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You get an adrenaline rush every time you think about starting
your own ISP. Although the cost of entering this game drops every day,
competition is heating up, so this is a big decision.
by Christopher M. Knight
[August 9, 1999] |
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[It says it right in the title, but I want to re-emphasize that
this article is aimed at ISP newbies; it's not meant to be comprehensive. It
also assumes you're not operating a business of any kind.]
Brief initial reality check:
This not an easy
business to navigate. You will work very long hours, you'll have to read tens of
thousands of emails to educate yourself, and you can count on having it cost at
least twice as much as you expected. Many critical items?such as your telco?will
be out of your control, whereas your subscribers always expect you to be in control of everything. Finally, believe it or not,
it's near suicide to start this business without having a clear ISP exit
strategy.
Another note: If you're familiar with the differences between facilities
based and non-facilities based ISPs (terms I reference later in this article),
read on. Make Your ISP Facilities-Based or Virtual?
Okay, now let's take a deep breath and look into the basics of what you must
have in order to get started and open for business.
Top 7 Items You Will Need To Start Your ISP
1. Generic business underpinnings
This includes
any licenses your state requires, your federal and state employer ID numbers
(for ISPs in the U.S.), your domain name registration and trademark application,
your business checking account and banking relationship?along with a possible
preapproved credit line?and a merchant account so that you can accept credit
cards and direct checking account drafts. You will also need some other business
basics, such as a phone system, security service, CPA & Attorney.
2. ISP billing and accounting software
This can
make or break your profitability and your ability to maintain your business as
you grow. A sizable industry has grown up developing and offering customizable
off-the-shelf ISP invoicing systems?many for under $2,000.
Whatever billing program you buy should integrate with a general ledger, and
be able to track accounts receivable, accounts payable, invoices, customers,
usage, overages, and your checking register. Some packages even provide instant
profit/loss balance sheets?along with reports that help you make better business
decisions. You will also need a collection agency to help you collect on bad
debts; I don't know a single ISP that doesn't have bad debts collections issues.
3. Internet feed and local loop
In order for
you to provide Internet access, you have to get it from a regional or national
backbone provider. The connection between your provider and your physical
location is called the local loop. The cost for this can range from a few
thousand dollars one-time charge?if you are co-located within an ISP building
and own your local loop?to between $125 and $5,000 per month or more, depending
on the size of your pipe and how many miles you are from your provider and your
local telco central office or CO.
Internet feed will cost you $800 to $2,000 per T1 worth of Internet access
per month. Assuming an 8:1 user-to-modem ratio on your dialup ports, a single T1
will be enough to feed 200 concurrent connections or about your first 1,600
customers. (This means for each modem port you have eight customers signed up.
They won't all be trying to use it at the same time, you hope.)
While some small ISPs use POTS (Plain Old Telephone Service), adding a line
when the old ones become crowded, this is not something you should even
consider. Rather, start up with a 24 channel T1 or PRI (Primary Rate Interface)
circuit for your first access switch. Shop around, because prices for these
services vary a great deal. Unless you have no alternative, do not negotiate
directly with the incumbent major telco. Many of the best deals or promotions
are available through their resellers and distributors.
Many backbone providers include Usenet feed via NNRP (Network News Relay
Protocol) as part of their package. If your does, take it and run. You do not
want to have to run your own Usenet servers if you're just starting out. You can
do a DNS trick which will fake it and make it appear that you have your own
Usenet server, when you don't.
4. Your network of servers
This includes
your PC based servers that will handle your primary functions, which include
DNS, mail, Web (both regular: httpd and secure: https), athentication, and news
(if you don't outsource it). Theoretically, you can do all this on just one PC,
but in my opinion, anyone who starts an ISP with fewer than four separate
dedicated PC's is asking for trouble.
If you're going to be a facilities-based ISP, you will also need access
servers (a relatively recent innovation that combines terminal server and
modems). Good ones range from $7,000 on up. Some of the popular names of access
servers include US Robotics/3Com, Ascend, Livingston, Cisco, and Nortel.
5. Marketing/Sales plan
& budget
Most new ISPs skip this
completely, and then wonder why they run out of money so quickly and have to
sell out or go bankrupt. This is really the foundation for all
of your ISP decisions. Here are some hard questions that require concrete
answers before you begin:
- What will make your ISP unique?
- Why should someone buy access from you?
- How are you going to acquire your first thousand customers?
- How will you automate the order process?
- How much should you pay to acquire new subscribers?
- What are you going to do to retain your clients?
- What will be your minimum standards for the level of service you wish to
deliver to your subscribers?
- What is your exit strategy?
While word of mouth can be a powerful sales agent for you, make sure you
start out with a marketing budget; it will cost
thousands of dollars to get the word out about your service. Moreover, it's
foolish to believe that you can do it all (build, manage, support, and grow your ISP, no matter how small it is). You will need
sales assistance?or at the very least, order taking?in the beginning.
6. Dialup kits
This is what the customer
receives to get on your service. The easier it is to use and install, the higher
your chance of converting your new trial customers into long term subscribers.
You don't have to design or create your dialup kit; there are many companies
that can provide this. For example, both Microsoft and Netscape have custom kits
you can implement.
Your entire growth and signup strategy is wrapped around how well your dialup
kit gets your new users up and running on your service, so give it serious
attention. Keep in mind that it can?should?serve as a marketing tool as well.
For example, you may want to include a users guide for your ISP, some tips and
tricks to help your new subscribers get the most out of their new service, and
of course a toll free or local phone number they can call for help.
7. Technical expertise (tech labor)
I'm not
sure whether it's better to be starting an ISP as a techie without much business
knowledge, or a business person without the technical chops. Either way, your
up-time, reputation, and revenue all ride on your company's technical
competence. Skimp, and you'll have hundreds of subscribers keeping you up at
night, wondering why they can't get on the Internet, and eventually wanting to
cancel.
There are many different levels of techies, and they range from front-line
customer service techs to your Chief Technology Officer. Your front-line tech
answers incoming calls, and if s/he can't answer them, refers them up to the Sys
Admin. If the Sys admin can't handle the call, s/he refers it up to the Sr. Sys
Admin on duty. If the Sr. Sys Admin can't answer the question, it isn't
possible.
Sys Admins don't interact as much with clients as much as they are the secret
behind keeping the back office running properly. Your Chief Technology Officer
is your smartest tech person in the office, who also understands the business
implications of budgets, uptimes, metrics, customer service, and he or she
probably has years of experience in the real world. A typical ISP under 2,000
subscribers should budget at least $150K-$300K+ for first the year's tech labor
expenses.
If there's an 8th thing you should have, it would
be Cash, and lots of it. If you've read my past
articles, you'd know that I'm a big friend of outsourcing dialup ports, and
funneling your all-too finite war chest into marketing and sales activities to
get the highest ROI (Return on Investment). If you outsource your ports, you not
only save on the capital startup costs, but you may not need the same level of
tech labor on staff to manage your business. There are real disadvantages to
outsourcing your Internet access ports, such as not having ultimate control over
your network and being at the mercy of someone else when your network is down.
Tip: A good rule of thumb to follow is that your
ISP should make you more money than you could earn by day trading ISP stocks.
(Many ISP friends have reported 6 and 7 digit gains on their ISP stock market
plays, vs. losses their ISP businesses.) I'm not suggesting that you play the
ISP stocks instead of starting an ISP business, just pointing out that for the
business to be financially sane, its goal must be to out-earn what you could
make in the stock market with your finite investment capital.
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