Risky Business

Risky Business

When Richelle Shaw discovered that more than 300,000 Americans had their phone lines suspended every week for nonpayment, she knew she was onto a target market that few telecommunications firms wanted to take on. Shaw, 40, is the CEO of Las Vegas-based FreshStart Telephone, which provides local, long distance, and cellular service to consumers. Known as a CLEC (competitive local exchange carrier) and a switchless reseller, FreshStart purchases large quantities of time from carriers and then resells that time to its customers.

Shaw began working for the company as a sales rep in 1993. Working her way up the ladder to the position of executive vice president, she took the business from $300,000 to $36 million in sales. “My boss got tired of paying me and offered to sell me the business,” says Shaw.

So she applied for a $1 million U.S. Small Business Administration-guaranteed loan. “One day I got a letter saying that while I was a great candidate, they didn’t like the telecommunications business,” says Shaw, “and couldn’t see how I could ever compete with AT&T.” Approaching venture capitalists didn’t prove any more fruitful for Shaw, who in April 2000 worked out a way to purchase the company using accounts receivables, some business assets, and a sale of the less-profitable customers. At the time, her market was primarily small businesses that “paid their bills like clockwork” but were costly to market to and serve.

Shaw turned her sights on individual customers, but soon found her accounts receivable and past-due invoices piling up. So she immediately put some stopgaps in place to keep her firm’s financial exposure to a minimum. That meant making bills due on a set day of the month, blocking expensive services (such as long distance, which was handled through the sale of calling cards), and setting a five-day grace period for nonpayment.

“At first everyone was annoyed,” says Shaw, who expects sales for her six-employee firm to reach $2.6 million this year, up from $2.37 million last year. “But once we got them into the groove — and past the first 45 days of service — we had them for life.”

A UCLA graduate with a degree in history, Shaw hit a devastating snag in September 2001, when the terrorist attacks reduced her monthly billings from $200,000 a month to $30,000 a month. “It all went up in smoke at that point,” says Shaw, who filed for bankruptcy reorganization, reduced her physical location from 7,000 square feet to 1,600 square feet, and laid off most of her 52 employees. “Before I knew it, I owed more than $2 million.”

Shaw worked through the bankruptcy process and reinvented her company. Today, her firm has 2,200 customers, including 1,500 residential and 700 cellular clients.

One of FreshStart’s competitive advantages is its state-of-the-art switching technology, which allows it to rate real-time calls as they are made (versus the larger carriers’ strategy of rating the calls once a week). As a result, FreshStart can closely track minutes used and alert its customers as soon as they exceed