If you are a science fiction fan, you would recognize this word. Either way, it’s pretty much the predicament many of us are in. I’ve been writing these articles for a long time. Our company has been both lucky and successful these last few years. For the near future, I’m pretty comfortable with our direction, the needs of the world for more internet, and the financial models for competing technologies. Fortunately for us, when Google decided that they couldn’t make fiber cost effective for most areas, the big boys in our area decided the same thing and decided to extend their 40-year technologies a bit further. That’s good for anyone in our industry where our technologies get completed replaced every 3-4 years with incremental improvements in the interim.
Because of our growth, at some point I had to put my engineering hat away and put my business hat on. Just kidding, though I really had to suppress my engineering side to make sure that I could afford the occasional Wendy’s Triple periodically (just had a $12 hamburger and I’d still take the Wendy’s Triple or Fuddruckers). The engineering devil (EDev) on my left shoulder drools every time new hardware comes out or I have some epiphany on how to better deploy our infrastructure. I’m always looking for ways to achieve our next tier goal which will usually cost more than the villa that Paris Hilton built for her dog. It never stops, that is until the accounting devil (ADev) on my right shoulder smacks EDev upside the head and shows him that improving the area by 25Mbps will only generate about $500 per month but will cost about $15K in equipment and labor.
Which brings us back to the age old question, and no, it’s not “what is the difference between normal Ketchup and Fancy Ketchup” although that has kept me up a night, it’s more like what do you do when you have more business than you can keep up with and when do you slow down the investment to maintain it to improve profitability? You would think that’s a good problem to have, but whether you are small and self-funded or larger or have investors, it’s a very hard question to answer. The reason it is hard is because our business is capital intensive and even most residential installations take 3-4 months to break even not including the infrastructure costs. But let’s go over the various scenarios. Yea, this would be better with a whiteboard or an appropriate graph but I have neither time nor the ability to manipulate graphic programs quickly so you are stuck with my ramblings.
Case 1) – assume that you are profitable and you have a mild growth rate without the opportunity to increase rapidly due to geography or logistics. If you are at the point where your capital expenditures keep this level going, you aren’t worried about 5G, satellite, fiber, or any other competitor coming in over the period of time you expect to stay in business, good for you. However, and don’t take this the wrong way, if anyone in our industry thinks this is going to go on forever, then pass me what your drinking because I want to live in that fantasyland.
Case 2) – you could be profitable but you are spending so much on equipment to handle expansion, you are losing money every month. This is where you, Excel, or your accountant become best buds. On one hand, you don’t want to turn down new business because if your numbers are right, eventually it will overcome the Capex spending. You also don’t want to get the reputation that you can’t deliver service when people need it because once that reputation gets out, it’s going to be hard to reverse. There are two answers for this and neither of them involve not fulfilling the order (I’m not including selling blood here although at one point it crossed my mind), borrowing or an investor. Even if you paid 30% to borrow the money, it’s may still be a better value than an investor. The money you borrow gets paid back and then comes off your books, assuming you can pay it back and you are as profitable as you should be (50-80% net on all customers) but this is also where you should be building a great wall of spreadsheets to analyze this down to the farthing. You can’t get into the position where you can’t pay back the loan regardless of interest rates. On the other hand, an investor is pretty permanent and whatever you gave up to get them is with you always. I’m not saying there is anything wrong with investors but if you are planning to go that route, you better have a much bigger plan with a big opportunity in place before you bring them in that’s scalable, meaning that there is a way for revenues to grow faster than expenses. Another scenario to consider is that an investor may bring needed business or accounting skills to help you grow also but always beware, they are looking out for themselves and their money, as they should be.
If you are in Case 3 and you haven’t achieved profitability yet, and you need to grow to a certain size before you do achieve that, it’s going to be tough. However, you can’t because you don’t have enough capital to get there (usually because you didn’t plan out the financial model correctly from day 1). If you are in this position and you think I stressed that you get familiar with spreadsheets, now I’m telling you to give up bowling Thursday night, brings printouts into the bathroom with you, and be looking at these sheets on the laptop propped up behind your cereal bowl. You have a hard decision ahead of you and every option needs to be on the table backed up by realistic numbers. If this is you, I don’t envy you but I have been in this exact position so I understand. Hopefully I can give you a solution.
Right now, Triad Wireless is in position 1. The company is profitable but only because we are now limiting our growth to maintain that profitability. In truth though, we are straddling the fence as my EDev keeps yelling in my ear every time I hit the pillow at night and some new idea pops up or some person calls me on the phone with a new area needing internet (funny, as I’m finishing this article, another email just came in for an area covering 50 homes with no competition). Getting here has also allowed Triad Wireless to create a scalable business model which is the Holy Grail if you want to bring in investors. This is also where technical entrepreneurs start to meet their management limits in how to handle this situation so it’s important to surround yourself with people who can provide you that financial advice. I can’t tell you where to go with this and until we decide to try and self-fund our next step or bring in investors, I can’t even tell you if I made the right or wrong decision. I do know the numbers don’t lie because some very knowledgeable people remind me of that when they are giving me the third degree over my assumptions, but in our plan, even they can’t break them and they have tried. Hopefully you can say the same thing about your growth someday.
In this position though, you also have other ways to raise capital at reasonable rates assuming you have planned out your repayment schedule. Anyone will give you loans at 30% or some ridiculous number. There is nothing wrong with that and years ago we took them. We were very strategic to apply those loans to revenue so the numbers made sense and it was our only option as we were growing at a tremendous rate. We had already tapped existing traditional sources who were more reasonable but we needed more and with the profit margin in our business, it made sense. Yes, it felt like someone was ripping out my guts through my nose but the numbers are the numbers.
One source of funding that fell in our lap because we had been with Paypal for so long was Paypal Working Capital. If you haven’t used this gem of a funding source yet, then you are seriously missing out. We have been using them for about 15 years and it’s helped us significantly. The amount you can borrow is simply based on how much money you run through their credit card charges with the idea that if they can deduct 10-30% of the charge. You can borrow up to what they calculate you can pay back in a certain time frame. It’s clean, easy, and I think the last rate we got was about 7.5%. Yes, it’s still a lot compared to traditional banks but this can be renewed quickly and easily. Again, we grew hundreds of percent in the last 3.5 years so we were looking under every couch cushion to find money to fund that expansion and this was one of the best ways outside traditional banks. Those people know pretty much Bupkis about our industry and even less about cost/revenue projections if you borrowed their money. PayPal says, “how much are you willing to give up, here you go”. The catch here is you don’t know how much they will lend you my best estimate is that if you offer to pay them back at 30%, I’d guess it’s about 20% of the money you run through them in a year. When you need more money, pay off the balance, then do it again. Pretty simple. This is also not a bad option for Case 2.
Ahh, now onto Case 2, been there, done that. This is a tough time. You have 2 options, here again, both involving a lot of Ramen and Macaroni and Cheese, borrow or slow your growth. Few investors will talk to you if you aren’t profitable regardless of projections (the exception to that would be a Silicon Valley firm who invested millions in a pathetic technical design for internet based on who knows what when they could have invested in a company with a scalable and technically solid model that is actually profitable and growing like Tribbles (sorry, did my bitterness come out on that)? Ahh, I’m but I’m squirreling.
The question is can you be profitable if you slow down your growth. First thing I’d do is sit down and analyze expenses immediately. Make sure you know where every penny is going and where you can save a few bucks. This seems obvious but believe me, as we grow, stuff keeps falling through the cracks even down to RMA’s not getting shipped out fast enough. Move on from there to any way to reduce your Capex spending, possibly reusing M equipment instead of AC equipment (the EDev in me literally had to be gagged and hog-tied for this to even be considered and ADev did it) in cases where using new AC equipment doesn’t make that much financial sense and doesn’t impact your service quality. In areas that we started wholesale upgrades to AC, we actually went back and are now reusing M equipment on customers that have the lowest speed plans if it doesn’t impact overall throughput.
After all that, if those now really accurate, up-to-date new spreadsheets show that if you added 50 more clients, you could be profitable and when you are profitable, instead of shelling out $15K, you only have to shell out $1K for 15 months and you can pay that back, then do I have a plan for you. You know that at your current rate of installation, this would take you 2 months but the orders are there so let’s go get them. If you need about $15K in equipment (maybe more if you have to add more APs), and that isn’t in your budget then Ubiquiti has an answer if you are using them. Go to their online store and use their amazing 0% financing plan. Look, if anyone wants to loan you money at 0% interest, you have the business lined up, and you can pay it back because instead of watching the Orioles lose again, you tweaked and analyzed your spreadsheets to the nth degree so it makes sense, and you don’t take it, you are a fool. This plan is so amazing, we are rethinking future deployments because of it. OTM (Other People’s Money, a great movie by the way if you are a Danny DeVito fan), is the cheapest money you can get and if you can find the business, is the fastest way to grow. Think I’m wrong, our idiotic and corrupt government gives billions away to CenturyLink, Verizon, AT&T and others who have learned how to scam and control the appropriate departments (yea, I’m looking at you FCC although I like the move to stop the incumbents from lying through their teeth on their 477s) to dominance in this country. When a private company does it at the terms are what Ubiquiti is offering, Holy Heck Batman, get off your rear and figure out how to maximize that option (Note to all you distributors and other manufacturers, you need to step up your game and find ways to do something like this or it’s going to hurt in the long run. It’s like you aren’t even trying. It doesn’t have to be 0% but helping WISPS fund growth is a huge step). Putting it in math terms, if you borrow $25K and have to pay it back at $1K per month, and it allows you to add 50 clients at $60 per month, you will generate over $70K of revenue on that $25K investment over 2 years. This is scalability and this is an insane offer to pass up (on a side note, the store wasn’t set up for the types of quantities we were hitting them with but we worked with support to get through those issues). Yea, you are paying retail but it comes with free shipping, it makes it pretty much a wash with distributors. The one thing you will learn if you read those spreadsheets though, is that you are better off expanding faster and borrowing than doing it slowly.
Lastly, we come to Case 1. Most startups are in this position and my advice here is be realistic. Use the options in Case 2 where appropriate, make sure you can get to profitability and not lose family members on the way, or partner up with someone who can help you. Realistically, I don’t think it’s possible to build a real WISP business from scratch at this point without hundreds of thousands of dollars of investment for multiple reasons. The primo and no competition areas are pretty much taken up leaving basically smaller and smaller pockets scattered around, the rural areas are really expensive to get to and are very sparse so ROI is hard (and satellite’s coming for you), and with the level of technical expertise and time needed to maintain networks today professionally, that’s a lot of employees. If you don’t have the technical expertise, it’s possible that someone else does and will take advantage of that. We are taking advantage of many of our competitors simply because we can engineer and fund better RF designs and have the staffing resources, in house, to provide better support. It’s no different than when CenturyLink decides to lay fiber in a neighborhood you already cover because they own someone at the FCC or a politician who ignores your 477 filing and gives them a bunch of your money to put you out of business. Of course, in our case, we do the funding, hence the concept of this entire article.
Honestly, boot-strapping an operation in today’s environment, probably not going to happen. It’s a hard reality. If you aren’t in a position to defend your territory within the next 12 months, slow growth here isn’t going to work. You simply don’t have the time or resources. The problem is, by the time you get big enough to be cable to upgrade your clients to stay competitive, it’s going to cost a whole lot more money that you haven’t been able to save since you are still investing hard into just the growth and you are still learning. I’ve got a degree in this electronic stuff and I’m still learning because the technology is changing so fast. Sorry to be the bearer of bad news.
If you are doing this as a hobby that you hope turns into a business, then just be realistic and analyze your potential. I’m not saying this for everyone but I see companies popping up in a lot of small pockets that are simply going to get run over because geographically they can’t easily expand and get to the size they need to be at. That’s fine, enjoy the time you have, try to make a little money, and just make sure you have a time, the logistics, and the numbers for an extra strategy which may be a buyout or a merger. But also plan on not having vacations, personal time, a complete dinner without interruption, sleep deprivation, etc… This is a lot of fun, I get it, but just keep the business side in mind or you may get trapped into something you can’t get out of. I get requests for buying out WISPs who just want to break even but most aren’t worth the amount of money they are asking for. It’s actually cheaper to put up new infrastructure and provide a better quality of service in most cases and that is even worse or makes me feel worse. No matter how big you think you are regionally, there is someone bigger such as Verizon, Sprint, SpaceX, Facebook, Google, and many others with bigger budgets than all of us put together. And they don’t give a crap about you breaking even or even surviving. Not their problem but it needs to be yours. I see their employees connecting to me on LinkedIn all the time but it’s obvious, they are just looking to see who their competitors are and what they are doing more so than working with us. I reach out to them but rarely do they even contact me back.
As a side not to all this, it’s also why I’ve had to curtail most of the technical discussions for the moment. I’ve actually shelved 3 articles recently because it gives away too much information to our competition, and not just WISPS. Our in-house testing and deployment models are constantly pushing the limits of the technologies out there. We test a lot of equipment that isn’t on the market yet and in 99% of the cases, we merge it into our model. The problem with that is now it’s intellectual property and experience we can no longer share with our competitors, ala the articles. Our competition is also pushing state-of-the art with Google expanding their fiber into wireless, 5G, LEO satellites coming out, etc… meaning that expansion is going to be how we succeed and by building the mousetrap cheaper and faster. Unfortunately, we can’t battle them and other WISPS at the same time by sharing our research and testing any longer so this will probably be my last article for a while.
We have now gone through all 3 Cases. Having experienced these phases, I’m glad we are where we are today. It also means that if you are still Case 2, there are some good options out there for you besides investors. No investor is there to save you, only to make them money. But again, the plan has to be scalable to be attractive and then they can be a great boon. If you are at Case 1 level, then I wish you well and to be very cautious moving forward. In all cases though, your decisions need to be driven by an exit strategy and making your business look good to whoever you may want to work with in the future. Listen to your EDev but take what your ADev says as gospel.