Press: Speakeasy’s secret formula

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The success of Speakeasy was often written about; this piece tracks the history of the company as it grew from local internet cafe to nationwide ISP.

Speakeasy’s secret formula

Unlike many dot-coms, the company has stayed true to its humble beginnings

Mike Apgar’s resume does not read like those of other high-tech executives.

Before discovering the Internet, Apgar worked as a cab driver, a customer service representative and an exporter of letter jackets, jeans and other vintage clothes.

Now the 34-year-old native of Kalispell, Mont. — who completed only one year of community college — sits in a dimly lit second-floor Belltown office overseeing one of the country’s largest independent providers of broadband Internet service.

Apgar, who co-founded Speakeasy in 1994 as an Internet cafe, isn’t sure how his company made it this far. After all, at a time when many high-speed Internet service providers are either out of business or struggling to stay alive, Speakeasy — which grew by more than 25 percent last year — continues to expand.

It tallied $40 million in revenue last year and debuted on Inc. Magazine’s list of the nation’s 500 fastest-growing private companies, ranking 47th.

How did Speakeasy accomplish this feat amid telecom’s nuclear winter?

Neville Vere Nicoll, managing director at Cornerstone Ventures and a Speakeasy board member, said it all boils down to the company’s unpretentious corporate headquarters.

“They survived because they thought of themselves in the entrepreneurial mentality rather than a heavily funded telecom company,” said Nicoll, adding that the Belltown office looks and feels like a start-up.

“Mike ran the business in the way it needed to be run. These are fundamental basics, but a lot of companies forgot that.”

When the company required new servers, it turned to eBay. When it remodeled, executives sanded floors.

Apgar modestly describes the success and his unusual beginnings in the technology world.

“One thing just led to another,” he says. “I have always been an entrepreneurial person.”

Entrepreneurialism certainly has pulsed through Apgar’s veins. His great-great grandfather was a homesteader who settled an area that is located in present-day Glacier National Park (the west entrance of the park is now called Apgar).

But it was as a teenager that Apgar learned the ways of the business world, taking cues from his stepfather, L. Peter Larson. During the summers, Apgar worked in the family sawmill setting up spreadsheets, pushing logs with an old Jeep and toiling in an area known as “the pit.”

“It was very important for him that if his kids worked at the mill, that no one thought we were getting favored,” said Apgar, who described “the pit” as a “horrible place” where no one should have to work. Larson, who co-signed Speakeasy’s first $150,000 bank loan, remains Apgar’s business mentor.

When Apgar moved to Seattle at the age of 19 — choosing the city because he liked the way it looked on a map — he established a clothing business called Comet Exports. Driving around Seattle with his wife, Gretchen, Apgar collected vintage clothes from garage sales, thrift stores and flea markets. He then exported those items to Japan.

Comet Exports fizzled out. But Apgar’s entrepreneurial energy did not.

In the spring of 1993 — working as a contract computer programmer for a local telecommunications company — Apgar’s Internet epiphany struck.

He read an interview with science fiction writer William Gibson in which the author described a network of interconnected cafes in San Francisco. Having recently installed Internet access at home, Apgar became hooked on the idea of bringing high-speed Internet to the masses.

“That is when the light bulb went off,” said Apgar, who along with his brother, wife and four others founded the Speakeasy Internet cafe on Second Avenue.

The cafe quickly became a hotbed of activity, hitting on three trends that would help distinguish Seattle in the 1990s: coffee, culture and computers. The Internet cafe’s first mission statement read, in part, to “provide a service that is not simply entertaining, but educational, enlightening, and most of all empowering.”

Combining those elements, the cafe grew. So did Speakeasy’s reputation as a cutting-edge technology company.

By 1997, the company was providing Web site design, network integration and other consulting services to local businesses. It also started selling dial-up Internet access to customers in Seattle.

“We got in just about everything related to the Net,” recalls Apgar. “We were on the cutting edge but on too many cutting edges.”

The following year Apgar decided to focus entirely on providing high-speed Internet to homes and businesses, a decision that would radically transform the business and lead to significant growth.

Charging more than the phone and cable companies, Apgar had no intention of competing on price. But taking lessons from the Internet cafe and his stepfather’s sawmill, Apgar rolled out new whiz-bang services and provided top-notch customer support. The bet worked.

In 1999, Speakeasy expanded nationally through a partnership with high-speed Internet provider Covad Communications. That agreement helped push sales above $1 million as more than 5,000 people — primarily gamers and small businesses — subscribed to the service. New York and San Francisco became the company’s largest markets.

The following year, sales hit $8.9 million as more consumers discovered the speed of broadband. Speakeasy attracted venture capital financing and looked to be on the fast-growth trajectory of many Internet companies.

But then 2001 hit, a year in which Apgar said Speakeasy encountered “one challenge after another that could take us to our knees.”

In February, the 6.8 Nisqually Quake not only rattled the region. It rattled a group of Denver venture capitalists who were sitting in Speakeasy’s Belltown office. The investors, who were close to signing a check, jumped on a flight and pulled out of the deal.

Three months later, the Speakeasy Internet cafe went up in flames. No one was injured in the blaze and the cafe — located a block away from the company’s headquarters — represented only about 1 percent of the company’s revenues. But it was a traumatic experience for Apgar and other employees who said the cafe was at the heart of the company culture.

Then in August, things got worse. Both Rhythms NetConnections and Covad Communications — which provided the backbone network for Speakeasy — filed for bankruptcy. That threatened Speakeasy’s viability as a company, a worry that still exists today.

The following month, the Sept. 11 terrorist attacks knocked out service to Speakeasy customers in New York City. Although Apgar and his technology team worked extra hours to reroute customers onto networks in Boston and Washington, D.C., the terrorist attacks capped a horrific year.

“It was incredible, looking back now it is always interesting to see how we made it through that,” said Apgar. “It was just a hell of a year. 2001 is a year I will not forget.”

But even though the company suffered setback after setback, it continued to post impressive growth. Unlike its competitors, Speakeasy reacted quickly to the telecommunications slump by taking advantage of holes in the market and the continued growth in broadband.

It established an internal effort, dubbed Ellis Island, that welcomed customers who were stranded by bankrupt Internet service providers. So successful was the program that Speakeasy added more than 10,000 new Ellis Island customers in 2001. Revenues soared to $29.9 million.

Building on that success and bolstered by its reputation for customer service, Speakeasy kicked off an effort to woo dissatisfied broadband customers from large cable and phone companies. The recently-launched “Direct Switch” program has been a success, though Apgar declined to release customer numbers.

Speakeasy also more aggressively targeted gamers, sponsoring online gaming tournaments and giving away free Xboxes and GameCubes to customers who signed up for DSL service.

And unlike many Internet service providers, Speakeasy embraced Wi-Fi technologies and encouraged customers to set up neighborhood “hot spots.”

Listening to customers has always been an important part of Speakeasy’s growth. It routinely surveys subscribers to get an idea of how they use the Internet. The customer service operation — centrally located in the headquarters — allows free flowing communication between call center employees and management. In an added twist, it also displays the average wait time for customer support calls on its Web site. (Last week, it fluctuated from two minutes to 16 minutes).

Customers have noticed the attention.

“The support is superb,” said Matt Surowiecki Jr., network administrator at Steeler Inc. “They gave us a direct line to their network administrator, they are quick with e-mails . . . it was much better than with Sprint.”

A Seattle manufacturer of construction products, Steeler now has eight of its 11 branch offices using Speakeasy’s DSL service. Surowiecki Jr. wishes all of them could be hooked up, saying his company has saved about $100,000 in the past three years using Speakeasy.

As a former customer service representative at Airborne Express, Apgar isn’t shy when discussing the importance of top-notch customer support.

But he is also quick to point out that the company — which has flirted with profitability throughout its history but is now losing money — is built on values that many Internet companies lost during the great boom of the late nineties. Fortunately for Speakeasy, the company never strayed too far from its roots as an Internet cafe.

“We were bootstrapped with money out of savings, we leveraged everything to get the business started so we were very careful,” said Apgar. “Running a cafe too, you understand the intricacies of business and how tight margins can be, so we built that into our culture.”

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