Successful Planning and the Outsource Option

March 5, 2001 -- You want to be in the CLEC business, and so, you've developed a thorough business plan. Right?

Before you can build a successful CLEC, you need a plan, as well as staff, and most importantly, funds to support the operation as you build it. After all, it takes money to get started, and unless you have a rich uncle or unlimited personal funds, you have to convince others to invest in your idea. Proper planning is always necessary to obtain funds, and money doesn't grow on trees waiting for you to pick it.

In recent years, the money tree was easier to shake, but today, you need to have a firm plan from which an investor can base his decision upon. Investors want to know that you have a plan to minimize expenses as you grow the revenue lines. They know that there are three areas where 90% of the expense resides. These are vendor costs, marketing and administration (staff). To obtain money from an investor, you must be able to answer the basics on:

- How you plan to offer service
- What services you will provide
- Your proposed vendors
- The regulatory picture and your approach to certification
- Your marketing approach
- How you will service the customer
- How you will grow and maintain the customer base
- Proposed revenue and expenses

These are basic business planning 101 topics. No surprise here. But you have to ask yourself, do you really have the bases covered? In many cases planning addresses the positives and minimizes the negatives. This is normal, but have you really considered all of the negatives involved in setting up a CLEC? The more in-depth your planning, the more in-tune an investor will listen.

More importantly, you need to know what management talent is available. This includes:

- The skills set for each executive position available or required
- The proposed structure for managing the company
- The timeline for building the infrastructure to support company.

A CLEC requires many diverse skills:

- accounting
- vendor cost
- human resources
- customer service
- marketing
- billing
- provisioning
- collections
- information technology
- regulatory

Although these areas need to be staffed, recognize that there will always be pressure to minimize staff levels. As you plan these areas, there are overlaps and further definition, but what is apparent in the planning process are the costs that will be incurred to support these areas. In today's financing environment, the cash burn necessary to support these areas can be intensive. In addition, the need to keep the organization flat limits the available pool of resources that you can draw from to support each function. In fact the real issue that you should address during this phase of planning is the procurement of qualified talent and the management of that talent.

Build Revenue and Minimize Costs
So you've evaluated your core competencies and analyzed your abilities to manage a start-up. But investors want to know how you will focus on building revenue while minimizing costs. For this, there are several options. One way is to look at an outsource model. Many of the functions described above are available as outsourced services. The real benefit is that the core competency is with your outsource partner, and not within your organization. This is a focus that is often lost in many new CLEC's. The "we can do it all mentality" assumes that you can get the right personnel with all the right skills and the right attitude to develop an organization from scratch.

It is difficult to find the right people and many companies often settle for personnel that can talk the talk, but can't necessarily walk the walk. This is one of the leading causes of CLEC problems and expense drain, as an improper hire can cost more in lost revenue and true productivity. When managed properly, an outsource partner will provide an immediate service that you may be unable to provide efficiently for 1-2 years. In that time your churn rate and overall expense problems may not keep you in business.

Areas to particularly consider are provisioning, billing, collections, customer service, and information technology. These areas require specialized skill sets that are not readily available. Another fact to consider during your planning is personnel churn. When you have one person who is the only one that can handle a particular function, illness or vacation will significantly impact your business. Having a vendor who is responsible and can provide the redundant support can be a savior.

One of the drawbacks with outsourcing is a feeling that control is lost to an outsider. But if the arrangement is well managed, the vendor will act and feel as if he is actually a valued employee.

Planning for Success
Lay a solid foundation through proper planning and consider the use of contract support in your business plan. It is not a normal model, but in a world where margins are slim and profits are slow, the fastest way to profitability can be through an outsource partner.

Jim Marsh is a senior consultant for The Management Network Group, a telecom consulting organization.  Jim has worked in telecom for 15 years and is an expert in revenue assurance, risk management and fraud. Jim speaks and writes on improving operational systems and functions to improve bottom lines.