Lessons From a Turnaround: Fixing a '$150 Million Flaw'

We recently had the opportunity to sit down for coffee with FusionOne‘s founder and CEO, Rick Onyon. You might not know FusionOne, but if you use a cell phone, you should. Through your wireless carrier, and for as little as $1.99 a month, you can buy FusionOne’s data backup software package. Then when you break, lose or merely decide to replace your phone, FusionOne will export to your new device all of your old contact info — in the format you want!

It sounds like a simple b-plan, but developing software that can support 700 handset models from multiple manufacturers and 13 carriers is a very tall order. Yet while focusing on such a basic utility sounds mundane, plenty of people are willing to pay for it: FusionOne is the 3rd best-selling app on Verizon‘s web site (behind games and ring tones). The company now has four million subscribers, a 90 percent retention rate, and is adding 25,000 new users every month. “It’s not sexy, but we’re gonna smile over that utility, all the way to the bank!” Onyon exclaimed.

But not long ago, things weren’t so rosy at FusionOne. Founded in 1998, this “classic bubble startup” (Onyon’s words, not ours) launched with grand ambitions: to synchronize consumers’ data across all of their electronic devices — PDA, cell phone, car, and PCs in both the home and office. (It was a novel idea at the time.)

Flush with VC money, “we did lots of ‘Barney deals,'” recalled Onyon. FusionOne hired 350 people, invested heavily in technology and paid sites like Travelocity.com and MP3.com to sync users’ travel documents with their PDAs. “It was the era: You were encouraged to acquire lots of users,” he said. “How you would generate revenue was a secondary thought.” By the end of 2001, FusionOne had burned through two-thirds of $150 million in venture capital when Onyon realized that “We no way to monetize a thing. We turned off every valve we could, to see if we still had a business.”

Onyon did turn FusionOne around — on his 3rd try. We asked him to share with us how he did it.

Lesson 1: Identify the “fatal flaw”

In its second iteration, FusionOne became a licensing operation. The company began selling its main syncing technology to wireless carriers for “a few million bucks a pop,” and then customized it to each carrier’s specs. Revenue was a nice change, Onyon said, but he quickly discovered two new problems: one was that a customization model would not scale; and two was what Onyon referred to as FusionOne’s “fatal flaw.” “We were dependent on the carriers to imagine a creative solution with our technology, and to implement it,” he said. Telcos, unfortunately, aren’t known for creativity or implementations.

Lesson 2: Return to a customer philosophy

“We still sell to carriers. They are our customers. By ‘customer philosophy,’ I mean we ignore the carriers when they try to tell us what the consumer wants. Carriers don’t know,” explained Onyon. Back in the mid-2000s, carriers remained convinced that some of their consumers still wanted highly specialized syncing apps (= customization!). Meanwhile, through focus groups and its own research, FusionOne figured out that consumers – and not just early adopters — wanted data backup. Cutting back from multiple products to just one was like “going from having money on every number on the roulette wheel to betting it all on black 17,” said Onyon. The risk, he reasoned, might be worth it, because if enough users wanted backup, it could be sold at scale.

Lesson 3: Cut out customization and instead offer “private label”

Once FusionOne figured out that data backup was the service to sell, it faced another challenge: How would the company avoid the ugly pattern of license-it-and-customize-it that had become the ‘fatal flaw’ of its syncing solution? FusionOne refined its data backup to an art form, and then sold that very software under “private label” to multiple carriers. Same service, different name. Every time.

Lesson 4: Off-load some of the legwork

Once FusionOne got through the hard work of coding its refined data backup service, it was in a position to offload some of the legwork. Web 2.0 makes this possible. Carriers sell the service on their respective sites (see Verizon, Alltel, Cellular South, etc.). FusionOne hosts and manages the data on its own servers in exchange for a share of the monthly subscriber fees collected by the carriers. FusionOne’s administrative hassles are nil: “The carriers just send us checks in the mail,” said Onyon. Subscribers add new numbers to their account profiles on their respective carrier’s web site. Seconds later, in a throwback to its “syncing” days, FusionOne sends the data, wirelessly, to the user’s SIM card. No meddlesome cords between phone and PC. Lose the data, and FusionOne will send it to you again.

Lesson 5: “Sell it like your life depends on it”

Carriers market FusionOne now, but convincing them to do so didn’t happen overnight. With scant resources left for a national sales team, Onyon told his “handful of staff” to focus on landing Verizon or Cingular (now AT&T). Secretly, he hoped they’d win Verizon. He knew they could support all of Verizon phones. He wasn’t sure about Cingular.

“For an entire year we showed up, uninvited, to every Verizon sales conference we could, trying to find out who their ‘rainmakers’ were,” he recalled. He finally landed one salesman who saw FusionOne as a tool to retain consumers in the midst of renewing their contracts — the time when many “churn” to new carriers.

And it turned out that the service task eating up storefront clerks’ time was migrating customers’ data to a new phone from an old one. FusionOne took that chore off the table. “Pretty soon, Verizon clerks were pushing the service for us because it helped them sell more phones,” Onyon said. (hello, commissions!) Verizon soon became FusionOne’s anchor client. AT&T and others followed.

Conclusion: A fatal flaw — fixed

Today, instead of FusionOne being dependent on the carriers, it’s the other way around, according to Onyon. “Verizon won’t even release a new handset until the manufacturer guarantees it is compatible with our software,” he said. “But if choosing [to focus on] Verizon looks smart now, it was really an act of desperation. I call it my moment of clarity: There was no room for ‘Oh well, next we’ll try this.'”

A share of $1.99/month isn’t much, but you can build a business on a commodity if you “sell like your life depends on it,” concluded Onyon as we wrapped up our coffee meeting. FusionOne’s revenue share of four million subscribers is about $4 million a month. A $50 million-a-year business is nothing to sneeze at.

loading

Comments have been disabled for this post