Plan B
Do you remember that time when you had the perfect plan? All the pieces fell neatly into place and everything worked like a well-oiled machine? No? Neither do I. And neither do most companies.
The economy tanks. The market changes course. Managers make poor decisions. Competitors get to market first. A new product or plant doesn't work properly. The supply chain gums up. Customers' preferences change. The list of ways well-laid plans go awry continues.
When companies run into these problems good managers can be lifesavers. The best outcomes, however, are achieved before companies ever get to this point. Companies that build alternatives into their strategy wield a significant advantage in successfully navigating such dilemmas.
Plan A
In 2009, Viasat (VSAT), a maker of satellite equipment, said it was getting into the satellite broadband market. It acquired Wildblue, a provider of broadband service to rural customers. VSAT would gain Wildblue's satellite assets and a direct sales force focused on the rural broadband community. Until that point, satellite broadband was notorious for slow and unreliable service. Wildblue was no exception. Its service was slow and limited.
To maximize the value of its acquisition VSAT would change the nature of satellite broadband altogether. The company would launch its own state-of-the-art satellite, Viasat-1. Viasat-1 would double satellite broadband capacity over North America and provide service comparable to terrestrial cable providers. This marked a huge leap forward for the technology. The final piece of Plan A was to distribute this service to rural customers and satellite TV customers, primarily through Dish and DirecTV.
Dish supplier, EchoStar had other ideas. It built a carbon copy of VSAT-1 then began direct competition for VSAT customers and outmaneuvered VSAT thorough its preferred relationship with Dish.
To add insult to injury, it happened that satellite TV customers weren't all well-suited for the new world of satellite broadband. Though the new generation of satellites was a huge technological leap, providers still had to impose data caps to keep the integrity of their service. The caps hit high-volume streaming video users, who made up a large portion of satellite TV customers. Competition and mismatch between customers and their optimal service derailed VSAT's Plan A.
Plan B
VSAT had plenty of bandwidth overall but it had it in the wrong places and it was used by the wrong customers. Enter Plan B. The company ramped up its own sales force and independent distributors and put effort into alternative markets for its bandwidth, like in-flight WiFi where its technology offered advantages over ground-based services and competing satellite technologies and where its broad coverage would be a strength, not a challenge.
Early on, Plan B went poorly. But after management worked through some of the kinks, the business began to take. Today, VSAT still gets customers from Dish and DirecTV, but mostly customers come from its own distribution channels and from in-flight WiFi. The mix of customers turned out to be a boon. The company achieves better economics from its business than under its original plan for the satellite.
VSAT continues to pursue new markets previously inaccessible to satellite broadband in preparation for its next generation satellite, Viasat-2, another step-change in satellite broadband technology.
Its Good to Have Options
Things don't go exactly as planned for companies much of the time. When evaluating the investment merits of a company, assets that can be redeployed to uses other than their original plan or have some attributes of optionality are an important way to lower risk. Many investors easily overlook these attributes and, so, sometimes undervalue them.
In the case of VSAT, Plan A didn't fail entirely, but market conditions forced it to become a consumer-focused company in addition to its legacy Aerospace & Defense business and to explore new markets for a very expensive, very valuable asset. By doing this the company achieved better economic results and favorable returns for shareholders able to recognize the value of a nimble and flexible backup plan.