Thursday, July 19, 2007

Looking for Success in Failure

SunRocket's failure is a model of how not to invest

by Mark Hewitt - July 20th, 2007

The recent collapse of “SunRocket” one of the largest VoIP Venture funded startup’s in recent times is a strong indicator of a much larger issue of our times.

SunRocket which sacrificed long term revenues for short term gains in sales sold its future to satisfy an impatient financial market place. Players including the Mayfield Fund, Doll Capital Management and Anthem Capital Management placed unrealistic goals on the start up. This in combination with a business course that was too similar to the business model of a failing telecom market is a familiar pattern of failure in our current climate of business investment.

Just to show that I’m not picking on just these investors – remember “Genuity” a 2 billion dollar VoIP startup – that went down hill the day the doors were opened by trying to simply replace a legacy product with new technology.

An example of how to build a successful product

Consumers want choice and are always seeking simplicity – this has been at the foundation of the recent success of the “iPhone” by Apple. The iPhone success is predicated on the history already established by the iPod and combines the ability of consumers to have “Choice” one of the most elusive elements of success that most product companies and investors fail to understand.

Economic Game Theory

John Nash the Noble Prize winner for his work in Economic Sciences pioneered the analysis of equilibria in his theory of “non-cooperative games” – today referred to as “Modern Economic Game Theory” the application of this fundamental theory is at the core of very successful ventures.

SunRocket and their investors failed to apply this most fundamental basis of success proven time and time again. Companies like “Google” and business success as in Rupert Murdock’s media empire are fine examples of the application of these business basics.

Investors like (not unlike all of us) to repeat prior success yet we know that change is the basis of all things. This investment process seeking a direct or familar repeat a past success has a very limited rate of return. History has shown us that siginificant success has always been a break in the norm, Microsoft, Google, Henry Ford, are good examples of this pattern of success.

I will most likely be slammed for saying this however the failure of the SunRocket startup is a great example of how not to invest – VoIP is not a direct replacement of the legacy telephone industry – that is a failed model. Broadband however an opportunity for change – investors and executive teams must look past the technology and seek a plan that is adaptive.

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Ivan said...

SunRocket has shut down their service without refunding their prepay customers like us. I signed up with their yearly plan at the end of Jan, 2007 but didn’t receive their complete service so far. I am so much worried and confused about the refund and signing up with a new VoIP provider. I think it is best to hook up with the Primus backed Lingo. I hope they won’t disappear easily from the VoIP market.