyone was focused on the story I was telling about the Internet. It was 1995, and people were still wondering how they were going to use these Internet applications. I ended up becoming the chairman of the NYNEX advisory board in Rhode Island. But at that meeting, as they were picking and learning information from me about the Internet business, I was extracting a lot of information from that board on the telecommunications business. It was after being on that board for about a year that I had the vision that the telecommunications industry and the Internet industry would ultimately converge as one. People told me I was crazy. They said the two would work side by side, but never would be one.
How old were you when this was going on?
I was 27. We were talking bold, that this was going to happen.
Why do you think these players in the business community were listening to you?
They were listening because they wanted to understand the technology and what we were doing – and how we were applying it. People were trying to find out that information so they could ultimately use it themselves. As I was learning about the telecommunications side of the business, I was trying to figure out how Log On America could do this. We were very small. We were in a state that was not conducive to technology – not conducive to growing technology businesses. Today, it is not. It’s a struggle. I think we applied for a small business loan from the state – we were looking for $150,000, and they gave us $30,000. Here’s enough money to go fail – now, go fail. It didn’t really match our plan, but we took the money and they got paid back and it was never a problem. It was a huge success for them. It may have stifled our growth, because it didn’t give us the capital we needed at the time – so it took us longer to get it done. Being located in Rhode Island, we didn’t get much attention from anybody. So we looked to find a suitor that could help us do this. Somebody to buy the company from the telecommunications side of the business so that I could realize my vision.
Are you talking about Global Telemedia International?
Yes. At the end of 1996, we were acquired by a small bulletin board telecommunications company out of Atlanta. After we became owned by Global Telemedia in January of 1997, within a few short months, I realized that the funding was not going to materialize. Ironically, it was at that time I met their controller, Kenneth Cornell. He ultimately left that company and went out on his own. He is now our CFO. But after those few months, I began negotiations to buy the company back. It took me about four months to realize that things were not what they were supposed to be and another four or five months to negotiate the deal back. I wasted a year. All of 1997 was being owned by somebody else and trying to buy it back. On Jan. 1, 1998, I bought the company back. I had a clear vision and I knew what it would take to get there. The plan was all developed. I learned a lot about how a public company was run. I learned how to interact with shareholders and the filing and reporting and all of the different things a public company must do – and I also met our CFO there. The first three or four months of the year (1998) we developed a business plan – a plan that we would present to Wall Street. In the spring we began presenting this plan and found a small, boutique firm out of New York that fell in love with the plan and wanted to take us public. At the time, we were very small with virtually no infrastructure. A big bank or a venture round firm would have wanted to come in and fund us with $25 million or $30 million privately, taken 40 or 50 or 60 percent of the company – and when we used up that money, take us public. We felt that wouldn’t be (beneficial) to the current shareholders, me being the largest at that time. We felt we would be giving up too much of the company. More importantly, we felt as though there was a real window of opportunity for the equity markets. If we stalled and waited with the private round, we might never have gone public because the equity markets might close. So we decided rather than go with a big bank, we’d go with a small firm. We knew we would go public right away and then demonstrate that we could do the job. So we raised about $1.5 million in the summer in pre-IPO private equity dollars – and then filed a registration statement in January 1998 and went public April 22, 1999.
What are some of the details of that IPO?
We raised $25 million and at the time of that IPO we had 15 employees, and 1,000 customers. We were doing $750,000 in annual revenue. We had a market cap of $250 million. Our market cap – at $750,000 in revenue – was almost equivalent to that of Nortek, which was doing $1.5 billion in revenue locally.
What was the secret to such a successful IPO?
It was the street’s appetite for the business model and the tremendous, tremendous growth that we had in front of us. At that time the stock price soared. We priced it at $10, it soared to $37 and closed at $35. It was a 250 percent increase. That represented the fifth best IPO in the history of the stock market. We knocked broadcast.com out of the fifth spot – a very high profile company. They were ultimately acquired by Yahoo. That was a monumental occurrence for our company. We were pretty excited, until the next day. And then the next day reality sets in. We had $25 million in the bank and we had to get busy. Since that time we have acquired eight companies. We have raised a total of $80 million in capital. We now have 230 employees and somewhere in the range of 50,000 customers. We are doing about $14 million in revenues.
And with the success of that IPO, you built the business up quickly?
We have built one of the most prestigious and I would say elite management teams in our entire sector. We have drawn people from all over the country. They are taking executive positions with this company and relocating. They are moving to Rhode Island, buying houses here and paying taxes.
Did the success of the IPO open doors to attracting the top talent you wanted?
Absolutely. Nothing happened with this company until we went public. When we went public, we had access to resources. That’s what you need. You need a visionary that knows where the company needs to go – and you need access to the resources to get you there. Then you need the operators to use the resources wisely and operate the company. That in and of itself will make a successful company.
Are you finding the kinds of skilled workers you need here?
Yes. We’re attracting people that live in the Route 128 belt area that don’t want to commute to Boston. We’re getting a lot of talent coming to us.
You have established your headquarters in Providence – why?
I am a native Rhode Islander. I was educated here. We have had opportunities to move to Boston or Connecticut and we haven’t done that. We don’t think we will. The Rhode Island market is under-served. It’s really like that in all of New England.
And you have a new location in Providence.
We currently have a 17,000-square foot executive office – our headquarters – at One Cookson Place, the Blue Cross building (at the corner of Empire and Weybosset Street) that is under renovation. When the siding is done, you’ll see the big Log On America name on the top of the building. It will be seen from all over the city, because the building is up on a hill. We want to establish this company as a pillar of the business community.
We are beginning to see more examples of people like you reaching remarkable success at a young age. Talk for a minute about what has gone into making that success possible – is it personal drive, timing, business savvy?
It’s a combination of a lot of things. It’s having the drive to continue on it’s having to endure the personal sacrifices and taking the personal risks that no one in their right mind would do. I can tell horror stories of not being able to take an income for a long period of time. It’s also about formulating and taking the right business model and packaging it. And in the final analysis, there is always a little bit of luck that goes with it. But that luck comes out of doing all of the other things. If you don’t have the drive to get up every day and get up at 7 a.m. and go until 10 p.m. and beat down all the doors, you won’t find that door where there will be a little bit of luck.
There are people who spend decades – their whole lives, really – building companies. Do you ever feel a sense of resentment from people who did not enjoy success so quickly?
No, I get a sense of respect from people that we had the foresight and the drive.
What do you do to wind down – or do you?
I play very bad golf. But my real passion is ice hockey. My oldest boy is a hockey player. I’ve taken it up in the past four or five years. I play in tournaments around the country.
