M5 Networks Inc. wants to get rid of your phone system.

The New York-based Voice over Internet Protocol company claims that in five to 10 years, there won't be many midsized businesses that own a traditional, on-premise phone system.

It's that entrepreneurial mindset that has helped the seven-year-old M5 generate just over $11 million in revenue in 2006, a figure that the company projects will leap to roughly $17 million in 2007.

Providing end-to-end telecommunications for more than 600 mid-market customers - whose companies house anywhere from five to 900 phones in approximately 1,000 locations - M5 markets its offerings as a "voice as a service" strategy.

A VoIP system allows calls to be made over an IP network, as opposed to a public switched telephone network.

"We want to grow our business from client referrals," said Jeff Silbert, M5's vice president of marketing. "We're not looking to just grow, grow, grow. We want to grow because we have satisfied clients that are saying good things about us."

Primarily serving the New York region, M5 currently employs about 100 people. Last year, it branched out beyond the Big Apple, opening offices in Boston and Chicago. However, Silbert said that the company's geographic focus would continue to be localized.

"We're going to stick to providing a regional presence, making sure we're doing a great job for these midsized businesses," he said. "We're not looking to service a business that is 70 people who think they're going to be 71 people three years from now. We want businesses that value what they're doing."

WHAT'S IN A NAME?

M5's name comes from a variety of sources, according to chief executive Dan Hoffman, who joined the company a year after it was formed. The company was launched with five founders in the month of May; the M5 was the bus that employees used to take down Fifth Avenue to the company's offices; it's a reference to a Star Trek episode; and there's a globular supercluster star system called M5. But perhaps the most enticing reference - at least for the sales staff - is that at the company's 10th anniversary in 2010, management intends to reward the top seller with a BMW M5.

The company began in 2000, after its founders, then running Interport Communications Corp., a New York-based Internet service provider, struggled with finding a phone system of their own. "They found even though they were quite technical, it was a real headache to buy a phone system," Silbert explained, adding that Interport was eventually sold. "They had to keep constantly upgrading it, and they ended up spending a lot of money on an antiquated piece of technology that really was not driving any business for them."

Since that time, M5 has made a concerted effort to replace antiquated phone systems, and launched a way to measure client satisfaction by allowing customers to log onto its Web site, www.m5net.com, and rate their service through a feature called "one-click reference ability."

HOW M5 WORKS

Using a T-1 private dedicated connection that carries 1.544 megabytes of data and voice per second routing to and from one of their New York-based data centers, M5 also gives customers a secondary T-1 line, a DSL circuit or another chosen redundancy source for back-up. Ultimately, when a call is made to a location using M5's service, it is first routed to a data center, where it is tracked to match the location of the phone number before it reaches the recipient.

"Before companies like us, businesses had to buy a phone system that would sit in their server closet with a big old manual that had lots of features that people didn't use beside checking voicemail, four-digit dialing and transferring calls," Silbert said. "The first breakthrough was instead of having it sit in the client's closet, we can provide it as a hosted phone system and it can be run by M5."

"Taking that piece of equipment in your closet and outsourcing it in a high-end data center [has] been Step One," Hoffman said. "Of course, in any industry that's successful, a lot of people are jumping in, and we're moving to what we think we'll be the leaders at in the next phase: Communications are becoming more important and more complicated than ever, but smart firms have no more resources to deploy, people don't have any more IT staff, [but] the very biggest companies do. So in order to compete on service, the mid-market needs a way to get the power of these structured business communications."

The idea is to help businesses sell, service and staff better, while simultaneously offering a way to measure that growth. For example, Silbert lists a service called "Flexible Staff Manager" that would allow accounting firms, for example, to bring in extra phones and phone numbers during tax season, and then scale them down again when that period is over.

Another service relevant to the accounting profession is "Client Service Manager," a way customers can monitor every interaction with a customer or client. "Sometimes firms tell us, 'We want every single call to be answered; we don't want an automated attendant,'" Silbert said. "And then when we say 'That's great, how do you know they're being answered?' They say, 'Oh, we tell them [staff] to pick up the phone.' But they don't know if they're really being picked up or not, and there's no way to measure how well they are servicing their clients."

The company's products are customized to the client with the help of a project manager, who introduces and explains the new functions, implements the system and shows the customer how they can tell if the features are making a difference in their business, Silbert said.

"We're not going to give them 10 solutions," he said. "We're looking to give them one or two solutions that are going to have an impact on their business. ... It's much better getting it as a service than getting a premise-based phone system, because in three years you have to upgrade that phone system. Whereas with us, you're getting it as a service, [so] it's much easier to upgrade."

Set-up can take upwards of 45 days, and companies are charged a fee of approximately $700 a month for connectivity depending on geographic location, as well as a fee of $50 per user, which includes long distance, local and Internet access. International and 411 calls, however, are at an extra cost. The company also offers Cisco phones, to buy or lease.

LOOKING AHEAD

M5 said that it has begun finalizing plans for an integration with Web-based CRM provider Salesforce.com, in an effort to help customers track phone calls, sales reports and marketing campaigns from within that system, rather than through M5's own portal. Eventually, the company plans to integrate with other third-party applications, such as NetSuite.

BlackBerry users can also look forward to a "Road Warrior" package that will allow users to transcribe voicemails into text through a handheld device.

"Large accounting firms are investing a lot of resources into IT and technology so they can compete better with midsized firms," Silbert explained. "The question to ask these midsized accounting firms is, what are they doing about it? Typically the answer is that they are not doing anything. ... We're trying to give them a service that allows them to fight back."

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