Wednesday, July 18, 2007

VoIP firm up like a rocket, down like a rocket

Startups often have rapid growth, then crash and burn. In a little niche, you can control growth to a manageable level, but in an exploding market segment you need to grow with the segment (often at unmanageable levels like 200% or 500% or even 1000% a year) or you’ll lose market share.

Apparently SunRocket has crashed and burned. (Apparently because they had a massive layoff but management is trying to keep customers from defecting so they can sell them lock, stock and barrel to anyone who will pay). The once-promising company was “the second largest pure-play VoIP company”. Another article lists them 4th overall, after Vonage, and then Verizon and AT&T, the two big telcos. Vonage and other competitors are making offers to steal the customers away.

Competing against the big boys with their distribution has got to be brutal. I suppose the first warning sign was when the last two founders — both MCI veterans — quit in February to (as they say) pursue other interests.

The VoIP companies have been unable to differentiate their services (only their branding and distribution), so this is the ultimate commodity business. Commodity businesses are about execution, operations, margins, pinching pennies. Telco types may not be great at pinching pennies, but they certainly wrote the book on operations.

The trade journal TWICE — the publication of the same people who put on the annual CES in Vegas — had a couple of interesting tidbits. SunRocket only had 2% share — one-tenth the size of Vonage. Their growth had slowed. Their new management and systems weren’t working well. And investors decided not to throw good money after bad.

Any company can run out of money. Making a business plan that assumes people will continue to give you money may be the best path to the big (10 figure) exit, but it also hands final say over your survival to outsiders.

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1 comment:

Ivan said...

I switched to SunRocket just 4 months back. I am not at all impressed with their voice quality and customer services. I received their email stating that they are about to close. Now, I have decided to sign up with Lingo because of their attractive calling plans for the business users like me.