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Video: M5 featured in Crain's!

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Crain's New York published an awesome profile and video on us here at M5, and we couldn't be happier with the write-up. The report includes another superb interview with our CEO, Dan Hoffman. Mr. Hoffman was honored as one of Crain's Top Entrepreneurs for 2010. Check out the video and the full article published below to see what we've been up to and where we're going, and kudos to all for a great job so far!

Tech firm’s calls are connecting

Six years into its existence, M5 Networks Inc. had become a respectable Internet-based telecom provider to businesses, but its CEO was feeling underwhelmed.

“We could have kept going as we were, and been a nice, profitable company,” says Dan Hoffman, who helped found the company in 2000. “But we decided to make a bold leap.”

To provide its customers with better reliability, a better user experience and more powerful applications, M5 decided to build its own core technology, taking over the job from an outside software company.

That shift was no small undertaking: It meant opening the door to venture investors, including Greycroft Partners and Milestone Venture Partners, for $10 million to buy a software-development company and fund research and development. Moreover, it meant changing the firm’s business model from being a telecom company to what’s known as a software-as-service provider. In other words, M5 went from offering fairly standard phone service to offering phone service that is a tool to grow those businesses. It lets businesses track sales and service activity.

“The conventional wisdom in the phone industry was that you either deliver service or write software, but you can’t do both well,” says Mr. Hoffman. “But the emerging ’cloud’ model, led by Google and Salesforce.com, showed that you had to do both to win in the Internet world.”

So far, so good. The company’s 2009 revenues were $26 million. It’s on track to reach $32 million in 2010.

Mr. Hoffman’s accomplishment is all the more impressive considering that technology was not his first love. As a Harvard undergrad, he studied Slavic languages and literature. “I was attracted to anything that was falling apart or in chaos, and at that time, the Berlin Wall had just come down,” he explains. “All the professors had no idea what was going on, and I kind of liked that.”

Mr. Hoffman’s dream of working in Russia never materialized, because of the political upheaval there. But within a few years, the Internet revolution did materialize, and the uncertainty and possibility that it heralded drew him in as if another wall had fallen.

M5 — whose 1,200 customers range from Amnesty International to Isaac Mizrahi to crafty e-commerce site Etsy (whose founder, Rob Kalin, was a 2009 Crain's top entrepreneur) — is succeeding in part because of its rock-solid voice-over-Internet service and its great technology. But its success also rests on the fact that M5 tailors its technology to meet clients’ needs, rather than expecting clients to adapt to its technology.

“They are focused on those features and capabilities that are truly valuable to their specific users,” says Elka Popova, an analyst with research firm Frost & Sullivan. “And the way their marketing highlights business benefits rather than technical details shows they’re thinking about their customers.”

Mr. Hoffman’s company is just one of many that provides business-grade communications, of course. Most of its competitors offer large systems that businesses must buy, deploy and manage on their premises.

M5 is different: As a software-as-service business, it owns and manages the system. This allows small and midsize businesses, which are usually more strapped for cash than large ones, to pay predictable monthly fees rather than a big up-front sum, and to have experts from M5 run a high-end system for them.

Companies that use hosted solutions like M5 tend to get access to more frequent upgrades, better capabilities and more advanced features because of competition in the burgeoning new field.

Armed with its own development team, M5 has been able to introduce a variety of advanced features. A popular one allows managers to easily track how employees spend time. Managers get automatically generated reports showing who their employees have called and when, and the length of their conversations.

“This solves the problem of managers being in charge but not in control,” explains Mr. Hoffman.

Ms. Popova calls Mr. Hoffman an “amazing” entrepreneur. But not everything he and his partners have touched has turned to gold. They built a firm called Interport Communications Inc. and made $12.3 million selling it in 1998. But a subsequent effort, Asia Online Ltd., was a “dot-bomb,” admits Mr. Hoffman, in part because it paid too little attention to customer service.

Lesson learned, says Mr. Hoffman. “There is no great brand in telecom around service,” he says. “That is who we’re trying to be.”

via Dan Hoffman - M5 Networks Inc. - Top Entrepreneurs | Crain's New York Business. Posted by Steve Garmhausen.