All Your Eggs

Background: A NY based network design company (NDC) had a large customer base, centered primarily though not exclusively on Wall Street financial firms. Not only did the firm specialize in initial design - it realized significant ongoing revenue from maintenance contracts to keep those networks up and running 24/7.

The Challenge: The legal environment for telecommunications companies changed in the late 1990s, and a number of new companies emerged to begin building out broadband networks in regional areas. One such company (BB) contracted with NDC to manage the design and installation of broadband networks and equipment in a four state area in the northeast. After straightening out some initial project management growing pains in the roll-out of these network hubs, the two companies (NDC and BB) saw an opportunity to strengthen their respective positions.

BB had arrangements with various northeastern state governments to build broadband networks for their school systems worth hundreds of millions of dollars. That is, BB would invest hundreds of millions initially, with the idea that long-term maintenance and support contracts would over time generate enough revenue to realize a sizable return on investment. NDC saw an opportunity to simplify its support operations by becoming the exclusive provider to BB, and in fact, one of the conditions of the arrangement between NDC and BB was that NDC would provide support exclusively to BB. That meant, in effect, that NDC would have to sever its relationships with its existing client base.

The Outcome: About four months after cutting ties to their former clients, BB got word from all of the state governments that they were shifting directions, and would no longer need BB to build out the broad-band. As a consequence, BB's potential future revenue stream disappeared, making continued investment in the broadband network untenable. Without that potential revenue stream, BB ceased operations. NDC, having lost its most lucrative client, no longer had a client base to fall back on. NDC laid off staff almost immediately, and ceased operations within 60 days following the BB collapse.