How To Grow, How To Change

One ISP that made the transition from selling basic dialup to selling advanced business services tells a story that contains important lessons for ISPs who seek business customers.

by Alex Goldman ISP-Planet Managing Editor [September 29, 2005]

Three weeks ago, we told ISPs to strive to obtain more business customers (see Editorial: ISPs Can Survive) because regulation is pro-monopoly (see our Politics section) and the large corporations continue to run unprofitable residential service businesses (see AOL, Feeble Giant).

We were thinking of an entrepreneur, someone who started out as a dialup ISP but has turned the business around and now offers (reading from his business card) website development, e-commerce, merchant accounts, hosting and server management, database apps, printing and marketing materials, and interactive CD ROM development. Meet John McKown, president of Dover, Del.-based Delaware.Net. Go to the website and you'll see newer lines of business: services to local government, a product aimed at the realtor vertical, and CRM and intranet services.

In an e-mail interview, we asked how his company made the switch from residential services to business services, and he said that solving little problems for customers led to bigger business:

I think a lot of ISPs that move to business services get too hung up on all the competitive solutions that are out there, and they tend to think that the customer knows as much as they do. Sometimes that is true, but you will have a hard time selling to someone that knows all the ins and outs of your business. In the end, you always win their business by solving a problem for them. Usually it is a small problem. Then you can move up to helping them with bigger problems once you win their trust. A small problem could be fixing an e-mail issue or spam issue, and a big problem could be disaster planning, backup, applications, etc.

The transformation was not easy. McKown writes that it became clear that business services would be more profitable around 1999, but the company was tied to its dialup roots—and to its three- and five-year PRI contracts. "That was a painful time because it felt like we were being held back from growing. We were. Those telco PRI contracts stunted our growth and nearly killed us. Today, it is a lot easier to renegotiate contracts with telcos, but back then it was impossible."

It was a very tough time for every ISP. "A vice president at a regional CLEC told me we were one of his few ISP customers who always paid the bills on time—scary."

Things were worse, however, in Canada:

I remember being at an ISPCon event and hearing a Canadian ISP owner warning of the impending doom that Cable and DSL were going to bring to the US market. He said that "we are a little ahead of you guys up in Canada in terms of broadband (which they were), so what happens here will most likely hit you next". I remember sitting there and thinking "we are going to be a design and application company".

It was time to change:

That was in 1999. The first step to change for us was to cut all possible costs associated with dialup, including marketing. Every dialup advertisement was pulled. The year was 2001. This felt like business suicide at the time, but it was a risk we needed to take so that we could take the limited resources we had at the time and put them towards building our datacenter and bringing in new talent. We had thirteen employees in 1999 and by 2001 we had downsized to about seven.

But business did turn around, and Delaware.net is stronger than ever:

We didn't lay a lot of people off, we just resisted rehiring after normal turnover. Today our head count is back at up, and we even have two boomerangs (employees that left and ended up coming back), and a third boomerang that now wants to come back as well. I think the reason we have so many boomerangs has a lot to do with the culture of our small company. Everyone is pretty passionate about what they do here, and after you work with a group like that it is hard to punch a clock and work with a lot of coasters somewhere else. Our revenue per employee and revenue per customer is much higher than it was five years ago.

The ISP made the transition before the monopolies invaded:

When Cable and DSL finally hit our area, more and more modems sat empty and the cash flow management could have destroyed us if we were not already pushing domain registrations, shared hosting, ecommerce, web design, and other services to make up the difference of the lost dialup revenue. We watched pretty much all of the local large dialup ISPs try to launch facilities-based DSL, and the cash burn rate set them on fire. They are all gone. Some quietly got sold in the middle of the night without much fanfare. Once we were able to outsource dialup, it did not matter what our modem-to-user ratio was. If a dialup customer left us, or did not connect in a particular month, we did not have to pay the outsource company for that user. What a concept! Moving away from dialup also meant moving away from broadband sales for us. When local companies could get cable for a fraction of the cost of a T-1, they would. And when they would save a ton of money by getting voice and data together on a voice/data T-1, they would. So our company mantra became "We won't just sell the wire anymore, because anyone can sell a wire. To add value, we need to sell what goes through the wire to build loyalty." This remains true for us today.

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