Starting an Internet Service Provider or ISP is an expensive venture. When you reap success through the ISP, the expense becomes a worthwhile investment. DSL which is the acronym for digital subscriber line or digital subscriber loop has made connections between the ISP and the customer extremely fast and extremely easy to use compared to the dial up system that could transmit viewer bytes at a slower pace.
Start the ISP by getting a license. Both State and federal licenses are required to start an ISP. You need to provide the Government with information of your employer ID number and your domain name registration. You should also apply for a trademark to protect the unique name of your ISP from being used by other ISPs.
Arrange for the required funds to set up the ISP. You should get a checking account and a pre-approved credit line. You should also get ISP billing software, accounting software and an invoicing system. All these software are easily available over the counter. Get ledger software than can track accounts receivable and payable and check customer usage and overages.
Arrange your five dedicated PCs and install all the software. One PC should be dedicated for the DNS or your domain name system, one for mail, one for web both Httpd and Https authentication and one for news. The fifth PC should be used for the financial part of the enterprise and all the accounting and invoicing software should be loaded on it. Install a good quality security system in the PCs. Assemble the DSALM so that it can connect to customer trans receivers or modems easily.
Purchase an Internet feed and local loop from a regional or national backbone provider. You should purchase a 24 channel PRI or primary rate interface circuit to connect to customer modems effectively. A single PRI should feed over 200 connections. Many backbone providers give free network news Relay Protocol free with the PRI which will help you run a Usenet service.
Get a good marketing plan ready with all details of the unique services you offer potential customers and how you intend to serve them better than other ISPs. An effective marketing plan is required to build the customer base of an ISP.
Things You'll Need:
•Licenses
•Sufficient funds to cover initial expenses
•Phone system
•Five PCs
•Security equipment
•Billing software
•Invoicing software
•DSALM DSL access multiplexer
•Trans receivers
•24 channel Primary Rate Interface (PRI)
•Access servers
•Modems
•Routers
•Ethernet cables
•Sales and marketing plan
•If the backbone provider offers the free Network News Relay Protocol NNRP, you should not think of buying the equipment. You can give the impression to the customer that the Usenet is a value added service offered by you..•Starting a DSL ISP can come with large initial expenses and profits may not roll in fast. It is therefore important that you have sufficient funds to finance the enterprise..
Friday, July 30, 2010
Taurus Wireless, Rashad Gray's ISP27
How to Start a DSL ISP
Starting an Internet Service Provider or ISP is an expensive venture. When you reap success through the ISP, the expense becomes a worthwhile investment. DSL which is the acronym for digital subscriber line or digital subscriber loop has made connections between the ISP and the customer extremely fast and extremely easy to use compared to the dial up system that could transmit viewer bytes at a slower pace.
Start the ISP by getting a license. Both State and federal licenses are required to start an ISP. You need to provide the Government with information of your employer ID number and your domain name registration. You should also apply for a trademark to protect the unique name of your ISP from being used by other ISPs.
Arrange for the required funds to set up the ISP. You should get a checking account and a pre-approved credit line. You should also get ISP billing software, accounting software and an invoicing system. All these software are easily available over the counter. Get ledger software than can track accounts receivable and payable and check customer usage and overages.
Arrange your five dedicated PCs and install all the software. One PC should be dedicated for the DNS or your domain name system, one for mail, one for web both Httpd and Https authentication and one for news. The fifth PC should be used for the financial part of the enterprise and all the accounting and invoicing software should be loaded on it. Install a good quality security system in the PCs. Assemble the DSALM so that it can connect to customer trans receivers or modems easily.
Things You'll Need:
•Licenses
•Sufficient funds to cover initial expenses
•Phone system
•Five PCs
•Security equipment
•Billing software
•Invoicing software
•DSALM DSL access multiplexer
•Trans receivers
•24 channel Primary Rate Interface (PRI)
•Access servers
•Modems
•Routers
•Ethernet cables
•Sales and marketing plan
Purchase an Internet feed and local loop from a regional or national backbone provider. You should purchase a 24 channel PRI or primary rate interface circuit to connect to customer modems effectively. A single PRI should feed over 200 connections. Many backbone providers give free network news Relay Protocol free with the PRI which will help you run a Usenet service.
Get a good marketing plan ready with all details of the unique services you offer potential customers and how you intend to serve them better than other ISPs. An effective marketing plan is required to build the customer base of an ISP.
•If the backbone provider offers the free Network News Relay Protocol NNRP, you should not think of buying the equipment. You can give the impression to the customer that the Usenet is a value added service offered by you..•Starting a DSL ISP can come with large initial expenses and profits may not roll in fast. It is therefore important that you have sufficient funds to finance the enterprise..
Starting an Internet Service Provider or ISP is an expensive venture. When you reap success through the ISP, the expense becomes a worthwhile investment. DSL which is the acronym for digital subscriber line or digital subscriber loop has made connections between the ISP and the customer extremely fast and extremely easy to use compared to the dial up system that could transmit viewer bytes at a slower pace.
Start the ISP by getting a license. Both State and federal licenses are required to start an ISP. You need to provide the Government with information of your employer ID number and your domain name registration. You should also apply for a trademark to protect the unique name of your ISP from being used by other ISPs.
Arrange for the required funds to set up the ISP. You should get a checking account and a pre-approved credit line. You should also get ISP billing software, accounting software and an invoicing system. All these software are easily available over the counter. Get ledger software than can track accounts receivable and payable and check customer usage and overages.
Arrange your five dedicated PCs and install all the software. One PC should be dedicated for the DNS or your domain name system, one for mail, one for web both Httpd and Https authentication and one for news. The fifth PC should be used for the financial part of the enterprise and all the accounting and invoicing software should be loaded on it. Install a good quality security system in the PCs. Assemble the DSALM so that it can connect to customer trans receivers or modems easily.
Things You'll Need:
•Licenses
•Sufficient funds to cover initial expenses
•Phone system
•Five PCs
•Security equipment
•Billing software
•Invoicing software
•DSALM DSL access multiplexer
•Trans receivers
•24 channel Primary Rate Interface (PRI)
•Access servers
•Modems
•Routers
•Ethernet cables
•Sales and marketing plan
Purchase an Internet feed and local loop from a regional or national backbone provider. You should purchase a 24 channel PRI or primary rate interface circuit to connect to customer modems effectively. A single PRI should feed over 200 connections. Many backbone providers give free network news Relay Protocol free with the PRI which will help you run a Usenet service.
Get a good marketing plan ready with all details of the unique services you offer potential customers and how you intend to serve them better than other ISPs. An effective marketing plan is required to build the customer base of an ISP.
•If the backbone provider offers the free Network News Relay Protocol NNRP, you should not think of buying the equipment. You can give the impression to the customer that the Usenet is a value added service offered by you..•Starting a DSL ISP can come with large initial expenses and profits may not roll in fast. It is therefore important that you have sufficient funds to finance the enterprise..
Thursday, July 29, 2010
Taurus Wireless, Rashad Gray's ISP26
Wireless Internet service providers (ISPs) provide Internet to many households that would otherwise use dial-up connections or have none at all. Setting up a wireless ISP is extremely easy and inexpensive when you need to service only a handful of customers.
Install the antennas onto the router and place them onto the building. You will have to replace the standard 2dB antennas with something more robust, preferably omnidirectional, weatherproof models with a decibel rating over 12. The connectors on the antenna cables attach to the standardized plugs on the router (N-type or RMS), as well as the extension cable leading to the new antennas. The antennas should be placed as high as possible and vertically oriented. Typical routers will have a stock range of about a quarter mile, but adding these new antennas will boost that range to a half mile or more.
Things You'll Need:
•Internet connection
•Wireless router
•Replacement high-decibel router antennas
•21 feet of antenna extension cables
Set up the router. Routers are usually accessible through their firmware, which can be viewed through a website. The firmware displays settings and restrictions and must be set up to properly handle the traffic of many computers. Be sure the settings for encryption (WPA or WEP) are enabled and a password is set. Check other settings such as the "lease timeouts" (set for maximum time) and number of users allowed. By default, routers are set to DHCP, which will assign IP addresses to the users' computers automatically. The router will have a place to give it a broadcast name, or SSID. Set this SSID to a simple, recognizable name. Save all setting changes before closing the window.
Connect the router to the wired Internet connection with an RJ-45 Ethernet cable.
Set up customers' computers to use the wireless router as an access point. In the network settings for the machine's wireless networking hardware, select "obtain IP address automatically" or DHCP. Using the wireless card's software or Windows' built-in wireless configuration, scan for networks. If the router is within range, it will show up on the scan results. Enter in the encryption passcode, and the router will give the machine an address and connect it to the network.
Check for Internet connectivity by opening a browser window and attempting to surf the web.
Directional antennas can have higher range and are usually rated for a higher decibel level.
Wireless Internet service providers (ISPs) provide Internet to many households that would otherwise use dial-up connections or have none at all. Setting up a wireless ISP is extremely easy and inexpensive when you need to service only a handful of customers.
Install the antennas onto the router and place them onto the building. You will have to replace the standard 2dB antennas with something more robust, preferably omnidirectional, weatherproof models with a decibel rating over 12. The connectors on the antenna cables attach to the standardized plugs on the router (N-type or RMS), as well as the extension cable leading to the new antennas. The antennas should be placed as high as possible and vertically oriented. Typical routers will have a stock range of about a quarter mile, but adding these new antennas will boost that range to a half mile or more.
Things You'll Need:
•Internet connection
•Wireless router
•Replacement high-decibel router antennas
•21 feet of antenna extension cables
Set up the router. Routers are usually accessible through their firmware, which can be viewed through a website. The firmware displays settings and restrictions and must be set up to properly handle the traffic of many computers. Be sure the settings for encryption (WPA or WEP) are enabled and a password is set. Check other settings such as the "lease timeouts" (set for maximum time) and number of users allowed. By default, routers are set to DHCP, which will assign IP addresses to the users' computers automatically. The router will have a place to give it a broadcast name, or SSID. Set this SSID to a simple, recognizable name. Save all setting changes before closing the window.
Connect the router to the wired Internet connection with an RJ-45 Ethernet cable.
Set up customers' computers to use the wireless router as an access point. In the network settings for the machine's wireless networking hardware, select "obtain IP address automatically" or DHCP. Using the wireless card's software or Windows' built-in wireless configuration, scan for networks. If the router is within range, it will show up on the scan results. Enter in the encryption passcode, and the router will give the machine an address and connect it to the network.
Check for Internet connectivity by opening a browser window and attempting to surf the web.
Directional antennas can have higher range and are usually rated for a higher decibel level.
Install the antennas onto the router and place them onto the building. You will have to replace the standard 2dB antennas with something more robust, preferably omnidirectional, weatherproof models with a decibel rating over 12. The connectors on the antenna cables attach to the standardized plugs on the router (N-type or RMS), as well as the extension cable leading to the new antennas. The antennas should be placed as high as possible and vertically oriented. Typical routers will have a stock range of about a quarter mile, but adding these new antennas will boost that range to a half mile or more.
Things You'll Need:
•Internet connection
•Wireless router
•Replacement high-decibel router antennas
•21 feet of antenna extension cables
Set up the router. Routers are usually accessible through their firmware, which can be viewed through a website. The firmware displays settings and restrictions and must be set up to properly handle the traffic of many computers. Be sure the settings for encryption (WPA or WEP) are enabled and a password is set. Check other settings such as the "lease timeouts" (set for maximum time) and number of users allowed. By default, routers are set to DHCP, which will assign IP addresses to the users' computers automatically. The router will have a place to give it a broadcast name, or SSID. Set this SSID to a simple, recognizable name. Save all setting changes before closing the window.
Connect the router to the wired Internet connection with an RJ-45 Ethernet cable.
Set up customers' computers to use the wireless router as an access point. In the network settings for the machine's wireless networking hardware, select "obtain IP address automatically" or DHCP. Using the wireless card's software or Windows' built-in wireless configuration, scan for networks. If the router is within range, it will show up on the scan results. Enter in the encryption passcode, and the router will give the machine an address and connect it to the network.
Check for Internet connectivity by opening a browser window and attempting to surf the web.
Directional antennas can have higher range and are usually rated for a higher decibel level.
Wireless Internet service providers (ISPs) provide Internet to many households that would otherwise use dial-up connections or have none at all. Setting up a wireless ISP is extremely easy and inexpensive when you need to service only a handful of customers.
Install the antennas onto the router and place them onto the building. You will have to replace the standard 2dB antennas with something more robust, preferably omnidirectional, weatherproof models with a decibel rating over 12. The connectors on the antenna cables attach to the standardized plugs on the router (N-type or RMS), as well as the extension cable leading to the new antennas. The antennas should be placed as high as possible and vertically oriented. Typical routers will have a stock range of about a quarter mile, but adding these new antennas will boost that range to a half mile or more.
Things You'll Need:
•Internet connection
•Wireless router
•Replacement high-decibel router antennas
•21 feet of antenna extension cables
Set up the router. Routers are usually accessible through their firmware, which can be viewed through a website. The firmware displays settings and restrictions and must be set up to properly handle the traffic of many computers. Be sure the settings for encryption (WPA or WEP) are enabled and a password is set. Check other settings such as the "lease timeouts" (set for maximum time) and number of users allowed. By default, routers are set to DHCP, which will assign IP addresses to the users' computers automatically. The router will have a place to give it a broadcast name, or SSID. Set this SSID to a simple, recognizable name. Save all setting changes before closing the window.
Connect the router to the wired Internet connection with an RJ-45 Ethernet cable.
Set up customers' computers to use the wireless router as an access point. In the network settings for the machine's wireless networking hardware, select "obtain IP address automatically" or DHCP. Using the wireless card's software or Windows' built-in wireless configuration, scan for networks. If the router is within range, it will show up on the scan results. Enter in the encryption passcode, and the router will give the machine an address and connect it to the network.
Check for Internet connectivity by opening a browser window and attempting to surf the web.
Directional antennas can have higher range and are usually rated for a higher decibel level.
Taurus Wireless, Rashad Gray's ISP25
How to Start an ISP
The thought of becoming an Internet service provider (ISP) is an attractive prospect for many people who want to start their own business. Chances are that you'll never be the next AOL, but it is not impossible. Even if you do not become the world's largest provider, you can still earn a very good living by providing Internet service to your local market. Owning your own ISP will also create jobs for your local economy and make you a valued member of the community.
How to Start an ISP
•Step 1
Write a business plan. One thing that all successful business have in common is a written business plan. Decide if you will broadband service ora dial up ISP. Know what customers are in your market and how will you reach them. Identify your costs and come up with a plan of how you will sign on enough subscribers to cover costs. Using a business plan is an effective tool to help keep your business on the pathway to success.
Things You'll Need:
•Network servers
•Access servers
•Network hub
•Internet switch
•Internet backbone access
•T1 lines
•ISP billing software
Establish your corporate structure. Determine if your ISP will be a sole proprietorship, a partnership or a limited liability company. After you have identified how your business will be structured, you can register your business as a company. Go to the office of the city clerk in the town where your ISP will be located. The clerk will assist you in filing the necessary paperwork to legally establish your ISP business.
Scout for an office location. You just need room for an administrative staff, a sales and marketing team and a customer support department. Furnish your office with desks, telephones and computers so that all of your employees are adequately equipped to do their job.
Locate adequate facilities to host the servers that will power your ISP business. The servers for your business network can be hosted at your office, but the servers for the ISP require a more demanding location. The farther away from the telephone company or Internet backbone, the more expensive your switches and hubs will cost to operate. Try to find a hosting co-location facility or ISP building that can provide a direct hook-up to the Internet backbone in your area.
Get access to the Internet backbone. The general philosophy of operating an ISP is that you buy large amounts of data transfer at wholesale rates, then sell that same transfer at a retail price. The way to do this is to lease access to the Internet backbone for your network. This access can be leased from the telephone company, cable company or anyone else who owns broadband cabling.
Determine how many T1 lines will need to access your connection to the Internet backbone. You can expect each T1 line to support the Internet activity of about 200 concurrent users. Since not everyone will be online at the same time, most ISPs extrapolate this to mean that there should be one T1 line for every 1,500 subscribers. Monitor your service carefully and if you notice that your system begins to lag during peak times, bump up the number of T1 lines.
Acquire a switch to use with your ISP network. Many small ISPs will use what is known as POTS, which stands for "plain old telephone service." This is really an outdated method of managing Internet traffic and is not recommended. You will get much better results by using a 24-channel T1 switch, although multiple switches may be required if you set up a large number of T1 lines in the previous step. You can also use a PRI switch, which stands for "primary rate interface."
Buy an access server to control your subscribers' log-in process on your ISP network. Access servers combine a bank of modems with a network monitoring terminal and are used as the gateway that verifies a user's account before giving that account access to your ISP. The most popular access servers are made by 3Com and Cisco. Other brands include Ascend, Nortel and Livingston.
Buy the network servers to which your subscribers gain access. These servers can be sophisticated rack-mounted servers or high power personal computers. You will need an ISP network server for each of your major functions, which include DNS servers, email servers, web browsing and usenet newsgroups. One server for each function will be more than sufficient for most start up ISPs, although you may need to expand this network as you take on larger numbers of subscribers.
Connect all of your devices. Using a hub, locate all of your ISP network servers behind a firewall, with your access server in the front. The access server should be connected to your Internet switch, which has two-way communication with the Internet backbone via the T1 lines you have set up. You now have all of the hardware that is required to operate your own ISP.
Install an ISP management and billing program on the network to manage your subscriber accounts. There are a number of programs that are commercially available. One popular ISP software program is OptiGold ISP. This program will manage the access and billing of all of your subscribers. You can try the program free for 30 days. If you like it and wish to continue using it, the cost is only $1,000. Once this software has been installed on your network, you now have a completely operational ISP and only need to advertise your service to acquire customers.
If you just need a simple dial-up ISP, you may wish to consider using a turnkey package that will provide everything you need right out of the box.
The thought of becoming an Internet service provider (ISP) is an attractive prospect for many people who want to start their own business. Chances are that you'll never be the next AOL, but it is not impossible. Even if you do not become the world's largest provider, you can still earn a very good living by providing Internet service to your local market. Owning your own ISP will also create jobs for your local economy and make you a valued member of the community.
How to Start an ISP
•Step 1
Write a business plan. One thing that all successful business have in common is a written business plan. Decide if you will broadband service ora dial up ISP. Know what customers are in your market and how will you reach them. Identify your costs and come up with a plan of how you will sign on enough subscribers to cover costs. Using a business plan is an effective tool to help keep your business on the pathway to success.
Things You'll Need:
•Network servers
•Access servers
•Network hub
•Internet switch
•Internet backbone access
•T1 lines
•ISP billing software
Establish your corporate structure. Determine if your ISP will be a sole proprietorship, a partnership or a limited liability company. After you have identified how your business will be structured, you can register your business as a company. Go to the office of the city clerk in the town where your ISP will be located. The clerk will assist you in filing the necessary paperwork to legally establish your ISP business.
Scout for an office location. You just need room for an administrative staff, a sales and marketing team and a customer support department. Furnish your office with desks, telephones and computers so that all of your employees are adequately equipped to do their job.
Locate adequate facilities to host the servers that will power your ISP business. The servers for your business network can be hosted at your office, but the servers for the ISP require a more demanding location. The farther away from the telephone company or Internet backbone, the more expensive your switches and hubs will cost to operate. Try to find a hosting co-location facility or ISP building that can provide a direct hook-up to the Internet backbone in your area.
Get access to the Internet backbone. The general philosophy of operating an ISP is that you buy large amounts of data transfer at wholesale rates, then sell that same transfer at a retail price. The way to do this is to lease access to the Internet backbone for your network. This access can be leased from the telephone company, cable company or anyone else who owns broadband cabling.
Determine how many T1 lines will need to access your connection to the Internet backbone. You can expect each T1 line to support the Internet activity of about 200 concurrent users. Since not everyone will be online at the same time, most ISPs extrapolate this to mean that there should be one T1 line for every 1,500 subscribers. Monitor your service carefully and if you notice that your system begins to lag during peak times, bump up the number of T1 lines.
Acquire a switch to use with your ISP network. Many small ISPs will use what is known as POTS, which stands for "plain old telephone service." This is really an outdated method of managing Internet traffic and is not recommended. You will get much better results by using a 24-channel T1 switch, although multiple switches may be required if you set up a large number of T1 lines in the previous step. You can also use a PRI switch, which stands for "primary rate interface."
Buy an access server to control your subscribers' log-in process on your ISP network. Access servers combine a bank of modems with a network monitoring terminal and are used as the gateway that verifies a user's account before giving that account access to your ISP. The most popular access servers are made by 3Com and Cisco. Other brands include Ascend, Nortel and Livingston.
Buy the network servers to which your subscribers gain access. These servers can be sophisticated rack-mounted servers or high power personal computers. You will need an ISP network server for each of your major functions, which include DNS servers, email servers, web browsing and usenet newsgroups. One server for each function will be more than sufficient for most start up ISPs, although you may need to expand this network as you take on larger numbers of subscribers.
Connect all of your devices. Using a hub, locate all of your ISP network servers behind a firewall, with your access server in the front. The access server should be connected to your Internet switch, which has two-way communication with the Internet backbone via the T1 lines you have set up. You now have all of the hardware that is required to operate your own ISP.
Install an ISP management and billing program on the network to manage your subscriber accounts. There are a number of programs that are commercially available. One popular ISP software program is OptiGold ISP. This program will manage the access and billing of all of your subscribers. You can try the program free for 30 days. If you like it and wish to continue using it, the cost is only $1,000. Once this software has been installed on your network, you now have a completely operational ISP and only need to advertise your service to acquire customers.
If you just need a simple dial-up ISP, you may wish to consider using a turnkey package that will provide everything you need right out of the box.
Taurus Wireless, Rashad Gray's ISP24
Rural Internet No Longer So Off the Grid
By Bernhard Warner
LONDON (Reuters) - Attention country bumpkins, vacationers and beach bums: competing broadband Internet access alternatives are extending high-speed online connections deeper into the hinterland.
Increasingly, vacationers are able to log in to check e-mails and send last-minute updates to business presentations from the ski chalet, the boat moored off shore and even the camper van.
High-speed connections have also reignited in some the dream of turning the country home into an office, particularly as the technologies improve and costs fall.
Whether it be through an electrical power line, satellites orbiting the heavens, wireless (news - web sites) transmitters on a grassy hill -- or a combination of the three -- scores of firms are trying to crack the remote broadband market.
"I doubt if I'll ever see (high-speed Web access via phone) in my neighborhood and my local cable company is in bankruptcy," said Carl Zetie, a Forrester Research analyst who works from his home office in rural Waterford Glenn, Virginia. He's a couple of hours outside of Washington, D.C., in the northeast corner of the state.
Last year, Zetie installed a short, 30-centimeter directional antenna on his roof that points to a wireless broadband cell tower located two miles away. He can now surf the Web at one million bits per second; 20 times as fast as a conventional dial-up Internet access via standard phone lines.
DOES THE ANSWER LIE IN THE HEAVENS?
A thicket of technological snags prevent conventional cable and DSL broadband providers from ever entering most out-of-the-way communities, leaving between 5 percent to 10 percent of all homes and businesses in North America and Europe no choice but to seek an alternative, analysts say.
The cost and complexity of satellite-based Internet connections are falling. One provider, Europe Online (http://www.europeonline.com), offers satellite service for European customers, charging 150 euros for a year's worth of access. A satellite dish runs an extra 100 to 300 euros. It provides so-called digital subscriber line (DSL) access at speeds roughly ten times a standard phone-line Web connection.
Yet satellite still has its limitations. Users complain the service cuts out during periods of heavy rain and snow, and, in North America at least, an impeded view of the southern sky's orbit path can cause service interruptions.
"Satellite systems are good provided you understand their limitations," said David Farmer, project manager of One North East, a tax-payer-funded U.K. nonprofit organization with a mission to get England's rural Northeast on the broadband train.
One Northeast (http://www.n-e-life.com/broadband/) has used satellite and short-range wireless network technologies to bring broadband access to 15 towns and 12 rural outposts, including a local country pub, in the northern English counties of Northumberland and Durham.
WIRELESS IN THE WOODS
The next big wave is wireless technologies, analysts say. Wireless LANs and Wi-Fi hotspots are being set up to bring fast 'Net access to everywhere from Texas motorhome parks to yachting marinas along Italy's ultra-glamorous Amalfi Coast.
Italian start-up, Nocable S.P.A. (http://www.nocable.it), expects to introduce wireless Internet service by the end of this year in 100 coastal resorts in Southern Italy. It plans to charge nine euros per hour, enabling Europe's power brokers to check stock quotes from yachts via phone or computer links.
Bob Grose, host of a BBC television home remodeling program, teamed up with a friend, Gordon Adgey, to establish Buckfastleigh Broadband last year to bring high-speed Net access to the idyllic Devon countryside in southwest England.
"The whole thing was born out of frustration. We could see the whole broadband thing kicking off in London and didn't want to be left out," Adgey said. Adgey and Grose are looking to sign-up 100 of their neighbors, who can expect to pay 40 pounds per month -- a point at which they believe the operation should break even, he says.
It's not just mom-and-pop organizations hoping to bridge the last mile. A host of electric utilities are again buzzing with plans to offer high-speed Internet connections through wall sockets, a technology that analysts say is still a ways off.
The United Power Line Council (http://www.uplc.utc.org) in the United States and Scottish and Southern Energy (SSE.L) are plugging the technology's simplicity. Where available. the connection hooks up directly into a wall socket to bring one million bit a second surfing speeds.
Rural Internet No Longer So Off the Grid
By Bernhard Warner
LONDON (Reuters) - Attention country bumpkins, vacationers and beach bums: competing broadband Internet access alternatives are extending high-speed online connections deeper into the hinterland.
Increasingly, vacationers are able to log in to check e-mails and send last-minute updates to business presentations from the ski chalet, the boat moored off shore and even the camper van.
High-speed connections have also reignited in some the dream of turning the country home into an office, particularly as the technologies improve and costs fall.
Whether it be through an electrical power line, satellites orbiting the heavens, wireless (news - web sites) transmitters on a grassy hill -- or a combination of the three -- scores of firms are trying to crack the remote broadband market.
"I doubt if I'll ever see (high-speed Web access via phone) in my neighborhood and my local cable company is in bankruptcy," said Carl Zetie, a Forrester Research analyst who works from his home office in rural Waterford Glenn, Virginia. He's a couple of hours outside of Washington, D.C., in the northeast corner of the state.
Last year, Zetie installed a short, 30-centimeter directional antenna on his roof that points to a wireless broadband cell tower located two miles away. He can now surf the Web at one million bits per second; 20 times as fast as a conventional dial-up Internet access via standard phone lines.
DOES THE ANSWER LIE IN THE HEAVENS?
A thicket of technological snags prevent conventional cable and DSL broadband providers from ever entering most out-of-the-way communities, leaving between 5 percent to 10 percent of all homes and businesses in North America and Europe no choice but to seek an alternative, analysts say.
The cost and complexity of satellite-based Internet connections are falling. One provider, Europe Online (http://www.europeonline.com), offers satellite service for European customers, charging 150 euros for a year's worth of access. A satellite dish runs an extra 100 to 300 euros. It provides so-called digital subscriber line (DSL) access at speeds roughly ten times a standard phone-line Web connection.
Yet satellite still has its limitations. Users complain the service cuts out during periods of heavy rain and snow, and, in North America at least, an impeded view of the southern sky's orbit path can cause service interruptions.
"Satellite systems are good provided you understand their limitations," said David Farmer, project manager of One North East, a tax-payer-funded U.K. nonprofit organization with a mission to get England's rural Northeast on the broadband train.
One Northeast (http://www.n-e-life.com/broadband/) has used satellite and short-range wireless network technologies to bring broadband access to 15 towns and 12 rural outposts, including a local country pub, in the northern English counties of Northumberland and Durham.
WIRELESS IN THE WOODS
The next big wave is wireless technologies, analysts say. Wireless LANs and Wi-Fi hotspots are being set up to bring fast 'Net access to everywhere from Texas motorhome parks to yachting marinas along Italy's ultra-glamorous Amalfi Coast.
Italian start-up, Nocable S.P.A. (http://www.nocable.it), expects to introduce wireless Internet service by the end of this year in 100 coastal resorts in Southern Italy. It plans to charge nine euros per hour, enabling Europe's power brokers to check stock quotes from yachts via phone or computer links.
Bob Grose, host of a BBC television home remodeling program, teamed up with a friend, Gordon Adgey, to establish Buckfastleigh Broadband last year to bring high-speed Net access to the idyllic Devon countryside in southwest England.
"The whole thing was born out of frustration. We could see the whole broadband thing kicking off in London and didn't want to be left out," Adgey said. Adgey and Grose are looking to sign-up 100 of their neighbors, who can expect to pay 40 pounds per month -- a point at which they believe the operation should break even, he says.
It's not just mom-and-pop organizations hoping to bridge the last mile. A host of electric utilities are again buzzing with plans to offer high-speed Internet connections through wall sockets, a technology that analysts say is still a ways off.
The United Power Line Council (http://www.uplc.utc.org) in the United States and Scottish and Southern Energy (SSE.L) are plugging the technology's simplicity. Where available. the connection hooks up directly into a wall socket to bring one million bit a second surfing speeds.
By Bernhard Warner
LONDON (Reuters) - Attention country bumpkins, vacationers and beach bums: competing broadband Internet access alternatives are extending high-speed online connections deeper into the hinterland.
Increasingly, vacationers are able to log in to check e-mails and send last-minute updates to business presentations from the ski chalet, the boat moored off shore and even the camper van.
High-speed connections have also reignited in some the dream of turning the country home into an office, particularly as the technologies improve and costs fall.
Whether it be through an electrical power line, satellites orbiting the heavens, wireless (news - web sites) transmitters on a grassy hill -- or a combination of the three -- scores of firms are trying to crack the remote broadband market.
"I doubt if I'll ever see (high-speed Web access via phone) in my neighborhood and my local cable company is in bankruptcy," said Carl Zetie, a Forrester Research analyst who works from his home office in rural Waterford Glenn, Virginia. He's a couple of hours outside of Washington, D.C., in the northeast corner of the state.
Last year, Zetie installed a short, 30-centimeter directional antenna on his roof that points to a wireless broadband cell tower located two miles away. He can now surf the Web at one million bits per second; 20 times as fast as a conventional dial-up Internet access via standard phone lines.
DOES THE ANSWER LIE IN THE HEAVENS?
A thicket of technological snags prevent conventional cable and DSL broadband providers from ever entering most out-of-the-way communities, leaving between 5 percent to 10 percent of all homes and businesses in North America and Europe no choice but to seek an alternative, analysts say.
The cost and complexity of satellite-based Internet connections are falling. One provider, Europe Online (http://www.europeonline.com), offers satellite service for European customers, charging 150 euros for a year's worth of access. A satellite dish runs an extra 100 to 300 euros. It provides so-called digital subscriber line (DSL) access at speeds roughly ten times a standard phone-line Web connection.
Yet satellite still has its limitations. Users complain the service cuts out during periods of heavy rain and snow, and, in North America at least, an impeded view of the southern sky's orbit path can cause service interruptions.
"Satellite systems are good provided you understand their limitations," said David Farmer, project manager of One North East, a tax-payer-funded U.K. nonprofit organization with a mission to get England's rural Northeast on the broadband train.
One Northeast (http://www.n-e-life.com/broadband/) has used satellite and short-range wireless network technologies to bring broadband access to 15 towns and 12 rural outposts, including a local country pub, in the northern English counties of Northumberland and Durham.
WIRELESS IN THE WOODS
The next big wave is wireless technologies, analysts say. Wireless LANs and Wi-Fi hotspots are being set up to bring fast 'Net access to everywhere from Texas motorhome parks to yachting marinas along Italy's ultra-glamorous Amalfi Coast.
Italian start-up, Nocable S.P.A. (http://www.nocable.it), expects to introduce wireless Internet service by the end of this year in 100 coastal resorts in Southern Italy. It plans to charge nine euros per hour, enabling Europe's power brokers to check stock quotes from yachts via phone or computer links.
Bob Grose, host of a BBC television home remodeling program, teamed up with a friend, Gordon Adgey, to establish Buckfastleigh Broadband last year to bring high-speed Net access to the idyllic Devon countryside in southwest England.
"The whole thing was born out of frustration. We could see the whole broadband thing kicking off in London and didn't want to be left out," Adgey said. Adgey and Grose are looking to sign-up 100 of their neighbors, who can expect to pay 40 pounds per month -- a point at which they believe the operation should break even, he says.
It's not just mom-and-pop organizations hoping to bridge the last mile. A host of electric utilities are again buzzing with plans to offer high-speed Internet connections through wall sockets, a technology that analysts say is still a ways off.
The United Power Line Council (http://www.uplc.utc.org) in the United States and Scottish and Southern Energy (SSE.L) are plugging the technology's simplicity. Where available. the connection hooks up directly into a wall socket to bring one million bit a second surfing speeds.
Rural Internet No Longer So Off the Grid
By Bernhard Warner
LONDON (Reuters) - Attention country bumpkins, vacationers and beach bums: competing broadband Internet access alternatives are extending high-speed online connections deeper into the hinterland.
Increasingly, vacationers are able to log in to check e-mails and send last-minute updates to business presentations from the ski chalet, the boat moored off shore and even the camper van.
High-speed connections have also reignited in some the dream of turning the country home into an office, particularly as the technologies improve and costs fall.
Whether it be through an electrical power line, satellites orbiting the heavens, wireless (news - web sites) transmitters on a grassy hill -- or a combination of the three -- scores of firms are trying to crack the remote broadband market.
"I doubt if I'll ever see (high-speed Web access via phone) in my neighborhood and my local cable company is in bankruptcy," said Carl Zetie, a Forrester Research analyst who works from his home office in rural Waterford Glenn, Virginia. He's a couple of hours outside of Washington, D.C., in the northeast corner of the state.
Last year, Zetie installed a short, 30-centimeter directional antenna on his roof that points to a wireless broadband cell tower located two miles away. He can now surf the Web at one million bits per second; 20 times as fast as a conventional dial-up Internet access via standard phone lines.
DOES THE ANSWER LIE IN THE HEAVENS?
A thicket of technological snags prevent conventional cable and DSL broadband providers from ever entering most out-of-the-way communities, leaving between 5 percent to 10 percent of all homes and businesses in North America and Europe no choice but to seek an alternative, analysts say.
The cost and complexity of satellite-based Internet connections are falling. One provider, Europe Online (http://www.europeonline.com), offers satellite service for European customers, charging 150 euros for a year's worth of access. A satellite dish runs an extra 100 to 300 euros. It provides so-called digital subscriber line (DSL) access at speeds roughly ten times a standard phone-line Web connection.
Yet satellite still has its limitations. Users complain the service cuts out during periods of heavy rain and snow, and, in North America at least, an impeded view of the southern sky's orbit path can cause service interruptions.
"Satellite systems are good provided you understand their limitations," said David Farmer, project manager of One North East, a tax-payer-funded U.K. nonprofit organization with a mission to get England's rural Northeast on the broadband train.
One Northeast (http://www.n-e-life.com/broadband/) has used satellite and short-range wireless network technologies to bring broadband access to 15 towns and 12 rural outposts, including a local country pub, in the northern English counties of Northumberland and Durham.
WIRELESS IN THE WOODS
The next big wave is wireless technologies, analysts say. Wireless LANs and Wi-Fi hotspots are being set up to bring fast 'Net access to everywhere from Texas motorhome parks to yachting marinas along Italy's ultra-glamorous Amalfi Coast.
Italian start-up, Nocable S.P.A. (http://www.nocable.it), expects to introduce wireless Internet service by the end of this year in 100 coastal resorts in Southern Italy. It plans to charge nine euros per hour, enabling Europe's power brokers to check stock quotes from yachts via phone or computer links.
Bob Grose, host of a BBC television home remodeling program, teamed up with a friend, Gordon Adgey, to establish Buckfastleigh Broadband last year to bring high-speed Net access to the idyllic Devon countryside in southwest England.
"The whole thing was born out of frustration. We could see the whole broadband thing kicking off in London and didn't want to be left out," Adgey said. Adgey and Grose are looking to sign-up 100 of their neighbors, who can expect to pay 40 pounds per month -- a point at which they believe the operation should break even, he says.
It's not just mom-and-pop organizations hoping to bridge the last mile. A host of electric utilities are again buzzing with plans to offer high-speed Internet connections through wall sockets, a technology that analysts say is still a ways off.
The United Power Line Council (http://www.uplc.utc.org) in the United States and Scottish and Southern Energy (SSE.L) are plugging the technology's simplicity. Where available. the connection hooks up directly into a wall socket to bring one million bit a second surfing speeds.
Taurus Wireless, Rashad Gray's ISP23
Used Gear Minimizes ISP Start Up Costs
There has been never a better time to start a dialup ISP?if you can figure out how to make money?as there is a great deal of used equipment placed on the market by bankrupt ISPs.
by Max Smetannikov
A rash of ISP bankruptcies over the last four years has flooded the market with basic ISP gear priced at 20 percent to 40 percent of the original value. A Cisco 3660 router, an ISP classic, can be had for $5,000 as opposed to $15,000 brand new. A nicely configured Cisco 3640 router could go for $2,500 as opposed to $10,000. An access concentrator like a Postmaster 3 can go for $900, as opposed to $9,000 several years ago.
As prices for basic communications services have fallen dramatically (by up to 50 percent) over the last year and a half, an ISP can be launched for about $10,000, plus monthly business expenses.
"E-Bay is your friend," says Patrick Gilmore, who owned and ran an ISP in the early 1990s and currently works for Akamai.
A number of resellers of used gear have popped up recently, offering services specific to ISPs. T3 Systems is quickly making a name for itself as a good destination for used gear. And Portmasters.com is now the premier destination for used Lucent dialup concentrator gear.
To provide basic dialup and dedicated data services, an ISP startup needs a dialup concentrator, which allows modem calls to be received; a router for an Internet connection; and a server or two to run various must-have software applications (such as e-mail).
Most ISPs should, if possible, start with gear and services supporting at least 48 modems. Supporting less than this entails using gear that is not commercial grade. Supporting more would entail buying more T-1 lines from the phone company, which would be expensive.
Most ISPs also want to have a T-1 leased line or a PRI (ISDN) line going into the phone company to connect the ISP's equipment to the PSTN, and enable dialup and dedicated circuit users to connect to the ISP. The second half of the communications services puzzle is connecting the equipment to the Internet. While cheaper cable and DSL broadband options are usually available, veterans like Gilmore recommend against anything less than a T-1 for connecting to the Internet.
"I would not get cable or DSL. For some reason, all the fledgling ISPs I know think they can use their cable modem to run an ISP," said Gilmore. "First, the upload speeds are slow. Second, you cannot get the IPs you need. Third, the cable and DSL companies are looking for people running web servers on their links, and frequently (and randomly) filter things like port 80 inbound." (Port 80 is Internet traffic?filtering it out would effectively shut down the pipe.)
The choice between a T-1 or a PRI line is also important. Leasing a T-1 means the only service an ISP will be able to support is dialup. Leasing a PRI means an ISP can turn around and sell BRIs (i.e., ISDN lines configured for individual use) as a small business service?a consideration in areas where there is no broadband.
Concentrate, concentrate. . .
Either way, at the center of an ISP setup lies a piece of equipment called a remote access concentrator. Two top brands in that space used to be Livingstone and Ascend, both since taken over and discontinued by Lucent. Livingston's flagship product used to be Portmaster, and Ascend is known for Max TNT. In the post-Lucent acquisition world, the box to buy is Portmaster, especially for a small ISP.
"I believe Portmasters.com bought the source code rights from Lucent and plans to turn that software into open source, which will be a good thing for the community," said John Brown, chief executive of Chagres Technologies, a consultancy whose services include helping launch ISPs. In other words, Portmaster should have ongoing support and software upgrades, while Ascend may not.
When you get your hands on a Portmaster, you'll see why 48 is a good number of modem ports for a startup ISP. One of the most popular models, Portmaster 3, supports up to two T1s or PRIs. One T1 supports 24 ports, and one PRI line supports 23 ports, thus an ISP that deploys a full Portmaster 3 will support 48 or 46 dialup modems. Brown estimates than an average oversubscription ratio in the industry is seven to 10 users to a modem port. Thus one Portmaster 3 can support up to about 480 dialup users.
The route to service
The next big purchase is a router to connect to the Internet. Cisco is the dominant vendor in this department, and models starting with Cisco 3640 typically offer enough horsepower even as the ISP starts growing.
Any decent ISP needs a server to host specialized software. Brown, a great believer in reliability, recommends four separate machines for each application, since each is core to ISP operations. Technically, all can run off one server.
The applications are: an authentication server, an e-mail server, a DNS server, and a dedicated firewall (the firewall is considered optional by some).
The router should have between 256MB and 512MB of physical RAM, 20GB or more disk space, an Ethernet NIC, reasonable video cards, and an oversized case for better cooling. Unless you buy Linux (FreeBSD is a free alternative), all other software is typically free (you risk being shunned by fellow ISPs if you buy Windows).
Popular choices of free software are BIND for DNS, QMail for e-mail, and RADIUS for authentication.
Many ISPs also get into webhosting, since the only piece of software they really need to offer the service is a Web server and the most popular, Apache's HTTP server, is free.
One Portmaster, one router, and one server will set you back $900, $2,500, and $1,000, respectively, for a grand total of $4,400. Prices for T-1s vary, but deals abound. Washington D.C.-based Broadband.com recently advertised a nation-wide deal for a full T1 with a free Cisco 3640 for $948/month. Add slack for additional costs?redundant servers, PRIs, and such?and $10,000 in startup costs looks like a reasonable proposition.
Throw in some more money for security, and your only problems are finding customers and making money.
Used Gear Minimizes ISP Start Up Costs
There has been never a better time to start a dialup ISP?if you can figure out how to make money?as there is a great deal of used equipment placed on the market by bankrupt ISPs.
by Max Smetannikov
A rash of ISP bankruptcies over the last four years has flooded the market with basic ISP gear priced at 20 percent to 40 percent of the original value. A Cisco 3660 router, an ISP classic, can be had for $5,000 as opposed to $15,000 brand new. A nicely configured Cisco 3640 router could go for $2,500 as opposed to $10,000. An access concentrator like a Postmaster 3 can go for $900, as opposed to $9,000 several years ago.
As prices for basic communications services have fallen dramatically (by up to 50 percent) over the last year and a half, an ISP can be launched for about $10,000, plus monthly business expenses.
"E-Bay is your friend," says Patrick Gilmore, who owned and ran an ISP in the early 1990s and currently works for Akamai.
A number of resellers of used gear have popped up recently, offering services specific to ISPs. T3 Systems is quickly making a name for itself as a good destination for used gear. And Portmasters.com is now the premier destination for used Lucent dialup concentrator gear.
To provide basic dialup and dedicated data services, an ISP startup needs a dialup concentrator, which allows modem calls to be received; a router for an Internet connection; and a server or two to run various must-have software applications (such as e-mail).
Most ISPs should, if possible, start with gear and services supporting at least 48 modems. Supporting less than this entails using gear that is not commercial grade. Supporting more would entail buying more T-1 lines from the phone company, which would be expensive.
Most ISPs also want to have a T-1 leased line or a PRI (ISDN) line going into the phone company to connect the ISP's equipment to the PSTN, and enable dialup and dedicated circuit users to connect to the ISP. The second half of the communications services puzzle is connecting the equipment to the Internet. While cheaper cable and DSL broadband options are usually available, veterans like Gilmore recommend against anything less than a T-1 for connecting to the Internet.
"I would not get cable or DSL. For some reason, all the fledgling ISPs I know think they can use their cable modem to run an ISP," said Gilmore. "First, the upload speeds are slow. Second, you cannot get the IPs you need. Third, the cable and DSL companies are looking for people running web servers on their links, and frequently (and randomly) filter things like port 80 inbound." (Port 80 is Internet traffic?filtering it out would effectively shut down the pipe.)
The choice between a T-1 or a PRI line is also important. Leasing a T-1 means the only service an ISP will be able to support is dialup. Leasing a PRI means an ISP can turn around and sell BRIs (i.e., ISDN lines configured for individual use) as a small business service?a consideration in areas where there is no broadband.
Concentrate, concentrate. . .
Either way, at the center of an ISP setup lies a piece of equipment called a remote access concentrator. Two top brands in that space used to be Livingstone and Ascend, both since taken over and discontinued by Lucent. Livingston's flagship product used to be Portmaster, and Ascend is known for Max TNT. In the post-Lucent acquisition world, the box to buy is Portmaster, especially for a small ISP.
"I believe Portmasters.com bought the source code rights from Lucent and plans to turn that software into open source, which will be a good thing for the community," said John Brown, chief executive of Chagres Technologies, a consultancy whose services include helping launch ISPs. In other words, Portmaster should have ongoing support and software upgrades, while Ascend may not.
When you get your hands on a Portmaster, you'll see why 48 is a good number of modem ports for a startup ISP. One of the most popular models, Portmaster 3, supports up to two T1s or PRIs. One T1 supports 24 ports, and one PRI line supports 23 ports, thus an ISP that deploys a full Portmaster 3 will support 48 or 46 dialup modems. Brown estimates than an average oversubscription ratio in the industry is seven to 10 users to a modem port. Thus one Portmaster 3 can support up to about 480 dialup users.
The route to service
The next big purchase is a router to connect to the Internet. Cisco is the dominant vendor in this department, and models starting with Cisco 3640 typically offer enough horsepower even as the ISP starts growing.
Any decent ISP needs a server to host specialized software. Brown, a great believer in reliability, recommends four separate machines for each application, since each is core to ISP operations. Technically, all can run off one server.
The applications are: an authentication server, an e-mail server, a DNS server, and a dedicated firewall (the firewall is considered optional by some).
The router should have between 256MB and 512MB of physical RAM, 20GB or more disk space, an Ethernet NIC, reasonable video cards, and an oversized case for better cooling. Unless you buy Linux (FreeBSD is a free alternative), all other software is typically free (you risk being shunned by fellow ISPs if you buy Windows).
Popular choices of free software are BIND for DNS, QMail for e-mail, and RADIUS for authentication.
Many ISPs also get into webhosting, since the only piece of software they really need to offer the service is a Web server and the most popular, Apache's HTTP server, is free.
One Portmaster, one router, and one server will set you back $900, $2,500, and $1,000, respectively, for a grand total of $4,400. Prices for T-1s vary, but deals abound. Washington D.C.-based Broadband.com recently advertised a nation-wide deal for a full T1 with a free Cisco 3640 for $948/month. Add slack for additional costs?redundant servers, PRIs, and such?and $10,000 in startup costs looks like a reasonable proposition.
Throw in some more money for security, and your only problems are finding customers and making money.
There has been never a better time to start a dialup ISP?if you can figure out how to make money?as there is a great deal of used equipment placed on the market by bankrupt ISPs.
by Max Smetannikov
A rash of ISP bankruptcies over the last four years has flooded the market with basic ISP gear priced at 20 percent to 40 percent of the original value. A Cisco 3660 router, an ISP classic, can be had for $5,000 as opposed to $15,000 brand new. A nicely configured Cisco 3640 router could go for $2,500 as opposed to $10,000. An access concentrator like a Postmaster 3 can go for $900, as opposed to $9,000 several years ago.
As prices for basic communications services have fallen dramatically (by up to 50 percent) over the last year and a half, an ISP can be launched for about $10,000, plus monthly business expenses.
"E-Bay is your friend," says Patrick Gilmore, who owned and ran an ISP in the early 1990s and currently works for Akamai.
A number of resellers of used gear have popped up recently, offering services specific to ISPs. T3 Systems is quickly making a name for itself as a good destination for used gear. And Portmasters.com is now the premier destination for used Lucent dialup concentrator gear.
To provide basic dialup and dedicated data services, an ISP startup needs a dialup concentrator, which allows modem calls to be received; a router for an Internet connection; and a server or two to run various must-have software applications (such as e-mail).
Most ISPs should, if possible, start with gear and services supporting at least 48 modems. Supporting less than this entails using gear that is not commercial grade. Supporting more would entail buying more T-1 lines from the phone company, which would be expensive.
Most ISPs also want to have a T-1 leased line or a PRI (ISDN) line going into the phone company to connect the ISP's equipment to the PSTN, and enable dialup and dedicated circuit users to connect to the ISP. The second half of the communications services puzzle is connecting the equipment to the Internet. While cheaper cable and DSL broadband options are usually available, veterans like Gilmore recommend against anything less than a T-1 for connecting to the Internet.
"I would not get cable or DSL. For some reason, all the fledgling ISPs I know think they can use their cable modem to run an ISP," said Gilmore. "First, the upload speeds are slow. Second, you cannot get the IPs you need. Third, the cable and DSL companies are looking for people running web servers on their links, and frequently (and randomly) filter things like port 80 inbound." (Port 80 is Internet traffic?filtering it out would effectively shut down the pipe.)
The choice between a T-1 or a PRI line is also important. Leasing a T-1 means the only service an ISP will be able to support is dialup. Leasing a PRI means an ISP can turn around and sell BRIs (i.e., ISDN lines configured for individual use) as a small business service?a consideration in areas where there is no broadband.
Concentrate, concentrate. . .
Either way, at the center of an ISP setup lies a piece of equipment called a remote access concentrator. Two top brands in that space used to be Livingstone and Ascend, both since taken over and discontinued by Lucent. Livingston's flagship product used to be Portmaster, and Ascend is known for Max TNT. In the post-Lucent acquisition world, the box to buy is Portmaster, especially for a small ISP.
"I believe Portmasters.com bought the source code rights from Lucent and plans to turn that software into open source, which will be a good thing for the community," said John Brown, chief executive of Chagres Technologies, a consultancy whose services include helping launch ISPs. In other words, Portmaster should have ongoing support and software upgrades, while Ascend may not.
When you get your hands on a Portmaster, you'll see why 48 is a good number of modem ports for a startup ISP. One of the most popular models, Portmaster 3, supports up to two T1s or PRIs. One T1 supports 24 ports, and one PRI line supports 23 ports, thus an ISP that deploys a full Portmaster 3 will support 48 or 46 dialup modems. Brown estimates than an average oversubscription ratio in the industry is seven to 10 users to a modem port. Thus one Portmaster 3 can support up to about 480 dialup users.
The route to service
The next big purchase is a router to connect to the Internet. Cisco is the dominant vendor in this department, and models starting with Cisco 3640 typically offer enough horsepower even as the ISP starts growing.
Any decent ISP needs a server to host specialized software. Brown, a great believer in reliability, recommends four separate machines for each application, since each is core to ISP operations. Technically, all can run off one server.
The applications are: an authentication server, an e-mail server, a DNS server, and a dedicated firewall (the firewall is considered optional by some).
The router should have between 256MB and 512MB of physical RAM, 20GB or more disk space, an Ethernet NIC, reasonable video cards, and an oversized case for better cooling. Unless you buy Linux (FreeBSD is a free alternative), all other software is typically free (you risk being shunned by fellow ISPs if you buy Windows).
Popular choices of free software are BIND for DNS, QMail for e-mail, and RADIUS for authentication.
Many ISPs also get into webhosting, since the only piece of software they really need to offer the service is a Web server and the most popular, Apache's HTTP server, is free.
One Portmaster, one router, and one server will set you back $900, $2,500, and $1,000, respectively, for a grand total of $4,400. Prices for T-1s vary, but deals abound. Washington D.C.-based Broadband.com recently advertised a nation-wide deal for a full T1 with a free Cisco 3640 for $948/month. Add slack for additional costs?redundant servers, PRIs, and such?and $10,000 in startup costs looks like a reasonable proposition.
Throw in some more money for security, and your only problems are finding customers and making money.
Used Gear Minimizes ISP Start Up Costs
There has been never a better time to start a dialup ISP?if you can figure out how to make money?as there is a great deal of used equipment placed on the market by bankrupt ISPs.
by Max Smetannikov
A rash of ISP bankruptcies over the last four years has flooded the market with basic ISP gear priced at 20 percent to 40 percent of the original value. A Cisco 3660 router, an ISP classic, can be had for $5,000 as opposed to $15,000 brand new. A nicely configured Cisco 3640 router could go for $2,500 as opposed to $10,000. An access concentrator like a Postmaster 3 can go for $900, as opposed to $9,000 several years ago.
As prices for basic communications services have fallen dramatically (by up to 50 percent) over the last year and a half, an ISP can be launched for about $10,000, plus monthly business expenses.
"E-Bay is your friend," says Patrick Gilmore, who owned and ran an ISP in the early 1990s and currently works for Akamai.
A number of resellers of used gear have popped up recently, offering services specific to ISPs. T3 Systems is quickly making a name for itself as a good destination for used gear. And Portmasters.com is now the premier destination for used Lucent dialup concentrator gear.
To provide basic dialup and dedicated data services, an ISP startup needs a dialup concentrator, which allows modem calls to be received; a router for an Internet connection; and a server or two to run various must-have software applications (such as e-mail).
Most ISPs should, if possible, start with gear and services supporting at least 48 modems. Supporting less than this entails using gear that is not commercial grade. Supporting more would entail buying more T-1 lines from the phone company, which would be expensive.
Most ISPs also want to have a T-1 leased line or a PRI (ISDN) line going into the phone company to connect the ISP's equipment to the PSTN, and enable dialup and dedicated circuit users to connect to the ISP. The second half of the communications services puzzle is connecting the equipment to the Internet. While cheaper cable and DSL broadband options are usually available, veterans like Gilmore recommend against anything less than a T-1 for connecting to the Internet.
"I would not get cable or DSL. For some reason, all the fledgling ISPs I know think they can use their cable modem to run an ISP," said Gilmore. "First, the upload speeds are slow. Second, you cannot get the IPs you need. Third, the cable and DSL companies are looking for people running web servers on their links, and frequently (and randomly) filter things like port 80 inbound." (Port 80 is Internet traffic?filtering it out would effectively shut down the pipe.)
The choice between a T-1 or a PRI line is also important. Leasing a T-1 means the only service an ISP will be able to support is dialup. Leasing a PRI means an ISP can turn around and sell BRIs (i.e., ISDN lines configured for individual use) as a small business service?a consideration in areas where there is no broadband.
Concentrate, concentrate. . .
Either way, at the center of an ISP setup lies a piece of equipment called a remote access concentrator. Two top brands in that space used to be Livingstone and Ascend, both since taken over and discontinued by Lucent. Livingston's flagship product used to be Portmaster, and Ascend is known for Max TNT. In the post-Lucent acquisition world, the box to buy is Portmaster, especially for a small ISP.
"I believe Portmasters.com bought the source code rights from Lucent and plans to turn that software into open source, which will be a good thing for the community," said John Brown, chief executive of Chagres Technologies, a consultancy whose services include helping launch ISPs. In other words, Portmaster should have ongoing support and software upgrades, while Ascend may not.
When you get your hands on a Portmaster, you'll see why 48 is a good number of modem ports for a startup ISP. One of the most popular models, Portmaster 3, supports up to two T1s or PRIs. One T1 supports 24 ports, and one PRI line supports 23 ports, thus an ISP that deploys a full Portmaster 3 will support 48 or 46 dialup modems. Brown estimates than an average oversubscription ratio in the industry is seven to 10 users to a modem port. Thus one Portmaster 3 can support up to about 480 dialup users.
The route to service
The next big purchase is a router to connect to the Internet. Cisco is the dominant vendor in this department, and models starting with Cisco 3640 typically offer enough horsepower even as the ISP starts growing.
Any decent ISP needs a server to host specialized software. Brown, a great believer in reliability, recommends four separate machines for each application, since each is core to ISP operations. Technically, all can run off one server.
The applications are: an authentication server, an e-mail server, a DNS server, and a dedicated firewall (the firewall is considered optional by some).
The router should have between 256MB and 512MB of physical RAM, 20GB or more disk space, an Ethernet NIC, reasonable video cards, and an oversized case for better cooling. Unless you buy Linux (FreeBSD is a free alternative), all other software is typically free (you risk being shunned by fellow ISPs if you buy Windows).
Popular choices of free software are BIND for DNS, QMail for e-mail, and RADIUS for authentication.
Many ISPs also get into webhosting, since the only piece of software they really need to offer the service is a Web server and the most popular, Apache's HTTP server, is free.
One Portmaster, one router, and one server will set you back $900, $2,500, and $1,000, respectively, for a grand total of $4,400. Prices for T-1s vary, but deals abound. Washington D.C.-based Broadband.com recently advertised a nation-wide deal for a full T1 with a free Cisco 3640 for $948/month. Add slack for additional costs?redundant servers, PRIs, and such?and $10,000 in startup costs looks like a reasonable proposition.
Throw in some more money for security, and your only problems are finding customers and making money.
Taurus Wireless, Rashad Gray's ISP22
What do I need to start an ISP?
by Boatner Howell
Essential items and Industry knowledge
T-1 or fractional T-1 Internet connection from one of the Bells, UUNet or some other local provider.
PRI or Channelized T-1 to bring the dialup customers to you so that you can get them to the internet. Each PRI or Channelized T-1 can support 23 or 24 phone lines depending on configuration.
You need a NAS (Network Access Server) such as a Ascend Max or Cisco. Lots of good used equipment available on the open market. This equipment will accept one or two PRIs or Channelized T-1s and a NAS control access of users getting to the Internet using a protocol called radius.
You will need at least 2 decent sized servers running Red Hat Linux or other version of Linux. Red Hat has about 90% of the software that is needed to run an ISP. While it is possible to run an ISP using Windows servers, the cost is MUCH greater than Linux and Windows only comes with about 50% of the software needed to run an ISP and the rest has to be purchased as there are no Open Source equivelants as in the Linux world (which means FREE). Pentium 3 1 Ghz or better with 256 or 512 meg of memory. PC hardware is cheap now so dont skimp.
You will have to learn how these major software packages work because they are totally essential to the operation of an ISP. If you are not a tech you will have to hire someone on your staff to keep everything running.
TCP/IP - Protocol used by the Internet.
DNS - Domain Name Service - This is the Yellow pages of the Internet and resolves easy to remember names into IP addresses.
EMAIL - You need to understand a mail package like SENDMAIL (comes with most linux?s) and protocols such as POP3 , IMAP, and SMTP and how they work.
Firewalls - need to understand Linux security and how to keep hackers and leechers at bay.
RADIUS - This is the protocol used to authenticate dial in users into your NAS against your user/password list. You can get a free open source copy of radius server at: http://www.freeradius.org/.
BILLING Package - Most important is keeping track of who owes you money and having the ability to shut users off (automatically) if they do not pay. There are various packages out there but a good low cost alternative is available at: http://www.sisd.com/freeside/.
MRTG: Excellent program that is used to monitor your bandwidth and lets you know when your peaks are and when you need to get more bandwidth. Available at: http://people.ee.ethz.ch/~oetiker/webtools/mrtg/.
Where to get help? Subscribe to many of the ISP related mailing lists as possible. Most ISPs are very helpful and will assist since they were probably helped along the way by someone in a mailing list when they were just starting out.
Another good way to learn about ISPs is to work at one for a while and learn as much as you can. There is no school to teach this to you. You have to do a lot of on-the-job training.
Last point. Being an ISP is not an easy way to make money, but its great if you want to be your own boss and have a technical inclination.
What do I need to start an ISP?
by Boatner Howell
Essential items and Industry knowledge
T-1 or fractional T-1 Internet connection from one of the Bells, UUNet or some other local provider.
PRI or Channelized T-1 to bring the dialup customers to you so that you can get them to the internet. Each PRI or Channelized T-1 can support 23 or 24 phone lines depending on configuration.
You need a NAS (Network Access Server) such as a Ascend Max or Cisco. Lots of good used equipment available on the open market. This equipment will accept one or two PRIs or Channelized T-1s and a NAS control access of users getting to the Internet using a protocol called radius.
You will need at least 2 decent sized servers running Red Hat Linux or other version of Linux. Red Hat has about 90% of the software that is needed to run an ISP. While it is possible to run an ISP using Windows servers, the cost is MUCH greater than Linux and Windows only comes with about 50% of the software needed to run an ISP and the rest has to be purchased as there are no Open Source equivelants as in the Linux world (which means FREE). Pentium 3 1 Ghz or better with 256 or 512 meg of memory. PC hardware is cheap now so dont skimp.
You will have to learn how these major software packages work because they are totally essential to the operation of an ISP. If you are not a tech you will have to hire someone on your staff to keep everything running.
TCP/IP - Protocol used by the Internet.
DNS - Domain Name Service - This is the Yellow pages of the Internet and resolves easy to remember names into IP addresses.
EMAIL - You need to understand a mail package like SENDMAIL (comes with most linux?s) and protocols such as POP3 , IMAP, and SMTP and how they work.
Firewalls - need to understand Linux security and how to keep hackers and leechers at bay.
RADIUS - This is the protocol used to authenticate dial in users into your NAS against your user/password list. You can get a free open source copy of radius server at: http://www.freeradius.org/.
BILLING Package - Most important is keeping track of who owes you money and having the ability to shut users off (automatically) if they do not pay. There are various packages out there but a good low cost alternative is available at: http://www.sisd.com/freeside/.
MRTG: Excellent program that is used to monitor your bandwidth and lets you know when your peaks are and when you need to get more bandwidth. Available at: http://people.ee.ethz.ch/~oetiker/webtools/mrtg/.
Where to get help? Subscribe to many of the ISP related mailing lists as possible. Most ISPs are very helpful and will assist since they were probably helped along the way by someone in a mailing list when they were just starting out.
Another good way to learn about ISPs is to work at one for a while and learn as much as you can. There is no school to teach this to you. You have to do a lot of on-the-job training.
Last point. Being an ISP is not an easy way to make money, but its great if you want to be your own boss and have a technical inclination.
by Boatner Howell
Essential items and Industry knowledge
T-1 or fractional T-1 Internet connection from one of the Bells, UUNet or some other local provider.
PRI or Channelized T-1 to bring the dialup customers to you so that you can get them to the internet. Each PRI or Channelized T-1 can support 23 or 24 phone lines depending on configuration.
You need a NAS (Network Access Server) such as a Ascend Max or Cisco. Lots of good used equipment available on the open market. This equipment will accept one or two PRIs or Channelized T-1s and a NAS control access of users getting to the Internet using a protocol called radius.
You will need at least 2 decent sized servers running Red Hat Linux or other version of Linux. Red Hat has about 90% of the software that is needed to run an ISP. While it is possible to run an ISP using Windows servers, the cost is MUCH greater than Linux and Windows only comes with about 50% of the software needed to run an ISP and the rest has to be purchased as there are no Open Source equivelants as in the Linux world (which means FREE). Pentium 3 1 Ghz or better with 256 or 512 meg of memory. PC hardware is cheap now so dont skimp.
You will have to learn how these major software packages work because they are totally essential to the operation of an ISP. If you are not a tech you will have to hire someone on your staff to keep everything running.
TCP/IP - Protocol used by the Internet.
DNS - Domain Name Service - This is the Yellow pages of the Internet and resolves easy to remember names into IP addresses.
EMAIL - You need to understand a mail package like SENDMAIL (comes with most linux?s) and protocols such as POP3 , IMAP, and SMTP and how they work.
Firewalls - need to understand Linux security and how to keep hackers and leechers at bay.
RADIUS - This is the protocol used to authenticate dial in users into your NAS against your user/password list. You can get a free open source copy of radius server at: http://www.freeradius.org/.
BILLING Package - Most important is keeping track of who owes you money and having the ability to shut users off (automatically) if they do not pay. There are various packages out there but a good low cost alternative is available at: http://www.sisd.com/freeside/.
MRTG: Excellent program that is used to monitor your bandwidth and lets you know when your peaks are and when you need to get more bandwidth. Available at: http://people.ee.ethz.ch/~oetiker/webtools/mrtg/.
Where to get help? Subscribe to many of the ISP related mailing lists as possible. Most ISPs are very helpful and will assist since they were probably helped along the way by someone in a mailing list when they were just starting out.
Another good way to learn about ISPs is to work at one for a while and learn as much as you can. There is no school to teach this to you. You have to do a lot of on-the-job training.
Last point. Being an ISP is not an easy way to make money, but its great if you want to be your own boss and have a technical inclination.
What do I need to start an ISP?
by Boatner Howell
Essential items and Industry knowledge
T-1 or fractional T-1 Internet connection from one of the Bells, UUNet or some other local provider.
PRI or Channelized T-1 to bring the dialup customers to you so that you can get them to the internet. Each PRI or Channelized T-1 can support 23 or 24 phone lines depending on configuration.
You need a NAS (Network Access Server) such as a Ascend Max or Cisco. Lots of good used equipment available on the open market. This equipment will accept one or two PRIs or Channelized T-1s and a NAS control access of users getting to the Internet using a protocol called radius.
You will need at least 2 decent sized servers running Red Hat Linux or other version of Linux. Red Hat has about 90% of the software that is needed to run an ISP. While it is possible to run an ISP using Windows servers, the cost is MUCH greater than Linux and Windows only comes with about 50% of the software needed to run an ISP and the rest has to be purchased as there are no Open Source equivelants as in the Linux world (which means FREE). Pentium 3 1 Ghz or better with 256 or 512 meg of memory. PC hardware is cheap now so dont skimp.
You will have to learn how these major software packages work because they are totally essential to the operation of an ISP. If you are not a tech you will have to hire someone on your staff to keep everything running.
TCP/IP - Protocol used by the Internet.
DNS - Domain Name Service - This is the Yellow pages of the Internet and resolves easy to remember names into IP addresses.
EMAIL - You need to understand a mail package like SENDMAIL (comes with most linux?s) and protocols such as POP3 , IMAP, and SMTP and how they work.
Firewalls - need to understand Linux security and how to keep hackers and leechers at bay.
RADIUS - This is the protocol used to authenticate dial in users into your NAS against your user/password list. You can get a free open source copy of radius server at: http://www.freeradius.org/.
BILLING Package - Most important is keeping track of who owes you money and having the ability to shut users off (automatically) if they do not pay. There are various packages out there but a good low cost alternative is available at: http://www.sisd.com/freeside/.
MRTG: Excellent program that is used to monitor your bandwidth and lets you know when your peaks are and when you need to get more bandwidth. Available at: http://people.ee.ethz.ch/~oetiker/webtools/mrtg/.
Where to get help? Subscribe to many of the ISP related mailing lists as possible. Most ISPs are very helpful and will assist since they were probably helped along the way by someone in a mailing list when they were just starting out.
Another good way to learn about ISPs is to work at one for a while and learn as much as you can. There is no school to teach this to you. You have to do a lot of on-the-job training.
Last point. Being an ISP is not an easy way to make money, but its great if you want to be your own boss and have a technical inclination.
Taurus Wireless, Rashad Gray's ISP21
Get Top $ for Your Web Hosting Business
You've decided to sell your web hosting division or service, but how should you handle the sale? You've heard that ISPs are getting between $175 to $500 per subscriber, but how much should you ask?
by Christopher M. Knight [July 19, 1999]
Let's look at the top 7 items that will influence your selling price:
1. Your total annual website hosting revenue
This is the big one. In most cases, the selling price will be based on some multiple of your annualized sales. However, this doesn't mean only the direct revenue from hosting operations. Be sure to factor in the ancillary revenues that you receive because of your website hosting sales. You must look at all of the revenue that your website hosting division or business brings in and seek a firm that can effectively leverage your total value?which brings us to . . .
2. Your average ticket price
Example: If you told me that you sell all of your webhosting accounts for $29.95 per month, and I asked you what your average ticket price was per month, and you told me $29.95, your answer would be wrong.
The correct answer is the averaged total from all of the revenue your website hosting business brings in. This may include search engine registration service, website design, domain registration, additional account usage (extra bandwidth, email accounts, list servers, catalog style ordering modules, secure commerce items, etc). It may also include additional billable labor charges for programming/coding/etc. Average the total of these revenue streams by dividing it by your total number of invoices in a given period.
All hosting-generated revenue/ Total number of invoices
An ISP with a larger average ticket size will fetch a higher multiple or valuation than one that might not be up-selling or cross-selling additional items. Customers with a history or pattern of buying additional items are worth more than webhosting subscribers who do it all themselves, using you strictly for hosting.
3. Your web-hosting server system as it relates to your potential buyers systems
The more similar your website hosting system is to that of your potential buyers, the less the conversion will cost your new buyer, the more clients will convert to the new host, and the higher value you will be able to fetch. The time to make sure your webservers are as industry-standard as possible is today, not when you're on the brink of selling. If your clients get a nasty surprise about service levels or website development procedures, your valuation will suffer.
The name of the game here is to make it painless for your clients to be converted to their new host.
Less pain = higher conversion which should = higher valuation.
4. Current growth and attrition rates (You are tracking these rates, right?)
Your growth rate is a profit flywheel that will keep spinning even after you have sold your business. It will also be a determining factor in how many times annual sales you will be able to fetch, because your future customers will be coming to the host you sell to?on the heels of your marketing investments--and should be valued. Many buyers don't much want to talk about this, but they will nonetheless maneuver and position themselves as best they can to continue to profit from your marketing/sales momentum. (Wouldn't you?)
Your attrition rate?the number of folks leaving you on a monthly basis? will most likely convince your new potential buyers either that you don't know how to run your business or that you are a first class host?based on your ability to retain and keep clients. Happy clients are worth more, complain less, and buy more from you.
5. Depth of specialization (or lack thereof)
If you are a web-hosting jack of all trades, dabbling in all kinds of specializations?database applications, catalog-style ordering, ASP/Microsoft platform projects, adult site hosting, or any other non standard website hosting?is likely to be more a hindrance than a blessing when it's time to sell. It would be better to choose one or two specialties and become really proficient in them. This will make it easy to sell to a similar bigger fish?as opposed to having to piece out your website hosting service base to different buyers. You may never get full valuation if you have to split up your sale.
6. Geographical configuration of your server farm
This is a simple one. If you have just one website data center, you have little to worry about?except the possibility that your current clients who might have been used to local service, may now have an 800 Number to some national webhosting firm that you sold out to. If you have multiple data centers all over the country, then your potential acquirer must also have similar facilities.
7. Your current billing method
As with the ISP dial-up business, the more folks pay with credit cards or electronic checking account drafts, the higher the value of your hosting operation. Why? It's been proven that businesses are worth more if it's easier to get paid on time and with fewer billing costs or credit hassles. Consider requiring all accounts below $50 or $100 a month to pay via credit card or checking account drafting. You may lose a few accounts, but you will gain a higher valuation.
Finally, a question: Should you sell your website hosting division right along with your ISP dial-up service, or should you sell them separately?
Unless special considerations apply, the answer depends on optimizing the factors of price, time, and effort. You want the best possible combination of the most money, in the shortest amount of time, for the least effort.
If you are a small regional, the answer is usually Sell both at the same time. Strange as it may seem, it's likely to be tough to find a customer for couple $ hundred thousand in website hosting revenues?as opposed $ half a million to a million or more. (Larger operations are more attractive to the big website hosting folks, who are out to buy every competitor).
Tip: If possible, sell the business as a complete package; don't parcel it out to separate buyers?unless you've determined that you can make more money that way.
Tip: To get the best overall price perspective, study the S1s and other reports from publicly traded ISPs that offer website hosting, to determine how many times annual earnings they receive.
Tip: When push comes to shove, my advice is don't accept anything less than 1x annual sales. There are so many opportunities out there; just keep on knocking on doors until you find someone who can properly leverage all of your value instead of just a piece of it.
Bankruptcy: The End or a New Beginning?
Just when you think your ISP operation may be down and on its way out, consider voluntary bankruptcy a potential business cure. While it won't stop the tax man at your door, your ISP could get a second lease on life.
by Mark E. Battersby [December 14, 2000]
One bad year should not mean the end of any ISP or other online business operation.
Unfortunately, few ISP owners and operators that are facing hard times, reduced cash flow, or pressure from their creditors have ever given any thought to failure. According to many experts, avoiding financial failure requires planning?perhaps even planning to seek protection under our Federal Bankruptcy laws.
Bankruptcy has long been viewed as the end of an ISP?or its owners. However, today's bankruptcy laws have been specifically designed to make it far easier for any troubled ISP owner to use bankruptcy as a staging area for survival and future growth. In other words, bankruptcy need not be the end of your ISP operation.
Willing or unwilling
Although the days of debtor prisons and deportation are long past, Federal legislation passed in 1918 and subsequently revised in 1938 and 1978, provides for an orderly handling of bankruptcies by the Federal court system.
Even if the more restrictive rules currently being considered by our lawmakers become a legal reality, bankruptcy procedures will still permit any individual or business to get a fresh start?if the ISP operator is smart enough to opt for a voluntary bankruptcy.
On the other hand, if your ISPs creditors force you into an involuntary bankruptcy, it all-too-often involves selling off the assets of the operation in order to pay nervous creditors.
With voluntary bankruptcy, an individual or firm asks to be judged bankrupt because of an inability to pay off creditors. Under involuntary bankruptcy, the creditors may request the courts to judge a business or individual bankrupt and the assets disposed of to pay all outstanding debts.
Imagine being able to hide behind the protection of the Federal courts while your ISP business is restructured. You have time to make a plan to pay off debts (even at a rate as low as ten cents on the dollar) and a safe haven where creditors can't intrude, harass, interfere, or close your business down. Bankruptcy may be just the financial shield many troubled ISP owners and operators need.
Carry some protection
Whatever protection against liability and creditors that might have existed when your ISP operation was first incorporated, can usually be nibbled away by hungry creditors. The companies your ISP owes are anxious to prove that since the incorporated business was not operated as a separate entity, the owner/shareholder is liable for all the debts which the incorporated entity cannot pay.
If incorporation at the outset of your ISP operation is not the answer to protecting its assets?and those of its owners?what is? James A. Sweet, an attorney specializing in small business bankruptcies in Philadelphia, PA, said the answer lies in financing.
"Financing requires some thought," Sweet said, "at least if any future bankruptcy is to leave the owners with a business or any personal resources".
Lenders willing to loan money to any small business without a personal guarantee from the owner are far and few between?particularly if your business is a newly formed Internet service. In other words, our lawmakers, the tax authorities at every level, the Federal courts and the ISP operator may believe in the separation of an incorporated business and its shareholders, but bankers and other lenders do not.
Blood from a stone
Every ISP operator needs to understand that from your first day in business forward, taxes are inevitable?and government takes the biggest bite from impoverished businesses. A financially troubled ISP may often have debts forgiven or written off by its creditors. Unfortunately, our tax laws consider forgiven debt to be taxable income.
That's right, even when a creditor forgives a debt, the ISP/debtor is treated by the Internal Revenue Service as if the business had received income equal to the amount of the forgiven debt?and taxes will be assessed. The only exceptions to this rule are when the business operation is insolvent or when the entity is in bankruptcy.
Roll with it
Despite advance planning, intricate tax strategies, and the best legal advice available, bankruptcy may be unavoidable. Should it ever come to that point for your ISP business, it is far better to view voluntary bankruptcy as a new beginning, rather than the end of your entrepreneurial dreams.
An ISP owner or operator who places his or her business in voluntary bankruptcy may not only retain his or her personal assets and finances?but the owner may soon find themselves with a newly revitalized, less debt-burdened ISP business poised for growth and a long prosperous future.
Bankruptcy should be viewed as a tool for the survival?not the end of the line for your ISP business.
Maximizing Your Marketability
Looking to sell your ISP or hosting company? Experts offer perspectives on how to make it an attractive acquisition target?and what the process is like.
by Ted Stevenson Managing Editor [November 11, 1999]
At Fall ISPCON '99, a group of merger and acquisitions executives convened to discuss the topic 'How Much is Your ISP and Web Hosting Company Worth?' Moderator Craig Moseley, Vice President at Daniels & Associates was joined by Seth Levine Director of Corporate Development at FirstWorld, Dean Brophy, VP Corporate Development at Verio, and David Shires, VP Business Development at Voyager.net.
The first part of the discussion (on which we reported yesterday, see ISP Valuations: From the Horse's Mouth) was devoted to an analysis of valuation metrics. Today we take up the thread as the presentation turned to issues around selling an ISP or hosting business.
Know why you're selling
Voyager's David Shires kicked off the conversation with the advice "Know why you want to sell your ISP." He went on to enumerate the most common reasons for selling:
Market conditions
Equipment upgrades required
Labor matters
Loss of interest
Time to cash out
Pursue a new business idea and/or spin off ISP side
What investors look for
Shires (who started an ISP in 1995, built it to 8,000 subscribers, and got venture funding before selling the business to Voyager in 1998) described what Voyager looks for in an acquisition candidate.
First and foremost, the candidate must be profitable with a strong market position, and a track record of high growth and low churn. It should offer a similar business mix and pricing strategy in addition to potential for economies of scale. Finally, a viable target needs to possess a strong network infrastructure and a minimum of 3,000 subscribers.
The process begins
The first step in a potential Voyager acquisition is an informal site visit by Shires or a colleague. At this time, a seller should be prepared to present financial statements for the previous 6 to 12 months, a detailed network diagram, and an inventory of equipment.
If interest persists past this stage, Voyager begins to generate a valuation. Of the three widely used valuation methods?discounted cash flow, multiples of recurring revenue, and per subscriber?Voyager favors recurring revenue.
(Your recurring revenue is what your subscribers pay each month?not including setup fees, equipment sales, Web development, etc. For valuation purposes, multiply this figure by 12 to get annualized revenue.)
Tip: To increase your valuation, David Shires advises: "Focus on increasing your recurring revenue."
Serious interest
When Voyager (or virtually any potential buyer) reaches a decision to move ahead, it will prepare a letter of intent. This lays the foundation of the offer in broad terms. At the top of the list, of course is a purchase price, usually consisting of both cash and stock. The offer generally is to purchase all of the seller's assets, free and clear of liens. The buyer assumes leases, domain names, IP addresses, equipment, and furniture. There is generally a non-solicitation clause barring the seller from seeking other offers for 90 days.
The next step is the due diligence process, in which live auditors from the buyer's organization essentially 'go over the books.' More precisely, they seek to "confirm the accuracy of sellers representations and warranties." This involves examining financials, tax statements, asset lists, and all leases?telco, advertising, building, etc.
Wrapping it up
The final stage of acquisition is the drafting of a Purchase/Sale Agreement?a process that usually takes 45 to 60 days. Shires's concise advice on this stage was "Get a good lawyer?and an accountant."
Tip: David Shires offered a To-Do list for prudent CEOs wanting to be prepared for acquisition:
Review your financial statements monthly
Catch up on bills and resolve disputes
Get a handle on billing and Acts Receivable
Find all Contracts - telco, building, customer
Determine your recurring revenue
Second opinion
FirstWorld's Seth Levine echoed many of Shires's comments. FirstWorld has been acquiring ISPs, Web hosting providers, and e-commerce companies "that we can continue to help to grow," said Levine.
"To position your ISP to be bought, you need to understand where its value is," he said. From FirstWorld's perspective, that's likely to be:
Business customers
Broad service offering
Strong market presence
Stable customers
History of growth
Size ($3-4 million in annual revenue)
He agreed with Shires in citing recurring revenue as another important value factor.
In weighing purchase offers, Levine urges sellers to factor in several mitigating factors:
Your tax situation
Your appetite for risk (and upside)
Your leverage (size, market presence, product expertise)
Your ongoing role
Integrating merged companies is really tough, Levine observed, so FirstWorld generally tries to keep old owners involved?by making stock in the organization part of the purchase consideration.
Who do you choose?
Finally, Levine pointed out that a strong acquisition candidate may find itself in an auction situation?that is being bid up by multiple buyers. Points of choice he sees are:
The buyer's basic vision
Your ongoing role
Consideration (payment)
Buyer's ability to move quickly
Tip: Levine's parting advice on having a positive acquisition experience was "Get a good lawyer-one who knows this kind of deal. It can save you weeks, maybe months, and lots of frayed tempers."
Get Top $ for Your Web Hosting Business
You've decided to sell your web hosting division or service, but how should you handle the sale? You've heard that ISPs are getting between $175 to $500 per subscriber, but how much should you ask?
by Christopher M. Knight [July 19, 1999]
Let's look at the top 7 items that will influence your selling price:
1. Your total annual website hosting revenue
This is the big one. In most cases, the selling price will be based on some multiple of your annualized sales. However, this doesn't mean only the direct revenue from hosting operations. Be sure to factor in the ancillary revenues that you receive because of your website hosting sales. You must look at all of the revenue that your website hosting division or business brings in and seek a firm that can effectively leverage your total value?which brings us to . . .
2. Your average ticket price
Example: If you told me that you sell all of your webhosting accounts for $29.95 per month, and I asked you what your average ticket price was per month, and you told me $29.95, your answer would be wrong.
The correct answer is the averaged total from all of the revenue your website hosting business brings in. This may include search engine registration service, website design, domain registration, additional account usage (extra bandwidth, email accounts, list servers, catalog style ordering modules, secure commerce items, etc). It may also include additional billable labor charges for programming/coding/etc. Average the total of these revenue streams by dividing it by your total number of invoices in a given period.
All hosting-generated revenue/ Total number of invoices
An ISP with a larger average ticket size will fetch a higher multiple or valuation than one that might not be up-selling or cross-selling additional items. Customers with a history or pattern of buying additional items are worth more than webhosting subscribers who do it all themselves, using you strictly for hosting.
3. Your web-hosting server system as it relates to your potential buyers systems
The more similar your website hosting system is to that of your potential buyers, the less the conversion will cost your new buyer, the more clients will convert to the new host, and the higher value you will be able to fetch. The time to make sure your webservers are as industry-standard as possible is today, not when you're on the brink of selling. If your clients get a nasty surprise about service levels or website development procedures, your valuation will suffer.
The name of the game here is to make it painless for your clients to be converted to their new host.
Less pain = higher conversion which should = higher valuation.
4. Current growth and attrition rates (You are tracking these rates, right?)
Your growth rate is a profit flywheel that will keep spinning even after you have sold your business. It will also be a determining factor in how many times annual sales you will be able to fetch, because your future customers will be coming to the host you sell to?on the heels of your marketing investments--and should be valued. Many buyers don't much want to talk about this, but they will nonetheless maneuver and position themselves as best they can to continue to profit from your marketing/sales momentum. (Wouldn't you?)
Your attrition rate?the number of folks leaving you on a monthly basis? will most likely convince your new potential buyers either that you don't know how to run your business or that you are a first class host?based on your ability to retain and keep clients. Happy clients are worth more, complain less, and buy more from you.
5. Depth of specialization (or lack thereof)
If you are a web-hosting jack of all trades, dabbling in all kinds of specializations?database applications, catalog-style ordering, ASP/Microsoft platform projects, adult site hosting, or any other non standard website hosting?is likely to be more a hindrance than a blessing when it's time to sell. It would be better to choose one or two specialties and become really proficient in them. This will make it easy to sell to a similar bigger fish?as opposed to having to piece out your website hosting service base to different buyers. You may never get full valuation if you have to split up your sale.
6. Geographical configuration of your server farm
This is a simple one. If you have just one website data center, you have little to worry about?except the possibility that your current clients who might have been used to local service, may now have an 800 Number to some national webhosting firm that you sold out to. If you have multiple data centers all over the country, then your potential acquirer must also have similar facilities.
7. Your current billing method
As with the ISP dial-up business, the more folks pay with credit cards or electronic checking account drafts, the higher the value of your hosting operation. Why? It's been proven that businesses are worth more if it's easier to get paid on time and with fewer billing costs or credit hassles. Consider requiring all accounts below $50 or $100 a month to pay via credit card or checking account drafting. You may lose a few accounts, but you will gain a higher valuation.
Finally, a question: Should you sell your website hosting division right along with your ISP dial-up service, or should you sell them separately?
Unless special considerations apply, the answer depends on optimizing the factors of price, time, and effort. You want the best possible combination of the most money, in the shortest amount of time, for the least effort.
If you are a small regional, the answer is usually Sell both at the same time. Strange as it may seem, it's likely to be tough to find a customer for couple $ hundred thousand in website hosting revenues?as opposed $ half a million to a million or more. (Larger operations are more attractive to the big website hosting folks, who are out to buy every competitor).
Tip: If possible, sell the business as a complete package; don't parcel it out to separate buyers?unless you've determined that you can make more money that way.
Tip: To get the best overall price perspective, study the S1s and other reports from publicly traded ISPs that offer website hosting, to determine how many times annual earnings they receive.
Tip: When push comes to shove, my advice is don't accept anything less than 1x annual sales. There are so many opportunities out there; just keep on knocking on doors until you find someone who can properly leverage all of your value instead of just a piece of it.
Bankruptcy: The End or a New Beginning?
Just when you think your ISP operation may be down and on its way out, consider voluntary bankruptcy a potential business cure. While it won't stop the tax man at your door, your ISP could get a second lease on life.
by Mark E. Battersby [December 14, 2000]
One bad year should not mean the end of any ISP or other online business operation.
Unfortunately, few ISP owners and operators that are facing hard times, reduced cash flow, or pressure from their creditors have ever given any thought to failure. According to many experts, avoiding financial failure requires planning?perhaps even planning to seek protection under our Federal Bankruptcy laws.
Bankruptcy has long been viewed as the end of an ISP?or its owners. However, today's bankruptcy laws have been specifically designed to make it far easier for any troubled ISP owner to use bankruptcy as a staging area for survival and future growth. In other words, bankruptcy need not be the end of your ISP operation.
Willing or unwilling
Although the days of debtor prisons and deportation are long past, Federal legislation passed in 1918 and subsequently revised in 1938 and 1978, provides for an orderly handling of bankruptcies by the Federal court system.
Even if the more restrictive rules currently being considered by our lawmakers become a legal reality, bankruptcy procedures will still permit any individual or business to get a fresh start?if the ISP operator is smart enough to opt for a voluntary bankruptcy.
On the other hand, if your ISPs creditors force you into an involuntary bankruptcy, it all-too-often involves selling off the assets of the operation in order to pay nervous creditors.
With voluntary bankruptcy, an individual or firm asks to be judged bankrupt because of an inability to pay off creditors. Under involuntary bankruptcy, the creditors may request the courts to judge a business or individual bankrupt and the assets disposed of to pay all outstanding debts.
Imagine being able to hide behind the protection of the Federal courts while your ISP business is restructured. You have time to make a plan to pay off debts (even at a rate as low as ten cents on the dollar) and a safe haven where creditors can't intrude, harass, interfere, or close your business down. Bankruptcy may be just the financial shield many troubled ISP owners and operators need.
Carry some protection
Whatever protection against liability and creditors that might have existed when your ISP operation was first incorporated, can usually be nibbled away by hungry creditors. The companies your ISP owes are anxious to prove that since the incorporated business was not operated as a separate entity, the owner/shareholder is liable for all the debts which the incorporated entity cannot pay.
If incorporation at the outset of your ISP operation is not the answer to protecting its assets?and those of its owners?what is? James A. Sweet, an attorney specializing in small business bankruptcies in Philadelphia, PA, said the answer lies in financing.
"Financing requires some thought," Sweet said, "at least if any future bankruptcy is to leave the owners with a business or any personal resources".
Lenders willing to loan money to any small business without a personal guarantee from the owner are far and few between?particularly if your business is a newly formed Internet service. In other words, our lawmakers, the tax authorities at every level, the Federal courts and the ISP operator may believe in the separation of an incorporated business and its shareholders, but bankers and other lenders do not.
Blood from a stone
Every ISP operator needs to understand that from your first day in business forward, taxes are inevitable?and government takes the biggest bite from impoverished businesses. A financially troubled ISP may often have debts forgiven or written off by its creditors. Unfortunately, our tax laws consider forgiven debt to be taxable income.
That's right, even when a creditor forgives a debt, the ISP/debtor is treated by the Internal Revenue Service as if the business had received income equal to the amount of the forgiven debt?and taxes will be assessed. The only exceptions to this rule are when the business operation is insolvent or when the entity is in bankruptcy.
Roll with it
Despite advance planning, intricate tax strategies, and the best legal advice available, bankruptcy may be unavoidable. Should it ever come to that point for your ISP business, it is far better to view voluntary bankruptcy as a new beginning, rather than the end of your entrepreneurial dreams.
An ISP owner or operator who places his or her business in voluntary bankruptcy may not only retain his or her personal assets and finances?but the owner may soon find themselves with a newly revitalized, less debt-burdened ISP business poised for growth and a long prosperous future.
Bankruptcy should be viewed as a tool for the survival?not the end of the line for your ISP business.
Maximizing Your Marketability
Looking to sell your ISP or hosting company? Experts offer perspectives on how to make it an attractive acquisition target?and what the process is like.
by Ted Stevenson Managing Editor [November 11, 1999]
At Fall ISPCON '99, a group of merger and acquisitions executives convened to discuss the topic 'How Much is Your ISP and Web Hosting Company Worth?' Moderator Craig Moseley, Vice President at Daniels & Associates was joined by Seth Levine Director of Corporate Development at FirstWorld, Dean Brophy, VP Corporate Development at Verio, and David Shires, VP Business Development at Voyager.net.
The first part of the discussion (on which we reported yesterday, see ISP Valuations: From the Horse's Mouth) was devoted to an analysis of valuation metrics. Today we take up the thread as the presentation turned to issues around selling an ISP or hosting business.
Know why you're selling
Voyager's David Shires kicked off the conversation with the advice "Know why you want to sell your ISP." He went on to enumerate the most common reasons for selling:
Market conditions
Equipment upgrades required
Labor matters
Loss of interest
Time to cash out
Pursue a new business idea and/or spin off ISP side
What investors look for
Shires (who started an ISP in 1995, built it to 8,000 subscribers, and got venture funding before selling the business to Voyager in 1998) described what Voyager looks for in an acquisition candidate.
First and foremost, the candidate must be profitable with a strong market position, and a track record of high growth and low churn. It should offer a similar business mix and pricing strategy in addition to potential for economies of scale. Finally, a viable target needs to possess a strong network infrastructure and a minimum of 3,000 subscribers.
The process begins
The first step in a potential Voyager acquisition is an informal site visit by Shires or a colleague. At this time, a seller should be prepared to present financial statements for the previous 6 to 12 months, a detailed network diagram, and an inventory of equipment.
If interest persists past this stage, Voyager begins to generate a valuation. Of the three widely used valuation methods?discounted cash flow, multiples of recurring revenue, and per subscriber?Voyager favors recurring revenue.
(Your recurring revenue is what your subscribers pay each month?not including setup fees, equipment sales, Web development, etc. For valuation purposes, multiply this figure by 12 to get annualized revenue.)
Tip: To increase your valuation, David Shires advises: "Focus on increasing your recurring revenue."
Serious interest
When Voyager (or virtually any potential buyer) reaches a decision to move ahead, it will prepare a letter of intent. This lays the foundation of the offer in broad terms. At the top of the list, of course is a purchase price, usually consisting of both cash and stock. The offer generally is to purchase all of the seller's assets, free and clear of liens. The buyer assumes leases, domain names, IP addresses, equipment, and furniture. There is generally a non-solicitation clause barring the seller from seeking other offers for 90 days.
The next step is the due diligence process, in which live auditors from the buyer's organization essentially 'go over the books.' More precisely, they seek to "confirm the accuracy of sellers representations and warranties." This involves examining financials, tax statements, asset lists, and all leases?telco, advertising, building, etc.
Wrapping it up
The final stage of acquisition is the drafting of a Purchase/Sale Agreement?a process that usually takes 45 to 60 days. Shires's concise advice on this stage was "Get a good lawyer?and an accountant."
Tip: David Shires offered a To-Do list for prudent CEOs wanting to be prepared for acquisition:
Review your financial statements monthly
Catch up on bills and resolve disputes
Get a handle on billing and Acts Receivable
Find all Contracts - telco, building, customer
Determine your recurring revenue
Second opinion
FirstWorld's Seth Levine echoed many of Shires's comments. FirstWorld has been acquiring ISPs, Web hosting providers, and e-commerce companies "that we can continue to help to grow," said Levine.
"To position your ISP to be bought, you need to understand where its value is," he said. From FirstWorld's perspective, that's likely to be:
Business customers
Broad service offering
Strong market presence
Stable customers
History of growth
Size ($3-4 million in annual revenue)
He agreed with Shires in citing recurring revenue as another important value factor.
In weighing purchase offers, Levine urges sellers to factor in several mitigating factors:
Your tax situation
Your appetite for risk (and upside)
Your leverage (size, market presence, product expertise)
Your ongoing role
Integrating merged companies is really tough, Levine observed, so FirstWorld generally tries to keep old owners involved?by making stock in the organization part of the purchase consideration.
Who do you choose?
Finally, Levine pointed out that a strong acquisition candidate may find itself in an auction situation?that is being bid up by multiple buyers. Points of choice he sees are:
The buyer's basic vision
Your ongoing role
Consideration (payment)
Buyer's ability to move quickly
Tip: Levine's parting advice on having a positive acquisition experience was "Get a good lawyer-one who knows this kind of deal. It can save you weeks, maybe months, and lots of frayed tempers."
Exit Your ISP Your Way
Financial planning takes time ... and the right time to plan for exiting your ISP operation is right now. Before outside forces influence your goals, build a plan for withdrawing from the business on your terms.
by Mark E. Battersby [November 22, 2000]
Whether your ISP business has grown and prospered or is marginally successful, exiting the business may be one of the most important things you ever do.
Unlike almost every other business decision that you make, exiting your ISP business on your terms can only be done once. You get one chance to decide how, when, and on what terms you'll make your exit.
Make your getaway
Planning a successful departure requires as much attention as growing your ISP into a profitable business venture. For the most part, your ISP exit strategies consist of four options:
Succession: You fulfill the dream of early retirement and pass your ISP business on to your children or other family members.
Sale: You elect to get out while the getting is good by selling your private ISP as an ongoing business operation, or exiting your publicly held business by selling all or most of your stock.
Liquidation: You opt to get some return on the business while there's still a chance by dissolving the business and selling its assets.
Depletion: You have no choice by to declare bankruptcy and fold your ISP operation. Rarely does anyone choose to exit a business in such a manner. But, if all else fails and you must exit the business, planned egression could make your forced exit a little less painful ? at least financially.
Pass it on
Rarely does the owner of any business plan for succession, in happens by default. Remember, barely 30 percent of family-owned businesses survive into the second generation and fewer than 15 percent endure into the third.
Whether or not you can afford it, you should hire professionals to advise you about wills, trusts, insurance and estate planning in the early stages of your ISP business development.
Placing a portion of your ISP business into a trust may eliminate succession squabbles. Making gifts of stock in a fledgling business to family members can mean passing ownership on to the next generation ? without gift tax consequences.
Sellout
Exiting your ISP business by selling out also requires financial planning, at least if you want to exit on the best possible terms. Your position as a partner in a partnership, shareholder in an incorporated business, officer of a publicly traded company, or guarantor of the operation's loans, will have either a legal or moral impact on your exit strategy.
In a perfect world, you'd plan to sell when the economy is booming, when the industry is at its peak and when your ISP business is having a banner year with the future looking highly profitable. That's the time when you would be the most likely to receive the best possible price for your business. In reality, however, your decision to sell will probably have more to do with your personal circumstance, rather than exiting at the apex of your ISP's performance.
Balancing your personal life with operating an ISP is a challenge. Utilize a professional financial planner to help you decide when the time is right for your departure on a financial level and seek counsel with family and friends to balance your decision on a personal level. It may not be the optimum moment to exit your ISP business on both counts, but you may ultimately achieve harmony between your dual priorities.
Clear off
Few ISP owners anticipate the circumstances where they will exit their operation by liquidating the business. But in far too many cases, you are your business ? you and you alone are responsible for the success or failure of your Internet service.
Without you, without your name recognition, your unique skills, or your local connections, there may be no business worth operating. If you leave, regardless of the strategy chosen, the business will cease to function. In this case, the business consists of you, your skills and some assets.
Fortunately, planning your exit strategies can easily encompass the liquidation of its assets. Planning to improve those assets, in fact, can benefit other areas of your exit strategy planning. A professional third party can make all the difference in result of your decision to liquidate your business. Get some help from a liquidation specialist to protect your best interests.
Escape through the nearest door
No one wants to fail and no one plans to fail. From the start of your Internet business venture, your exit strategies should include the unthinkable ? bankruptcy.
Planning with failure as a contingency may mean moving assets from your ISP business into a separate entity altogether in order to avoid claims by creditors.
It may mean that you complete a loan with the business demanding payment, rather than having them accept your I.O.U. When a company declares bankruptcy, there is a pecking order among your creditors. The owner of a failed ISP often finds their unsecured claims at the bottom of the pau-off pile, while secured debt stands atop of the heap.
Regardless of who you owe how much, now is the time to prepare a contingency plan for exiting your Internet service operation via bankruptcy protection ? but anticipate that you'll never have to execute the plan.
Exit right
The primary goal of any exit strategy should always be to leave at a time when you think that you will be ready. Departure should always be done on terms that you dictate. If that is not possible, at least you should make your exit with a plan in hand.
Your legal complications, moral ramifications and personal obligations all factor in to how you exit your ISP business. Commitments to partners, investors, or fellow-shareholders and the key position that you occupy as an integral part of the business are factors you will need to consider when you plan your exit strategies.
Even under adverse conditions a good exit strategy is one that will allow you to remove yourself from the ISP operation with your goals intact ? be it cash rich, continuity planned, sanity maintained, or simply with your teeth.
A bad exit strategy is when you do not plan for your departure. Don't allow all your hard work to go for naught because you didn't think about how to exit your Internet service. Set a few goals today and start to plan your ISP exit strategies right now. You'll be glad you did.
Maximizing Your Marketability
Looking to sell your ISP or hosting company? Experts offer perspectives on how to make it an attractive acquisition target?and what the process is like.
by Ted Stevenson Managing Editor [November 11, 1999]
At Fall ISPCON '99, a group of merger and acquisitions executives convened to discuss the topic 'How Much is Your ISP and Web Hosting Company Worth?' Moderator Craig Moseley, Vice President at Daniels & Associates was joined by Seth Levine Director of Corporate Development at FirstWorld, Dean Brophy, VP Corporate Development at Verio, and David Shires, VP Business Development at Voyager.net.
The first part of the discussion (on which we reported yesterday, see ISP Valuations: From the Horse's Mouth) was devoted to an analysis of valuation metrics. Today we take up the thread as the presentation turned to issues around selling an ISP or hosting business.
Know why you're selling
Voyager's David Shires kicked off the conversation with the advice "Know why you want to sell your ISP." He went on to enumerate the most common reasons for selling:
Market conditions
Equipment upgrades required
Labor matters
Loss of interest
Time to cash out
Pursue a new business idea and/or spin off ISP side
What investors look for
Shires (who started an ISP in 1995, built it to 8,000 subscribers, and got venture funding before selling the business to Voyager in 1998) described what Voyager looks for in an acquisition candidate.
First and foremost, the candidate must be profitable with a strong market position, and a track record of high growth and low churn. It should offer a similar business mix and pricing strategy in addition to potential for economies of scale. Finally, a viable target needs to possess a strong network infrastructure and a minimum of 3,000 subscribers.
The process begins
The first step in a potential Voyager acquisition is an informal site visit by Shires or a colleague. At this time, a seller should be prepared to present financial statements for the previous 6 to 12 months, a detailed network diagram, and an inventory of equipment.
If interest persists past this stage, Voyager begins to generate a valuation. Of the three widely used valuation methods?discounted cash flow, multiples of recurring revenue, and per subscriber?Voyager favors recurring revenue.
(Your recurring revenue is what your subscribers pay each month?not including setup fees, equipment sales, Web development, etc. For valuation purposes, multiply this figure by 12 to get annualized revenue.)
Tip: To increase your valuation, David Shires advises: "Focus on increasing your recurring revenue."
Serious interest
When Voyager (or virtually any potential buyer) reaches a decision to move ahead, it will prepare a letter of intent. This lays the foundation of the offer in broad terms. At the top of the list, of course is a purchase price, usually consisting of both cash and stock. The offer generally is to purchase all of the seller's assets, free and clear of liens. The buyer assumes leases, domain names, IP addresses, equipment, and furniture. There is generally a non-solicitation clause barring the seller from seeking other offers for 90 days.
The next step is the due diligence process, in which live auditors from the buyer's organization essentially 'go over the books.' More precisely, they seek to "confirm the accuracy of sellers representations and warranties." This involves examining financials, tax statements, asset lists, and all leases?telco, advertising, building, etc.
Wrapping it up
The final stage of acquisition is the drafting of a Purchase/Sale Agreement?a process that usually takes 45 to 60 days. Shires's concise advice on this stage was "Get a good lawyer?and an accountant."
Tip: David Shires offered a To-Do list for prudent CEOs wanting to be prepared for acquisition:
Review your financial statements monthly
Catch up on bills and resolve disputes
Get a handle on billing and Acts Receivable
Find all Contracts - telco, building, customer
Determine your recurring revenue
Second opinion
FirstWorld's Seth Levine echoed many of Shires's comments. FirstWorld has been acquiring ISPs, Web hosting providers, and e-commerce companies "that we can continue to help to grow," said Levine.
"To position your ISP to be bought, you need to understand where its value is," he said. From FirstWorld's perspective, that's likely to be:
Business customers
Broad service offering
Strong market presence
Stable customers
History of growth
Size ($3-4 million in annual revenue)
He agreed with Shires in citing recurring revenue as another important value factor.
In weighing purchase offers, Levine urges sellers to factor in several mitigating factors:
Your tax situation
Your appetite for risk (and upside)
Your leverage (size, market presence, product expertise)
Your ongoing role
Integrating merged companies is really tough, Levine observed, so FirstWorld generally tries to keep old owners involved?by making stock in the organization part of the purchase consideration.
Who do you choose?
Finally, Levine pointed out that a strong acquisition candidate may find itself in an auction situation?that is being bid up by multiple buyers. Points of choice he sees are:
The buyer's basic vision
Your ongoing role
Consideration (payment)
Buyer's ability to move quickly
Tip: Levine's parting advice on having a positive acquisition experience was "Get a good lawyer-one who knows this kind of deal. It can save you weeks, maybe months, and lots of frayed tempers."
Exit Your ISP Your Way
Financial planning takes time ... and the right time to plan for exiting your ISP operation is right now. Before outside forces influence your goals, build a plan for withdrawing from the business on your terms.
by Mark E. Battersby [November 22, 2000]
Whether your ISP business has grown and prospered or is marginally successful, exiting the business may be one of the most important things you ever do.
Unlike almost every other business decision that you make, exiting your ISP business on your terms can only be done once. You get one chance to decide how, when, and on what terms you'll make your exit.
Make your getaway
Planning a successful departure requires as much attention as growing your ISP into a profitable business venture. For the most part, your ISP exit strategies consist of four options:
Succession: You fulfill the dream of early retirement and pass your ISP business on to your children or other family members.
Sale: You elect to get out while the getting is good by selling your private ISP as an ongoing business operation, or exiting your publicly held business by selling all or most of your stock.
Liquidation: You opt to get some return on the business while there's still a chance by dissolving the business and selling its assets.
Depletion: You have no choice by to declare bankruptcy and fold your ISP operation. Rarely does anyone choose to exit a business in such a manner. But, if all else fails and you must exit the business, planned egression could make your forced exit a little less painful ? at least financially.
Pass it on
Rarely does the owner of any business plan for succession, in happens by default. Remember, barely 30 percent of family-owned businesses survive into the second generation and fewer than 15 percent endure into the third.
Whether or not you can afford it, you should hire professionals to advise you about wills, trusts, insurance and estate planning in the early stages of your ISP business development.
Placing a portion of your ISP business into a trust may eliminate succession squabbles. Making gifts of stock in a fledgling business to family members can mean passing ownership on to the next generation ? without gift tax consequences.
Sellout
Exiting your ISP business by selling out also requires financial planning, at least if you want to exit on the best possible terms. Your position as a partner in a partnership, shareholder in an incorporated business, officer of a publicly traded company, or guarantor of the operation's loans, will have either a legal or moral impact on your exit strategy.
In a perfect world, you'd plan to sell when the economy is booming, when the industry is at its peak and when your ISP business is having a banner year with the future looking highly profitable. That's the time when you would be the most likely to receive the best possible price for your business. In reality, however, your decision to sell will probably have more to do with your personal circumstance, rather than exiting at the apex of your ISP's performance.
Balancing your personal life with operating an ISP is a challenge. Utilize a professional financial planner to help you decide when the time is right for your departure on a financial level and seek counsel with family and friends to balance your decision on a personal level. It may not be the optimum moment to exit your ISP business on both counts, but you may ultimately achieve harmony between your dual priorities.
Clear off
Few ISP owners anticipate the circumstances where they will exit their operation by liquidating the business. But in far too many cases, you are your business ? you and you alone are responsible for the success or failure of your Internet service.
Without you, without your name recognition, your unique skills, or your local connections, there may be no business worth operating. If you leave, regardless of the strategy chosen, the business will cease to function. In this case, the business consists of you, your skills and some assets.
Fortunately, planning your exit strategies can easily encompass the liquidation of its assets. Planning to improve those assets, in fact, can benefit other areas of your exit strategy planning. A professional third party can make all the difference in result of your decision to liquidate your business. Get some help from a liquidation specialist to protect your best interests.
Escape through the nearest door
No one wants to fail and no one plans to fail. From the start of your Internet business venture, your exit strategies should include the unthinkable ? bankruptcy.
Planning with failure as a contingency may mean moving assets from your ISP business into a separate entity altogether in order to avoid claims by creditors.
It may mean that you complete a loan with the business demanding payment, rather than having them accept your I.O.U. When a company declares bankruptcy, there is a pecking order among your creditors. The owner of a failed ISP often finds their unsecured claims at the bottom of the pau-off pile, while secured debt stands atop of the heap.
Regardless of who you owe how much, now is the time to prepare a contingency plan for exiting your Internet service operation via bankruptcy protection ? but anticipate that you'll never have to execute the plan.
Exit right
The primary goal of any exit strategy should always be to leave at a time when you think that you will be ready. Departure should always be done on terms that you dictate. If that is not possible, at least you should make your exit with a plan in hand.
Your legal complications, moral ramifications and personal obligations all factor in to how you exit your ISP business. Commitments to partners, investors, or fellow-shareholders and the key position that you occupy as an integral part of the business are factors you will need to consider when you plan your exit strategies.
Even under adverse conditions a good exit strategy is one that will allow you to remove yourself from the ISP operation with your goals intact ? be it cash rich, continuity planned, sanity maintained, or simply with your teeth.
A bad exit strategy is when you do not plan for your departure. Don't allow all your hard work to go for naught because you didn't think about how to exit your Internet service. Set a few goals today and start to plan your ISP exit strategies right now. You'll be glad you did.
How to Price Your ISP When It's Time to Sell
The key to maximizing return on your years of investment and hard work is finding the buyer for whom your assets have the highest value.
by Christopher M. Knight [July 12, 1999]
You've made the big decision. After years of building your successful ISP business, it's time to bail out, cash out, get out, and burn rubber down the road into the sunset . . . but how do you put a price tag on your ISP? How much should you ask and how much can you get? This article explores some of the options.
For a market to exist, a willing seller must be matched with a willing buyer. It doesn't matter how much you want if there's no one in the market willing to pay what you're asking. So the goal is to look for the buyer that can maximize, leverage, utilize, and value your ISP most highly.
ISP industry idiosyncrasy
Outside of the ISP industry, many non-public businesses are valued based on some percentage of annualized sales revenue (typically 1 to 5 times annual earnings). Historically, however, the ISP industry appears to prefer to price companies based on a value per subscriber, which is then multiplied by the number of subscribers to arrive at an asking price.
That's the theory. In practice, buyers' contracts often specify that the seller gets paid only for the subscribers that remain with the new ISP after the deal. Typically, if you get more than 80 percent to convert to the new ISP, you are doing well.
Imperfect as it may be, the subscriber value method is a good place to start in determining an asking price. Some of the major factors that help determine a value per subscriber are:
The size of your subscriber base (bigger is better)
Your average revenue per subscriber
Your geographic POP situation is in relation to the buyers needs
The percentage of your subscribers paying by credit card or electronic draft (as opposed to printing invoices or terms)
Your growth rate, in terms of your marketing flywheel and its ability to keep bringing in new subscribers after the deal is made
Your churn ratio (lower is better)
Affiliate, associate, or computer dealers signed up to hawk your services
Who will be paying your early circuit- or service-termination expenses, if any
Tip: For the typical ISP with around 2,500 subscribers, the current going rate (July 1999) is between $150 and $400 per subscriber. Your mileage may vary. The larger you are, the more power you have to fetch higher valuations.
Physical assets
Note that the above discussion says nothing about the value of your network, servers, dial-up access switches, vendor agreements, or anything other than customer/subscriber information. Some buyers will ask for these assets to be lumped into the deal, but I'd recommend selling them separately?or, if part of the whole deal, itemized, so you know what you're getting for them.
Those pesky details
Finally, here are a number of items that many ISPs fail to think about or plan for when they sell out:
Getting paid, post deal, for additional subscribers that keep coming from the marketing flywheel you spent years building
A low conversion rate to the new ISP because the transition wasn't handled carefully or smoothly
Early T1 or circuit-termination or lease-shut-down charges (these can add up to $ tens of thousands)
Yellow page and other marketing costs under contract for the remaining year, on which you forgot to get your new buyer to pick up costs
What to do if the ISP you sell to botches up completely and your reputation gets dragged through the mud because of their incompetence.
Tip: Seek out the ISPs who are seeking to aggregate a couple dozen regional/local ISPs to take them public in the near future. These deals can bring you much more than the standard ISP subscriber-based buyout?if you don't mind the wait and the risk.
Top 7 Things To Do Before You Sell Your ISP
You've made the big decision: It's time to sell your ISP and cash out. But first, there are lots of small things you can do to guarantee maximum return on the asset you've spent so many years building. We'll explore the seven most important.
by Christopher M. Knight [June 1, 1999]
1. Decide your post-ISP strategy up front.
It's far easier to negotiate when you know clearly what you want, how you want to exit, what kind of ISP you want to sell to, what you want to do after the sale, and how you want to handle the marketing engine you've created that will continue giving you new dial-up subscribers even after you have made the sale.
2. Identify key potential buyers for your ISP 3 to 4 months before you plan to sell.
It's better to have offers in the hopper at least 60 to 90 days before you want to sell, than to find out that you can't sell your ISP on a week's notice. A great resource for identifying the key players in the ISP buying/selling mergers-and-acquisition game is the ISP-Investor E-mail discussion list (currently with over 1,700 members). You can join the ISP-Investor list by sending an email to: join-isp-investor@isp-investor.com
3. Clean up your database and make sure you have a firm count of paying subscribers.
This includes making sure that every single user who is dialing up your servers is a paying client. It's not uncommon for small ISPs (under 3,000 in size) to have hundreds of subscribers who have fallen through the cracks and are non-intentionally freeloading, because your billing system has holes. I've known ISPs who discovered?after they'd sold out and shut down their access switches?that they had as many as 400 more customers than they thought. As you can imagine, this was not a pleasant surprise.
4. Encourage your subscribers to pay by credit card.
Subscribers that pay via credit card are easier to work with, cost less to administer, and tend to fetch higher valuations than those billed monthly via snail mail. Consider changing your payment policies, either charging for paper snail mail invoicing or simply discontinuing snail mail billing for all noncorporate clients.
5. Check your Accounts Receivable and make sure that you are disconnecting folks who have not paid you for 60 or 90 days.
It will be very hard to collect from them after you have sold out; it's far better to take the trouble and tighten up your disconnect notices. From experience, my recommendation is to send disconnect notices after 30 days past due as a friendly warning. Then Send a 7 day disconnect notice on the 60th day past due, and FOLLOW THROUGH on your warning by actually disconnecting them on the 7th day.
6. Investigate your termination liabilities with your telco.
You don't want to get caught with your pants down, owing tens or hundreds of thousands of dollars of early term disconnect fees. If you sell to a telco, you may be able to get the circuits transferred, so it's worth investigating a bit to save yourself a lot of $$$.
7. Consider the rest of your operation in the big picture.
You may be able to get more money overall if you sell your web hosting and design business along with your ISP. What are your plans for your existing employees? Will they transfer to the new ISP? What about your ISP hardware? Can you make more money by including it or by selling it separately? Will the new host even want it? Is there some areas that you should consolidate some POPs to trim your ISP to be more attractive to the needs of an ISP buyer?
While not all of these 7 will be right for everyone, they should at the very least give you some ideas to get you thinking?and some action ideas to implement within your ISP business, even if you're not selling it.
You've decided to sell your web hosting division or service, but how should you handle the sale? You've heard that ISPs are getting between $175 to $500 per subscriber, but how much should you ask?
by Christopher M. Knight [July 19, 1999]
Let's look at the top 7 items that will influence your selling price:
1. Your total annual website hosting revenue
This is the big one. In most cases, the selling price will be based on some multiple of your annualized sales. However, this doesn't mean only the direct revenue from hosting operations. Be sure to factor in the ancillary revenues that you receive because of your website hosting sales. You must look at all of the revenue that your website hosting division or business brings in and seek a firm that can effectively leverage your total value?which brings us to . . .
2. Your average ticket price
Example: If you told me that you sell all of your webhosting accounts for $29.95 per month, and I asked you what your average ticket price was per month, and you told me $29.95, your answer would be wrong.
The correct answer is the averaged total from all of the revenue your website hosting business brings in. This may include search engine registration service, website design, domain registration, additional account usage (extra bandwidth, email accounts, list servers, catalog style ordering modules, secure commerce items, etc). It may also include additional billable labor charges for programming/coding/etc. Average the total of these revenue streams by dividing it by your total number of invoices in a given period.
All hosting-generated revenue/ Total number of invoices
An ISP with a larger average ticket size will fetch a higher multiple or valuation than one that might not be up-selling or cross-selling additional items. Customers with a history or pattern of buying additional items are worth more than webhosting subscribers who do it all themselves, using you strictly for hosting.
3. Your web-hosting server system as it relates to your potential buyers systems
The more similar your website hosting system is to that of your potential buyers, the less the conversion will cost your new buyer, the more clients will convert to the new host, and the higher value you will be able to fetch. The time to make sure your webservers are as industry-standard as possible is today, not when you're on the brink of selling. If your clients get a nasty surprise about service levels or website development procedures, your valuation will suffer.
The name of the game here is to make it painless for your clients to be converted to their new host.
Less pain = higher conversion which should = higher valuation.
4. Current growth and attrition rates (You are tracking these rates, right?)
Your growth rate is a profit flywheel that will keep spinning even after you have sold your business. It will also be a determining factor in how many times annual sales you will be able to fetch, because your future customers will be coming to the host you sell to?on the heels of your marketing investments--and should be valued. Many buyers don't much want to talk about this, but they will nonetheless maneuver and position themselves as best they can to continue to profit from your marketing/sales momentum. (Wouldn't you?)
Your attrition rate?the number of folks leaving you on a monthly basis? will most likely convince your new potential buyers either that you don't know how to run your business or that you are a first class host?based on your ability to retain and keep clients. Happy clients are worth more, complain less, and buy more from you.
5. Depth of specialization (or lack thereof)
If you are a web-hosting jack of all trades, dabbling in all kinds of specializations?database applications, catalog-style ordering, ASP/Microsoft platform projects, adult site hosting, or any other non standard website hosting?is likely to be more a hindrance than a blessing when it's time to sell. It would be better to choose one or two specialties and become really proficient in them. This will make it easy to sell to a similar bigger fish?as opposed to having to piece out your website hosting service base to different buyers. You may never get full valuation if you have to split up your sale.
6. Geographical configuration of your server farm
This is a simple one. If you have just one website data center, you have little to worry about?except the possibility that your current clients who might have been used to local service, may now have an 800 Number to some national webhosting firm that you sold out to. If you have multiple data centers all over the country, then your potential acquirer must also have similar facilities.
7. Your current billing method
As with the ISP dial-up business, the more folks pay with credit cards or electronic checking account drafts, the higher the value of your hosting operation. Why? It's been proven that businesses are worth more if it's easier to get paid on time and with fewer billing costs or credit hassles. Consider requiring all accounts below $50 or $100 a month to pay via credit card or checking account drafting. You may lose a few accounts, but you will gain a higher valuation.
Finally, a question: Should you sell your website hosting division right along with your ISP dial-up service, or should you sell them separately?
Unless special considerations apply, the answer depends on optimizing the factors of price, time, and effort. You want the best possible combination of the most money, in the shortest amount of time, for the least effort.
If you are a small regional, the answer is usually Sell both at the same time. Strange as it may seem, it's likely to be tough to find a customer for couple $ hundred thousand in website hosting revenues?as opposed $ half a million to a million or more. (Larger operations are more attractive to the big website hosting folks, who are out to buy every competitor).
Tip: If possible, sell the business as a complete package; don't parcel it out to separate buyers?unless you've determined that you can make more money that way.
Tip: To get the best overall price perspective, study the S1s and other reports from publicly traded ISPs that offer website hosting, to determine how many times annual earnings they receive.
Tip: When push comes to shove, my advice is don't accept anything less than 1x annual sales. There are so many opportunities out there; just keep on knocking on doors until you find someone who can properly leverage all of your value instead of just a piece of it.
Bankruptcy: The End or a New Beginning?
Just when you think your ISP operation may be down and on its way out, consider voluntary bankruptcy a potential business cure. While it won't stop the tax man at your door, your ISP could get a second lease on life.
by Mark E. Battersby [December 14, 2000]
One bad year should not mean the end of any ISP or other online business operation.
Unfortunately, few ISP owners and operators that are facing hard times, reduced cash flow, or pressure from their creditors have ever given any thought to failure. According to many experts, avoiding financial failure requires planning?perhaps even planning to seek protection under our Federal Bankruptcy laws.
Bankruptcy has long been viewed as the end of an ISP?or its owners. However, today's bankruptcy laws have been specifically designed to make it far easier for any troubled ISP owner to use bankruptcy as a staging area for survival and future growth. In other words, bankruptcy need not be the end of your ISP operation.
Willing or unwilling
Although the days of debtor prisons and deportation are long past, Federal legislation passed in 1918 and subsequently revised in 1938 and 1978, provides for an orderly handling of bankruptcies by the Federal court system.
Even if the more restrictive rules currently being considered by our lawmakers become a legal reality, bankruptcy procedures will still permit any individual or business to get a fresh start?if the ISP operator is smart enough to opt for a voluntary bankruptcy.
On the other hand, if your ISPs creditors force you into an involuntary bankruptcy, it all-too-often involves selling off the assets of the operation in order to pay nervous creditors.
With voluntary bankruptcy, an individual or firm asks to be judged bankrupt because of an inability to pay off creditors. Under involuntary bankruptcy, the creditors may request the courts to judge a business or individual bankrupt and the assets disposed of to pay all outstanding debts.
Imagine being able to hide behind the protection of the Federal courts while your ISP business is restructured. You have time to make a plan to pay off debts (even at a rate as low as ten cents on the dollar) and a safe haven where creditors can't intrude, harass, interfere, or close your business down. Bankruptcy may be just the financial shield many troubled ISP owners and operators need.
Carry some protection
Whatever protection against liability and creditors that might have existed when your ISP operation was first incorporated, can usually be nibbled away by hungry creditors. The companies your ISP owes are anxious to prove that since the incorporated business was not operated as a separate entity, the owner/shareholder is liable for all the debts which the incorporated entity cannot pay.
If incorporation at the outset of your ISP operation is not the answer to protecting its assets?and those of its owners?what is? James A. Sweet, an attorney specializing in small business bankruptcies in Philadelphia, PA, said the answer lies in financing.
"Financing requires some thought," Sweet said, "at least if any future bankruptcy is to leave the owners with a business or any personal resources".
Lenders willing to loan money to any small business without a personal guarantee from the owner are far and few between?particularly if your business is a newly formed Internet service. In other words, our lawmakers, the tax authorities at every level, the Federal courts and the ISP operator may believe in the separation of an incorporated business and its shareholders, but bankers and other lenders do not.
Blood from a stone
Every ISP operator needs to understand that from your first day in business forward, taxes are inevitable?and government takes the biggest bite from impoverished businesses. A financially troubled ISP may often have debts forgiven or written off by its creditors. Unfortunately, our tax laws consider forgiven debt to be taxable income.
That's right, even when a creditor forgives a debt, the ISP/debtor is treated by the Internal Revenue Service as if the business had received income equal to the amount of the forgiven debt?and taxes will be assessed. The only exceptions to this rule are when the business operation is insolvent or when the entity is in bankruptcy.
Roll with it
Despite advance planning, intricate tax strategies, and the best legal advice available, bankruptcy may be unavoidable. Should it ever come to that point for your ISP business, it is far better to view voluntary bankruptcy as a new beginning, rather than the end of your entrepreneurial dreams.
An ISP owner or operator who places his or her business in voluntary bankruptcy may not only retain his or her personal assets and finances?but the owner may soon find themselves with a newly revitalized, less debt-burdened ISP business poised for growth and a long prosperous future.
Bankruptcy should be viewed as a tool for the survival?not the end of the line for your ISP business.
Maximizing Your Marketability
Looking to sell your ISP or hosting company? Experts offer perspectives on how to make it an attractive acquisition target?and what the process is like.
by Ted Stevenson Managing Editor [November 11, 1999]
At Fall ISPCON '99, a group of merger and acquisitions executives convened to discuss the topic 'How Much is Your ISP and Web Hosting Company Worth?' Moderator Craig Moseley, Vice President at Daniels & Associates was joined by Seth Levine Director of Corporate Development at FirstWorld, Dean Brophy, VP Corporate Development at Verio, and David Shires, VP Business Development at Voyager.net.
The first part of the discussion (on which we reported yesterday, see ISP Valuations: From the Horse's Mouth) was devoted to an analysis of valuation metrics. Today we take up the thread as the presentation turned to issues around selling an ISP or hosting business.
Know why you're selling
Voyager's David Shires kicked off the conversation with the advice "Know why you want to sell your ISP." He went on to enumerate the most common reasons for selling:
Market conditions
Equipment upgrades required
Labor matters
Loss of interest
Time to cash out
Pursue a new business idea and/or spin off ISP side
What investors look for
Shires (who started an ISP in 1995, built it to 8,000 subscribers, and got venture funding before selling the business to Voyager in 1998) described what Voyager looks for in an acquisition candidate.
First and foremost, the candidate must be profitable with a strong market position, and a track record of high growth and low churn. It should offer a similar business mix and pricing strategy in addition to potential for economies of scale. Finally, a viable target needs to possess a strong network infrastructure and a minimum of 3,000 subscribers.
The process begins
The first step in a potential Voyager acquisition is an informal site visit by Shires or a colleague. At this time, a seller should be prepared to present financial statements for the previous 6 to 12 months, a detailed network diagram, and an inventory of equipment.
If interest persists past this stage, Voyager begins to generate a valuation. Of the three widely used valuation methods?discounted cash flow, multiples of recurring revenue, and per subscriber?Voyager favors recurring revenue.
(Your recurring revenue is what your subscribers pay each month?not including setup fees, equipment sales, Web development, etc. For valuation purposes, multiply this figure by 12 to get annualized revenue.)
Tip: To increase your valuation, David Shires advises: "Focus on increasing your recurring revenue."
Serious interest
When Voyager (or virtually any potential buyer) reaches a decision to move ahead, it will prepare a letter of intent. This lays the foundation of the offer in broad terms. At the top of the list, of course is a purchase price, usually consisting of both cash and stock. The offer generally is to purchase all of the seller's assets, free and clear of liens. The buyer assumes leases, domain names, IP addresses, equipment, and furniture. There is generally a non-solicitation clause barring the seller from seeking other offers for 90 days.
The next step is the due diligence process, in which live auditors from the buyer's organization essentially 'go over the books.' More precisely, they seek to "confirm the accuracy of sellers representations and warranties." This involves examining financials, tax statements, asset lists, and all leases?telco, advertising, building, etc.
Wrapping it up
The final stage of acquisition is the drafting of a Purchase/Sale Agreement?a process that usually takes 45 to 60 days. Shires's concise advice on this stage was "Get a good lawyer?and an accountant."
Tip: David Shires offered a To-Do list for prudent CEOs wanting to be prepared for acquisition:
Review your financial statements monthly
Catch up on bills and resolve disputes
Get a handle on billing and Acts Receivable
Find all Contracts - telco, building, customer
Determine your recurring revenue
Second opinion
FirstWorld's Seth Levine echoed many of Shires's comments. FirstWorld has been acquiring ISPs, Web hosting providers, and e-commerce companies "that we can continue to help to grow," said Levine.
"To position your ISP to be bought, you need to understand where its value is," he said. From FirstWorld's perspective, that's likely to be:
Business customers
Broad service offering
Strong market presence
Stable customers
History of growth
Size ($3-4 million in annual revenue)
He agreed with Shires in citing recurring revenue as another important value factor.
In weighing purchase offers, Levine urges sellers to factor in several mitigating factors:
Your tax situation
Your appetite for risk (and upside)
Your leverage (size, market presence, product expertise)
Your ongoing role
Integrating merged companies is really tough, Levine observed, so FirstWorld generally tries to keep old owners involved?by making stock in the organization part of the purchase consideration.
Who do you choose?
Finally, Levine pointed out that a strong acquisition candidate may find itself in an auction situation?that is being bid up by multiple buyers. Points of choice he sees are:
The buyer's basic vision
Your ongoing role
Consideration (payment)
Buyer's ability to move quickly
Tip: Levine's parting advice on having a positive acquisition experience was "Get a good lawyer-one who knows this kind of deal. It can save you weeks, maybe months, and lots of frayed tempers."
Get Top $ for Your Web Hosting Business
You've decided to sell your web hosting division or service, but how should you handle the sale? You've heard that ISPs are getting between $175 to $500 per subscriber, but how much should you ask?
by Christopher M. Knight [July 19, 1999]
Let's look at the top 7 items that will influence your selling price:
1. Your total annual website hosting revenue
This is the big one. In most cases, the selling price will be based on some multiple of your annualized sales. However, this doesn't mean only the direct revenue from hosting operations. Be sure to factor in the ancillary revenues that you receive because of your website hosting sales. You must look at all of the revenue that your website hosting division or business brings in and seek a firm that can effectively leverage your total value?which brings us to . . .
2. Your average ticket price
Example: If you told me that you sell all of your webhosting accounts for $29.95 per month, and I asked you what your average ticket price was per month, and you told me $29.95, your answer would be wrong.
The correct answer is the averaged total from all of the revenue your website hosting business brings in. This may include search engine registration service, website design, domain registration, additional account usage (extra bandwidth, email accounts, list servers, catalog style ordering modules, secure commerce items, etc). It may also include additional billable labor charges for programming/coding/etc. Average the total of these revenue streams by dividing it by your total number of invoices in a given period.
All hosting-generated revenue/ Total number of invoices
An ISP with a larger average ticket size will fetch a higher multiple or valuation than one that might not be up-selling or cross-selling additional items. Customers with a history or pattern of buying additional items are worth more than webhosting subscribers who do it all themselves, using you strictly for hosting.
3. Your web-hosting server system as it relates to your potential buyers systems
The more similar your website hosting system is to that of your potential buyers, the less the conversion will cost your new buyer, the more clients will convert to the new host, and the higher value you will be able to fetch. The time to make sure your webservers are as industry-standard as possible is today, not when you're on the brink of selling. If your clients get a nasty surprise about service levels or website development procedures, your valuation will suffer.
The name of the game here is to make it painless for your clients to be converted to their new host.
Less pain = higher conversion which should = higher valuation.
4. Current growth and attrition rates (You are tracking these rates, right?)
Your growth rate is a profit flywheel that will keep spinning even after you have sold your business. It will also be a determining factor in how many times annual sales you will be able to fetch, because your future customers will be coming to the host you sell to?on the heels of your marketing investments--and should be valued. Many buyers don't much want to talk about this, but they will nonetheless maneuver and position themselves as best they can to continue to profit from your marketing/sales momentum. (Wouldn't you?)
Your attrition rate?the number of folks leaving you on a monthly basis? will most likely convince your new potential buyers either that you don't know how to run your business or that you are a first class host?based on your ability to retain and keep clients. Happy clients are worth more, complain less, and buy more from you.
5. Depth of specialization (or lack thereof)
If you are a web-hosting jack of all trades, dabbling in all kinds of specializations?database applications, catalog-style ordering, ASP/Microsoft platform projects, adult site hosting, or any other non standard website hosting?is likely to be more a hindrance than a blessing when it's time to sell. It would be better to choose one or two specialties and become really proficient in them. This will make it easy to sell to a similar bigger fish?as opposed to having to piece out your website hosting service base to different buyers. You may never get full valuation if you have to split up your sale.
6. Geographical configuration of your server farm
This is a simple one. If you have just one website data center, you have little to worry about?except the possibility that your current clients who might have been used to local service, may now have an 800 Number to some national webhosting firm that you sold out to. If you have multiple data centers all over the country, then your potential acquirer must also have similar facilities.
7. Your current billing method
As with the ISP dial-up business, the more folks pay with credit cards or electronic checking account drafts, the higher the value of your hosting operation. Why? It's been proven that businesses are worth more if it's easier to get paid on time and with fewer billing costs or credit hassles. Consider requiring all accounts below $50 or $100 a month to pay via credit card or checking account drafting. You may lose a few accounts, but you will gain a higher valuation.
Finally, a question: Should you sell your website hosting division right along with your ISP dial-up service, or should you sell them separately?
Unless special considerations apply, the answer depends on optimizing the factors of price, time, and effort. You want the best possible combination of the most money, in the shortest amount of time, for the least effort.
If you are a small regional, the answer is usually Sell both at the same time. Strange as it may seem, it's likely to be tough to find a customer for couple $ hundred thousand in website hosting revenues?as opposed $ half a million to a million or more. (Larger operations are more attractive to the big website hosting folks, who are out to buy every competitor).
Tip: If possible, sell the business as a complete package; don't parcel it out to separate buyers?unless you've determined that you can make more money that way.
Tip: To get the best overall price perspective, study the S1s and other reports from publicly traded ISPs that offer website hosting, to determine how many times annual earnings they receive.
Tip: When push comes to shove, my advice is don't accept anything less than 1x annual sales. There are so many opportunities out there; just keep on knocking on doors until you find someone who can properly leverage all of your value instead of just a piece of it.
Bankruptcy: The End or a New Beginning?
Just when you think your ISP operation may be down and on its way out, consider voluntary bankruptcy a potential business cure. While it won't stop the tax man at your door, your ISP could get a second lease on life.
by Mark E. Battersby [December 14, 2000]
One bad year should not mean the end of any ISP or other online business operation.
Unfortunately, few ISP owners and operators that are facing hard times, reduced cash flow, or pressure from their creditors have ever given any thought to failure. According to many experts, avoiding financial failure requires planning?perhaps even planning to seek protection under our Federal Bankruptcy laws.
Bankruptcy has long been viewed as the end of an ISP?or its owners. However, today's bankruptcy laws have been specifically designed to make it far easier for any troubled ISP owner to use bankruptcy as a staging area for survival and future growth. In other words, bankruptcy need not be the end of your ISP operation.
Willing or unwilling
Although the days of debtor prisons and deportation are long past, Federal legislation passed in 1918 and subsequently revised in 1938 and 1978, provides for an orderly handling of bankruptcies by the Federal court system.
Even if the more restrictive rules currently being considered by our lawmakers become a legal reality, bankruptcy procedures will still permit any individual or business to get a fresh start?if the ISP operator is smart enough to opt for a voluntary bankruptcy.
On the other hand, if your ISPs creditors force you into an involuntary bankruptcy, it all-too-often involves selling off the assets of the operation in order to pay nervous creditors.
With voluntary bankruptcy, an individual or firm asks to be judged bankrupt because of an inability to pay off creditors. Under involuntary bankruptcy, the creditors may request the courts to judge a business or individual bankrupt and the assets disposed of to pay all outstanding debts.
Imagine being able to hide behind the protection of the Federal courts while your ISP business is restructured. You have time to make a plan to pay off debts (even at a rate as low as ten cents on the dollar) and a safe haven where creditors can't intrude, harass, interfere, or close your business down. Bankruptcy may be just the financial shield many troubled ISP owners and operators need.
Carry some protection
Whatever protection against liability and creditors that might have existed when your ISP operation was first incorporated, can usually be nibbled away by hungry creditors. The companies your ISP owes are anxious to prove that since the incorporated business was not operated as a separate entity, the owner/shareholder is liable for all the debts which the incorporated entity cannot pay.
If incorporation at the outset of your ISP operation is not the answer to protecting its assets?and those of its owners?what is? James A. Sweet, an attorney specializing in small business bankruptcies in Philadelphia, PA, said the answer lies in financing.
"Financing requires some thought," Sweet said, "at least if any future bankruptcy is to leave the owners with a business or any personal resources".
Lenders willing to loan money to any small business without a personal guarantee from the owner are far and few between?particularly if your business is a newly formed Internet service. In other words, our lawmakers, the tax authorities at every level, the Federal courts and the ISP operator may believe in the separation of an incorporated business and its shareholders, but bankers and other lenders do not.
Blood from a stone
Every ISP operator needs to understand that from your first day in business forward, taxes are inevitable?and government takes the biggest bite from impoverished businesses. A financially troubled ISP may often have debts forgiven or written off by its creditors. Unfortunately, our tax laws consider forgiven debt to be taxable income.
That's right, even when a creditor forgives a debt, the ISP/debtor is treated by the Internal Revenue Service as if the business had received income equal to the amount of the forgiven debt?and taxes will be assessed. The only exceptions to this rule are when the business operation is insolvent or when the entity is in bankruptcy.
Roll with it
Despite advance planning, intricate tax strategies, and the best legal advice available, bankruptcy may be unavoidable. Should it ever come to that point for your ISP business, it is far better to view voluntary bankruptcy as a new beginning, rather than the end of your entrepreneurial dreams.
An ISP owner or operator who places his or her business in voluntary bankruptcy may not only retain his or her personal assets and finances?but the owner may soon find themselves with a newly revitalized, less debt-burdened ISP business poised for growth and a long prosperous future.
Bankruptcy should be viewed as a tool for the survival?not the end of the line for your ISP business.
Maximizing Your Marketability
Looking to sell your ISP or hosting company? Experts offer perspectives on how to make it an attractive acquisition target?and what the process is like.
by Ted Stevenson Managing Editor [November 11, 1999]
At Fall ISPCON '99, a group of merger and acquisitions executives convened to discuss the topic 'How Much is Your ISP and Web Hosting Company Worth?' Moderator Craig Moseley, Vice President at Daniels & Associates was joined by Seth Levine Director of Corporate Development at FirstWorld, Dean Brophy, VP Corporate Development at Verio, and David Shires, VP Business Development at Voyager.net.
The first part of the discussion (on which we reported yesterday, see ISP Valuations: From the Horse's Mouth) was devoted to an analysis of valuation metrics. Today we take up the thread as the presentation turned to issues around selling an ISP or hosting business.
Know why you're selling
Voyager's David Shires kicked off the conversation with the advice "Know why you want to sell your ISP." He went on to enumerate the most common reasons for selling:
Market conditions
Equipment upgrades required
Labor matters
Loss of interest
Time to cash out
Pursue a new business idea and/or spin off ISP side
What investors look for
Shires (who started an ISP in 1995, built it to 8,000 subscribers, and got venture funding before selling the business to Voyager in 1998) described what Voyager looks for in an acquisition candidate.
First and foremost, the candidate must be profitable with a strong market position, and a track record of high growth and low churn. It should offer a similar business mix and pricing strategy in addition to potential for economies of scale. Finally, a viable target needs to possess a strong network infrastructure and a minimum of 3,000 subscribers.
The process begins
The first step in a potential Voyager acquisition is an informal site visit by Shires or a colleague. At this time, a seller should be prepared to present financial statements for the previous 6 to 12 months, a detailed network diagram, and an inventory of equipment.
If interest persists past this stage, Voyager begins to generate a valuation. Of the three widely used valuation methods?discounted cash flow, multiples of recurring revenue, and per subscriber?Voyager favors recurring revenue.
(Your recurring revenue is what your subscribers pay each month?not including setup fees, equipment sales, Web development, etc. For valuation purposes, multiply this figure by 12 to get annualized revenue.)
Tip: To increase your valuation, David Shires advises: "Focus on increasing your recurring revenue."
Serious interest
When Voyager (or virtually any potential buyer) reaches a decision to move ahead, it will prepare a letter of intent. This lays the foundation of the offer in broad terms. At the top of the list, of course is a purchase price, usually consisting of both cash and stock. The offer generally is to purchase all of the seller's assets, free and clear of liens. The buyer assumes leases, domain names, IP addresses, equipment, and furniture. There is generally a non-solicitation clause barring the seller from seeking other offers for 90 days.
The next step is the due diligence process, in which live auditors from the buyer's organization essentially 'go over the books.' More precisely, they seek to "confirm the accuracy of sellers representations and warranties." This involves examining financials, tax statements, asset lists, and all leases?telco, advertising, building, etc.
Wrapping it up
The final stage of acquisition is the drafting of a Purchase/Sale Agreement?a process that usually takes 45 to 60 days. Shires's concise advice on this stage was "Get a good lawyer?and an accountant."
Tip: David Shires offered a To-Do list for prudent CEOs wanting to be prepared for acquisition:
Review your financial statements monthly
Catch up on bills and resolve disputes
Get a handle on billing and Acts Receivable
Find all Contracts - telco, building, customer
Determine your recurring revenue
Second opinion
FirstWorld's Seth Levine echoed many of Shires's comments. FirstWorld has been acquiring ISPs, Web hosting providers, and e-commerce companies "that we can continue to help to grow," said Levine.
"To position your ISP to be bought, you need to understand where its value is," he said. From FirstWorld's perspective, that's likely to be:
Business customers
Broad service offering
Strong market presence
Stable customers
History of growth
Size ($3-4 million in annual revenue)
He agreed with Shires in citing recurring revenue as another important value factor.
In weighing purchase offers, Levine urges sellers to factor in several mitigating factors:
Your tax situation
Your appetite for risk (and upside)
Your leverage (size, market presence, product expertise)
Your ongoing role
Integrating merged companies is really tough, Levine observed, so FirstWorld generally tries to keep old owners involved?by making stock in the organization part of the purchase consideration.
Who do you choose?
Finally, Levine pointed out that a strong acquisition candidate may find itself in an auction situation?that is being bid up by multiple buyers. Points of choice he sees are:
The buyer's basic vision
Your ongoing role
Consideration (payment)
Buyer's ability to move quickly
Tip: Levine's parting advice on having a positive acquisition experience was "Get a good lawyer-one who knows this kind of deal. It can save you weeks, maybe months, and lots of frayed tempers."
Exit Your ISP Your Way
Financial planning takes time ... and the right time to plan for exiting your ISP operation is right now. Before outside forces influence your goals, build a plan for withdrawing from the business on your terms.
by Mark E. Battersby [November 22, 2000]
Whether your ISP business has grown and prospered or is marginally successful, exiting the business may be one of the most important things you ever do.
Unlike almost every other business decision that you make, exiting your ISP business on your terms can only be done once. You get one chance to decide how, when, and on what terms you'll make your exit.
Make your getaway
Planning a successful departure requires as much attention as growing your ISP into a profitable business venture. For the most part, your ISP exit strategies consist of four options:
Succession: You fulfill the dream of early retirement and pass your ISP business on to your children or other family members.
Sale: You elect to get out while the getting is good by selling your private ISP as an ongoing business operation, or exiting your publicly held business by selling all or most of your stock.
Liquidation: You opt to get some return on the business while there's still a chance by dissolving the business and selling its assets.
Depletion: You have no choice by to declare bankruptcy and fold your ISP operation. Rarely does anyone choose to exit a business in such a manner. But, if all else fails and you must exit the business, planned egression could make your forced exit a little less painful ? at least financially.
Pass it on
Rarely does the owner of any business plan for succession, in happens by default. Remember, barely 30 percent of family-owned businesses survive into the second generation and fewer than 15 percent endure into the third.
Whether or not you can afford it, you should hire professionals to advise you about wills, trusts, insurance and estate planning in the early stages of your ISP business development.
Placing a portion of your ISP business into a trust may eliminate succession squabbles. Making gifts of stock in a fledgling business to family members can mean passing ownership on to the next generation ? without gift tax consequences.
Sellout
Exiting your ISP business by selling out also requires financial planning, at least if you want to exit on the best possible terms. Your position as a partner in a partnership, shareholder in an incorporated business, officer of a publicly traded company, or guarantor of the operation's loans, will have either a legal or moral impact on your exit strategy.
In a perfect world, you'd plan to sell when the economy is booming, when the industry is at its peak and when your ISP business is having a banner year with the future looking highly profitable. That's the time when you would be the most likely to receive the best possible price for your business. In reality, however, your decision to sell will probably have more to do with your personal circumstance, rather than exiting at the apex of your ISP's performance.
Balancing your personal life with operating an ISP is a challenge. Utilize a professional financial planner to help you decide when the time is right for your departure on a financial level and seek counsel with family and friends to balance your decision on a personal level. It may not be the optimum moment to exit your ISP business on both counts, but you may ultimately achieve harmony between your dual priorities.
Clear off
Few ISP owners anticipate the circumstances where they will exit their operation by liquidating the business. But in far too many cases, you are your business ? you and you alone are responsible for the success or failure of your Internet service.
Without you, without your name recognition, your unique skills, or your local connections, there may be no business worth operating. If you leave, regardless of the strategy chosen, the business will cease to function. In this case, the business consists of you, your skills and some assets.
Fortunately, planning your exit strategies can easily encompass the liquidation of its assets. Planning to improve those assets, in fact, can benefit other areas of your exit strategy planning. A professional third party can make all the difference in result of your decision to liquidate your business. Get some help from a liquidation specialist to protect your best interests.
Escape through the nearest door
No one wants to fail and no one plans to fail. From the start of your Internet business venture, your exit strategies should include the unthinkable ? bankruptcy.
Planning with failure as a contingency may mean moving assets from your ISP business into a separate entity altogether in order to avoid claims by creditors.
It may mean that you complete a loan with the business demanding payment, rather than having them accept your I.O.U. When a company declares bankruptcy, there is a pecking order among your creditors. The owner of a failed ISP often finds their unsecured claims at the bottom of the pau-off pile, while secured debt stands atop of the heap.
Regardless of who you owe how much, now is the time to prepare a contingency plan for exiting your Internet service operation via bankruptcy protection ? but anticipate that you'll never have to execute the plan.
Exit right
The primary goal of any exit strategy should always be to leave at a time when you think that you will be ready. Departure should always be done on terms that you dictate. If that is not possible, at least you should make your exit with a plan in hand.
Your legal complications, moral ramifications and personal obligations all factor in to how you exit your ISP business. Commitments to partners, investors, or fellow-shareholders and the key position that you occupy as an integral part of the business are factors you will need to consider when you plan your exit strategies.
Even under adverse conditions a good exit strategy is one that will allow you to remove yourself from the ISP operation with your goals intact ? be it cash rich, continuity planned, sanity maintained, or simply with your teeth.
A bad exit strategy is when you do not plan for your departure. Don't allow all your hard work to go for naught because you didn't think about how to exit your Internet service. Set a few goals today and start to plan your ISP exit strategies right now. You'll be glad you did.
Maximizing Your Marketability
Looking to sell your ISP or hosting company? Experts offer perspectives on how to make it an attractive acquisition target?and what the process is like.
by Ted Stevenson Managing Editor [November 11, 1999]
At Fall ISPCON '99, a group of merger and acquisitions executives convened to discuss the topic 'How Much is Your ISP and Web Hosting Company Worth?' Moderator Craig Moseley, Vice President at Daniels & Associates was joined by Seth Levine Director of Corporate Development at FirstWorld, Dean Brophy, VP Corporate Development at Verio, and David Shires, VP Business Development at Voyager.net.
The first part of the discussion (on which we reported yesterday, see ISP Valuations: From the Horse's Mouth) was devoted to an analysis of valuation metrics. Today we take up the thread as the presentation turned to issues around selling an ISP or hosting business.
Know why you're selling
Voyager's David Shires kicked off the conversation with the advice "Know why you want to sell your ISP." He went on to enumerate the most common reasons for selling:
Market conditions
Equipment upgrades required
Labor matters
Loss of interest
Time to cash out
Pursue a new business idea and/or spin off ISP side
What investors look for
Shires (who started an ISP in 1995, built it to 8,000 subscribers, and got venture funding before selling the business to Voyager in 1998) described what Voyager looks for in an acquisition candidate.
First and foremost, the candidate must be profitable with a strong market position, and a track record of high growth and low churn. It should offer a similar business mix and pricing strategy in addition to potential for economies of scale. Finally, a viable target needs to possess a strong network infrastructure and a minimum of 3,000 subscribers.
The process begins
The first step in a potential Voyager acquisition is an informal site visit by Shires or a colleague. At this time, a seller should be prepared to present financial statements for the previous 6 to 12 months, a detailed network diagram, and an inventory of equipment.
If interest persists past this stage, Voyager begins to generate a valuation. Of the three widely used valuation methods?discounted cash flow, multiples of recurring revenue, and per subscriber?Voyager favors recurring revenue.
(Your recurring revenue is what your subscribers pay each month?not including setup fees, equipment sales, Web development, etc. For valuation purposes, multiply this figure by 12 to get annualized revenue.)
Tip: To increase your valuation, David Shires advises: "Focus on increasing your recurring revenue."
Serious interest
When Voyager (or virtually any potential buyer) reaches a decision to move ahead, it will prepare a letter of intent. This lays the foundation of the offer in broad terms. At the top of the list, of course is a purchase price, usually consisting of both cash and stock. The offer generally is to purchase all of the seller's assets, free and clear of liens. The buyer assumes leases, domain names, IP addresses, equipment, and furniture. There is generally a non-solicitation clause barring the seller from seeking other offers for 90 days.
The next step is the due diligence process, in which live auditors from the buyer's organization essentially 'go over the books.' More precisely, they seek to "confirm the accuracy of sellers representations and warranties." This involves examining financials, tax statements, asset lists, and all leases?telco, advertising, building, etc.
Wrapping it up
The final stage of acquisition is the drafting of a Purchase/Sale Agreement?a process that usually takes 45 to 60 days. Shires's concise advice on this stage was "Get a good lawyer?and an accountant."
Tip: David Shires offered a To-Do list for prudent CEOs wanting to be prepared for acquisition:
Review your financial statements monthly
Catch up on bills and resolve disputes
Get a handle on billing and Acts Receivable
Find all Contracts - telco, building, customer
Determine your recurring revenue
Second opinion
FirstWorld's Seth Levine echoed many of Shires's comments. FirstWorld has been acquiring ISPs, Web hosting providers, and e-commerce companies "that we can continue to help to grow," said Levine.
"To position your ISP to be bought, you need to understand where its value is," he said. From FirstWorld's perspective, that's likely to be:
Business customers
Broad service offering
Strong market presence
Stable customers
History of growth
Size ($3-4 million in annual revenue)
He agreed with Shires in citing recurring revenue as another important value factor.
In weighing purchase offers, Levine urges sellers to factor in several mitigating factors:
Your tax situation
Your appetite for risk (and upside)
Your leverage (size, market presence, product expertise)
Your ongoing role
Integrating merged companies is really tough, Levine observed, so FirstWorld generally tries to keep old owners involved?by making stock in the organization part of the purchase consideration.
Who do you choose?
Finally, Levine pointed out that a strong acquisition candidate may find itself in an auction situation?that is being bid up by multiple buyers. Points of choice he sees are:
The buyer's basic vision
Your ongoing role
Consideration (payment)
Buyer's ability to move quickly
Tip: Levine's parting advice on having a positive acquisition experience was "Get a good lawyer-one who knows this kind of deal. It can save you weeks, maybe months, and lots of frayed tempers."
Exit Your ISP Your Way
Financial planning takes time ... and the right time to plan for exiting your ISP operation is right now. Before outside forces influence your goals, build a plan for withdrawing from the business on your terms.
by Mark E. Battersby [November 22, 2000]
Whether your ISP business has grown and prospered or is marginally successful, exiting the business may be one of the most important things you ever do.
Unlike almost every other business decision that you make, exiting your ISP business on your terms can only be done once. You get one chance to decide how, when, and on what terms you'll make your exit.
Make your getaway
Planning a successful departure requires as much attention as growing your ISP into a profitable business venture. For the most part, your ISP exit strategies consist of four options:
Succession: You fulfill the dream of early retirement and pass your ISP business on to your children or other family members.
Sale: You elect to get out while the getting is good by selling your private ISP as an ongoing business operation, or exiting your publicly held business by selling all or most of your stock.
Liquidation: You opt to get some return on the business while there's still a chance by dissolving the business and selling its assets.
Depletion: You have no choice by to declare bankruptcy and fold your ISP operation. Rarely does anyone choose to exit a business in such a manner. But, if all else fails and you must exit the business, planned egression could make your forced exit a little less painful ? at least financially.
Pass it on
Rarely does the owner of any business plan for succession, in happens by default. Remember, barely 30 percent of family-owned businesses survive into the second generation and fewer than 15 percent endure into the third.
Whether or not you can afford it, you should hire professionals to advise you about wills, trusts, insurance and estate planning in the early stages of your ISP business development.
Placing a portion of your ISP business into a trust may eliminate succession squabbles. Making gifts of stock in a fledgling business to family members can mean passing ownership on to the next generation ? without gift tax consequences.
Sellout
Exiting your ISP business by selling out also requires financial planning, at least if you want to exit on the best possible terms. Your position as a partner in a partnership, shareholder in an incorporated business, officer of a publicly traded company, or guarantor of the operation's loans, will have either a legal or moral impact on your exit strategy.
In a perfect world, you'd plan to sell when the economy is booming, when the industry is at its peak and when your ISP business is having a banner year with the future looking highly profitable. That's the time when you would be the most likely to receive the best possible price for your business. In reality, however, your decision to sell will probably have more to do with your personal circumstance, rather than exiting at the apex of your ISP's performance.
Balancing your personal life with operating an ISP is a challenge. Utilize a professional financial planner to help you decide when the time is right for your departure on a financial level and seek counsel with family and friends to balance your decision on a personal level. It may not be the optimum moment to exit your ISP business on both counts, but you may ultimately achieve harmony between your dual priorities.
Clear off
Few ISP owners anticipate the circumstances where they will exit their operation by liquidating the business. But in far too many cases, you are your business ? you and you alone are responsible for the success or failure of your Internet service.
Without you, without your name recognition, your unique skills, or your local connections, there may be no business worth operating. If you leave, regardless of the strategy chosen, the business will cease to function. In this case, the business consists of you, your skills and some assets.
Fortunately, planning your exit strategies can easily encompass the liquidation of its assets. Planning to improve those assets, in fact, can benefit other areas of your exit strategy planning. A professional third party can make all the difference in result of your decision to liquidate your business. Get some help from a liquidation specialist to protect your best interests.
Escape through the nearest door
No one wants to fail and no one plans to fail. From the start of your Internet business venture, your exit strategies should include the unthinkable ? bankruptcy.
Planning with failure as a contingency may mean moving assets from your ISP business into a separate entity altogether in order to avoid claims by creditors.
It may mean that you complete a loan with the business demanding payment, rather than having them accept your I.O.U. When a company declares bankruptcy, there is a pecking order among your creditors. The owner of a failed ISP often finds their unsecured claims at the bottom of the pau-off pile, while secured debt stands atop of the heap.
Regardless of who you owe how much, now is the time to prepare a contingency plan for exiting your Internet service operation via bankruptcy protection ? but anticipate that you'll never have to execute the plan.
Exit right
The primary goal of any exit strategy should always be to leave at a time when you think that you will be ready. Departure should always be done on terms that you dictate. If that is not possible, at least you should make your exit with a plan in hand.
Your legal complications, moral ramifications and personal obligations all factor in to how you exit your ISP business. Commitments to partners, investors, or fellow-shareholders and the key position that you occupy as an integral part of the business are factors you will need to consider when you plan your exit strategies.
Even under adverse conditions a good exit strategy is one that will allow you to remove yourself from the ISP operation with your goals intact ? be it cash rich, continuity planned, sanity maintained, or simply with your teeth.
A bad exit strategy is when you do not plan for your departure. Don't allow all your hard work to go for naught because you didn't think about how to exit your Internet service. Set a few goals today and start to plan your ISP exit strategies right now. You'll be glad you did.
How to Price Your ISP When It's Time to Sell
The key to maximizing return on your years of investment and hard work is finding the buyer for whom your assets have the highest value.
by Christopher M. Knight [July 12, 1999]
You've made the big decision. After years of building your successful ISP business, it's time to bail out, cash out, get out, and burn rubber down the road into the sunset . . . but how do you put a price tag on your ISP? How much should you ask and how much can you get? This article explores some of the options.
For a market to exist, a willing seller must be matched with a willing buyer. It doesn't matter how much you want if there's no one in the market willing to pay what you're asking. So the goal is to look for the buyer that can maximize, leverage, utilize, and value your ISP most highly.
ISP industry idiosyncrasy
Outside of the ISP industry, many non-public businesses are valued based on some percentage of annualized sales revenue (typically 1 to 5 times annual earnings). Historically, however, the ISP industry appears to prefer to price companies based on a value per subscriber, which is then multiplied by the number of subscribers to arrive at an asking price.
That's the theory. In practice, buyers' contracts often specify that the seller gets paid only for the subscribers that remain with the new ISP after the deal. Typically, if you get more than 80 percent to convert to the new ISP, you are doing well.
Imperfect as it may be, the subscriber value method is a good place to start in determining an asking price. Some of the major factors that help determine a value per subscriber are:
The size of your subscriber base (bigger is better)
Your average revenue per subscriber
Your geographic POP situation is in relation to the buyers needs
The percentage of your subscribers paying by credit card or electronic draft (as opposed to printing invoices or terms)
Your growth rate, in terms of your marketing flywheel and its ability to keep bringing in new subscribers after the deal is made
Your churn ratio (lower is better)
Affiliate, associate, or computer dealers signed up to hawk your services
Who will be paying your early circuit- or service-termination expenses, if any
Tip: For the typical ISP with around 2,500 subscribers, the current going rate (July 1999) is between $150 and $400 per subscriber. Your mileage may vary. The larger you are, the more power you have to fetch higher valuations.
Physical assets
Note that the above discussion says nothing about the value of your network, servers, dial-up access switches, vendor agreements, or anything other than customer/subscriber information. Some buyers will ask for these assets to be lumped into the deal, but I'd recommend selling them separately?or, if part of the whole deal, itemized, so you know what you're getting for them.
Those pesky details
Finally, here are a number of items that many ISPs fail to think about or plan for when they sell out:
Getting paid, post deal, for additional subscribers that keep coming from the marketing flywheel you spent years building
A low conversion rate to the new ISP because the transition wasn't handled carefully or smoothly
Early T1 or circuit-termination or lease-shut-down charges (these can add up to $ tens of thousands)
Yellow page and other marketing costs under contract for the remaining year, on which you forgot to get your new buyer to pick up costs
What to do if the ISP you sell to botches up completely and your reputation gets dragged through the mud because of their incompetence.
Tip: Seek out the ISPs who are seeking to aggregate a couple dozen regional/local ISPs to take them public in the near future. These deals can bring you much more than the standard ISP subscriber-based buyout?if you don't mind the wait and the risk.
Top 7 Things To Do Before You Sell Your ISP
You've made the big decision: It's time to sell your ISP and cash out. But first, there are lots of small things you can do to guarantee maximum return on the asset you've spent so many years building. We'll explore the seven most important.
by Christopher M. Knight [June 1, 1999]
1. Decide your post-ISP strategy up front.
It's far easier to negotiate when you know clearly what you want, how you want to exit, what kind of ISP you want to sell to, what you want to do after the sale, and how you want to handle the marketing engine you've created that will continue giving you new dial-up subscribers even after you have made the sale.
2. Identify key potential buyers for your ISP 3 to 4 months before you plan to sell.
It's better to have offers in the hopper at least 60 to 90 days before you want to sell, than to find out that you can't sell your ISP on a week's notice. A great resource for identifying the key players in the ISP buying/selling mergers-and-acquisition game is the ISP-Investor E-mail discussion list (currently with over 1,700 members). You can join the ISP-Investor list by sending an email to: join-isp-investor@isp-investor.com
3. Clean up your database and make sure you have a firm count of paying subscribers.
This includes making sure that every single user who is dialing up your servers is a paying client. It's not uncommon for small ISPs (under 3,000 in size) to have hundreds of subscribers who have fallen through the cracks and are non-intentionally freeloading, because your billing system has holes. I've known ISPs who discovered?after they'd sold out and shut down their access switches?that they had as many as 400 more customers than they thought. As you can imagine, this was not a pleasant surprise.
4. Encourage your subscribers to pay by credit card.
Subscribers that pay via credit card are easier to work with, cost less to administer, and tend to fetch higher valuations than those billed monthly via snail mail. Consider changing your payment policies, either charging for paper snail mail invoicing or simply discontinuing snail mail billing for all noncorporate clients.
5. Check your Accounts Receivable and make sure that you are disconnecting folks who have not paid you for 60 or 90 days.
It will be very hard to collect from them after you have sold out; it's far better to take the trouble and tighten up your disconnect notices. From experience, my recommendation is to send disconnect notices after 30 days past due as a friendly warning. Then Send a 7 day disconnect notice on the 60th day past due, and FOLLOW THROUGH on your warning by actually disconnecting them on the 7th day.
6. Investigate your termination liabilities with your telco.
You don't want to get caught with your pants down, owing tens or hundreds of thousands of dollars of early term disconnect fees. If you sell to a telco, you may be able to get the circuits transferred, so it's worth investigating a bit to save yourself a lot of $$$.
7. Consider the rest of your operation in the big picture.
You may be able to get more money overall if you sell your web hosting and design business along with your ISP. What are your plans for your existing employees? Will they transfer to the new ISP? What about your ISP hardware? Can you make more money by including it or by selling it separately? Will the new host even want it? Is there some areas that you should consolidate some POPs to trim your ISP to be more attractive to the needs of an ISP buyer?
While not all of these 7 will be right for everyone, they should at the very least give you some ideas to get you thinking?and some action ideas to implement within your ISP business, even if you're not selling it.
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