So, You Want To Run A Wireless ISP?

Despite the tough economic conditions shrouding the current communications marketplace, many new entrants continue to target the attractive wireless ISP segment.

by Graham Barnes [February 7, 2002]
Graham Barnes is the chief executive and chief technical officer of NextWeb, Inc. When Barnes started NextWeb, this article was exactly the type of information that he wishes he had. Therefore, it may be of interest to others entering the wireless ISP field. Hopefully, it will also be helpful to wireless manufacturers who need a better perspective on the issues facing their customers.

NextWeb, Inc. entered one of the most competitive markets in the world—San Francisco Bay Area—nearly two years ago as a new wireless ISP. Although every market is different, we believe that our approach could work just about anywhere.

Finding the capital
As everyone knows, it is very hard to raise capital right now—but of course, you will need very little money because 802.11x wireless equipment is inexpensive, right? On the contrary, the main use of your hard-won cash will be for working capital—that is, salaries to pay your staff.

You will need a professional sales staff, marketing people, great engineers who can design both wireless and IP networks, along with staff to cover customer service, installations, billing, purchasing, and all the corporate overhead stuff. This all adds up to more than you think. And if you expect to get the equipment for free with vendor financing, think again. All the vendors have problems of their own right now and you might find it difficult to even qualify for financing these days.

Consequently, while 802.11x might work for some deployments, a more robust solution with higher capacity will be substantially more costly. Backbone and backhaul connectivity will also be a significant cost factor, unless you are able to find a competitive wireless services wholesaler.

At NextWeb, we went through three protracted stages of fund-raising and due diligence. First, we gathered a very small seed fund, which allowed us to buy some equipment and do our field trial. At this stage, the founders were taking no salary and we weren't able to offer service on anything other than a free test basis.

The next round was the venture capital (VC) round. We picked up more cash in the bank, although it was less than we'd hoped. But at least we could start hiring staff, paying salaries, and building the network. We could also start adding paying customers to the network, and learning how to make it all work. Naturally, we started expanding our services and getting the sales into gear.

We reached the third stage of financing when we finally had a business that was generating revenue. We continued to grow our customer base, but we still weren't profitable. However, we were becoming well known in our market and we had low churn because of our high-quality customer service. At this point we were ready to raise the big bucks and go for it!

Of course, the market had just tanked, no wireless companies were doing initial public offerings (IPOs), and we had to settle for a smaller round of financing with a bank line-of-credit for operating capital reserves. We had to scale back all growth plans and expenses in order to survive and reach profitability. Nevertheless, we had staked out our territory, driven off competitors, and were ready for the next business cycle.

It's all about sales marketing
When we started our company, we assumed that the hardest part would be engineering the network. It wasn't. The hardest part was signing up profitable—positive gross margin—customers. Successful companies are sales-driven—you have to give your sales executives leeway and guidelines to bring in new types of business and then find a way to fit them into your plans and capabilities.

There are really just two basic approaches to sales and marketing. The first is known as the "throw it against a wall and hope it will stick" approach. This is where you try to sell anything and everything to anyone you come across! For example, if you are trying to sell wireless Internet services to residences, multi-tenant units (MTU), and large or small businesses, you probably don't have a focused business model.

The risk is that your product will be seen as a commodity—producing low margins and having no barriers to competition. Worse, your sales people may spend a higher proportion of time selling to less profitable customers and you might spend your hard-won capital deploying a backbone with too much capacity, or serving locations that might never reach break-even.

Then there is the focused business model, which targets specific markets with products you know you can deliver at good margins. At NextWeb, we are firm believers in the focused business model based on profitability. It is critical not to waste resources. The days of "if you build it, they will come" are long gone.

The only way to know what services you are not going to sell and to which clients you are not going to sell, is by following your sales and marketing strategy. You should continually examine your decisions along the way—examine your products, pricing, and how you are going to promote and sell these services.

Go to page 2: The basic product >