CASE STUDY >
Gateway to success
Written by: Fiona Gaze
Photo by: Jan Vágner

The remarkable rise of 2N Telekomunikace has been a steep learning curve for CEO Miroslav Hofman. The domestic and international success of this Modřany-based firm didn't come easy.

Miroslav Hofman

HOFMAN, ALONG WITH cofounders Roman Pihan and Hanuš Brychta, had no idea what was in store for them. "If I had known just how difficult the telecommunications industry would be, I probably wouldn't have gone into it," says Hofman. The leaders of the company now famous for its telecommunication system ATEUS knew nothing about the industry when they started - they just "happened to have a good idea at the right time." Since 1988 the trio has been working on numerous electronic projects for state-owned companies, and in 1991 they realized that the market was ripe with opportunities for new businesses. Hofman recalls hearing in his head the voice of his friend promising that "anyone who can produce machines able to connect different telephone stations" - e.g. to link together phones in a company - "will be rich."
This idea proved so strong that even the team's seeming ignorance of the industry or the technical aspects of assembly ("the beginning was a technological challenge," understates Hofman) could not prevent the company's turnover from skyrocketing within the first year to CZK 17 million. When 2N started, their competitors were selling the exact same product, a simple switchboard, for a hefty CZK 45-50,000 apiece. For 2N, however, ignorance paid off: unaware of all the intricate parts normally used, they created the gateway as simply as possible at the low cost of CZK 3,000 and sold the finished product for CZK 15,000, thus making a whopping first-year profit.

Getting connected
2N at its procreation was fortunate enough not to need any loans, although investments were constantly needed. "If you look at it like we had to invest 50, 100 or 200,000 crowns, then yes, it was an investment. But it was funding we had leftover from previous projects," Hofman says, explaining that the amount, considered an investment at that time, would be mere pittance for an aspiring entrepreneur now. Initial capital in financial terms was CZK 100,000, but Hofman maintains that the most important capital was human - the people who were willing to work more than 8.5 hours a day because they believed in the company. The "human capital" of 2N has grown from the initial 5-worker team to one 110 employees strong. This number has remained the same over the past few years as management is now focusing on increasing employee productivity instead of the number of employees. Considering 2N's 2003 turnover amounted to CZK 385 million, each current employee can be viewed as being responsible for creating approx. CZK 3.5 million gross.
The collective efforts and giddy success of 1991 spurred 2N to develop a gateway in 1992 for 20 phones, suitable for medium-sized companies, which the firm views as perfect customers for its products and as building blocks for a healthy economy. In the Czech Republic there exist approx. 60,000 small and medium-sized companies, to which 2N has sold over 17,000 gateways.
Manufacturing 12,000 20-phone gateway systems in 1992, 2N sold every one. However, this success drove the then still-green company almost over the edge: slightly starry-eyed, they planned a large-company, 300 to 500-phone gateway that would rival those produced by veteran competitors Siemens and Alcatel. "This plan almost killed the company," recalls Hofman soberly. "We've grown from boys to men and finally realize that we can't do everything." It was too much too soon - the attempt of 2N to run with the big boys who produced the biggest gateways brought them only 6.5% of the market - paling in comparison to the 25% trumpeted by Siemens. Overall though, 2N managed to hold on to a solid 12% of the Czech industry market. The most recent industry survey conducted postured 2N with a 14% market share.

Market transformations
Today's market is markedly different from that of 1991, and competition is tough. "It's not about price or even the technical differences anymore," says Hofman. "It's about how flexible the company can be when a customer comes to it with special needs. The challenge is to meet those needs for each and every customer." He emphasizes that the most difficult aspect of marketing a product is conveying benefits to the customer. 2N's priority is no longer just development; rather, how quickly the company can anticipate and respond to customer requests.
Although experiencing wide success from popular products, advertising, and representation at annual specialized conferences, 2N Teleko-munikace reached a financial plateau as the '90s approached the millennium. According to Hofman, they could "only go so far" in the Czech Republic, and their aspirations for 1% of the world market led them to expand internationally. Again entering the market at a crucial moment - this time, just after the dot com bubble burst, 2N participated in the 2000 CEBIT fair in Germany and spring-boarded itself onto the international scene. In 2003, 70% of 2N's turnover came from foreign markets, with 30% from the Czech Republic. The majority of clients are EU-based, but a substantial number are from China, Brazil, Australia, and more recently, Russia.
In response to both the success and trials of 2N Telekomunikace, Hofman's priorities have changed. Leaving his position as director in November 2003 to become chairman has allowed a new generation in to lead the company, and allows Hofman to focus on employees, including investing time and energy into human resources development projects, such as starting "2N life", the company's magazine for and about the employees - their interests, families, successes, etc. "It's not so much about company milestones anymore," he says. "It's about keeping employees happy and productive."

Casting doubts
Eight years into 2N's success, skepticism still remained as to whether gateways were necessary and whether they could be applied on a large scale. Even the Ministry of Finance, while hosting a competition in 1999, couldn't believe that they could pick up a phone in one office of the Czech Republic and be connected immediately to another. After disputes with host and competitors alike, 2N won the project and created a gateway successfully connecting every single Finance Ministry office in the entire Czech Republic. Better yet to quell any dispute, the project paid itself off in 14 months and the Ministry realized a total return on investment ahead of schedule.