On the face of it, Sedona Networks (no Website anymore) had it all: more than $20 million in financing, 150 employees, an aggressive management team, plenty of positive visibility, and a winning product strategy. There was even a civic award for "New Business of the Year," bestowed on Sedona by the Ottawa Board of Trade in 2000.

But on March 30, nearly four years after its founding, the startup closed its doors and declared bankruptcy. "Our market disappeared. Our VCs were stunned," says ex-CEO Joseph Elchakieh.

In these bearish times, the demise of yet another startup has become business as usual, however grim. Sedona Networks stands out, though, because it was larger and seemed to have progressed further than many other early startups. Perhaps for that reason, its missteps are clearer. And so are the lessons it offers to other newcomers in the broadband IP space.

Indeed, Sedona's main problem appears to have been that it tried to do too much.

"They crammed a whole bunch of functions in one box," says Kevin Mitchell, directing analyst at Infonetics Research Inc. In an early press release, Sedona described its product as "an intelligent, multi-services edge platform that performs traffic management, routing, IP address management, gateway functions to public networks, dynamic SLA management, subscriber provisioning, and accounting, authorization and authentication (AAA) functions."

"That's a big chunk to bite off for one startup," Mitchell asserts. By putting so much in one product, Sedona made three big errors:

First, it attracted new carriers at the expense of incumbents. While CLECs (competitive local exchange carriers) like lots of functions in one unit, incumbents already have an installed base of favorite gear to perform most of these functions -- gear they don't care to replace with an unproven entity. "The incumbents probably would have argued that you can't expect to have all that and best of breed, too," Mitchell says.



Secondly, since its box was designed to do so much, Sedona also broadened the range of potential competitors. In addition to makers of IP service switches such as Celox Networks, Cisco Systems Inc. (Nasdaq: CSCO), Nortel Networks Corp. (NYSE/Toronto: NT), and Quarry Technologies Inc., Sedona would probably have come up against makers of service-aware switches like Accelerated Networks, CoSine Communications Inc. (Nasdaq: COSN), and Redback Networks Inc. (Nasdaq: RBAK). (See Optical Taxonomy for details.)

Finally, Sedona's big feature set made it tough to deliver on promises. "They pushed back general availability a couple of times," Mitchell says. He recalls that in summer 2000, for instance, Sedona claimed to be readying products for release in the first quarter of 2001. Then in the February 2001, the product wasn't going to be ready until June or July of this year.

Sedona isn't alone among startups that have taken on too much. The big picture seems to have snarled Point Reyes Networks, which also went belly-up -- only to be restarted as Cemip Networks by ambitious team members (see Point Reyes Rises Again). "We had a grand architecture planned, but we found that carriers really wanted a focused solution that would meet their immediate needs," Barry Burnett, Cemip's VP of sales, told Light Reading last month.

For Sedona, the combination of narrow target and lots of competition started to look like a mistake by late 2000. "Some of our customers began going out of business," Elchakieh says. Other trial customers cut their budgets and cancelled upcoming trials. (No information is available on which CLECs were testing Sedona's products.)

Sedona tried to restructure. It pulled back, reconsidered its course, and laid off 14 employees in January, then 47 more in March. But by that time, the VCs had lost interest.

"They got nervous. They couldn't quantify the market anymore," Elchakieh says. "They came to a standstill, the downturn was so awful."

At the moment, Sedona's selling its assets, including patents related to the handling of IP addresses, through the Ottawa branch of Ernst & Young Inc.. The staff reportedly are doing well, with many reportedly finding work elsewhere in Ottawa. (Accelight Networks Inc. has reportedly tapped some.)

And Joseph Elchakieh will take a bit of time off to regroup. "I'm going to spend some time with the kids, then I'll decide what to do next," he says.

- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com