A lot of smaller ISPs are currently expanding their service footprints. They are often using grant funding to add more service areas and customers, while others are expanding using the more traditional route of borrowing to build new networks. But not all small ISPs are expanding, or are only expanding in small increments. Today I want to talk about the reasons I’ve been given by ISPs that have decided to not expand.
Fear of Being Able to Compete. I’ve talked to a lot of small ISPs who are afraid to compete against the big cable companies. They don’t feel like they can win enough customers to be successful. This is particularly true for ISPs that have only competed in rural areas and are afraid of entering the towns next door.
I generally refer folks with this fear to some of the small companies that have successfully entered larger markets. These companies have learned that fair prices and good service will eventually win over customers, and those customers rarely return to the original giant ISP.
Fear of New Debt. I know some small ISPs who take great pride in having no company debt. They view debt as a burden that weighs down their business. Realistically, debt is a tool. It can provide money to expand today, which can be easily justified if the new net earnings from the expansion are greater than the cost of carrying the debt. I’ve found that it’s generally impossible to talk somebody out of the concept that debt is bad, but since the majority of ISPs carry debt and consider the reasons for the debt to be justified, there is huge market evidence that this fear is irrational.
The real barrier to small companies taking on new debt is that they are likely going to be required to pledge the existing company to guarantee the new debt. That is something that all businesses face, not just ISPs. But this is a risk that some company owners will not accept.
Staff Can’t Handle Change. An interesting reason I hear for not growing is that a business owner/manager feels like the existing staff can’t handle the changes that come with growing. They tell me their staff is set in their ways and is not going to be able to cope with the idea of doing something new. My response to this has always been twofold. First, I’ve found that employees love the challenge of making their company better, and I have seen hundreds of examples where the staff from a small sleepy company stepped up and thrived to grow the company. Second, if your staff is really that inflexible, it might be time to talk about hiring new staff.
Reluctance to Change Habits. Small ISPs have likely used the same processes for many decades, and the idea of having to change the way things are done can be intimidating. In a small ISP, everybody knows their role and knows what they will be doing every day. The idea of disrupting that comfortable work life can be scary since it’s usually clear that the old way of doing things probably won’t work in a competitive environment. The real fear is that the work culture will change – that it won’t be the same company after growth. The chances are that it won’t be the same, but that doesn’t mean that the expanded company can’t still be a great place to work.
Lack of Creativity/Innovation. Some small ISPs have told me that they don’t think they are creative enough to cope with expanding the business. I really have no idea how to respond to this fear. But I am reminded of the old analogy that even the most important person in the world puts their pants on one leg at a time. The fact is, the majority of the tasks involved in entering a new market are almost identical to what an ISP already does today.
What’s interesting about his list is that every reason on it boils down to either fear of the unknown or not wanting to accept risk. What I’ve found is that if an ISP considers these issues from that kind of perspective, they might change their mind about growth. For example, if ISP management asks the question – what am I really afraid of – they might decide that growth isn’t as scary as they feared. I’ve always recommended that ISPs talk to their peers who have already made the leap to enter new markets to see if their fears are rational. It also is worthwhile doing a financial analysis that shows the worst case – what happens if an ISP enters a market and the wheels come off. I’ve often found that the worse case is not nearly as bad as an ISP feared.
Another reason smaller, independent ISPs sometimes don’t expand is because they started out as a monopoly, and were generally not in a position of having to compete or heavily promote themselves in a new market. That doesn’t mean they’re not providing good service or are over priced. They are providing service in their hometown, and they see their customers at church and in the grocery store. They are part of the community. But, they often started as the only provider of cable TV or telephone service in town, and later the only provider of Internet service. They didn’t really have a need to heavily market or have much if any competition. That’s obviously been changing, but there are still smaller, independent operators that have not had the experience of launching a competitive business in an area. They’re seeing competitors come into their markets now, and will need to get more serious about marketing in their own service area and expanding into others.