Lawrence R. Milkowski, President and CEO of VoIP2.biz, Inc., an Indianapolis-based start-up supplier of Voice over Internet Protocol (VoIP) telephony to the small and midsize business market, knew he had a difficult job ahead of him. It was Friday, June 23, 2006, and he had to prepare his recommendations on the next steps for his fledgling company to the board of directors at its meeting on Tuesday, June 27, 2006. While Larry was a firm believer in the direction of the company, he knew that the board was anxious to resolve the future of the firm given the slower-than-hoped-for progress in getting the company’s cash flow to break even.
In 2006, VoIP2.biz considered itself a systems integrator that worked with business customers to help them move their voice communications from legacy technology to VoIP technology. Through these activities, VoIP2.biz would become its clients’ telephone company, thus earning a recurring revenue stream. Management’s plan was to continue to gain dominance in the Indianapolis market, expand the company’s business activities throughout Indiana, and then open additional sales offices throughout the Midwest, gaining a first mover position in the marketplaces they served. Management believed that success in this strategy would make them an attractive acquisition target in the 2009 to 2010 timeframe. Management thought that VoIP2.biz’s business opportunity came from the recognition of five basic marketplace facts experienced by business customers with less than 400 voice telephone lines: 1. These businesses had often invested in separate voice networks, data networks, and Internet access technology 5.
Copyright © 2007 by Daniel W. DeHayes. This case was prepared by Daniel W. DeHayes and Stephen R. Nelson. It is intended to support classroom discussion rather than to illustrate either effective or ineffective management practices. The names and figures are disguised.
whereby they had two distinct and separate monthly cost streams—a network for voice and one for data. Moreover, the voice network was often over configured and underutilized. In addition, specialized circuits for transporting voice calls often cost more, sometimes twice as much as the equivalent data circuit cost. Most voice communication systems, called private branch exchanges (PBXs) or key telephone systems (KTSs), were special purpose machines with both proprietary hardware and software. As a result, they were expensive to buy, in the $1,000 to $2,000 per user range; expensive to maintain; and lacked the flexibility to easily adapt to specific user needs. They generally required specialized skills for moving, adding, or changing end-user stations—and therefore had a significant maintenance expense once installed. Business customers understood that customer relationship management can be enhanced and additional sales can be made by the effective handling of their customer communication. For many businesses, the cost to purchase and implement the automated call distributors (ACDs) and the interactive voice response (IVR) applications required were just too expensive to be practical. Business customers, particularly those with one to a hundred employees, or several hundred spread over several facilities, received very poor service from the traditional phone companies. They were often served by under-trained account managers with little technology experience or business knowledge, so it was difficult for the customer to get his or her questions answered or specific needs addressed. Many customers lacked experienced networking people to help them make telephony decisions, and they often lacked a strong data processing staff with any experience in voice processing.
Case Study I-2
VoIP2.biz, Inc.: Deciding on the Next Steps for a VoIP Supplier
In order to meet these market needs, VoIP2.biz sold...