Opportunity Abounds

English: colorful fiber light

English: colorful fiber light (Photo credit: Wikipedia)

I am often asked about ideas for building a fiber network that can make money. Right now in this country there is a huge opportunity that almost nobody is taking advantage of. There have been tens of thousands of miles of middle mile fiber built in the last five years using federal stimulus grants. Additionally there are other networks around the country that have been built by state or other kinds of grants. And there has also been fiber built to thousands of rural cell phone towers.

These networks are largely rural and in most cases the networks have only been used to connect small rural towns and to serve anchor institutions, or built to go only to cell towers. If you look at these networks closely you will see miles and miles of fiber that goes from county seat to small town to county seat with a few spurs serving schools, health facilities, junior colleges, city halls and cell towers. But for the most part the fiber has not been used to serve anything else.

The whole stimulus grant was cooked up quickly and was not a well-planned affair. They tried to make awards in every state and we ended up with a true hodge-podge of networks being built. In some cases it looks to me like networks to nowhere were built, but a large percentage of the stimulus grants went through rural areas where there are nice pockets of customers.

For years I have advocated a business plan that builds fiber in short spurs in situations where there is guaranteed success. For example, one might build to one large business whose revenue will pay for the fiber route. Or these days that is most likely going to be a cell tower. And so building to that single guaranteed customer can be a successful business plan.

However, any carrier who stops with that one customer is missing the real profit opportunity in such a build. The best business plan I can find today is to build to an anchor tenant and then doing everything possible to sign every customer that is passed to get to that new tenant customer. In economic terms you can think of the cost of the fiber build as a sunk cost. Generally in any business when you make a sunk-cost investment the goal is then to maximize the revenue that can be generated by the sunk cost.

And so, if the anchor tenant you have found can justify the fiber build and pay for the sunk-cost investment, then adding additional customers to that same fiber investment becomes a no-brainer in economic terms. The extra customers can be added for the cost of a drop and fiber terminal device, and in terms of return, adding a home or small business might have a higher margin than the original anchor tenant.

They key to making this business plan work is to keep it simple. You don’t need to be in the triple play business to add residential customers. Offering a very high-speed data connection for a bargain price is good enough to get a good long-term customer with very little effort required by the carrier. If you happen to already be in the triple play business and have all of the back-office support for such customers then you can consider this as an option, but offering only data is a profitable business.

And so the business plan is to look around you and see where there are facilities built but underutilized. The key to making this work is to get cheap transport to reach the new pocket of customers. By law the stimulus grants need to give cheap access to somebody willing to build the last mile. But commercial network owners are going to make you a good offer also for transport if you can bring them a new revenue opportunity in a place they didn’t expect it. So the key is to first work with the network providers and then look at specific opportunities.

And you possibly don’t even need much, if any staff to do this. There is already somebody maintaining the backbone fibers and they will probably be willing to support your fiber spurs. And it’s quite easy today to completely outsource the whole ISP function. The only thing that is really needed is the cash needed to build fiber spurs and connect customers. The more you have the better you can do, but you could build a respectable little business with only a few hundred thousand dollars.

If you are in a rural area there are probably dozens, and maybe hundreds of these opportunities around you if you look for them with the right eye. As the header of this blog says, opportunities abound.

Finding the Right Partner

Yesterday I talked about public / private partnerships since that seems to be one of the more common partnerships in telecom these days. Today I am going to talk about how you find a partner that you can co-exist with to make a viable long-term venture.

It’s not as easy as it sounds. I had a partner once who said that finding a good business partner was as hard as finding a good marriage partner, and I think he was probably right. I have seen hundreds of telecom partnerships and a lot of them become totally fractious and contentious over time due to the partners growing apart over time in terms of goals, personalities or vision.

But I have been a part of some very good partnerships and I have seen other good ones, and having also seen unsuccessful partnerships I can talk about what seems to work and not work. Here are some things to consider when forming a partnership:

  • Power and ownership share needs to be equitable based upon up front contributions and ongoing contributions. I have seen partnerships who decide up front to split things 50/50 but then resentment grows over time if one of the partners is doing most of the work to make the business successful. It’s okay for the partnership to be disparate and have one partner contribute more than the other, but this ought to then be recognized in terms of ownership and profit distribution.
  • You must share the same goals. This is one of the biggest problems that I see in public / private partnerships in that a commercial company and a municipality have very fundamentally different ideas of the way that things can work. As an example, a municipal venture is considered successful when it is cash flow positive, but a commercial venture needs to make more than that to meet return expectations. If both partners don’t have the same goals, then one partner is going to be disappointed with any outcome.
  • Make sure everybody understands their roles. In a business not everybody can be the boss. Partners need to decide up front will be responsible for what and then insist that partners fulfill their obligations.
  • You must be able to communicate with your partner. Partners must be able to tell each other the whole unvarnished truth. It takes both partners to make a business work, and failure to communicate is always going to lead to trouble down the line.
  • You must be able to resolve differences. In a more traditional business the owners or the Board is ultimately in charge and they can resolve disputes by fiat. But if a two-partner firm can’t resolve an issue the business can become paralyzed. Being able to iron out differences is probably the single most important requirement for a good partnership.
  • You must trust each other. This goes back the statement that a business partner needs to be like your wife or husband in some aspect. Generally all of the partners in the firm can spend the firm’s money, can commit resources, can make decision. If you don’t trust your partner fully – trust them to be honest, to not cheat you, to do what they say they will do, to tell you the truth – then the business is eventually going to get in trouble. Partners shouldn’t be spending their time watching each other, but in furthering the goals of the business.
  • Finally, partners have to be flexible. In telecom a business rarely goes the same as the original business plan and so the partners must be flexible to change as the world changes around them. I have seen too many partnerships that end up quibbling over goals, processes or procedures that were spelled out in the original partnership agreement rather than making the needed changes to make the actual business a success.

I would hope that this list makes it obvious that you have to spend a lot of time up front talking through these issues before leaping into a partnership. For example, you should talk up front how you will go about resolving your first impasse when it pops up. Far too often I see businesses partnering with somebody because they have the same general goal, but if they can’t meet the kinds of goals I have discussed above they are going to have to have a very hard time sustaining a business.

What’s the Right Number of Staff?

NYC: American Intl Building and Manhattan Comp...

NYC: American Intl Building and Manhattan Company Building (Photo credit: wallyg)

Over the years a lot of my carrier clients have asked me what the right number of staff should be for their organization. And of course, to some extent the answer is – it depends. There are differences between carriers that make it hard to compare two companies that might have roughly the same number of end-user customers.However, even with that said there are some general industry metrics that I have used during most of my career as a guideline when I want to examine the level of staffing at a given company. These are metrics that I gleaned from my mentors in the industry, and it is a little surprising to me that these metrics still seem to be a good guideline thirty years after I first heard about them. A typical telecom company is far different today than they were thirty years ago, but they still have the same basic functions that need to be done – administration and back office, technical, install and repair, customer service, and sales and marketing.

The general metrics I have always used as a starting point to look at an individual company is as follows:

Small Carrier               – Under 15,000 customers

Medium Carrier           – 15,000 – 50,000 customers

Mid-size Carrier          – 50,000 – 250,000 customers

Large carrier                – Over 250,000 customers

The metrics for the right number of employees is expressed in terms of the number of employees per customers. Basically, the larger a company gets, the more efficient they ought to be in terms of that metric.

Small Carrier               – 175 customers per employee

Medium Carrier           – 350 customers per employee

Mid-size Carrier          – 500 customers per employee

Large carrier                – No idea

These metrics apply roughly at the midpoint of each range. This means that one would expect a carrier with 7,500 customers to have about 175 customers per employee and one with 32,500 to be at 350. It’s straightforward math to see the metric for any company by knowing the number of end-user customers they serve.

There are factors that can change these metrics for a given company. For example:

  • Side businesses. Many carriers run side businesses in addition to their core business. These might be such things as construction or telephone system sales. As long as these side ventures are paying for themselves, then the employees engaged in these business lines would not be considered as part of the metric.
  • Geographic spread. A carrier that has to cover a large geographical area is going to need more technicians in trucks than a company that is geographically concentrated. A company with widely dispersed exchanges is also probably going to need more inside techs.
  • Outsourcing. One has to look at what functions are outsourced. For example, a company that is providing its own help desk or NOC is going to be different from one who does not. In looking at staffing, though, one has to always question whether the company should be doing functions internally that could be better outsourced.

In my career I have rarely seen a carrier that is understaffed, but it is fairly common to find companies that are overstaffed according to these metrics. If a company looks at these metrics and finds itself to be overstaffed, the question is what to do with that knowledge. What I have found is that workforces tend over time to find ways to justify themselves. When there are too many staff internal processes will be less efficient than at other companies and the employees will have found tasks to keep themselves busy. These inefficiencies can be of many types including things like inefficient paperwork for installation and repair, excess record keeping for time and materials, or excess testing and maintenance being performed.

Another common issue in companies with too many staff is that every job is in a silo, meaning that each employee only performs the tasks for their own job description and do not do tasks outside of their silo. Silos are necessary for large companies but they can be poison to smaller ones. It is very rare for the amount of work needed to match up exactly with the number if silos, and so you end up with staff who don’t have enough work within their silo to fill a full day. In smaller companies a better structure is one where employees wear many hats and are able and willing to kick in around the company where needed. I know that I am visiting a very competitive company if I walk in and find an outside installer manning the phones because somebody called in sick. That is the kind of teamwork that is needed in smaller companies to be efficient.

It often requires an analysis by an outsider to spot these kinds of inefficiencies because over time it’s easy for people at a company to think that the way they do things is the only way. I have worked with many companies over the years who have undertaken to reduce staff to be more efficient and I cannot think of one of them that was not a more profitable and efficient company after the transition. It is never easy to make a decision to reduce staff, but it is sometimes exactly what needs to be done to have a better and more profitable company. But before using these metrics to reduce staff get an outside opinion because these are ideal metrics and there are reasons why you might need a different number of staff than suggested by these metrics.

The Right Way to do Customer Surveys

Customers

Customers (Photo credit: Vinqui)

Carriers are always being advised to find out what their customers really want and one of the best tools to do that is a well-designed survey. I use the term well-designed, because you can’t put any credence into the results of a survey that is not done correctly. I see many surveys done incorrectly, with the results being that a company will act on the results of a survey that may not reflect what customers really want. There are a number of steps that must be taken to get an accurate and statistically representative survey.

Adequate sample size. You must complete an adequate number of surveys to get the results you want. Most business surveys are designed to get results that are 95% accurate, plus or minus 5%. What this means that if you were to give that same survey to every customer you would expect the same results within that range of accuracy. Most businesses and political surveys find that to be accurate enough.

There are several online websites available that will calculate the size of the sample needed. Most people find the number of needed samples surprising. To get the 95% accuracy, if you have 1,000 customers you need to complete 278 surveys. If you have 5,000 customers you need to survey 357 of them, and with 20,000 customers it’s 377 surveys needed.

I often see companies conduct surveys that produce far fewer completed surveys than these sample numbers. Such surveys are valid, but the amount of accuracy is not as trustworthy. For example, if you have 5,000 customers and you complete only 100 surveys, the results could still represent a 95% accuracy, but only within a range of plus or minus 10%. That doesn’t sound a lot less accurate, but it means that there is almost a one in five chance that the results do not reflect your whole customer base.

Random. For a survey to be valid the people surveyed must be selected at random. If you are surveying your own customers it’s easy not to be random. For example, if you send out a survey in your bills, the results you get back are not random. They are biased by the fact that people who either like or dislike what you asked about are the most likely to respond while people who feel neutral about the topic are likelier not to. The only really reliable way to get a random sample is to call people. And even then you have to choose the numbers randomly.

Calling has several issues. You must consider the Do Not Call lists that the federal government has established for people to opt out of getting solicitation calls. You are allowed under these rules to call your own existing customers, but you are not allowed to call potential customers who are on the Do Not Call list.

Second, you need to deal with cell phone numbers since many customers no longer have landlines. To get an adequate sample you need to somehow call people with both types of phones. You are not legally allowed to make solicitation calls to a cell phone number unless the person has given you permission to do so. Hopefully you will have customer records that provide a contact number to call for each customer, and any customer who has given you their number has given you permission to call them even if it is a cell phone number.

Non-biased. The questions you ask must be unbiased, which means that they are not worded in such a way as to elicit a certain response. This is why so many surveys you take seem to be somewhat bland, because the questions are written without flowery adjectives.

Interpreting the Results. Companies often misinterpret the results of a survey. The 95% accuracy that is the goal of the survey only applies to the primary questions you ask. For example, if you gave a valid survey to all of your customers and asked a question such as if they would be interested in buying cellular service from you, then the response to that question would be 95% accurate. However, companies often try to interpret a survey question at a deeper level. For example, they might look at the results of the same question for men versus women respondents and say that one group is more likely to feel a certain way than another.

And you can’t make those kinds of interpretations with any accuracy. In this example the survey is an accurate representation of how all customers feel because you sampled enough customers to get a statistically valid result. However, if half of the people you surveyed were women, then your survey of women is only half as big as the overall survey, and correspondingly less reliable. In this example it wouldn’t be a lot more unreliable, but if you try to really subdivide the sample population the results become nearly worthless. For instance, if you try to analyze the results by various age groups of ten years each you will find that you can’t rely on the results at all.

Survey fatigue. Another common problem is survey fatigue where a survey is so long that a lot of people hang up in the middle of it. It’s important to try to keep a survey under five minutes or this will happen a lot.

Summary. If you are going to spend the time and money to do a survey then you should spend the extra effort to do it right. Make sure your sample size is adequate. Make sure the survey is given randomly. Make sure the questions are unbiased. And keep it short.

And as a reminder, CCG has done hundreds of surveys, so one way to make sure it’s done right is to engage us. We can help at every level from helping write the questions setting sample sizes or even making the calls.