Sedona's Sad Demise

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
raider_fan 12/4/2012 | 8:34:20 PM
re: Sedona's Sad Demise I think this is going to become a familiar story with the rest of the Godbox vendors. Four years with no product for GA?
zeb 12/4/2012 | 8:34:19 PM
re: Sedona's Sad Demise Sedona had been working for almost exactly two years on its products, not four as stated by the previous posting. But I certainly do agree with the LR article's assessment of the situation: not enough focus.

Many Ottawa startups besides AcceLight are picking up former Sedona staff: Tropic, Innovance, Solinet, Catena, and Lantern, to name a few. Sedona's loss is their gain.
raider_fan 12/4/2012 | 8:34:13 PM
re: Sedona's Sad Demise But on March 30, nearly four years after its founding, the startup closed its doors and declared bankruptcy.

Only going by what LR was reporting. Which is it 2 or 4?
optera 12/4/2012 | 8:34:12 PM
re: Sedona's Sad Demise I don't mean to be arrogant, but you will be hearing similar stories from more startups sadly.

What looked rosy and promising few months ago or a year ago, you will find it's no longer going to be the case, esepecially for the Optical companies.

Startups WILL have a tough job to do in order to stand up against the Giants like Nortel being in the lead position.

Customers will not give their big fat contracts to startups, only established and 100 year old companies will be able to survive.Live long and see.

What products can startups develop that others can't. The question is not that you can make a product, the questionn is can you volume produce it and deploy it into the customer networks.

Can you win the major contracts, billions and millions !

ackronym 12/4/2012 | 8:34:08 PM
re: Sedona's Sad Demise The VC's are surprised?? Don't they sit on the board of this startup? Wonder which VCs took it on the chin!!
zeb 12/4/2012 | 8:34:05 PM
re: Sedona's Sad Demise Sedona's founders got together in the fall of 1998. The first batch of engineers started work in March 1999, almost exactly two years before the big layoff (1/3 of company) which for all intents and purposes signalled Sedona's end.
mu-law 12/4/2012 | 8:34:01 PM
re: Sedona's Sad Demise I couldn't stand that guy...
northern_light 12/4/2012 | 7:45:54 PM
re: Sedona's Sad Demise How ironic to look back on the message boards from April and read comments such as the following, isn't it, optera?

Startups WILL have a tough job to do in order to stand up against the Giants like Nortel being in the lead position
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