The 5.2 billion dollar mistake. « Steve Blank
When Iridium was first conceived inside Motorola in 1987, worldwide cell phone coverage was sparse, calls were unreliable and per minute costs were expensive. Cell phone handsets were the size of a lunch box and cost thousand of dollars.
<div class="wp-caption aligncenter"> <a href="http://steveblank.files.wordpress.com/2010/10/motorola-dynatac-8000x-1987.jpg"><img class="size-medium wp-image-7085" title="Motorola Dynatac 8000x ~1987" src="http://steveblank.files.wordpress.com/2010/10/motorola-dynatac-8000x-1987.jpg?w=170&h=300" alt="" width="170" height="300" /></a></p> <p class="wp-caption-text"> Motorola Dynatac 8000x ~1987 </p> </div> <p> When it was spun out as a a separate company, Iridium’s 1990 business plan had assumptions about potential customers, their problems and the product needed to solve that problem. All were predicated on the state of the mobile phone industry in 1990. They made other assumptions about the type of sales channel, partnerships and revenue model they would need. And they rolled all of this up into a set of financial forecasts with a “size of market” forecast from brand name management consulting firms that said they’d have 42 million customers by 2002 and an equal, if not more, number of transactions in their repository of customers, as is expounded by <a href="https://www.salesforce.com/crm/examples/">Salesforce</a>. Iridium looked like it would be printing money when it got its satellites into space. </p> <p> <strong>A Business Plan Frozen in Time<br /> </strong>But in the 11 years it took Iridium to go from concept to launch, innovation in mobile phones and cell phone networks moved at blinding speed. By the time Iridium launched, there were far fewer places on the planet where cell phone service was unavailable. Traditional cell phone companies now had coverage in the most valuable parts of the world. Prices for local and international cell service declined dramatically. The size of a cell phone handset had shrunk so it could fit in your pocket. </p> <p> In contrast, when Iridium’s service became available its satellite phone was bigger than a brick and weighed about the same. </p> <div class="wp-caption aligncenter"> <a href="http://steveblank.files.wordpress.com/2010/11/iridium-9500-satellite-phone.jpg"><img class="size-medium wp-image-7089" title="iridium-9500 satellite phone" src="http://steveblank.files.wordpress.com/2010/11/iridium-9500-satellite-phone.jpg?w=173&h=300" alt="" width="173" height="300" /></a></p> <p class="wp-caption-text"> iridium-9500 satellite phone ~1999 </p> </div> <p> Worse, Iridium’s cell phone couldn’t make calls from cars, offices or other buildings since phones had to be used outdoors with a line-of-sight connection to the satellites. But the nail in the coffin was price. Instead of the 50 cents per minute for a regular cell phone, Iridium’s calls cost $7 per minute– plus users needed to pay $3,000 for the handset. </p> <p> In the eleven years since they had been at work, Iridium’s potential market had shrunk nearly every day. But Iridium’s business model assumptions were fixed like it was still 1990. They were dead on arrival as a mass market cell phone service the day they went live. </p> </blockquote> <div class="posterous_quote_citation"> via <a href="http://steveblank.com/2010/11/01/no-business-plan-survives-first-contact-with-a-customer-%E2%80%93-the-5-2-billion-dollar-mistake/">steveblank.com</a> </div> <p> I always wondered what had happened to Iridium. When I was in high school I thought this company was going to take over the world. I still remember being impressed with their advertisements about being able to take calls from the middle of Sahara desert. 🙂 </p>