Thirty-one years ago, it was the holiday season and John Stix and Jody Schnarr were listening to a family talking on a radio call-in show. The family said it was too expensive for them to call their friends and other family members across the country to wish them Merry Christmas.
That radio show lit a fire in John and Jody’s hearts. “There must be a way to give Canadians free long-distance calls,” they said.
Entrepreneurs Right From the Start
John and Jody met as teenagers growing up in Waterloo Region. They were the guys who were always up to something in high school, always launching businesses and trying new ideas. Their ultimate dream was to hang out together, make a difference, and have fun doing it.
In 1993, Canada deregulated the telecommunications industry, wresting away the monopolistic control of the incumbents and creating opportunities for competitors. John & Jody had no experience in telecommunications, but they dove into the telecom industry in their own way, failing-forward four or five times. On their sixth attempt they found success with Online Tel.
When John and Jody were getting started, their dinners consisted of Rice-a-Roni and they had only enough money for a single pair of dress shoes and one red blazer. Having to share their “business attire” meant they couldn’t even attend the same meetings together.
Stratford Tel, Online Tel, and Ad Tel: Free long distance in exchange for an ad
Jody was working for National Telecom when deregulation happened. When National Telecom went out of business a short time later, Jody took what he’d learned and designed a system for him and John to sell long-distance accounts.
They went door-to-door in Stratford, asking homeowners if they would be interested in purchasing unlimited, long-distance calling to Kitchener for $10/month. Over 700 homeowners said that they would.
Next, they carried a stack of business plans and VHS tapes to every bank in Waterloo, asking for a $15,000 loan to get started. Every single bank said no.
Jody was reading a book at the time, called “Going into Business”. He admits he only read one chapter, but as it turned out, that was the only chapter he needed. In that chapter, Jody learned that if you need a loan for an innovative business idea, you need to get above the noise.
Jody said to John, “To get above the noise, we need to go a bank in the countryside where all they ever hear about is tractors.”
They drove to a bank in Stratford and told the manager they had an idea for a telecom technology business.
The bank manager confirmed Jody’s theory. “That sounds great!” he said, and he gave them the loan.
John and Jody used the money to build a system which cost them $1000/month to run. They went back to those 700 homes, eager to sign people up. But they soon learned that while people might be interested, that doesn’t mean they’ll buy. Out of those 700 homes, only 10 people signed up. So, they approached the owner of a local business and proposed that he pay them $2000/month for his ad to play on their phone line. He agreed, and John and Jody switched to giving away long-distance calling for free. They repeated this model several times under the business names of Stratford Tel, Ad Tel, and Online Tel.
John and Jody were among the first (if not THE first) to invent free, ad-based calling.
It was around 1995 when Jody and John met Mike Brown, who told them he had an idea to sell PCs to students. Mike knew nothing about computers at the time, but he dove in, learning everything from A to Z in order to sell computers.
Jody remembers “Mike figured out how to operate a PC hardware company. He launched The Little Computer Shop, and did $1.5M in the first year, which wasn’t bad.”
After a few years, Mike left TLC and took all his technical and marketing knowledge to Online Tel to work full-time with John and Jody. Together the three of them found the balance that has defined their business ever since: deliver outrageous value to their customers who entrust them with their home and business connectivity, and push the boundaries of innovation with bleeding edge ideas without spending a ton of money.
One of those bleeding edge ideas was an upgrade to their ad-based long-distance calling system. John, Jody, and Mike wanted customers to sign up online for Online Tel services, and have their system assign points to each customer based on a variety of traits. Then, an ad-tree would match those points with ads geared towards that customer’s demographic and buying habits.
Mike remembers the day that John went out and sold the idea to Labatt before they had even built the system support it. “He came back to the office and said, ‘I’ve done this crazy deal with Labatt. They’re going take all of Ontario.’ The rest of us were sitting there with our mouths open saying, ‘You did what? We don’t have even have the system built yet!’ And John said, ‘No we don’t, but we’re going to.’”
Mike called up Quinton Technologies in New Jersey. John, Jody, and Mike had worked with Quinton Technologies in the past when they were looking to buy new gear to the tune of around $3M. Quinton Technologies had alternate gear that was pennies on the dollar cheaper, and they came to Toronto to do a demo. John, Jody, and Mike loved their demo and ended up purchasing from them. In gratitude for having saved them so much money, Mike called them up one day and said “You know, you guys are so amazing. I’m ordering you in a pizza party…what do you all want?” He sent them 20 pizzas from a local pizza place in New Jersey.
That one pizza party was now going to translate into a lot of revenue for Online Tel; the development work to create the ad-tree was estimated to take a year, but Quinton Technologies took on the project and delivered it in two months.
The one deal with Labatt proved incredibly lucrative: Labatt paid 3 cents/ad and Online Tel carried over 300,000 calls per day. The income from the Labatt BlueLine (as it came to be known) made the business very attractive to buyers. In 1999, Jody, John, and Mike sold Online Tel.
Jody Schnarr and John Stix promoting their Labatt Blueline in July 2000
Building Fibernetics
After the sale, the Online Tel buyers employed Mike, John, and Jody for a short time, but they soon realised that their entrepreneurial hunger wasn’t satisfied by working for other people. They decided to leave, and for a while they each went their own way.
One day, Jody phoned Mike. “What are you doing for lunch?” Jody asked. “I have an idea to run past you.”
Jody showed up in a van, which Mike thought was “a little different”, and drove Mike to Home Depot.
“What have you got going on these days?” Jody asked Mike, as they walked up and down the aisles.
“I’m taking a course to be a real estate agent.”
“OK,” Jody said, “we both know you’re not going to like real estate. You’ve got to think long term.”
“What do you have in mind?” Mike asked.
“You, me, and John are going to build Canada’s next greatest telecom company.”
“Sounds interesting. What’s the plan?”
“Well, before we start a service,” Jody explained, “we need servers, and before we get servers, we need something to put them on. So, today we’re going to buy some shelves, and we’ll go from there.”
“Alright man, I’m in!”
Jody remembers walking through Home Depot. “Mike was saying, ‘Man, I’m so pumped!’ and he didn’t even know what the idea was yet!”
Jody had been calculating how many servers he could fit into a co-location space in Toronto with the goal to maximize the space and charge customers the lowest amount possible. He and Mike bought a set of wire bread racks from Home Depot, put them in the back of the van, and drove to Toronto.
Mike remembers the moment they walked in. “You have to imagine us walking in and right beside our space was one of the Big 3 with multi-multi-millions of dollars-worth of equipment. They had beautiful shelves, beautiful labelling. All the lights were blinking everywhere, and we could hear the buzzing of fans and the switches going on and off. And we walked in with our bread racks to find our empty cage with the door swinging open on its hinges. Everyone else had these fancy locks and we had a bike lock to secure all our equipment.
“We had no one to install the cabling for us and in the beginning, it was a complete mess. The running joke was that we could tell whenever Jody was in the cage because the phones would start to light up with calls and customers saying, ‘Hi, I can’t connect in Ottawa. Is something going on?’
“We’d call Jody, ‘Hey, are you in the cage? I think you just took down Ottawa.’ He’d look around and find a partially plugged-in cable with no lights on. He’d plug it back in, we’d hear the click, and then Jody saying, ‘Ok, Ottawa’s back up!’”
For the first few months, while they were setting up their accounting system and working out how to accept payments from customers, they kept their cash in a brown paper bag and paid themselves from it.
That was the start of modern-day Fibernetics. John, Jody, and Mike worked out of the basement of Jody’s house on Eastgate Walk, in Waterloo. Mike built an ad server and put some ads online, offering dial-up internet for $2.95/month.
On the day they got their first customer, Mike was just finishing the configuration on a piece of equipment when suddenly the line lit up.
Mike looked at the equipment. “What’s going on? Did I do something wrong?”
He plugged in a phone and it started ringing, so he answered it.
“Hello….? 295.ca… Mike speaking?”
“Yeah, hi, I’m looking at your ad online and I’ll take it.”
Mike began fumbling around for a pencil and a piece of paper. “Sure, great! What would you like your username to be? Do you have a credit card number?”
Jody was sitting beside him mouthing, “Are you kidding me right now? You seriously sold one already?!””
Mike took down all the information he could think of and hung up. Moments later, he realized he needed to call the customer back. “Hey, listen, we only just got set up and we don’t have a way to bill you yet. Do you mind referring people to us for the next few months in exchange for free service until we can start billing?”
Their first customer was ecstatic “Are you kidding me? That sounds amazing. I’ve been paying forty dollars a month for dial-up internet. I’m only too happy to tell everyone about 295.ca.”
Part of what drives Jody to keep finding creative solutions, is the excitement that comes from delivering something different at little cost to the customer. “You don’t have to be a genius; you just have to be obsessed. I can’t rest until I find a solution; I run over and over a problem until I find the framework to solve it. Sometimes that takes a second, and sometimes that takes a second after three years.”
John remembers how they quickly grew to fill six desks in their basement office. “Most job applicants would show up with confused expressions on their faces. You could see them thinking, why am I applying for a job at a house? I’m sure a lot of them turned around before they even pulled into the driveway. But those who came in the door and chose to stay, we welcomed with open arms.”
In later years when the founders’ enthusiasm started to falter, it was John who turned the company culture around. Today his most cherished role is empowering the other leaders and employees in the company. But back then, none of them knew the words “workplace culture”. To them, culture meant going to the local pub, having a beer, and dreaming of how they were about to disrupt an industry.
When Jody, Mike, and John started Online Tel, the goal was to build a phone company. The typical model for a Competitive Local Exchange Carrier (CLEC) at the time was: build it, offer a discount, and customers will show up. But that model wasn’t working anymore, and scores of telecommunications companies were going out of business in the late 90s because of the overbuilding of the market in the US and Canada. This created a glut of telecom equipment at pennies on the dollar on eBay.
They identified their corner of the market: Dial-up internet. It was still operational in 2003, but it had a short runway because all the telecom companies were looking to DSL. Dial-up customers still represented the largest amount of volume in the market though, so they decided to aggregate as many of those customers as possible. They bought a ton of equipment at a huge discount, offered dial-up internet for $2.95/month, and managed to amass about 80% of the traffic in Canada.
Of that $2.95 each customer paid each month, the founders gave $1 to Sick Kids Hospital. Radio station 1010 CFRB, got word of that donation and started advertising 295.ca for free. So, the founders started giving $1/month for every customer to the radio station as well.
When people hear the story of how Online Tel gave away $2/month for every $2.95 customer, they ask the founders, “How could you do that? And why? You were leaving money on the table at a time when everyone was charging at least $30/month for internet!”
But Mike insists that this is the magic of how Jody’s brain works. “He understands the opportunities that exist when you know something that everyone else either doesn’t know or has overlooked. Our whole plan from the beginning was to be able to give incredible value to our customers and be disruptive in the market by making use of reciprocal compensation.”
Reciprocal compensation is the way that carriers compensate each other for activity on their networks. If Mike, using Carrier M, calls Jody who has Carrier J, then Carrier J bills Carrier M for the activity on their network that originated from Mike.
At the time, not a lot of people knew about reciprocal compensation. But Jody had that critical piece of information. He knew that as soon as 295.ca became a phone company, then dial-up internet customers would be calling their network 100% of the time, and 295.ca would be compensated by their customers’ carriers for all the activity on their network. They weren’t selling home phone lines at the time, so their network was never calling out. Instead, the proportion of calls coming into their network was completely weighted towards them, and all the money rolled downhill to their company. Suddenly that $2.95/month customer became worth exponentially more. It was a customer-funded approach to raising money, but at an outrageously low cost to each individual customer.
Their outside-the-box thinking drove a Mac truck through reciprocal compensation, blind-siding the big carriers with huge bills. The influx of cash created momentum that, combined with the expiration of their non-compete with Online Tel, allowed them to start working on the CLEC.
When the founders sold Online Tel, they signed a non-compete for voice services. So they created the dial-up network across the country and offered internet first and were easily able to layer on the voice equipment later. They had PRIs; essentially bundles of phone lines that they plugged into the equipment as soon as the non-compete was over. They typed in a single line of code, and they were up and running.
The 295.ca infrastructure would eventually form the backbone of Fibernetics’ residential brand, Worldline, advertised here with a photo of Mike Brown, John Stix, and Jody Schnarr.
With inbound calls coming into the network, they could now make outbound calls equal to the amount of inbound. That’s when they were able to go after the long-distance market (outbound calling). They charged $3.95/month for “all you can call” across Canada, and they formed partner relationships across the country to advertise it.
John, who is a master at finding unique marketing opportunities where everyone wins, went out and acquired media partnerships with entities like The Toronto Sun. The back page of The Sun was the least attractive to advertisers, and it would often sit relatively empty. John pitched an idea to The Sun executives: use that space to advertise “Sun Call”, a long-distance, unlimited calling plan for anywhere in Canada for $3.95/month.
Customers would call the number advertised and the 295.ca employees would answer, “Thank you for calling Sun Call…” For every customer that signed up, $1 each month went back to The Sun.
Mike estimates that through several similar deals, “John probably got us about $60M in advertising that we didn’t have to pay a penny for up front. We’d pay the media partners out of our profits, so they were compensated significantly once customers started signing up, but we didn’t have to start with a $60M advertising budget.”
The success of their plans comes from exercising creativity to get things done, without spending a lot of money, like the time they needed to code some new software but didn’t have the money for local developers or university students. Jody got on a plane and flew to Sofia, Bulgaria where he’d heard there were teams of reliable developers at a reasonable price.
“He didn’t know anyone there or have a guide,” John says. “He just packed a bag, flew there, and found a team who ended up building all our core IP.”
John tells a similar story of when they needed to open a call centre. “We were growing quickly and looking for full-time customer service reps, but no one in Canada really dreams of being a CSR, so we had a high turnover rate of students filling temp jobs. It made the training cost too high, and it just wasn’t scalable. We tried India, but the time change was hard to manage and in those days their power grid wasn’t stable enough. We’d get on a call with the customer experience team, and they would literally say, ‘Hang on guys, we have to go turn on the generator.’
The founders looked to the Dominican Republic, because they’re in the same time zone and the residents speak English, French, and Spanish, which is great for customer service.
“It was very similar to the situation with Bulgaria,” says John. “We had no plans, we just packed some bags, flew down there, and landed in Puerto Plata. We got an office, and Jody and Pete Cross stayed in Puerto Plata for three months while they built up the office. They recruited and trained people, and before you knew it,we had a full-on call centre. In the Dominican Republic, customer service jobs are well sought after. They all showed up that first morning with their shirts pressed and their briefcases in hand, ready to start their careers.”
John believes that having an entrepreneurial spirit isn’t about having all the answers, but rather about having the drive to find the answers. “A lot of people seem to think that when entrepreneurs start a business or are running a business, that we must have all the answers all the time. But that’s not the case. Everyday there’s the potential for a problem or a challenge to pop up that we’ve never seen before. We just find a way to deal with it and figure it out.”
They were forced to “figure it out” the Sunday they were working out of the basement on Eastgate Walk and the internet on the whole street went down.
Rogers was the internet provider for the house and a Rogers technician soon showed up. He peered through the windows, trying to figure out why this single house with multiple cars outside was using so much bandwidth. Mike went outside and told him they were “having a party”. The Rogers technician told Mike that the internet would be down for the next few days.
Inside, the phone was ringing off the hook with over a hundred Sun Life customers signing up. John called Jody, who was out of town for the weekend, and said, “We need reliable internet, and we don’t have enough space in this basement anyway. I’m going to find us an office and move us today.”
Jody said, “I don’t know how you’re going to do it, but go for it.”
John called up the agent for 256 King Street in downtown Waterloo and got an appointment to view the property that afternoon. He looked around at the dropped ceiling, wires everywhere, and cables coming out of the walls.
“It’s perfect; we’ll take it!”
The agent said, “When is your current lease up? We can have the place fixed up and ready in…six months?”
“Can we have it today?” asked John.
The agent called the owners and drew up the lease. John went back to the home office and said, “Hey everyone, big announcement: Pack your bags because we’re moving!”
They moved the whole office that evening and were up and running again the next day.
When they outgrew that space, they moved to the Royal Bank tower on Duke Street in Kitchener. It felt very grown-up and corporate to our three heroes, but the Greek restaurant on the main floor sealed the deal. From there they moved to Boxwood Drive in Cambridge, and in 2020, they moved to Grand Innovations in Galt, Cambridge. Each time they grow, they find a bigger place, spread out the desks, set up their computers, and get to work.
In 2005, the opportunity came up to buy back Online Tel. Jody always felt they had unfinished business there, and he was inspired to get it back. They amalgamated the companies together and used the infrastructure of 295.ca to launch their residential brand, Worldline. Online Tel became the parent company, Fibernetics. In 2008, they launched their business internet brand, NEWT.
It’s unlikely that when the founders first set up in their basement, they could foresee a time when they would host company huddles tens of employees strong, as seen here at their Boxwood location in 2018.
NEWT and the Next Chapter
When they first set out to build Online Tel (now Fibernetics), the ultimate goal was to build a facilities-based network so they could explore disruptive business models, like their NEWT PBX phone system. Those early puzzle pieces are what built the network, and that infrastructure is what allows them to continue to be creative and disruptive. The network allows them to create services like Fongo, or Nucleus, and have millions of users on the phone network without having a base cost.
NEWT’s unique hybrid model has garnered significant market share since its inception and is another example of a business model that seeks to benefit everyone. The founders’ motivation has always been to create something of value for other people and to not be afraid to leave money on the table if it means improving other people’s lives; both through saving customers money and donating to causes they believe in. The founders believe that time and money are never wasted when they’re intentionally benefitting everyone.
And while they love to celebrate the wins together, there have been significant downs. There have been times when they’ve worked with people who weren’t the right fit and “it felt like pushing an elephant around the room trying to launch an idea.” During those days none of the founders were kicking their heels out of bed in the morning. But through it all they stuck together and built resiliency.
Out of the challenging times came a recognition for the importance of having positive workplace culture, of making sure there’s always someone accountable for it, and keeping the business aligned with its values, purpose, and mantra. Out of those times came a renewed focus to make sure they had like-minded people to stand shoulder-to-shoulder with. People who can see the vision and create the path to achieve it; people who, as Mike says, “are right there with you when you share an idea or want to get something done. Honestly, if John hadn’t taken it upon himself to hit the culture side, I don’t know what would have happened. After we focused on culture and made sure we had the right people with us, I could start to see the light and that’s what made me stick with it. Now with the people we have, the culture, the alignment…it’s amazing.”
The wall at their current head office space in Cambridge displays the company’s purpose and core values, which guide the language and behaviour of every Fibernetics member.
As they grow and change, there are some things that remain the same. John can look back to when he and Jody were sixteen and “we’d drive around the neighbourhoods in a Dodge Colt and think, How did these people get these big homes and these nice cars? What do we need to do to get that? We’d dream of what our future could be, but it always fun-loving, it was never about taking something from someone so that we could have it. For us it’s always been about having everyone win as much as possible. Do we want to create something and disrupt and gain market share? Absolutely. Do we want to do it by bringing someone down? No. Never. We want to win by everyone winning, not by someone losing. That’s what invigorates us and keeps us moving forward.”
The founders know that complacency will trick you into thinking you’ve arrived at a place, and it will stop you from moving forward. They know that you can’t stay still; you have to challenging yourself to see how you can go beyond. What’s most important to them is that no matter where they came from, or where they’re going, no matter how modest the beginning or how glittering the success, they want to constantly experience the invigoration that comes from being an entrepreneur and creating an environment of intrapreneurship, where everyone feels free to pursue opportunities and go beyond.
This coming year is when the next invigorating chapter of their entrepreneur story will be written. As their latest service, Nucleus, is creating excitement in the market, they’re working on changing the model again, giving Nucleus the ability to grow exponentially and create that network effect that comes from delivering next level value. Collectively, they see how the convergence of all communication within AI is the future and Nucleus can be the platform to serve businesses in Canada, the USA, and beyond. And as always, while they’re working to accomplish all of their goals, they continue to be those creative, compassionate guys who want to hold tight to that dream of making a positive impact, while having fun, for many years to come.
