LITMIR.BIZ

      IRIDIUM WAS ONE OF THE BIGGEST STARTUP gambles ever made—a bold and audacious $5.2 billion bet. Founded by Motorola and a global partnership of 18 companies in 1991, Iridium planned to build a mobile telephone system that would work “anywhere on Earth,” from ships in the middle of the ocean to the jungles of Africa to remote mountain peaks where no cell towers existed.

How? With an out-of-this-world business plan. First, the company bought a fleet of 15 rockets from Russia, the U.S. and China. Next, it launched an armada of 72 private satellites into orbit, where they acted like 500-mile-high cell towers providing phone coverage to any spot on Earth. Seven years after Iridium’s founding, its satellites were in place. But nine months after the first call was made in 1998, the company was in Chapter 11 bankruptcy. When Iridium crashed back to Earth, it ranked as one of the largest startup failures on record. What went wrong?

      When Iridium was founded in 1991, worldwide cell-phone coverage was sparse, unreliable and expensive. Cell-phone handsets were the size of lunch boxes. Iridium put together a business plan that made assumptions about customers, their problems and the product needed to solve those problems. Other assumptions about sales channel, partnerships, and revenue model all added up to a set of financial forecasts that Iridium would soon be printing money.

      One of the largest startup failures on record as they executed their business plan.

      But in the seven-plus years it took Iridium to go from concept to launch, innovation in mobile- and cell-phone networks moved at blinding speed. By the time Iridium launched, there were far fewer places on the planet where cell-phone service was unavailable. Traditional cell-phone companies provided coverage in the most valuable parts of the world. Prices for cell service shrunk as fast as phone handsets did. In contrast, Iridium’s satellite phone was bigger than a brick and weighed about as much. Worse, Iridium’s cell phone couldn’t make calls from cars or buildings, since it required line-of-sight “connection” to the satellites. Instead of 50 cents per minute for a regular cell call, Iridium’s calls cost $7 a minute, plus $3,000 for the handset itself.

Iridium’s potential market shrunk nearly every day. Instead of a massive worldwide market of potential users, it had drawn only a small group willing to pay its prices and put up with the product’s many limitations. But Iridium’s business model assumptions and plans were firmly fixed as if it was still 1991. The company spent $5 billion building a business over eight years without ever focusing on four key questions:

      Answering these questions is the purpose of the first step in the customer discovery process. This chapter explains how to go about it.

      (Twenty years later, Iridium emerged from bankruptcy. In 2000, an investor group bought $6 billion worth of its assets for $25 million. After a long climb back, the company celebrated its 500,000^th customer in September 2011.)

      Customers don’t behave like your business plan.