2008 6
My advice to other start up CEOs: the Fon experience
Published by MartinVarsavsky.net in Fon with No Comments
Image via CrunchBase
Last Spring we cut our burn rate at Fon. We reduced our head count from close to 100 to 60. It was painful. It was sad. But it had to be done, since then Fon has grown faster than ever. Not because the people we let go were not doing anything. Quite the contrary, they had been doing a lot. But many times, a start up is about first building a platform and then managing it. And just as it takes hundreds of people to build an office building but less to run it, it also takes less people to run a platform like Fon than it took to build it. Bottom line is that when we went from 100 people to 60 we managed to grow revenues faster than ever before and to cut losses from over 1 million euros per month to 350 thousand. We also grew to one million foneros around the world. Our revenues grew from 20K euros per week to 50K and the good news is that these sales are mostly cash into the company (Fon is like a telco without capex or opex). What we also achieved is to stretch our investor´s money into 09 and to need a very small round to break even.
Looking back, I am very pleased we did our adjustments in the Spring, because if we had had to be raising money this October we would be in serious trouble. The markets simply suck right now, and even though VCs tell you that they are in this for the long run with Google, Yahoo, Apple down over 50% and no exit horizon, believe me, either they will pass or ask for a 50% or more haircut in valuation themselves.
My advice to CEOs of start ups then it´s tough, really tough, but it is to do what we did at Fon. We cut our burn rate by 70% mainly by reducing headcount, raising revenues, raising margins, and particularily by raising margins on the sale of the foneras themselves, which we used to give away practically for free. In our case, we discovered that the free mentality of the internet was not especially good for a wireless community, as most people who got their routers for free did not connect them, while those who paid were more serious about the whole thing. Moreover, we are now about to raise the rates we charge Aliens who connect to Fon. Partly because we need the money but also again to show the value of becoming a fonero and share and never have to pay. We only charge $2 per day while other WiFi companies charge way over $10. Plus the value of our passes increases as we have more hotspots. Fon now has 10 times more hotspots around the world than our second closest rival. In the UK and Japan our coverage is especially good. With this crisis, Fon cannot think of deep pocketed investors continuing to cover high burn rates, regardless of the fact that our investors are BT, Google, eBay, Itochu, and some of the largest VCs in the world. eBay for example, announced today that they are letting go 10% of their workforce and this is probably the beginning of many job reduction programs that will happen in the next 12 months at the big companies.
I know it´s hard to tell a start up CEO to fire half of the people he or she has in the company, because in a start up environment groups are small and strong emotional bonds develop. But the way I see things, we are on to a period similar to 2001-2005 and it´s either half, or all. And maybe it´s first half and then all but it´s worth the try.
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Martin Varsavsky on October 6, 2008 ·
@ eduo:
You can at least try to raise revenues. When things got tough we realized that either we raised revenues by charging more for foneras or we were going to run out of money and have to close the company. I was pleased to see that mostly because we had so many hotspots people saw more value in becoming a fonero and accepted our new prices for foneras as a valuable proposition. And now we will raise prices to Aliens as a small increase, say from $2 per day to $4 per day to be on our network if you are not a donor will probably show low elasticity of demand for WiFi. We will not charge as much as our competition, indeed nowhere near what they charge, but we will charge more cause otherwise…we die.
AustinTX on October 6, 2008 ·
You never approve any comments I write to your blog, but i’m writing this anyway. You don’t have 1M Foneros. You have 1M email addresses and garbage strings collected from people leeching free wifi. The # of Foneros is always less than the total # of routers ever registered, and less than %25 of those are still online. You pretend that you have no churn. Your statistics simply don’t make sense. And when something doesn’t make sense, it either means additional information has not been given, that you are lying, or both. The Press won’t even touch your “press releases” now. You could have been an honest community builder, but now you have outspoken opponents. The world wifi community thanks you for showing them how NOT to operate. Good luck with the sale of Fon next year.
Martin Varsavsky on October 7, 2008 ·
@ AustinTX:
we have 1 million members of the fon community
and we have around 300K lit fonspots as we speak
and we made 50K euros in revs next week
and what else would u like to know?
AustinTX on October 7, 2008 ·
Sorry, no. You have stated many times that Aliens are not members, and that members are called Foneros, so Aliens, including all those fake email addresses, do not equate to members, nor Foneros. Yet you do like to count them all as confirmed, active members when it seems convienient. What else do I need to remind you? What we need to know is why you say there are “nearly 300K active hotspots” on the same day your company issues press releases claiming there are “over 400K active hotspots”? What we need to know is why you reprogram your Fon Map interface to make it hard to survey dead/alive Fon hotspots to verify your statistics? What we need is independantly verifiable sources, because your own claims have never matched what we have gleaned from clever research, nor statements made to The Press around the same time. What do I want? I want what I was promised when I joined Fon, and not to waste time playing word games.
Martin Varsavsky on October 7, 2008 ·
@ AustinTX:
Aliens are members of the fon community. And the 300K vs 400K number depends on how you measure it, per month, per day. Some people turn their hotspots off so when we scan the foneras some are off and then on again and in a month we get more than in a week or a day.
David Oliver on October 7, 2008 ·
I worked for FON on your launch in Hong Kong. Ultimately it doesn’t really matter how many Foneros you have or how many routers are lit up, what matters more is how much revenue you are generating and from where. I suspect that most of your revenue comes from a few Foneros who are in good locations. I keep my La Fonera switched on but as I live on the 16/F in a compound in Beijing I don’t expect to make any money from it.
Deploying routers with extended range antenna in easily accessible places such as bars & restaurants seems like a good way to increase revenues.
AustinTX on October 7, 2008 ·
@ Martin: Word games are evasive and unconvincing.
@ David: Of course it matters, when Fon issues statistics which are contradicted by themselves at the same time or later, and are totally refuted by the evidence.
Wade on October 7, 2008 ·
Hey Martin,
Just to diverge from the topic at hand for a moment… I’m seriously interested being a fellow (albeit less successful) entrepreneur, how did you come up with the business model that is FON? What I mean by that is… do you have a method by which you so brilliantly innovate?
Napoleon Hill (Think and Grow Rich) recommended the “Mastermind Group” whereby you gather a group of like-minded individuals with complimentary skills and harmonious ambitions. I’m just wondering if you have a similar method such as a “think tank” etc.. Just curious.
David Oliver on October 7, 2008 ·
@ AustinTX:
Would you prefer it if Fon didn’t release any statistics? I
have worked with a lot of online businesses who release all kinds of statistics claiming they are the biggest or the greatest. Whether you like it or not that’s the way many companies generate marketing buzz.
Saying you have one million members is not really relevant for the average Fon customer who is more concerned about whether there is a hotspot in a convenient location, how easy it is to use etc …
There are many things I think Fon could have done differently but ultimately revenues, burn rate and how much money you have in the bank are what will decide who survives the coming downturn.
AustinTX on October 7, 2008 ·
-What on earth would make you think we wanted Fon to stop releasing statistics? I have said what it is that we want. Let me put it another way: we want Fon to stop deliberately blocking us from verifying their claims. We want Fon reps to stop fuming indignantly when we ask for reasonable explanations. Ergo, in light of the fact that we verify such statistics, we expect Fon to stop playing clever games with words and definitions, and start respectfully impressing us with the truth.
-When Sprint says it has a million members, it means that it has a million people who use their service and make regular financial contributions. It means there are a million people with a million warm phones, and tens of millions of billable events every day.
-Contrast that with Fon. Fon does not have a million members! Even if Aliens were “members” of some kind – and this is a newly crafted definition. Fon has perhaps a million of *something*, if it adds together it’s Fonero members, every Alien who has ever purchased a day pass once, and the umptillion fake emails collected for free access. Throw in a handful of potential “partner” hotspots, who roam our hotspots for free, though we cannot roam theirs for free, and you approach Fon’s exaggerated number.
-It still does not add up to an image of bustling activity. Fon pretends they have no churn, so there are only additions, and never subtractions. Most Foneros have abandoned Fon, but did not bother to unsubscribe@fon.com. Fon therefore suggests that these dead members are still providing services and championing the Fon Revolution. It took 3 years to reach this “milestone”, and it is one which does not bear serious examination.
-Don’t misunderstand my motivations here. I sincerely want Fon to be popular, successful and proliferate. I want Fon to be fair and profitable and technically secure. I want Fon to be a launching point for new paradigms, and the cradle of a meritocratic, industrious community. All this can be made possible with the collaboration of a legion of Fonero fans. Unfortunately, after some early disasters, Fon has since withdrawn and left the members behind. There are signs that Fon had rebooted like this over other issues, before I became aware of them in 2005.
-There is no more Movement or Revolution. Now, most Foneros have wandered off, or gotten cranky waiting for new progress. Fon has been telling us how big and busy and successful they have become, but sadly, it’s mostly just vapor. Nice stories, very little action. Fon would prefer that we Foneros be passive cheerleaders. We still demand respect, and honesty. We are still dedicated to this project, and lacking an compelling alternative, aren’t moving on yet.
Martin Varsavsky on October 7, 2008 ·
@ AustinTX:
I don´t know who you are and I can´t keep debating you. Fon is a big success in many parts of the world. If AustinTX means you are from AustinTX you may actually be in a place where Fon has not been particularily successful. But frankly I dislike your tone as if we were not transparent. We are, we grow a lot. And we share our growth figures.
Martin Varsavsky on October 7, 2008 ·
@ Wade:
I thought of Fon looking for WiFi myself and finding it so frequently locked. I then thought of a quid pro quo, of what would make those people who had their WiFi locked want to open it and came up with the key idea of Fon, share a little WiFi at home and roam the world for free.
Kyros on October 7, 2008 ·
Hi Martin,
It is not true that from your claimed 400k more than 100k (30% online) hotspots are usable!
From online FON hotspots most are impossible to find because:
1) not located on or near the shown location.
2) not connectable due to a much to weak signal.
In the FON community we made least four professional field tests in urban surrounding to get knowledge about real active and connectable (= usable!) FON hotspots.
So these are real data (I chose each the best ratings of all our tests):
|—> Lets count from your claimed FON hotspots (FON says 400k hotspots)
|—–> 30 % of all FON hotspots are shown online in the FON maps (appr. 120k)
|——–> max. 36 % of all online FON hotspots are connectable in the field (appr. 44k)
Review the many published field test results in your own FON community if you need the proof – this is reality and this is true!
That means:
A chance of 1:10 for all FON hotspots to find a connectable one.
A chance of 1:3 for all online shown FON hotspots to find a connectable one.
For Aliens this is a 2:3 certainty for frustration even if you only target on active shown FON hotspots.
Thus 8 of 10 friends of mine who registered as Aliens for accessing FON Wifi outside gave me the feedback not to try FON again. Our tests over the last year showed that these figures change for the worse as a trend.
If you disagree please Martin publish the rate of your 1.000.000 Aliens which have connected more than 2 times to a FON hotspot…
In the community we ask since more than one year for a tool to be able to contact our neighbour Foneros via E-Mail (!). The current system does not reach the Foneros because offline Foneros do not visit their FON profile which holds the messages. Reaching your next Bill- or Linus-Fonero is extremely important to allow the community to help increasing the rate of connectable hotspots of our neighbour Fonero hotspot owning fellows.
But there is no acceptance from FON side and no such tool since more than one year.
And we want FON staff (including you as CEO) more to interact with the Foneros in the communities. Unfortunately there are less and less activities toward the community for motivation and cooperation in the last year as well.
Again – this is real and this is true.
Regards, Kyros
Roetzen on October 7, 2008 ·
@ Martin
“and we made 50K euros in revs next week
and what else would u like to know?”
What I would like to know is how much of that 50K is from selling day passes to Aliens and how much is from profit on the sale of Foneras and related hardware.
eduo on October 7, 2008 ·
@martin
I agree that increasing revenue is a goal. It’s just a matter of wording. I don’t like the phrase “raising revenue” because it implies that’s the action being taken. It’s not, it’s the desired goal, achieved by indirect actions which, one hopes, will increase the revenue.
Paulo Silva aka PJMDS on October 7, 2008 ·
Hey Martin, please don’t try to raise the revenue by charging more to Aliens, that would be a very bad move, you would loose clients to 3G networks, instead you could take advantage of the Fonera 2.0 features, unlike the old models this one can be used for many different things, for example, you could use it for cheap network storage (NAS), people would have it ON for their own private uses but also to share bandwidth, it also could be used for security services, with one USB webcam we could set it up to record what’s happening in our house while we are working, etc.
Best regards and thanks for accepting AustinTX comments, he’s one of the best community voices on the http://boards.fon.com .
ex-Ebay on October 7, 2008 ·
Your post was also for big companies…
eBay to slash workforce by 1,000
Monday, 6 October 2008
Online auction website eBay has said it is to lay off 1,000 employees, which is 10% of its workforce, as part of a move to streamline the business.
Elliott on October 7, 2008 ·
Martin:
U are correct not to provide free routers. In completely different industry, I can emphatically state that when we gave free samples for potential customers to evaluate, the evaluation percentage was small whereas when we billed for samples [with credit available against future orders] they were evaluated. Old adage is that if u get it for free it has little or no value. U might want to provide free signal enhancers to lit routers to increase the coverage.
Do not understand eduo comment that u can’t increase revenue or at least not directly. Of course, u can’t do it as quickly as cutting cost. But, marketing, advertising, promotions, tie-ins, improved products &/or systems, line extensions, price increases, etc are all designed to increase revenues.
Increased value provides better returns then traditional cost cutting. If u save 1 dollar of cost u have saved 1 dollar. If u add $10 of perceived value to your product or service, ur incremental cost to provide it may only be $1.
AustinTX on October 7, 2008 ·
“I don´t know who you are and I can´t keep debating you. Fon is a big success in many parts of the world. If AustinTX means you are from AustinTX you may actually be in a place where Fon has not been particularily successful. But frankly I dislike your tone as if we were not transparent. We are, we grow a lot. And we share our growth figures.”
THIS.
I didn’t set you up, but this is what you did. Indignant fuming, in order to sidestep answering the questions.
AustinTX on October 7, 2008 ·
Respectfully, you certainly know who I am. If my email address and the url to my El Fon Blog are somehow unfamiliar to you; I have been writing my blog longer than almost any other Fon blog left alive. I’ve had email exchanges and Skype calls with half of your staff, and been interviewed by reporters and researchers who touched base with Fon for confirmations. It seems unlikely that I would not have been mentioned.
I’m not debating anything with you. I’m merely repeating my questions, and providing my reasons for asking. When our evidence contradicts your claims, we are troubled by it. If you are as transparent as you claim, then respond to our questions, don’t “object” to “tones of voice” or “debating” and then run off!
I can certainly understand that you, a successful and powerful man, do not like to be contradicted. We are not trying to undermine the public’s confidence in you. We are saying that our confidence in you has been undermined by the circumstances, and that you are doing precisely the wrong thing to restore it.
AustinTX on October 7, 2008 ·
One other point bears clarification: Yes, I am in Austin, TX USA. If you were to say that 14 out of 102 Fon hotspots left alive, qualifies as “not particularly successful”, then I would agree with you.
To suggest that my opinions about Fon are warped by my local environment, is a fallacy which needs further examination. There is no independant Fonero community here, and I am not entangled in local statistics. From the beginning, I have been a member of an International community of Foneros who speak English and other languages, and my views and impressions are thus entirely International.
clarificator on October 7, 2008 ·
some helpful clarifications about 2 persons, blogging here:
1st: “AustinTx”… Google for “chad vanderlinden” as he pretended this to be his real name, but this is very unclear and very doubtful, cause he seems to be the only wifi related vanderlinden in googles world. maybe others from texas may help to strip of his mask. – his tone, you unlike, as many others do too, is rude, strong , selfish and extremely egomanic. nevertheless he has been able and allowed until today to post A FEW THOUSAND (!!) POSTINGS in YOUR BLOG IN THE BLOG OF YOUR start up. there is strong evidence, that this has to be stopped! – regard his pathologic avatar!
2nd: Kyros…
this is his brother-in-mind in old europe. in the very beginning of FON he massively tried to attack and disturb the FON movement in europe . remember: HE has been the originator of the -now historic- “sea attack” and HE is also very responsible for a mostly insane article where he asks, together with a few fellows, whether “FON has been founded by MI6” and much a lot more complete nonsense in this manner – his very only aim: trying to get public attention – no matter what methods used – in this most primitive way, as he is a “professional” (as he may impress only himself) of marketing….
it´s time to reveal these facts to a broader audience.
so don´t take these troubleshooters for serios in any way, any longer
steven on October 8, 2008 ·
Hi,
for 10$/€ people can surf for a WHOLE MONTH on those t-mobile wifi hotspots… while an alien can only surf for 5 days on a FONspot…
please check prices at http://www.boingo.com/
Even after 3 months it’s cheaper to use a boingo deal than a Alien FON deal…
Perhaps FON should check out the pricing of eg Tomizone who isn’t asking for “DAY”prices but “DATA” prices…eg a price for a certain amount of data…. That will keep away the “leechers”
steven on October 8, 2008 ·
Also Tmobile and consorts might have “less” hotspots. Their list of hotspots is accurate and located in popular places where people can use their wifi equipment.
Most FONspots are inside residential areas where the signal is hard to get from their frontporch; the poi export gives also the signals that have been down for years
Martin Varsavsky on October 8, 2008 ·
@ steven:
It depends where you are. In the UK for example if you are a BT customer and become a BT Fonero you get access to all the BT Open Zones hotspots for free and those are at all the key airports, train stations.
eduo on October 8, 2008 ·
Clarificator: I tried understanding what you wrote, as I was genuinely interested and it seemed to make a point.
But your command of english is so poor and your insistence of not reading what you write after you do mean most of what you wrote is unintelligible.
I don’t know if you’re using a computer translator but you should really pass these texts through someone before posting them.
A couple of points, tho’:
-Comments are not blogs and you don’t “blog” in the comments. if this is not what you meant then it’s even more confusing than I though.
-Be VERY weary of saying things like “is allowed” and “has to be stopped”. You may not like what someone says and you may dictate whether you allow their comments in your blog but people is entirely free to write what they want in their own forums. If you think someone should be stopped be very aware that there are others that think you should too. I, for one, would be leaning towards that opinion.
-Use your real name or your real nickname or assume you’ll be ignored as a troll.
-Research the meaning of the words “egomaniac” and “troubleshooters”. The first is you trying to be emphatic, most probably, while completely missing the target. The latter I assume is one of the biggest proofs you think a computer translation is “good enough” and it’s the actual proof it is not, as it means, most probably, the opposite of what you meant.
Roetzen on October 8, 2008 ·
@ clarifacator
Mud slinging tactics will not work here. They are used by people who are running out of arguments and running out of time. Both AustinTx and Kyros bring forward valid arguments supported by verifiable facts. Trying to cover that in mud will not work, people will see through it.
Kyros on October 8, 2008 ·
@ Martin: Currently there is a trend (competing agressively the commercial Wifihotspots) to have an UMTS USB stick and to buy prepayed data transfer for the case that you’re outside needing internet access. Current pricing here in Austria: only 10 € for 1-2 GB transfer (excluding one-time cost for the usb-stick hardware). Thus keeping the FON price attractive in the FON coreland and enhancing our FON hotspot net’s avalability is the right marketing strategy from my point of view. What’s your opinion?
Let me again ask you to please provide the tools to the community so that Foneros can contact each other via E-Mail – then we can start enhancing our FON sourrounding.
@ clarificator: Hi Peter – see you kept your phantasie for writing drama… ´’`\_(ò_Ó)_/´’`
Regards, Kyros
Roetzen on October 8, 2008 ·
@Martin,
You wrote to Steven: “It depends where you are. In the UK for example if you are a BT customer and become a BT Fonero you get access to all the BT Open Zones hotspots for free and those are at all the key airports, train stations.”
I am not in the UK and I am not a BT customer. I live in a small village with some 15000 people in the centre of The Netherlands. The Netherlands has been one of the first countries to embrace FON. Mine was the first FON AP in this village. Others came and went but few were actually usable. Most were just never there, were misplaced on the map or did not have enough signal on the street. Mine seems to be the only long term stable usable FON AP in town… 🙁
brittney in brittany on October 10, 2008 ·
I am new to FON and I realize that every FON Spot is not reliable, but I joined because I was really frustrated with my previous provider and I found that FON worked well both in big cities and small villages. I split my time between London and a small town near Lorient, France, so the fact that I was able to find active FON Spots in both places really impressed me. We can debate the statistics, but the fact is FON works for me. Vive la FON!
Roetzen on October 10, 2008 ·
Well Brittney, I am glad that at least someone benefits from it. Maybe we have some weird inverse law at work here. Something like “the more you put into sharing, the less you get”. I put up a 7dBi outdoor omni to extend the range. But I never found a useable FON hotspot when I needed one.
Elliott on October 10, 2008 ·
Martin: Is there a dichotomy between USA & Europe/Asia with respect to free WiFi? I haven’t been outside USA since u founded FON. But, as I travel USA in large cities as well as small towns, I always have access to free WiFi. Hotels almost always have free WiFi [most even have several PCs available for free use], airports that I have passed through have free WiFi, as do coffee shops, etc., etc. What was ur experience when u traveled through western USA this summer?
Des on October 19, 2008 ·
Fon started out good then extended the services of Foneros for free to “pay per use” companies like boingo and BT. BT customers can use BT Openzone and Fon spots but Foneros whoc share their bandwidth cannot use BT Openzone.
Hmm ? Who has come out best ?
Martin Varsavsky on October 19, 2008 ·
@ Des:
The Boingo deal was not executed because of that, we could not obtain any reciprocity for Foneros. With BT if you are a BT Fonero you can roam for free in BT Open Zones, airports, train stations, etc.
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eduo on October 6, 2008 ·
Small note: You can’t raise revenue. Increased revenue is a consequence of a lot of other actions but it cannot be increased directly.
You outline the actions taken to raise revenue, which make sense (although may be considered harsh by some they’re not really unusual for any type of company) but you can’t put “raise your revenue” as an action to be taken. The whole point is that one is always balancing the tough act of increasing revenue while staying competitive.