Voip2020

My posts are now at Toktumi.com/voipnews

I've moved my blogging over to the Toktumi.com website. You can find my blog posts here.  Although my posts there are more directed at Toktumi customers, I will continue to post about industry developments and the start-up life.

Hungry Minds

Recently I had the privilege of speaking in an entrepreneurship class at the Tuck School of Business at Dartmouth, where I got my MBA.  I had dinner with 7 students the night before and then spoke in class the next day.  A friend of mine, Arno Harris,, who is CEO of Recurrent Energy, gave me a great idea for starting the class, which was to point out that entrepreneurs are not rational business people.  This is because they are way out at the end of the risk reward curve.  Most take huge risks in the hope of big rewards, but the risks they take are much higher than most reasonable business people would be willing to tolerate. 

Students asked me why I was willing to do it. I explained that it gives me control over my own destiny.  My success is between me and the customer – if I can provide a service that people want, do it well, and get the word out profitably, then I can succeed.  No corporate politics or playing golf with my boss to get ahead.  I also like the fast learning curve you get from the big challenges and many roles you must play in a startup.  Your work always has impact because there is so much to do spread across so few people.  Ultimately I’m also willing to sacrifice my standard of living, working 60+ hour weeks and being underpaid in return for the thrill and the challenge and the hope for a big outcome.

Toktumi is my fourth startup and I’ve learned a lot along the way.  Most of my learning has come from the mistakes I’ve made but I’ve also had some positive reinforcement along the way when things went well.  In the class I took students through each of my companies and what I learned from them, and what other entrepreneurs shared with me.  Lessons included:

-         In the long run, whoever gets profitable first wins

-         Your first business plan will be wrong

-         Timing is everything

-         You can’t do it all yourself.  Build a great team and delegate.

-         The team you build is more important than the idea itself.

-         Start young while your tolerance for risk is high.

-         Do your diligence before you quit your day job.

-         You can fix sales and product problems, you can’t fix market problems.

-         Know the appropriate investor type for each stage of your funding.

-         Act like an investor in your company when deciding your long-term role.

I’m sure there will be more lessons to come.  The next one will be how to run and fund a company when the economy is collapsing around you!

So much for the last sanctuary!

I am currently writing this entry on American flight 177, a non-stop from JFK to SFO on a 767-200, using the new GOGO inflight wi-fi service that launched today. It costs only $12.95 for the entire flight. There were people giving out free water at JFK terminal 8 to promote the service, and there supposedly are two GOGO reps on board.  I haven’t seen the GOGO reps but I don’t need them – everything is working great.  It’s very fast.  I did a bandwidth test and it clocked in at 1036 kbps download and 231 kbps upload speed.

As for VoIP, the service is heavily firewalled, and they are also using a proxy server with NAT, so most SIP-based softphones will not work at all.  I am able to place and receive Toktumi calls and Skype calls because they don't use SIP, although they are basically unusable for two way conversation because of distortion.  They say that VoIP has been blocked, so even without firewall issues they may be doing something to distort audio. I was able to listen to my cell phone voicemail by calling my cell phone from Toktumi, however, so it sort of works one way.

All I can say is, thank God VoIP doesn't work!!  What a nightmare that would be to listen to someone yapping for 5 hours cross-country.  Even without VoIP, I have mixed feelings about this!  Flights have become pretty much the last sanctuary from email and communications, and I often enjoy the fact that I can’t reach anyone and can’t be reached.  The only private moment left in this world.  Now whenever I fly, I’ll be wracked with guilt if I don’t work! 

Is Ribbit's Win RingCentral's Woe?

Tuesday’s announcement of BT’s acquisition of Ribbit for $105M was great news.  Yes, Sand Hill Road, there *are* still good exits possible in the VoIP space.  Ribbit was smartly focused on new voice applications that create value and add functionality, rather than paving cow paths with new technologies applied to the same old model for landline phone service, a market that will be dominated by Cable triple-plays for those that still want landlines. 

A pre-revenue exit for Ribbit was probably their best choice. Once a startup has a few years of revenue, then its valuation is based on that, and you don’t get the sort of valuation Ribbit got unless you are generating real sales growth. I think monetizing their platform will be an extremely difficult challenge for them and the revenues won’t come quickly.  When your growth depends on the ability of your customers (i.e. the people developing apps on Ribbit) to attract and retain end-customers, its hard to manage your own revenue and meet targets.  And I suspect most of the developers were focused on free apps or incremental features for which it would be hard to charge a lot of money.

The folks over at RingCentral, which has been around for 10 years, can’t be too happy about this. On March 11 they announced a partnership with BT.  Such deals are often a first date in the courtship that can lead to an acquisition, and I imagine their investors Khosla Ventures, Sequoia, and DAG Ventures had high hopes for a quick exit.  Ribbit’s platform gives BT everything they need to recreate what RingCentral does, and I suspect that BT will not renew its agreement with RingCentral once its over.  It may be that BT did dance around the idea of buying RingCentral, but if they did I’d guess their valuation would have been based on RingCentral’s growth to $10M in revenue over 10 years, which is certainly not enough to get a 10X revenue multiple.  Ah, yes, how strange the math of Silicon Valley valuations! 

iPhone GPS: Game Changing

3G Internet and a host of new apps for the iPhone are exciting news to be sure, but in my mind, adding GPS is the game changer.   Having your iPhone know where it is (and thus where you are) is not just about avoiding the need to enter a starting address when looking for directions.  Its about ANY software knowing where you are. 

The possibilities are endless and mind-boggling.  Looking for a friend to join you for a drink? Check your iPhone and see whose nearby and in a drinking mood.  Hungry for a slice?  The nearest pizza shops are mapped out for you, and your iPhone will take you there, turn by turn, as you walk or drive.  Nearest and next showing of "Iron Man?"  No brainer.  Forget where you were when you took that photo? Your iPhone tagged it with its location.  911 put you on hold?  Don’t worry, they’ll know where you are even if you pass out before they pick up.  Lost your iPhone?  Go online and find out where it is.

Apple is not alone in adding GPS to cell phones – ABI research, for one, predicts more than half a billion GPS-enabled cell phones will ship in the next four years. But by combining GPS with a platform open to third-party developers, the iPhone will harness the “location aware computing” revolution better than anybody else.  This is going to take us to amazing places we cannot yet imagine.  But at least we'll know where we are.    

Ymax acquires TigerJet

Most of you probably don't know who Ymax is nor who TigerJet is, but you may be familiar with MagicJack, which was created by Dan Borislow and is reportedly selling large volumes of their $39 phone-to-usb adapter, primarly via home shopping networks and infomercials.  It comes bundled with very cheap domestic long distance and uses Ymax's CLEC status to generate settlement income for calls into their network, which helps subsidize the cost of their outbound calls.   TigerJet designs and manufactures the chips used in the MagicJack adapter - the same chips used in the current design of the Toktumi adapter.  The new version of the Toktumi adapter, coming later this year, is based on a different chip set.

It was revealed to my by YW Sing of TigerJet that Ymax has purchased his company TigerJet for an undisclosed sum. Dan Borislow wants to lock up access to the supply of chips used in the MagicJack device, and perhaps enhance the value of his company by bringing the related IP in house.  It's an interesting move and I wish him luck!   

Business phone service - that was easy!

Today Toktumi launched its first distribution deal, on Staples.com.  We wanted to start with Staples because its such a perfect fit for Toktumi.  First, they are extremely effective at reaching the millions of very small businesses that will find Toktumi useful.  Second, their focus on making things easy aligned perfectly with Toktumi's philosophy of making business phone service easy.

Staples invented the office superstore category in 1986 and today has more than 74,000 employees and 2000 stores worldwide.  Their total sales in 2007 exceeded $18 billion.  They are the clear leader in their category and set a high standard of excellence.  It has been humbling to work with such an impressive company. 

There is a tremendous amount of work that goes into launching in a channel like Staples.  We are starting first with their website, and hope to be distributed in their stores later in the year.  Even with that, there was a lot to do.  We had to provision product to 6 different fulfillment centers around the country so that they can ship to customers within a day from any center.  There were banners to be created for the website, and cross-selling plans that had to be put into place.  We also learned from Staples that having a flash demo on the product page dramatically increases sales, so we hired an excellent firm, Sellpoint. to create one for us.  Then there was getting the press release approved, including a quote from Staples Senior Vice President Pete Howard. As the launch date approached, all of this had to be coordinated and synchronized like a dance.  It wasn't without the occasional hitch, but we pulled it off, and much of the credit goes to the amazing team at Staples, whose dedication to excellence and personal attention to our product meant putting in long hours despite many competing obligations.  Thanks, Staples!

eComm 2008

I spoke today at the Emerging Communications Conference, which is put on by Lee Dryburgh and friends.  The talks I've been able to see have been very interesting - you can see the agenda here.   I spoke about search dialing, which is a feature of Toktumi that allows people to make phone calls by typing names or keywords to place calls.  It's a merger of 411 ("find who") and local search ("find what"), and is the sort of feature that's only possible when PCs and phones are integrated.  Richard Martin of Information Week covered it today in this article.

Happy Birthday Mr. Bell

Today is Alexander Graham Bell's birthday and it seems a fitting time to talk about the revolution that is happening in Telephony.  The computer and the phone are merging.  Just as Bell himself could not have imagined the full potential of what he created, we have barely scratched the surface of what happens when you merge voice with the PC and the Internet.  The applications, services, and new revenue models that will be enabled cannot yet be fully appreciated.

Toktumi is at the forefront of this revolution, and the opportunities presented to the company extend far beyond it's initial service offering.  The winners in the new markets that will be created tomorrow will be those who get a seat at the table today.  Toktumi takes small businesses into the future by solving a real business problem for real customers and making money doing so, but perhaps more significant is that in doing so, it pulls up a chair at that table of the future.

Toktumi incorporates this revolution not just into the features it offers, but into the way it acquires customers. Toktumi's free version unlocks the power of the Internet to harvest referrals from partners and its own customers much more cost effectively than the traditional direct sales or call-center based approaches used by all its competitors.  It is the first time such a model has been applied to the office telephony market, and its the key to acquiring SOHO customers cost effectively.  Our beta has shown us the power of this model, with more than 10% of free customers having converted to paying customers, and with existing customers inviting new customers at a rate exceeding 1 to 1.

To explain what's happening in telecom, let me try an analogy.  First there was the manual typewriter, then the electric typewriter, which was really the same thing but with a few extra capabilities that electrification enabled.  But the electric typewriter did not create the publishing revolution - it was merely incremental.  It was used pretty much the same way, distributed and sold pretty much the same way.

What changed everything was when typing jumped onto the PC, and the electric typewriter was replaced by WordPerfect and ultimately Microsoft Word.  Suddenly everything was different, and whole new markets and billion dollar companies were enabled by the shift.  All the people selling typewriters had to reinvent themselves or die, and new billion dollar companies like Adobe were created out of the ether.

The same is about to happen in telecom.  Most VoIP products and services up to now have been electric typewriters.  Same phones, same capabilities, and perhaps a few new cool features.  And still distributed and sold pretty much the same way.  Not a revolution.  As voice moves onto the PC, that's when the revolution begins.  The same thing will happen that happened to home publishing when Word took over.  Whole new applications and markets and distribution channels will appear, and billion dollar companies will be created, some offering services we can't even imagine today (could you have envisioned Adobe in 1978?).  So goodbye electric telephone - let's bring on the next revolution.  Word up!

Fun-draising?

I am now deep in the process of raising Toktumi's next traunch of capital. We raised $1.5M last year from various angels and strategic investors, and have managed to launch the service while keeping our burn down and our operations very lean.  But after our successful launch at DEMO, we need capital to build our management team, accelerate development of new features and services, and upgrade our infrastructure.  I've been very pleased with our traction - more than 10% of our free customers have converted into paying customers, which is higher than I expected given that we are still in closed beta.  We are also selling toktumi phone adapters from our webstore despite no promotional efforts.  I think we've definately tapped into an unmet need.  I've also been encouraged to see our existing customers invite new ones - so far there's been, on average, one invite sent per acquired customer, which seems to indicate the potential for some viral growth.  When we marry that with deals in the works with channel partners that already reach small business, that should help us reduce our customer acqusition costs.  I'm convinced that our approach is the only profitable way to acquire customers in SOHO 1-9 employee businesses, which have traditionally been underserved because its been too expensive to reach them selling complicated equipment via call centers and direct sales teams.  By offering an easy do-it-yourself system for which referrals can quicky lead to trials, we are the first to really unlock the power of web distribution in the hosted PBX market.  Now, let's hope the VCs can see it the same way!