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Why Start-ups should stay away from Telcos...



The Mobile World Congress started yesterday in Barcelona. It is the opportunity for the telecom industry to showcase what they do best and to bathe in their own glory. The event is an orgy of marginal innovation, poor products and non-existent consumer benefits. It is also an opportunity to remember why start-ups should stay away from Telcos....

For start-ups, Telcos are like a Death Star. It pulls you in with its "tractor beam": the mirage of millions of customers and efficient distribution and then slowly, but surely takes the life out of you. We have funded many start-ups who have suffered the "tractor beam" effect, only to be frustrated and disappointed in the end. It is sadly, too good to be true...so the advice we give our companies is don't even engage with Telcos.

Here are 3 things that I have experienced firsthand when sitting on the side of the start-up:

You are one among many. As excited as you are about your start-up, to the Telco you are one among a throve of companies trying to do business with them. This lays the foundation for a very uneven relationship that is impossible to overcome no matter how much goodwill you put into it.

Speed. This is a non existent concept for Telcos. Identifying and implementing partnerships takes an eternity - think years, not months. This is partly due to the size of the Telcos and of course a negotiations tactic. You will loose many sleepless nights over this to no avail.

Profitable deal. Once you think you have a deal with a Telco, think again. There is always something else that comes up to reduce the fee or change the dynamics of the revenue share deal. In this respect the Telcos are using their size against you and behaving like bullies. It is unlikely you will ever get a "good" deal out of them.

Of course none of this should surprise you and of course there are exceptions like our company Freedompop, who has tremendous working relationships with various Telcos. Nevertheless, its the David vs. Goliath syndrome....Telcos have created an internal culture where engaging with suppliers/partners is all about maximising the outcome for them no matter what the outcome, and given the size difference you will always loose.

More important though to remember is the single most important lesson I have learned when dealing with Telcos:

Telco's are not interested in innovation. In their minds, innovation kills margins.... and they are all about amortising CAPEX and maintaining the consumer status quo as long as possible. After all, these where the conditions which led to Skype and WhatsApp being able to disrupt respectively the Voice and SMS markets.

So when you come calling, and you see the glazed look in their eyes, remember that innovation kills margins....and that you should probably not be there. Focus on taking your product to market on your terms and stay true to your dream.

* This post was first published on LinkedIn


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