Media, Entertainment and Telecommunications
Dave Schaeffer | Cogent Communications
Dave Schaeffer, Founder & CEO
The science of opportunity
Cogent’s Dave Schaeffer capitalized on telecom’s growing pains to bring high-speed internet to businesses.
y the time he was 18, Dave Schaeffer had earned a bachelor’s degree in Physics from the University of Maryland and was working toward his doctorate in Economics. A year later, his father asked him to run the family’s taxicab business in Washington, DC — an unexpected detour in Schaeffer’s drive toward an anticipated career in academia. The operation was $1 million in debt and hurtling toward bankruptcy, and his father needed help restoring order.
Though reluctant to be cast as company savior, Schaeffer thrived. Not only did the business erase its debt, it eventually emerged as the capital’s top cab business, with nearly half the local share.
The thrill of entrepreneurship had taken hold. Schaeffer started a company to manage taxi insurance more efficiently and bought a Motorola dealership to streamline cab radio usage and costs. In his “spare time,” he delved into local real estate, acquiring 60 buildings (he still owns 28 of them).
His current venture, as Founder & CEO of Cogent Communications, has cemented his place as one of the true entrepreneurs in telecommunications. For the past two decades, Schaeffer has integrated innovation, risk-taking and a solid business grounding to build Cogent into the world’s second-largest IP network, specializing in equipping companies with high‑speed internet access.
A convincing case for risk
Schaeffer breaks his strategic vision into three components. “You look for a business opportunity, for a service that people want or need,” he says. “Then be convinced you can do it more efficiently than others. And know that once you are convinced, your customers will help you succeed.”
In launching Cogent in 1999, Schaeffer seized just such an opportunity. The internet was showing signs of becoming the predominant communications channel, and he envisioned a pure data network with just one product — high-speed bandwidth — at a time when most networks were optimized for voice communications.
“My belief was that the network with the highest number of applications, of users, at the lowest cost would eventually win. And that was the public internet,” he says. Cogent would succeed, he reasoned, “by being thoughtful on how and where we built so we could get a positive return on capital.”
And then the telecom market crashed. The dot-com revolution was short-circuited by an industry nose dive starting in 2001 and lasting into 2004. “It was obvious to us the world had changed,” Schaeffer says. It seemed he had two options — shut down the business or search for new financing sources among reluctant investors.
But Schaeffer chose a bold alternative, using existing capital to buy distressed assets. While most of his competitors were reacting cautiously to newfound market pressures, Cogent acquired 13 companies totaling about $67 million in market capitalization and absorbed them into the organization.
“We combed through the wreckage of the dot-com meltdown,” he says of zigging while the rest of the telecom world zagged. “We were growing in a shrinking industry.” That strategy delivered results when the company went public in 2004.
“We were lucky enough to stand out from a crowd in what was a sick sector — growing organically, with our cash flow positive, made us appear a good bet compared to other companies,” Schaeffer says.
Look for a business opportunity, for a service that people want or need. Then be convinced you can do it more efficiently than others.
Standing out pays off
Cogent’s business portfolio contains more than 850 data centers, and its services are available in 200 metropolitan markets across North America, Latin America, Asia and Europe. Its client list is a who’s who of tech and communications industry giants in addition to a healthy number of smaller and midsized companies.
Schaeffer’s commitment to a culture of openness and empowerment has led to a high retention rate among his senior management team, where the average tenure is 17 years. Overall, Cogent has grown to about 1,000 employees, with 150 of them operating from the company’s DC headquarters. Each employee retains equity in the company, which offers a dashboard of 240 operational metrics that employees can review on a daily basis.
“People need to know what is expected of them, and they will do a good job,” says Schaeffer, who conducts all-staff calls every two weeks and company-wide online chat sessions that are always “well-attended, transparent and clear.”
In addition to believing in the power of expectations, Schaeffer subscribes to another time-tested business theory: if it ain’t broke, don’t fix it. Although he continues to investigate new markets by expanding into South Korea, Taiwan, Singapore and Australia, Schaeffer is sticking with his core business.
“We’re pretty boring,” he says with a laugh. “We have a lot of natural tail wind behind us because we remain focused. That’s what has allowed us to outperform our competitors.”