It was among the most expensive startups ever, costing more than $5 billion to develop and deploy dozens of interlinked satellites, into a low-earth elliptical orbit. The intent was to offer phone coverage anywhere on the globe to anyone who owned a satellite-compatible handset. But its launch hardly tickled the market and the resulting failure was one of the largest bankruptcies in American history. For the colossal mis-management of this program, Motorola Iridium makes it to the list of Great Management Disasters in history.

The buildup: exciting tech from a market leader: Launched in 1998, nearly a decade before the iPhone hit the market, the Iridium system was portrayed as a technological marvel. Scores of interlinked satellites (77 total), launched into a low-earth elliptical orbit, supposed to offer coverage anywhere across the globe to anyone who owned a satellite-compatible handset. Some of the design was derived from the Pentagon’s ambitious “Star Wars” Strategic Defense Initiative program. As for the name Iridium? That was chosen in honor of the element with 77 electrons orbiting its nucleus. And it stuck even when the system was scaled back slightly, just prior to launch, to 66 satellites.

The rationale was that a network of satellites could provide a cheaper infrastructure than a sprawling, land-based system. At a time when cell phone usage stood at only 300 million (the number is approx. 7 billion today), Iridium presented a huge market expansion potential. And it was an engineering marvel. Virtually, a new constellation had been created in the sky. In theory, the network could even provide pilots and air passengers with excellent coverage. Armed with expertise and over 1,000 patents, the company seemed poised to capture first-mover advantage in providing global telephony via a network of low-Earth-orbiting satellites. Finally, analysts cited the company’s experienced top management team as yet another reason Iridium’s future was bright. And all this made Iridium one of the darlings of Wall Street. The stock more than tripled in stock price between 1998 and 1999.

The core Issues

A decade long execution and the trap of sunk costs: The biggest issue with the execution of this project was a decade long execution cycle within a rapidly evolving space. Large projects need to be delivered in bite sized chunks. This ensures an early reality check and early tweaks based on feedback and performance. A project that gets its first customer feedback after 10 years, is in no position to tweak. In fact, at the end of 10 years, there’s no tweak – it’s a complete rollback. And that’s exactly what happened with Iridium.

During Iridium’s decade long execution, terrestrial cellular spread faster than the company originally expected. Cellular networks spread to cover the overwhelming majority of Europe and even migrated to developing countries such as China and Brazil. And Iridium’s target market segment – the business traveler, was being increasingly served by cell phones that offered significantly better value than Iridium.

And what made matters worse was a pitifully small (by 2004 standards) band for transmitting data. The $5 billion system could send no more than 2.4 kilobits per second. Globalstar, also built in the 1990s, offered 9.6 kilobits. A standard dial-up computer modem, did 56 kilobits per second.

Motorola’s frontline teams were aware of the issues with the product. In fact, Iridium’s prospectus written in 1998 listed 25 full pages of risks including design limitations — including phone size, the build-out of cellular networks, service limitations — including severe degradation in cars, buildings, and urban areas and high handset and service pricing.

But Motorola fell into the sunk cost trap – making decisions based on past investment rather than future returns. The thinking was that since a ton of money had already been invested in the venture, it was more economical to continue pouring into the investment than abandon it.

There was another factor that contributed to the blind faith in Iridium – a sizeable component of the CEO compensation tied to the launch of Iridium. Dr. Edward Staiano became CEO of Iridium in late 1996. In both 1997 and 1998, he received 750,000 Iridium stock options that vested over a five-year period. Indeed, this fact didn’t escape Staiano’s attention when he took the CEO position in late 1996, stating: “If I can make Iridium’s dream come true, I’ll make a significant amount of money.”

High upfront costs – technology ahead of the customer: Iridium’s architecture locked it into massive upfront costs. The project was the world’s biggest deployment of low-Earth-orbit satellites (LEOs), which hovered a mere 483 miles above our heads, compared to 22,000 miles for geostationary satellites (GEOs). A LEO network’s proximity to Earth eliminated the half-second signal lag users of geostationary communications experienced, an advantage Iridium counted on as a great selling point for its telephone service. But the lower altitude of LEOs shrunk the service footprint of each satellite. From 22,000 miles up, one geostationary satellite can fan out communications to a third of the world; each Iridium LEO satellite, on the other hand, could reach just 1/66 of the globe, so any one or two were usually useless without the others in the constellation.

Planned in the mid-1980s, the system was archaic by the time it was deployed in 1998, offering global communications from a brick-size, $3,000 phone at charges from $6 to $30 a minute.

The core issue was that Motorola was so enthralled by the technology that it forgot about the customer. It believed the customer would be equally enthralled. The technology looked alluring but the Iridium execs forgot that during the early cellular-phone era it was not the technology but the pricing plans that swayed the customer.

In the end, the customer never figured in the technology build up. Motorola created the technology and then tried to retrofit onto a customer Use case, thereby placing the cart before the horse.

The outcome

Iridium, the global satellite phone company backed by Motorola, filed for bankruptcy in 1999, after the company had spent $5 billion to build and launch its infrastructure of satellites to provide worldwide wireless phone service. At the time, it was one of the 20 largest bankruptcies in US history. The creation of this enormous system forced the company to default on $1.5 billion of debt. The service had been such a failure that it only had 10,000 subscribers compared to the projection of 500,000 subscribers.

Retrospective

Risk Management in a long Project cycle: Projects with a long execution cycle need to be evaluated annually from a risk landscape perspective. Especially when the project is being executed in the tech sector, which is very susceptible to changing tech. The sponsors need to be made aware of new emerging risks, mitigation plans and measurable progress, so they can determine if its time to pull the plug on their investment. In fact, the criteria for continued investment needs to be set upfront so no one is surprised if the plug is pulled on the investment.

Match the Product with the correct customer segment: The Product and Marketing teams need to remove their blinders and look for newer customer segments where the product could be more profitable. In case of Iridium, by 2000, Motorola was poised to “de-orbit” the bankrupt Iridium system to save money. The company’s engineers were putting the finishing touches on “suicide software” that could bring the satellites down from their orbit so that they would burn up upon re-entry. But a group of government technocrats and Pentagon officials—all of whom were convinced that the Iridium system was potentially useful for the miliary and too valuable to destroy— gave Iridium a new lease of life – a new market segment. Suddenly, Iridium appeared to be the perfect solution for soldiers, deep-sea fishermen, first responders and field scientists. Instead of selling the high-priced service to consumers, the product was sold to shipping lines, oil companies, railroads and trucking companies that needed to keep in contact with workers who were often out of the reach of traditional cellular networks. And the US government stepped in as well with a $72 million investment.

As of April 22, 2025, Iridium Communications had 2,443,000 total billable subscribers spread across commercial subscribers and the US Government.