One of my competitors recently held a webinar where they told a group of municipalities that they should never accept ‘no’ from a consultant who is evaluating fiber business plans. This is about the worst advice I think I have ever heard for many reasons. I think perhaps this consultant meant that one shouldn’t be afraid to be creative and to look at alternative ideas if your first ideas don’t pan out. But that’s not what they said.
Building and operating a fiber network is like any other new business venture and sometimes a new business venture is just not a good idea. This is why anybody launching a new business of any type does their homework and kicks the tires on their ideas to quantify the opportunity. A feasibility study means going through the process of gathering as many facts as possible in order to make an informed decision about a new opportunity.
The advice in this webinar was given to municipalities. Somebody giving this same advice to for-profit ISPs would be laughed out of the room. Established commercial ISPs all understand that they have natural limitations. They are limited in the amount of money they can borrow. They understand that there are natural limits on how far they can stretch existing staff without harming their business. They understand that if they expand into a new market and fail that they might jeopardize their existing company. My experience in building business plans for existing ISPs is that they are as skeptical of a good answer as a bad one and they dig and dig until they understand the nuances of a business plan before ever giving it any real consideration.
But municipalities build fiber networks for different reasons than for-profit ISPs. Existing ISPs want to make money. They also undertake expansion to gain economy of scale, because in the ISP world being larger generally means better margins. But cities have a whole other list of motivations for building fiber. They might want to solve the digital divide. They might want to lower prices in their market and foster competition. They might want to promote economic development by opening their communities to the opportunities created by good broadband.
These are all great goals, but I have rarely talked with a municipality that also doesn’t want a broadband business to at least break even. I say rarely, because there are small communities with zero broadband that are willing to spend tax dollars to subsidize getting broadband. But most communities only want a fiber business if the revenues from the venture will cover the cost of operations.
Sometimes a strong ‘no’ is the best and only answer to give to a client. Clients often come to me determined to make one specific business plan idea work. For example, many communities don’t just want a fiber network, but they want a fiber network operating under a specific business model like open access. That’s a business model where multiple ISPs use the network to compete for customers. Open access is an extremely hard business plan to make work. I’ve often had to show municipalities that this specific idea won’t work for them.
Or a commercial ISP might want to enter a new market and want to make it work without having to hire new employees. My advice to them might be that such an expectation is unrealistic and that over time they will have to hire the extra people.
My advice to clients is that they should be just as leery of a ‘yes’ answer as a ‘no’ answer. For example, every one of the big open access networks has an original business plan on the shelf that shows that they were going to make a lot of money – and those business plans were obviously flawed. If they had challenged some of the flawed assumptions in those business plans they probably would not have entered the business in the way they did. It’s a shame their original consultant didn’t say ‘no’.
I’ve always said that ‘dollars speak’ and any new business has to make financial sense before you can think about meeting other goals. Every business plan contains hundreds of assumptions and it’s always possible to ‘cook’ the assumptions to find a scenario that looks positive. I have created business plans many times for commercial and municipal clients where an honest look at the numbers just doesn’t add up. I’ve had a few clients ask me to create a more rosy forecast and I’ve always refused to do this.
I personally would be leery of a consultant that doesn’t think that ‘no’ can be the right answer for doing something as expensive as launching a fiber venture. Sometimes ‘no’ is the right answer, and if somebody tells you ‘no’ you ought to listen hard to them. It makes sense to kick the tires on all of the assumptions when you hear ‘no’ and to get a second opinion, if needed. But it’s important to kick the tires just as hard when you get ‘yes for an answer.