common mistake that we've seen in the field...
One of the biggest issues we see is staffing. Some community projects overstaff. They hire too many people too soon. They don't have the revenue to support the staff. They get into financial problems. The other big issue we see is hiring unqualified people to either manage the network or manage the business of the network. And there's a tendency to think that, well, this is a local community effort; we need to spend -- you know, we need to hire somebody local.
And that's good if they're qualified, and they have the right background and experience to do the work. But sometimes, there's a little too much focus on getting somebody local, at the expense of getting somebody qualified.
We often see people get into the overstaffing situation because they've set very unrealistic revenue expectations. So, you've got to start your staffing plan from a very conservative estimate of what you think your revenue's going to be.
communities don't do good, solid financial and business planning. We've gotten calls from networks that have been up and running for, you know, months, or a year or two. And the first thing we say is, well, let's see your business plan.
overreliance on grant funding. At the Institute for Local Self-Reliance, we focus really rigorously on the economics, and trying to make sure that these things are sustainable. And I've long been -- discouraged communities to go after grant funding, in part because we think the business model can often be made to work without grants.
If the business plan is, get a grant, and then run the network and hope good things happen, you're in trouble. If the business plan says, we're going to -- we've got realistic revenue expectations, we've got a "basket" of funding, and a grant is just one of several sources of funding, then, you know, a grant can work out very well.
Well, the first thing you really need is what we like to call an investment-quality financial pro forma. You need an income statement. You need a balance sheet. You need a cash flow statement. It's the usual stuff that accountants and bankers want to see from a business.
take rate projections. You need an operational expenses section. And you need a capital expenses section. The capital expenses section is driven by your take rate projections, and tells you, you know, over a period of, you know, three or five or ten years, how much money it's going to take to build the network. And then, of course, your operational expense section tells you what it's going to take to operate the network on a day-to-day basis.
a common situation, I think, is, you start a network, and you feel like you're doing really well, because you very quickly get 10, 15, 20 percent of the population. And then it starts to level off, because you've sort of exhausted the people who are already aware of it. They're enthusiastic about it. They've had a bad experience with the incumbents. They're technologically aware. You know, that's commonly a chunk of about 20 percent of the population. And you need to have a plan for connecting them first, but then penetrating beyond them, right?
return on investment. And the irony is -- in that question is, nobody asks, what's the ROI on a park? What's the ROI on sidewalks? And, to be fair -- I mean, this is a business. If the community or the local government is doing this, it needs to be run in a business-like manner. You know, putting in sidewalks is an amenity, it's not a business.
So that, particularly, they're not surprised, once the network's up and running, that, you know, it may take 12 or 18 months to get into the black. But we've seen a number of networks -- community networks – get into the black in Year 1. Because they had the right business plan, they had the right financial projections. And, you know, they identified the right CAIs – community anchors -- and the right early mix of customers,
I think, for any community project now, the days of bonding for, you know, $10, $20, $40 million – building everywhere and then hoping you get the take rate -- is over. Large or small project, now, you've really got to take an incremental approach. You've got to identify and test the marketplace, split your neighborhood up into areas. Make sure that you know, in an area, you're going to get -- you're going to meet your take rate projections. And you don't build, until you know you're going to meet your take rate projections.