11 ms·

The 5.2 billion dollar mistake.

228 points by speek 16y ago

RiderOfGiraffes 16y ago
Submitted within moments of each other, this item is that same: http://news.ycombinator.com/item?id=1856331 http://news.ycombinator.com/item?id=1856331
theDoug 16y ago
Worth noting and remembering: "No business plan survives first contact with a customer."
dabent 16y ago
I actually sent my resume in to work on this when I was a young coder. It's interesting to see them as part of the present-day satphone network: http://en.wikipedia.org/wiki/Satellite_phone#Satellite_phone_Network http://en.wikipedia.org/wiki/Satellite_phone#Satellite_phone...
zipdog 16y ago
I generally hear about Iridium as a second-generation success. The fact that the company that currently owns it is looking at putting up a new network (at a cost of perhaps $3 billion) shows that the idea wasn't a foolish one. But like some great ideas it takes a trailblazer to burn themselves up in the trailblazing process. Another example in this context is the Panama canal. Or various railways companies. Or possibly the Segway (still waiting for the second generation owner on that one).
- aaronbrethorst 16y ago
  > Or possibly the Segway (still waiting for the second generation owner on that one) You mean third generation? The guy who acquired Segway died at the end of September in a Segway accident: http://wheels.blogs.nytimes.com/2010/09/27/segway-owner-dies-in-segway-crash/ http://wheels.blogs.nytimes.com/2010/09/27/segway-owner-dies...
chadp 16y ago
Lessons Learned Business plans are the leading cause of startup death. Interesting.
Tycho 16y ago
Good effort though. The budget was $5.2 billion. I wonder what the cost of an equivalent government program would have been.
- ojbyrne 16y ago
  Actually there is a reasonably similar government-led project that originally cost $12 billion. Kind of a success though: http://www.space.com/businesstechnology/technology/satcom_gps_overview_031105.html http://www.space.com/businesstechnology/technology/satcom_gp...
vidar 16y ago
It would be interesting if they managed to cut the ties to Motorola completely after the spinoff? One can imagine the BigCo mindset prevailing even after leaving the mothership.
- jonknee 16y ago
  With $6b invested, they were a BigCo no matter what they did regarding Motorola.
  - vidar 16y ago
    Heh, fair point. Just goes to show that once you label someone a startup in your head, you can be blinded to such obvious facts!
gaius 16y ago
it went into a 8-year Waterfall engineering development process. Waterfall development is a sequential way to develop a product (requirements, design, implementation, verification – ship.) Waterfall makes lots of sense in a market with the customer problem is known and all customer needs and product features can be specified up front. It is death in a rapidly changing business Paraphrasing a well known smuggler, launching satellites into orbit ain't like dustin' crops, boy. How exactly would Agile Methods have helped here?
- JunkDNA 16y ago
  I think the point Steve is making is that as the company went along, they should have noticed their prior assumptions about the cellular market were not panning out. They cold have started seeking out alternative revenue streams besides traditional dialup voice service. I'm not sure what those options would be, maybe messaging or some other data? Two-way Internet via satellite? I'm not a telecom person, so I'm ill-suited to come up with workable options.
  - gaius 16y ago
    But what could they have done differently? They could perhaps iterate the design of each satellite on the assembly line. But things like buying rockets, getting them delivered to the launch site, getting a launch window, etc, it's hard to see how you can do that in sprints. This is about moving physical stuff around.
    - boundlessdreamz 16y ago
      The point is "they should have done something differently" not "what they could have done". Halfway through their development process, the problem they started out to solve no longer existed. Launching satellites etc are expensive and time consuming. Agreed. But even when Iridium launched it's satellites were not fully operational. They would have probably had enough warning to iterate on a different product
      - 16y ago
tobtoh 16y ago
Interesting article - but I can't help but feel it's written with a big dose of 20:20 hindsight. Obviously Iridium didn't succeed and if you were doing it again and knew what you know now, you would do things very differently (as the article explains). However, back in 1990 when Iridium started, I think a lot of their decision were not necessary ignorant. In 1990, Iridium probably did have a good solution to a problem in 1990. The article mentions that the waterfall model was a bad development model to follow - yes agree - but whilst 'agile' development concepts existed back to the 60s, it really only started becoming more mainstream in mid 1990s (the term 'agile programming' wasn't even used until 2001). So the waterfall model was probably a reasonable model to take back then. "No Business Plan Survives First Contact With A Customer". Again in the age of release early, release often, this seems to make sense. But when your product is global satellite coverage, how do you break down your product into something that could be released early/often? I guess you could possibly launch one satellite and see if people would subscribe ... but like the Net, a one-node network would be of very limited value and reach. I agree that the frozen business plan was the critical reason in their failure. Even a regular survey of potential customers would have shown that the price difference was too great for rapidly diminishing benefits. But I don't agree that their initial solution was necessarily bad or that the waterfall model was inherently bad based on 1990s knowledge.
- edanm 16y ago
  I don't think he's criticizing them for not following agile methods, considering they didn't exist then. He is criticizing them for not changing their plans based on the developments going on around them. But mostly, he's just using Iridium as an example of what not to do, regardless of whether they could have known better or not.
  - tobtoh 16y ago
    I think he is exactly criticising them for not following agile methods - it's the basis of his criticism for following the waterfall method. His criticizm for not changing their plans is pt 3 (which I agree with) And on your last point, using Iridium as an 'example' is like criticizing Middle Age 'surgeons' for not using antiseptic to ensure the success of their operations. You'd be right, but it's hardly a valuable observation nor provide much insight into how to avoid an equivalent situation today (where you are lacking knowledge/tools/technology).
iwr 16y ago
I wonder if anyone has in the works an idea of using optical instead of microwave for satellite to Earth communication.
- gvb 16y ago
  Optical would have all the problems the current RF (Iridium) solution has plus more... * Clouds are a killer. * Laser is highly focused - downlink would be tricky to support more than a couple of ground stations. Uplink would be extremely difficult because the uplink would have to track a (relatively) fast moving LEO satellite. Neither would lend themselves to a handheld ground station ("phone"). * Non-laser solutions likely don't have the bandwidth or the power to be effective.
  - iwr 16y ago
    UV light would penetrate clouds better. Indeed, aiming the collimated beam would be a problem, but not an insurmountable one. Given the bandwidth benefits and the relatively small size of the transmitter (compared to microwave), many small (cheap) satellites could serve the same purpose as an Iridium constellation. It wouldn't work indoors, but neither do satellite microwave links. The reason cell tower signals reach indoors is signal strength. It's prohibitively expensive to place equivalent transmitters into orbit.
    - mfukar 16y ago
      UV wave generation requires significantly more energy consumption than microwaves. Plus, UV radiation is highly absorbed in the atmosphere, leading to low signal to noise ratio.
- rdl 16y ago
  Various super high bandwidth dod constellations (TSAT which was recently cancelled due to costs) included optical inter satellite links in space. Basically, a few gbps of connectivity dorm each satellite to the ground via rf, and then laser links in space at 10-40 gbps linking the satellites. Not really as feasible for the ground link for a variety of reasons, but the space part actually makes sense.
mattmaroon 16y ago
I'm not really sure what the lesson is here. He says "Customer Development, Business Model Design and Agile Development could have changed the outcome" but how? I mean, they could have shut down halfway through and saved a couple billion, but it doesn't seem like any amount of adaptability could have made a global satellite project cost-feasible in the face of cell phone ubiquity. The only lesson I can think of here is don't finance a project that's going to cost a lot and take a decade to implement, because there's a good chance that technology will make it obsolete by the time you launch.
- tonystubblebine 16y ago
  And wouldn't that have been a huge improvement over the actual outcome? Shutting down early and saving 3 Billion dollars is 125X what they ended up selling for in bankruptcy.
  - jonpaul 16y ago
    I agree with you in principle. That would have been a better outcome. But as they say, hindsight is always 20:20. When you're in the thick of things, the last thing you want to do is quit. Sometimes you only want to quit when you have to, so that at the end of the day, you know you gave it your all.
  - mattmaroon 16y ago
    It's an improvement, but not much of one. If the best you can figure out in hindsight is a way to only lose $2 or $3 billion dollars, you're not trying hard enough.
- krschultz 16y ago
  If you realize your market is niche, would you build different satellites than what they did? Change the economics of it somehow (cheaper phones, lower cost per minute, longer life on the sattelites etc) ? Make a satellite/ground station hybrid that can work through most walls? Shrink the phone size?
  - 16y ago
TorKlingberg 16y ago
I wonder what Iridium could have done better, if they used more agile methods and followed the market. Sure, they could have discovered it wouldn't work half way though, given the remaining money back to investors and closed down. But what company does that? I cannot really see a good "minimum viable product" to test the market for Iridium either. Nobody would buy a phone that only works for an hour each day, when the first satellite in orbit is overhead.
cletus 16y ago
I like this article because I see examples of this mistake all the time. There is a startup (forget the name) who is seeking to bring smartphone like features to the much larger feature phone segment of the market (~80% of the market). It's a big idea and the potential market is huge... on paper. The problem? Technology is ever changing. Today what are $500-1000 devices (and thus the top 20% of the market) will in 2 years cost half that and be 50% of the market. So they're betting on a business that by the nature of pretty much anything to do with silicon, is a dying business. Basically all phones will be smartphones in the next 5 years. In the digital camera market, Olympus and some others designed the FourThirds sensor format for digital DSLRs some years ago. They did this at the time when Canon and Nikon were making larger sensors and putting them in $1200-2000 bodies. Their idea? Reduce the cost of the sensor and have something that is compelling both in terms of price but in body and (in particular) lens size. The problems? APS-C sized sensors became basically a commodity item. So FourThirds has only a size advantage and not really a cost advantage. Canon and Nikon (in particular) have much larger markets and the economies of scale that really matter when it comes to lenses. So the lesson of the article is don't bet your business in what is a transitory problem.
- delackner 16y ago
  While I don't disagree with the basic idea you're presenting, about people building nice sounding solutions that end up DOA, your Four-Thirds example is a bit distracting, since it isn't true. Olympus and Panasonic have made a lot of money selling four-thirds format cameras, for advantages quite unrelated to sensor cost. These two companies carved an entirely new market segment (very small high-quality-sensor exchangeable lens cameras). Previously there was no exchangeable lens digital camera that was both small and optically (sensor and lenses) high quality. What's more, in the traditional segments Olympus was a bit player with sales very disapponting compared to the Canon juggernaut. So this story is much more about an old player deciding to play an entirely different game rather than just keep getting the stuffing beat out of them by just going along competing directly. They've done well enough that other players (Sony, Samsung) are jumping in and trying to pitch their own mirrorless formats to try to win a piece of this new market segment. There is speculation Nikon and Canon will try as well.
klaut 16y ago
This reminds me (on a smaller scale) of Realtime Worlds spending 5 years developing the APB game and then having a cold shower this year when the game was not so successful as they thought, following a close down. (http://en.wikipedia.org/wiki/Realtime_Worlds http://en.wikipedia.org/wiki/Realtime_Worlds)
nowarninglabel 16y ago
Regardless, I'm sure happy that mistake happened. When the main satellite goes down on the ship I work on, the Iridium phone is the always-working standby you can count on.
sreitshamer 16y ago
> The idea of iteration or pivots was unthinkable. This business plan was a static document. It was great for fundraising, looked great in business schools He (unintentionally?) implies that business schools are similarly clueless, which is funny since he teaches at Stanford's.
bond 16y ago
So they have now 300,000 customers and what about $$$$?
jdietrich 16y ago
Iridium never identified a customer need, they just ploughed ahead and built the biggest, shiniest system and hoped that it would pay off. Global coverage just isn't that useful to all but a tiny number of users. The obvious customers were seafarers, but they had been using Inmarsat for years. Their network achieved near-global coverage using four geosynchronous satellites. You needed a big antenna and a powerful transmitter, but that was no problem on an ocean-going vessel. The same went for fixed installations in remote areas on land. Inmarsat was at the time a UN-backed nonprofit established to improve safety of life at sea and was under no particular commercial pressures. GSM took off in a huge way in the early nineties, so by the time Iridium launched most of the developed world was blanketed in GSM coverage. Multi-band handsets and roaming agreements meant that most travelling business customers already had a handset that worked just about everywhere at relatively low cost. There was still a gap in the market for portable communications in less developed and more sparsely populated areas, particularly Africa and the Middle East. The later network Thuraya solved that problem cheaply and elegantly by putting a geostationary satellite over Ethiopia and covering most of the market for handheld satellite phones after just one launch. They now cover 70% of the world's land mass with just two satellites and are far more profitable than the revived Iridium. Iridium could have pivoted. They had a lot of sunk R&D costs, but the initial 66 satellites were built and launched in an enormous binge between 1997 and 1998. They had a gap of at least six years between conceiving the idea and building the first piece of hardware. I believe that they failed to do so because they were preoccupied with the idea of providing truly global handheld telephony, rather than the more mundane task of making a product that people want. Iridium brilliantly solved the technical problem of providing telephone coverage to parts of the world with very few people, but failed to realise the basic flaw in that business model. Iridium turned out to be a wonderful gift to humanity, but it was a bloody awful business decision.
- oiuyhgthyjuki 16y ago
  In the 80s when only yuppies had cell phones and coverage was limited to a few square miles of financial districts could you have predicted 100% GSM coverage in Africa?
  - 16y ago
gabrielmazzotti 16y ago
Great article, very educational. The only way to do that a startup can do that kind of errors is beeing the daughter of a multinational like motorola
nirajr 16y ago
Key problem? Commit 5 billion dollar to a 'frozen' business plan, that will take years to execute, while the world changes under your feet. You know there's no room for iteration, so you don't pay heed to whats going on until you've burned all the cash. Bliss in ignorance that was by design because of the nature of the business plan.
tophat02 16y ago
The current Iridium looks like it has focused its marketing to the segments that actually make sense: maritime, explorers, and military. But the infrastructure is up there and, sure, a bunch of people lost a lot of money, but it's THERE now. I could think of some products they could introduce that might be promising. Here's an idea: a small piece of plugin hardware for iPhones, Droids, etc. This would be something you take with you (for example, on road trips or vacations to far-flung places). You would buy the unit for $149 and then prepay, say $30 for 10 minutes of service. The idea is that it's "there when you need it, wherever you are." It could even go in your first aid kit... it's there for emergencies.
InclinedPlane 16y ago
There are a couple of lessons for startups here. Things to avoid doing: spending crap-tons of investment money long before your product is on the market; gold-plating the business plan; relying on the classic "expect everything to go as planned waterfall / big-bang integration" model. Iridium could have been much more successful (read: profitable to the initial investors) if they had used different techniques at each step such as iterative development with strong market / customer feedback. If they had begun by gauging market reaction through using pre-order commitments (paid and unpaid) instead of relying heavily on deep pocket investors they would have been able to scale their initial offering to the market a bit better. If they had planned to launch a "minimal viable product" initially that could be scaled up over time as the business grew they would have avoided the massive up-front costs that sank them (the biggest cost was launches, they could have pre-built the entire fleet of satellites and kept most on the ground for a pittance in comparison). Instead they put an entire fleet of satellites into orbit at tremendous cost and launched a service which on day 1 gave essentially 24/7 phone coverage over the entire Earth. An impressive achievement to be sure, but at too great a cost. Some companies can grow like this, ramp up to enormous proportions quickly and find enough traction to keep running and keep growing. But for every success there are many more failures, companies that devoured their seed corn too fast.
deleted 16y ago
[deleted]

228 points by speek 16y ago

Submitted within moments of each other, this item is that same: http://news.ycombinator.com/item?id=1856331 http://news.ycombinator.com/item?id=1856331

theDoug 16y ago

Worth noting and remembering: "No business plan survives first contact with a customer."

dabent 16y ago

I actually sent my resume in to work on this when I was a young coder. It's interesting to see them as part of the present-day satphone network: http://en.wikipedia.org/wiki/Satellite_phone#Satellite_phone_Network http://en.wikipedia.org/wiki/Satellite_phone#Satellite_phone...

zipdog 16y ago

I generally hear about Iridium as a second-generation success. The fact that the company that currently owns it is looking at putting up a new network (at a cost of perhaps $3 billion) shows that the idea wasn't a foolish one. But like some great ideas it takes a trailblazer to burn themselves up in the trailblazing process. Another example in this context is the Panama canal. Or various railways companies. Or possibly the Segway (still waiting for the second generation owner on that one).

aaronbrethorst 16y ago
> Or possibly the Segway (still waiting for the second generation owner on that one) You mean third generation? The guy who acquired Segway died at the end of September in a Segway accident: http://wheels.blogs.nytimes.com/2010/09/27/segway-owner-dies-in-segway-crash/ http://wheels.blogs.nytimes.com/2010/09/27/segway-owner-dies...

chadp 16y ago

Lessons Learned Business plans are the leading cause of startup death. Interesting.

Tycho 16y ago

Good effort though. The budget was $5.2 billion. I wonder what the cost of an equivalent government program would have been.

ojbyrne 16y ago
Actually there is a reasonably similar government-led project that originally cost $12 billion. Kind of a success though: http://www.space.com/businesstechnology/technology/satcom_gps_overview_031105.html http://www.space.com/businesstechnology/technology/satcom_gp...

vidar 16y ago

It would be interesting if they managed to cut the ties to Motorola completely after the spinoff? One can imagine the BigCo mindset prevailing even after leaving the mothership.

jonknee 16y ago
With $6b invested, they were a BigCo no matter what they did regarding Motorola.
- vidar 16y ago
  Heh, fair point. Just goes to show that once you label someone a startup in your head, you can be blinded to such obvious facts!

gaius 16y ago

it went into a 8-year Waterfall engineering development process. Waterfall development is a sequential way to develop a product (requirements, design, implementation, verification – ship.) Waterfall makes lots of sense in a market with the customer problem is known and all customer needs and product features can be specified up front. It is death in a rapidly changing business Paraphrasing a well known smuggler, launching satellites into orbit ain't like dustin' crops, boy. How exactly would Agile Methods have helped here?

JunkDNA 16y ago
I think the point Steve is making is that as the company went along, they should have noticed their prior assumptions about the cellular market were not panning out. They cold have started seeking out alternative revenue streams besides traditional dialup voice service. I'm not sure what those options would be, maybe messaging or some other data? Two-way Internet via satellite? I'm not a telecom person, so I'm ill-suited to come up with workable options.
- gaius 16y ago
  But what could they have done differently? They could perhaps iterate the design of each satellite on the assembly line. But things like buying rockets, getting them delivered to the launch site, getting a launch window, etc, it's hard to see how you can do that in sprints. This is about moving physical stuff around.
  - boundlessdreamz 16y ago
    The point is "they should have done something differently" not "what they could have done". Halfway through their development process, the problem they started out to solve no longer existed. Launching satellites etc are expensive and time consuming. Agreed. But even when Iridium launched it's satellites were not fully operational. They would have probably had enough warning to iterate on a different product
    - 16y ago

tobtoh 16y ago

Interesting article - but I can't help but feel it's written with a big dose of 20:20 hindsight. Obviously Iridium didn't succeed and if you were doing it again and knew what you know now, you would do things very differently (as the article explains). However, back in 1990 when Iridium started, I think a lot of their decision were not necessary ignorant. In 1990, Iridium probably did have a good solution to a problem in 1990. The article mentions that the waterfall model was a bad development model to follow - yes agree - but whilst 'agile' development concepts existed back to the 60s, it really only started becoming more mainstream in mid 1990s (the term 'agile programming' wasn't even used until 2001). So the waterfall model was probably a reasonable model to take back then. "No Business Plan Survives First Contact With A Customer". Again in the age of release early, release often, this seems to make sense. But when your product is global satellite coverage, how do you break down your product into something that could be released early/often? I guess you could possibly launch one satellite and see if people would subscribe ... but like the Net, a one-node network would be of very limited value and reach. I agree that the frozen business plan was the critical reason in their failure. Even a regular survey of potential customers would have shown that the price difference was too great for rapidly diminishing benefits. But I don't agree that their initial solution was necessarily bad or that the waterfall model was inherently bad based on 1990s knowledge.

edanm 16y ago
I don't think he's criticizing them for not following agile methods, considering they didn't exist then. He is criticizing them for not changing their plans based on the developments going on around them. But mostly, he's just using Iridium as an example of what not to do, regardless of whether they could have known better or not.
- tobtoh 16y ago
  I think he is exactly criticising them for not following agile methods - it's the basis of his criticism for following the waterfall method. His criticizm for not changing their plans is pt 3 (which I agree with) And on your last point, using Iridium as an 'example' is like criticizing Middle Age 'surgeons' for not using antiseptic to ensure the success of their operations. You'd be right, but it's hardly a valuable observation nor provide much insight into how to avoid an equivalent situation today (where you are lacking knowledge/tools/technology).

iwr 16y ago

I wonder if anyone has in the works an idea of using optical instead of microwave for satellite to Earth communication.

gvb 16y ago
Optical would have all the problems the current RF (Iridium) solution has plus more... * Clouds are a killer. * Laser is highly focused - downlink would be tricky to support more than a couple of ground stations. Uplink would be extremely difficult because the uplink would have to track a (relatively) fast moving LEO satellite. Neither would lend themselves to a handheld ground station ("phone"). * Non-laser solutions likely don't have the bandwidth or the power to be effective.
- iwr 16y ago
  UV light would penetrate clouds better. Indeed, aiming the collimated beam would be a problem, but not an insurmountable one. Given the bandwidth benefits and the relatively small size of the transmitter (compared to microwave), many small (cheap) satellites could serve the same purpose as an Iridium constellation. It wouldn't work indoors, but neither do satellite microwave links. The reason cell tower signals reach indoors is signal strength. It's prohibitively expensive to place equivalent transmitters into orbit.
  - mfukar 16y ago
    UV wave generation requires significantly more energy consumption than microwaves. Plus, UV radiation is highly absorbed in the atmosphere, leading to low signal to noise ratio.
rdl 16y ago
Various super high bandwidth dod constellations (TSAT which was recently cancelled due to costs) included optical inter satellite links in space. Basically, a few gbps of connectivity dorm each satellite to the ground via rf, and then laser links in space at 10-40 gbps linking the satellites. Not really as feasible for the ground link for a variety of reasons, but the space part actually makes sense.

mattmaroon 16y ago

I'm not really sure what the lesson is here. He says "Customer Development, Business Model Design and Agile Development could have changed the outcome" but how? I mean, they could have shut down halfway through and saved a couple billion, but it doesn't seem like any amount of adaptability could have made a global satellite project cost-feasible in the face of cell phone ubiquity. The only lesson I can think of here is don't finance a project that's going to cost a lot and take a decade to implement, because there's a good chance that technology will make it obsolete by the time you launch.

tonystubblebine 16y ago
And wouldn't that have been a huge improvement over the actual outcome? Shutting down early and saving 3 Billion dollars is 125X what they ended up selling for in bankruptcy.
- jonpaul 16y ago
  I agree with you in principle. That would have been a better outcome. But as they say, hindsight is always 20:20. When you're in the thick of things, the last thing you want to do is quit. Sometimes you only want to quit when you have to, so that at the end of the day, you know you gave it your all.
- mattmaroon 16y ago
  It's an improvement, but not much of one. If the best you can figure out in hindsight is a way to only lose $2 or $3 billion dollars, you're not trying hard enough.
krschultz 16y ago
If you realize your market is niche, would you build different satellites than what they did? Change the economics of it somehow (cheaper phones, lower cost per minute, longer life on the sattelites etc) ? Make a satellite/ground station hybrid that can work through most walls? Shrink the phone size?
- 16y ago

TorKlingberg 16y ago

I wonder what Iridium could have done better, if they used more agile methods and followed the market. Sure, they could have discovered it wouldn't work half way though, given the remaining money back to investors and closed down. But what company does that? I cannot really see a good "minimum viable product" to test the market for Iridium either. Nobody would buy a phone that only works for an hour each day, when the first satellite in orbit is overhead.

cletus 16y ago

I like this article because I see examples of this mistake all the time. There is a startup (forget the name) who is seeking to bring smartphone like features to the much larger feature phone segment of the market (~80% of the market). It's a big idea and the potential market is huge... on paper. The problem? Technology is ever changing. Today what are $500-1000 devices (and thus the top 20% of the market) will in 2 years cost half that and be 50% of the market. So they're betting on a business that by the nature of pretty much anything to do with silicon, is a dying business. Basically all phones will be smartphones in the next 5 years. In the digital camera market, Olympus and some others designed the FourThirds sensor format for digital DSLRs some years ago. They did this at the time when Canon and Nikon were making larger sensors and putting them in $1200-2000 bodies. Their idea? Reduce the cost of the sensor and have something that is compelling both in terms of price but in body and (in particular) lens size. The problems? APS-C sized sensors became basically a commodity item. So FourThirds has only a size advantage and not really a cost advantage. Canon and Nikon (in particular) have much larger markets and the economies of scale that really matter when it comes to lenses. So the lesson of the article is don't bet your business in what is a transitory problem.

delackner 16y ago
While I don't disagree with the basic idea you're presenting, about people building nice sounding solutions that end up DOA, your Four-Thirds example is a bit distracting, since it isn't true. Olympus and Panasonic have made a lot of money selling four-thirds format cameras, for advantages quite unrelated to sensor cost. These two companies carved an entirely new market segment (very small high-quality-sensor exchangeable lens cameras). Previously there was no exchangeable lens digital camera that was both small and optically (sensor and lenses) high quality. What's more, in the traditional segments Olympus was a bit player with sales very disapponting compared to the Canon juggernaut. So this story is much more about an old player deciding to play an entirely different game rather than just keep getting the stuffing beat out of them by just going along competing directly. They've done well enough that other players (Sony, Samsung) are jumping in and trying to pitch their own mirrorless formats to try to win a piece of this new market segment. There is speculation Nikon and Canon will try as well.

klaut 16y ago

This reminds me (on a smaller scale) of Realtime Worlds spending 5 years developing the APB game and then having a cold shower this year when the game was not so successful as they thought, following a close down. (http://en.wikipedia.org/wiki/Realtime_Worlds http://en.wikipedia.org/wiki/Realtime_Worlds)

nowarninglabel 16y ago

Regardless, I'm sure happy that mistake happened. When the main satellite goes down on the ship I work on, the Iridium phone is the always-working standby you can count on.

sreitshamer 16y ago

> The idea of iteration or pivots was unthinkable. This business plan was a static document. It was great for fundraising, looked great in business schools He (unintentionally?) implies that business schools are similarly clueless, which is funny since he teaches at Stanford's.

bond 16y ago

So they have now 300,000 customers and what about $$$$?

jdietrich 16y ago

Iridium never identified a customer need, they just ploughed ahead and built the biggest, shiniest system and hoped that it would pay off. Global coverage just isn't that useful to all but a tiny number of users. The obvious customers were seafarers, but they had been using Inmarsat for years. Their network achieved near-global coverage using four geosynchronous satellites. You needed a big antenna and a powerful transmitter, but that was no problem on an ocean-going vessel. The same went for fixed installations in remote areas on land. Inmarsat was at the time a UN-backed nonprofit established to improve safety of life at sea and was under no particular commercial pressures. GSM took off in a huge way in the early nineties, so by the time Iridium launched most of the developed world was blanketed in GSM coverage. Multi-band handsets and roaming agreements meant that most travelling business customers already had a handset that worked just about everywhere at relatively low cost. There was still a gap in the market for portable communications in less developed and more sparsely populated areas, particularly Africa and the Middle East. The later network Thuraya solved that problem cheaply and elegantly by putting a geostationary satellite over Ethiopia and covering most of the market for handheld satellite phones after just one launch. They now cover 70% of the world's land mass with just two satellites and are far more profitable than the revived Iridium. Iridium could have pivoted. They had a lot of sunk R&D costs, but the initial 66 satellites were built and launched in an enormous binge between 1997 and 1998. They had a gap of at least six years between conceiving the idea and building the first piece of hardware. I believe that they failed to do so because they were preoccupied with the idea of providing truly global handheld telephony, rather than the more mundane task of making a product that people want. Iridium brilliantly solved the technical problem of providing telephone coverage to parts of the world with very few people, but failed to realise the basic flaw in that business model. Iridium turned out to be a wonderful gift to humanity, but it was a bloody awful business decision.

oiuyhgthyjuki 16y ago
In the 80s when only yuppies had cell phones and coverage was limited to a few square miles of financial districts could you have predicted 100% GSM coverage in Africa?
- 16y ago

gabrielmazzotti 16y ago

Great article, very educational. The only way to do that a startup can do that kind of errors is beeing the daughter of a multinational like motorola

nirajr 16y ago

Key problem? Commit 5 billion dollar to a 'frozen' business plan, that will take years to execute, while the world changes under your feet. You know there's no room for iteration, so you don't pay heed to whats going on until you've burned all the cash. Bliss in ignorance that was by design because of the nature of the business plan.

tophat02 16y ago

The current Iridium looks like it has focused its marketing to the segments that actually make sense: maritime, explorers, and military. But the infrastructure is up there and, sure, a bunch of people lost a lot of money, but it's THERE now. I could think of some products they could introduce that might be promising. Here's an idea: a small piece of plugin hardware for iPhones, Droids, etc. This would be something you take with you (for example, on road trips or vacations to far-flung places). You would buy the unit for $149 and then prepay, say $30 for 10 minutes of service. The idea is that it's "there when you need it, wherever you are." It could even go in your first aid kit... it's there for emergencies.

InclinedPlane 16y ago

There are a couple of lessons for startups here. Things to avoid doing: spending crap-tons of investment money long before your product is on the market; gold-plating the business plan; relying on the classic "expect everything to go as planned waterfall / big-bang integration" model. Iridium could have been much more successful (read: profitable to the initial investors) if they had used different techniques at each step such as iterative development with strong market / customer feedback. If they had begun by gauging market reaction through using pre-order commitments (paid and unpaid) instead of relying heavily on deep pocket investors they would have been able to scale their initial offering to the market a bit better. If they had planned to launch a "minimal viable product" initially that could be scaled up over time as the business grew they would have avoided the massive up-front costs that sank them (the biggest cost was launches, they could have pre-built the entire fleet of satellites and kept most on the ground for a pittance in comparison). Instead they put an entire fleet of satellites into orbit at tremendous cost and launched a service which on day 1 gave essentially 24/7 phone coverage over the entire Earth. An impressive achievement to be sure, but at too great a cost. Some companies can grow like this, ramp up to enormous proportions quickly and find enough traction to keep running and keep growing. But for every success there are many more failures, companies that devoured their seed corn too fast.

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