Lessons from SunRocket’s Sunset: It’s the Customers, Stupid

I’ve been reading coverage of the abrupt demise of SunRocket with great fascination. Last week SunRocket slammed the doors shut on its customers without so much as an email in advance. They turned off dial tone for everyone from small businesses that regard phone service as a business lifeline to pregnant women for whom it is an actual lifeline. What’s even more astounding is that they charged customers in advance for this service – $199 for a year. And according to the Washington Post, ran through $80M in funding.

So what went wrong? How did this company go so far off the rails? I find this question of particular interest since I worked with members of the founding team (both management and funders) during the telecom price wars of the early ‘90’s. These folks are intelligent, experienced technology executives. And it certainly seems like their original instincts were on the right track. Just take a look at a few points from the founders’ “Member Bill of Rights”:

‘Unconditional Satisfaction: You have the right to a reasonable refund if we fail to perform to your satisfaction.

Dignity & Respect: You will be treated with the utmost dignity and respect in all dealings with SunRocket and company personnel.

Integrity & Trust: We endeavor to fully inform you of available options so you can make timely and informed choices. We will never abuse your trust through deceit, exploitation, neglect, manipulation, or discrimination.’

I haven’t spoken to executives or investors about this and I have no insider information, but here’s my hunch about what went wrong.

First, they positioned themselves as a low-cost provider in a commodity category where they didn’t control the essential infrastructure needed to deliver service. In other words, they set themselves up for disastrous competitive moves by the telco’s and cable co’s. According to the New York Times, cable companies are adding Internet phone service customers at nearly four times the rate of all the Internet phone service startups combined. The San Francisco Chronicle reports that the cable companies account for 70% of the market. SunRocket and the other Internet phone service startups woke up the sleeping giants. But when you position yourself as the low-cost provider there’s no place to go but down market, so these startups are struggling to find sustainable business models.

Second, despite the great promises in their Member Bill of Rights, they failed to treat their customers with dignity and respect. They commoditized their customers, and when you commoditize customers you can count on them to commoditize your product. SunRocket executives seemed to have missed the last ten years of tools and technologies for engaging with consumers. Although they built a 200 seat call center in Springfield MO they passed up all those opportunities to listen to and learn from their customers. Why would an early stage technology company build a domestic call center unless it was to ensure premium service and great customer insights? It doesn’t appear they had a blog … though they abused blogs liberally in a contest held early in 2006 where SunRocket users were encouraged to post gripes about companies in order to win cash prizes of $200 - $5,000.

Lastly, rumor has it that new executives brought in didn’t share the founders’ vision for great service and commitment to customers. While you can’t lay the blame for this entire debacle on CEO Lisa Hook, it’s fair to say that she didn’t handle the shutdown well. According to a Washington Post report, Hook held a company meeting on July 11th, where she told employees that buyers had approached the company but that bankruptcy was a “possibility”. Of course she had to make that session brief in order to catch her flight to San Francisco where she was a panelist at Fortune’s iMeme Conference. The following Monday she shut the doors and turned out the lights. Poor form, to say the least.

Heaven knows start-ups are tough. Just because you have a great product and a shrewd marketing strategy doesn’t mean you’ll make it. The Internet Deadpool is littered with as many good ideas, badly executed as bad ideas. But it’s been a while since we’ve seen a meltdown as stunning as this one.

Somewhere along the way the SunRocket team forgot why they were in business: customers. They designed their products to accelerate sales not inspire loyalty. They lost their customer relations compass. These are easy mistakes to make in the heat of the moment. SunRocket reminds us that this doesn’t just happen to twenty-something garage startups. Even seasoned technology veterans can get caught up in the scramble. It’s not rocket science, but SunRocket missed that calculation.

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