Tales from the Towers: Chapter 63 – Growing Pains

I’ve traveled the WISP road for a lot of years. Not as much as some, but more than others. In these travels to far and strange lands, from California (so very strange) to Florida (land of mosquitos that are so big they can dislocate your shoulder when they attack), I’ve met and heard from many wise people their stories that can make you smile or have your hair standing on end. Even today, I heard more stories that are having me rethink our deployment strategies. When women do it, it’s gossip. When we do it, its research but it’s valuable none the less.

Before you go on, I’m going to warn you that not everything I’ve learned is positive and uplifting. Some of it is going to be a reality check, other things are going to be discouraging and you may want to lash out and tell me I’m full of it. Most of it is positive though, so before you start calling me names and suggesting anatomical impossibilities, look at the big picture. The reality is this: the ground is shifting beneath our feet and this isn’t the time to try to recreate your father’s internet company from the ground up (unless he left you a big Trust Fund) with your piggy-bank money.

Here is the first piece of bad news. The days of the $1,000 internet startup are over. WISPS aren’t going to be popping up every time 20 neighbors get together and someone says, “Hey, I know how to share my 4Mbps DSL circuit and make a few bucks doing it”. The dream that if you just keep adding users in a linear manner, you can retire with a multimillion dollar business someday isn’t a reality. Here is the reality: you have to get to at least $25K a month with $15K per month of gross profit if you want to even try and stay in business. That doesn’t give you room to grow, only enough to keep the lights on and kill any plans you have of a vacation for the rest of your life while taking calls 24×7. It also doesn’t give you the revenue to protect yourself from competitors or even be able to quickly upgrade your network to stay competitive. If you want to start a WISP today, a true business where it has a chance to grow and compete, you really need at bare minimum to be successful, at least $400K of startup capital, and no plans on a salary for at least 12-18 months.

Say what? Is Rory crazy? Yea, my wife thinks that trying to act 18 on the baseball field while in my mid 50’s is pretty nuts but unfortunately or fortunately, 14 years of doing this and consulting with multiple companies over the years has enlightened me. Many of you, me included, started with a lot less capital, but sadly, I believe those days are gone because most areas have some internet option from satellite to cellular to fiber. The first hurdles of getting a WISP up and running is learning and capital. You can get to a solid business but then you into the next step. With a little ingenuity, awareness it’s coming, and some strategic planning, you can make the second obstacle of expanding your WISP, much smoother and possible.

Here is where I’m going with this. So your WISP is running, you might be the only employee except for every family member and friend you could rope into helping you, and you might have a couple hundred clients paying you $60-$90 a month, more or less. Now what? You sold your boat, got a second mortgage on the house, your wife’s parents aren’t talking to you because of the first loan you got from them, and you don’t hang out on Wall Street where you can get money just by using the latest high-tech buzzword. Well, welcome to investing 101, post Dodd-Frank. Guess what, unless you are at $5M or more in sales, I’d try to make up with your wife’s parents.

Why do I say this next step is hard? Even if you are generating $20K per month, your expenses, if you are doing all the accounting correctly and not cutting corners, are probably $15K per month or higher. If your expansion involves adding another tower, you might have to spend $50-$100K to get that new territory up and running. Now you have the added costs of the extra drive time to get to the new area, the extra support costs every time something breaks, etc… Geography is not your friend here so make sure all the costs get factored in.

Maybe you don’t need another tower but you need to hire another employee to keep pushing out 40+ installations a month (yes I know you want higher but realistically, new guys take time to train and take up a lot of your time). That cost is not only his salary, his vehicle, tools, and if he does 40 installations in a month, another $8K in equipment you need to have in stock. Even if that tech does 40 installations the first month, that’s only an additional $2-$4K per month in revenue meaning you have to cover at least 2-3 months of these expenses. You need an extra $25-$40K of profit (lots of variables here but you get the gist of it) to make this jump, hence the second phase issue. And God forbid you get an order from an apartment complex or a homeowners association that requires even more capital because once you start this ball rolling, you can’t just stop or your reputation gets hammered. This is where the tier problem comes in and why investors sound attractive.

Unfortunately, here is the reality. Dodd-Frank made the paperwork so onerous and so expensive to file for institutional investors, that unless you are asking for $5-$10M dollars or more, they can’t help you. It cost the investor groups too much time and money, financial and legal paperwork, to both with small businesses. Yes, this is the insanity our politicians put into our financial system to totally destroy one option for startup operations. This is also part of the reasons over the last couple years, during the Obama administration, that more businesses were closing than opening into 2015.

And to make it worse, or better, depending on how you look at it, the days of getting $100M dollars for an internet idea with no revenue are also over. Don’t start ordering that Ferrari just yet. If your business does $1M in sales and you need $1M dollars, depending on your profitability and growth, you are worth 1-5 times your value. So, the best deal you are going to get is about $1M for 20% of your stock. In reality, you probably will be lucky to keep 51% of your company if you need that much.

The newest thing with Angel Investors is to offer a loan, usually $250K-$1M or more at 6-10% interest for example, for 2-3 years, for some percentage of stock that they have the option to convert at the time of the terms. If you are doing well and have grown, the company keeps the money and the investor takes the stock. If you aren’t doing well, then you better make sure you have a big enough bank account to pay them back because if you can’t, it’s over and they could get all your company or whatever they deem to negotiate with you. There is a lot of room to negotiate here and there are many Angel paths to take so do your homework.
I’m not dissing the Angel Investor at any level. A good Angel investor is a godsend if you have the right plan and it works. The reality is that most companies would never be able to take the next step without them or some other funding option and if you have a good plan in place, then you can really make a big jump. I see companies constantly, mine included, where the growth, and its profitable growth because of our insane profit margins, is simply capital limited. Angel Investors might be the stepping stone to get a big enough to deal for the next step, institutional investors if you are really ambitious, and then you are off to the races.

I know many of you have profitable operations that might have a little growth or are simply stable. You just slip in the next generation product and keep plugging along. In some rural areas, it may be impossible to dethrone your operation simple due to the inability of the next guy to recoup his investment in a reasonable amount of time or there are limited tower locations to launch from. The first guy on the hill gets to be King. I wish you well but I’ve just taken over two areas in months from companies that thought the same thing and now we can’t install fast enough to keep up with the orders that are piling in. We found their weak points and then found alternate methods of getting to those areas. By the time those companies knew we moved in, it was over. A hello on Facebook was all it took. Remember Guerilla Wireless from years ago? There is more than one way to apply it so stay paranoid my friends.

The point being and I know some of you are going to argue this, if you aren’t moving forward you are standing still. And if you stand still, you could get run over by someone from the next guy with a WISP idea, some major cellular or satellite carrier, or some telephone company that figured out how to sneak more money from taxpayers to go after you. Please plan ahead, 2-3 years, at least to know that you are solid or have an exit strategy.

One of the things I’ve learned in working on multiple spreadsheets like I’m doing tonight in fact, is that you can grow until the cows come home and never make money. The value of your company keeps growing but then you have to create an exit strategy that is based on that scenario. Or you could grow up to a point, step back and take the profits and just maintain the operation. Then again, you still have the same two options assuming you save the capital to keep competitive and make it difficult to lose customers. The third strategy is this and my favorite: grow until you don’t have to. BTW, this strategy doesn’t work if your growth is geographically limited and you have to drive an extra hour to add 5 clients.

This third strategy is a little tricky depending on where you are financially. For example, many companies are pouring every penny of profit into buying more equipment and can’t get ahead of it. Believe me, with the massive growth that we experienced last year, I had many sleepless nights pushing out installs as far as I could to have the capital to cover the amount of equipment we needed for them. There are ways through it that doesn’t involve selling your blood every three days (I tried two days but kept passing out at random times) but if you have to borrow and you don’t have great credit or the banking resources necessary, the interest rates are very high. If you keep track of every single penny and have excellent financials (please keep your accounting records up to date), it may be your only option and it might work out great. For example, if you borrow $20K and have to pay back $30K, where many of us would scream at these interest rates, application of the money to generate an additional $10K per month in profit isn’t a bad deal. At the same time, if that money just goes to cover your bills this month, you are putting yourself further into a hole that will be harder to climb out of and could tank your company.

There is another strategy that I may cover someday since it was responsible for our rapid growth and made the second tier jump smoother, but it might be unique to our geography. Since I haven’t spent enough time in other states to analyze its value, it’s going to stay proprietary to Triad Wireless for the moment. I may cover it someday at industry even though in the future.

Then there is the “those guys really ticked me off strategy” when some competitor, both wired or wireless, either doesn’t live up their verbal commitment or starts vicious rumors about us not being able to do fast internet in the area. I call this the “Redneck Playground Strategy” followed by the “here, hold my beer” stage, and then finished with a sentiment made famous by the wisest of wise, Al Bundy, “Let’s rock”. Sometimes you just have to make a point. I have to get older, nobody said I have to grow up.

Why keep growing and not bank a lot of profit? Well, compare how hard is it to create a growth spurt versus how hard is it not to add new territories? It’s easy to sit on your butt and binge watch Supernatural on NetFlix. It’s a lot harder to start a rapid growth phase. If your business would be profitable if you weren’t sinking 20% of your revenue into equipment for new territories every month, then this is the option. You can slow roll installations for a couple of months and just not open new territories to start building up capital. But sometimes if you stop momentum, it might be hard to restart and you could lose future customers. In our case, it took a year to plan our growth but even then we grossly underestimated it.

If you need your books to show more profit because you want to sell or you might want to borrow money for the next push, slow down, bank your profits, maybe lay off some people, and whammo, you have the numbers. It might be coldhearted but nobody is in business to be a charity. We are all here to make a profit and everyone who comes into the company as an employee has a duty to make that happen. That’s the reality.

Is that shortsighted? Maybe, but it depends on your goal. If your goal is to keep expanding and you just need more capital, then of course you aren’t going to lay anyone off. It takes a long time to get a good installer or get your processes in place with your staff. But if growth is your goal and you have no exit strategy, then look to accelerate your growth again. If you can get to the magical number of $5M or more, and you can show that you can be profitable if you choose or have a good profit, then you can go to Wall Street and start talking to the big boys. However, you will need to do a lot of paperwork before even considering it:
1) Have your financials up to date and in order.
2) Have quality spreadsheets showing the past and future expectations of the company.
3) Show how you are going to grow and how far.
4) Have an exit strategy that doesn’t include, maybe Verizon will buy us.

It took a lot of years and a lot of failures to find success. Not everyone has the luxury to get there as many will fail. The bottom line is this, whatever your plan, make sure that involves constant analysis of your financials. Hope is not a business plan, it’s a recipe for failure. Keep learning, keep listening, don’t let manufacturer fanboys’ bias make your decisions for you (we use multiple vendors and we are constantly re-evaluating that), and oh yea, did I mention, HAVE A PLAN!

About Rory Conaway

Rory Conaway has been in the IT and Wireless Industries for the past 25 years as an author and consultant. He currently operates a growing WISP operation in Southern Arizona. He consults with investors, manufacturers, and WISPs, and develops financial business models for startups. In addition to writing articles in industry publications such as Mission Critical Magazine, Mr. Conaway also writes the series “Tales from the Towers” that can be found on various such as www.triadwireless.net and www.muniwireless.com. He has also engineered several wireless designs such as S.P.I.R.I.T. and Guerilla Wireless as well as building integrated wireless and video surveillance for airport security, municipal and critical infrastructure, SCADA systems, and hotel/MDU deployments.

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