As the cofounder and CEO of Bandwidth.com of Raleigh, North Carolina, David Morken first started out as a telecom entrepreneur 15 years ago when he gained a toehold by reselling network bandwidth to small and medium-size enterprises. As the firm grew, so too did its reputation as a disruptive force inside the telecom sector, where Bandwidth.com expanded into VoIP services and began servicing such marquee companies as Google for Google Voice and Vonage. More recently, Bandwidth.com launched its own mobile-phone company, Republic Wireless, with a deal that sounds almost too good to be true: unlimited calling, texting, and data — all for just $19 a month. Middle-Market Executive recently asked Morken to share some insights on his firm’s ability to serially innovate.

MME: Is the next Republic Wireless already being incubated somewhere inside Bandwidth.com?

Morken: I’m in my 15th year here, and as I look back over time and look at how the company grew, I would tell you that we have been really successful at following the technologies, identifying needs, and launching new products and services. We have essentially launched about a half-dozen products and services that have reached a scale of between $10 million of profitable revenue and a much larger number. Our wholesale enterprise division by itself will do $100 million in revenue this year. So we have innovated from the inside. I actually believe that we have a team working on something that will be remarkable, and so my answer is “Yes, we have an embryonic team that is rapidly working to get something out the door that we believe will be equally interesting to our telecom customers.”

MME: How does a company adopt a shared mind-set for continually introducing innovation?

Morken: I think it goes back to the mission of the company. If your mission as a capitalist is profit, you will be tempted to stay with a product or service even as its innovation curve flattens so that you can squeeze every last margin dollar out of it. Our mission is to unlock remarkable value from IP networks using software and what we call courageous co-creation, and this mandate and charter of unlocking incredible value forces the team to continually challenge the status quo and deliver greater time and money value to customers. I have often turned away from products or services that were rendering good gross margins in order to scale the next frontier and challenge the status quo. If we were venture-backed, privately equity–controlled, or public, I think that the time horizon and expectation would be, “What have you done for me lately?” or “What’s the P&L this year?” Instead, I basically hold EBITA to $10 million a year, because I am a 40 percent taxpaying company, which means that 40 cents on every profit dollar goes to the government. This is fine, but I prefer to take the risk and reinvest and grow. So we are cash flow positive — we have been for some time. This is very important when you are bootstrapped. Around here we fly the flag of unlocking customer value, and if that is the flag you fly, it allows your most creative people to come forward with ideas.

MME: Does Bandwidth.com have some organizational approaches that help to protect and encourage innovation?

Morken: We do have a couple of different mechanisms that we use to foster creative disruption in new stuff and areas that may be different from the current product family that we have. We have a labs concept wherein we have a person who runs our labs, and he receives ideas from people across the company. These ideas are vetted, and they go through a process where individuals can be admitted into a lab for a 90-day sprint to a minimum viable product launch. We also have two operating GMs who will quadrant off a small team to address an adjacent or very related new idea within their division, so we’ll do that and encourage people to pursue these opportunities. There are both internal skunk works as well as separate labs that we consistently turn to. However, even when you set up these types of structures and frameworks — my sense is that if you don’t at the very top of the company fully get behind the fearlessness of failure and the spend of money required — it’s just not going to work. The C-level officers have to embrace it.

MME: What role does the finance function play when it comes to this type of “leap of faith” investment decisions?

Morken: Well, finance plays a key role at our company. We have a CFO who came from two different stints at telecom companies, but he was astonished and had to adjust to an environment where his primary role is to support the GMs. The GMs have great, deep, and broad authority that is delegated to them by me, and his primary role and that of his controller and accounting department is to provide accountability around our annual budget process and forecast adjustments. However, he doesn’t make any operating decisions, and he’s fine with that. Frankly, he’s minding the store on our overall profitability. He’s very, very good at what he does, but he does not inform product decisions, gross margin discussions, or collections policy. GMs around here are mini CEOs, and they drive hard with autonomy. And his role as a CFO is perhaps more like that of a holding company CFO than what most companies are used to. The fact is that much of where we go is unknown. We need finance to look in the rearview mirror and help us to understand what we did right or wrong, but when you’re innovating, so much is unknown around customer lifetime value and total cost of ownership — and there will be these huge pivots that are made in any model. At the earliest stages, this is how it will be.

Related Article: A Telecom Disrupter Masters the Discipline of Serial Innovation