The Great Persuader

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The reference -- to a cable TV movie that chronicled Apple's early days -- caught Sculley off-guard and engaged him. The tech titan stopped talking to the other YPOers, focused on Steinberg, and offered 10 uninterrupted minutes of film criticism. InPhonic never came up. Only later that afternoon, when Steinberg saw Sculley in the lobby, did he tell him about his business. Sculley was intrigued enough to tell his personal assistant, "When David Steinberg calls, give him a meeting."

"David has incredible self-confidence," says John Sculley, the former CEO of Pepsi and Apple. "Every bone in his body is an entrepreneur's."

A few weeks later, Steinberg took a seat in Sculley's office on the 20th floor of a Park Avenue tower. The meeting started promptly at 9:45 a.m. "I have 15 minutes," Steinberg recalls thinking. But Sculley kept him there for hours, mostly brainstorming about InPhonic. By the end of the day, Steinberg left with an agreement that Sculley would be an investor (putting up some $500,000 in total) and would sit on the company's board. What had the veteran seen in the youthful executive? "David has incredible self-confidence," says Sculley. "Every bone in his body is an entrepreneur's."

Signing up Sculley was a crucial breakthrough. He could get Silicon Valley CEOs on the phone in a heartbeat, and when Steinberg stumbled in his first meetings in California -- the hard-charging East Coast salesman "came on too strong," Sculley says -- Sculley tutored him on the soft sell. Steinberg also leveraged Sculley's name to recruit an all-star team of advisers. First he signed up Jack Kemp, the former Buffalo congressman who ran for Vice President beside Bob Dole in 1996. Then he landed Terry McAuliffe, the Clinton consigliere who is the outgoing chairman of the Democratic National Committee. "They each have Rolodexes you can't imagine," Steinberg says -- including, for example, Bill Clinton's number. In 2003, Steinberg got McAuliffe to wrangle the former President to speak at a dinner of 30 InPhonic employees, carriers, and partners. "That was one of the most memorable experiences of my life," says Don Charlton, InPhonic's executive vice president of strategic development.

But even with Sculley onboard, Steinberg still had some selling to do. First, he approached a series of Web companies with a simple proposition: If they would fill their unsold ad space with banners offering cell phones under their own brand, InPhonic would pay them a per-customer finder's fee and serve as the invisible hand that completed the transactions and shipped the phones. In turn, InPhonic would collect its own finder's fee from the new customer's phone carrier. The Web companies bought it.

Then Steinberg had to convince wireless carriers to let InPhonic sell their services. "The hardest thing to do," says Steinberg, "was to get carriers, some of the biggest, most important companies in the United States, to trust a company that didn't exist with their brand on the Internet." For six months Steinberg shuttled between Florida, New York, and D.C. as he cajoled contacts at AT&T Wireless to sign InPhonic. "He called me weekly to try to get the deal going and I held him at arm's length," says Rick Personette, who worked with AT&T at the time. "I was getting called every day by people who thought they were going to make a ton of money on the Internet, and the best way to get rid of them was to say, 'Send me a business plan.' They wouldn't have one, but David sent me a detailed plan." AT&T signed in late winter 2000.

By May of that year, 32 websites had signed up as affiliates, guaranteeing InPhonic 476 million ads a month. By year-end, the company had sold $499,000 in phone activations (it keeps about $350 per activation; those commissions represent the bulk of the company's revenue). By the end of its second year, revenue had swelled to close to $10 million. At no point, however, has success prompted Steinberg to relax. One of his deeply held beliefs is that a business has to change constantly to survive. In the company's short history, Steinberg has fired one COO and demoted another. "You have to turn the ship every 12 to 18 months," he says. "You have to try new things, or you will never win in the long run."

On a train to New York one spring day in 2002, Steinberg and Don Charlton were kicking around the fact that 45% of the people who were applying for mobile phone service plans were turned down by the carriers because of poor credit. It was a huge untapped market. But what if there were a way to tap it? Within six months the company had put together Liberty Wireless, a "virtual" wireless company that bought airtime from Sprint and resold it to people with poor credit who were willing to prepay.

In its first year, sign-up and monthly fees from Liberty's prepaid service brought in $5.6 million on top of the $49.2 million InPhonic got from its original business selling AT&T and other name brands. By 2003, more than a quarter of the company's $136.1 million in revenue was coming from Liberty, which, with hundreds of thousands of customers, is now the third-largest U.S. virtual wireless carrier.

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