BOSTON – Last night, at the TIE Boston Outlook 2007 dinner and VC panel discussion, Rob Soni, general partner at Matrix Partners , sensing the crowd’s disappointment in the face of such nervy questions as “Are deals getting smaller?” or “is enterprise software still a play?” pulled the pin on this little grenade and lobbed it into the frigid New England night: “I don’t know exactly what causes it, culture or what, but Boston VCs are not swinging for the fences, and not taking the big bets to create great companies.”
Some nervous shuffling ensued, snatching the moderator away from the jaws of defeat by a panelist willing to actually say something provocative. And he wasn't done:
Boston VCs play it too safe, and pull out of companies too quickly, happy to take their losses and push for their remaining companies to give them a comfortable three- to five-times return, while Silicon Valley VCs and investors will stick with their companies longer, keep a real faith in the ones they love, and nurture a comeback when others would walk away. Big examples include Redback Networks Inc. (“The greatest comeback in the history of telecom,” said Soni), Calix Networks Inc. and Infinera Corp. (Nasdaq: INFN), two companies with investors in it for the long haul, even those who’ve been squashed down along the way, and now in a terrific position to go public and reward patience and perseverance in a way New England companies never would be.
Silicon Valley VCs, for their part, love the game, and the risks. “It’s like the Cardinals and the Yankees. One will focus on manufacturing runs, the other on home runs.” And what team does every kid from Puerto Rico to Japan want to play for when they get to the major leagues?
Silicon Valley, for whatever reason, loves the consumer, and that’s where the real historic companies make their mark (think Amazon, eBay Inc. (Nasdaq: EBAY), Google (Nasdaq: GOOG), YouTube Inc. ), and once those make it big, then others come out to join the party, and build a critical mass of entrepreneurs that are chasing the same dream. Boston? Scratching of heads, darting of eyes, “Um, EMC?” one of the panelists offered. Ooh, that hurts.
Bruce Sachs of Charles River Ventures got into it too. He’s been commuting back and forth between Charles River offices in Waltham and Menlo Park and sees the difference every month. Boston-area entrepreneurs don’t have the visions of grandeur of Silicon Valley counterparts, and are quite happy enough to take the millions from their first sale and relax, walk away, spend more time with family. You know, spend the money. “In California, the saying goes, someone with $100 million is a frustrated billionaire," said Sachs. We have no Jeff Bezos, Page and Brin, Steve Jobs, and may never at this rate.
Sachs also had a point to make about great universities. “At Stanford, if you are a professor and you haven’t taken a sabbatical to start a company, you are a loser. We don’t see that attitude at MIT.” MIT feeds a lot of talent into the Boston-area startup community, but professors there seem to actually like being academics, and have this sense that “money is dirty,” said Sachs.
It all raises the question, will New England ever have a Cisco Systems Inc. (Nasdaq: CSCO)? No one on the panel (Soni, Dalton, Sachs and Jamie Goldstein of North Bridge Venture Partners ) seemed very sanguine about the prospect. Soni did point to a deal Goldstein and Dalton are in, QD Vision, as potentially game-changing, and gave them plenty of credit for that, and put out a call for local VCs to think bigger, or else stay in Silicon Valley's shadow. Areas he’s excited about? Solid-state lighting, open-source software, water purification, mobile broadband. Is there an Intel Corp. (Nasdaq: INTC), a Cisco, or a MySpace among them?
Maybe it’s the weather here. Out in the parking lot the temperature was falling to 9 degrees. This morning, the thermometer at the Boston Museum of Science read 1 degree. Palo Alto? 42, and rising.
Sorry, but I'm reading this thread backwards. "Wellfleet router code was as solid as a rock by 1995, and yet Bay chose to make the Rapid City acquisition to make up for the LatticeSwitch screwup, and it was the must less stable and much less feature-rich Rapid City code that went forward into next generation Bay products." The stack was solid but not portable. That became capparent when we've ported OSPF to NT. Rapid City used Phase2Net which was clearly lack features and scaled less then BN's stack but it was portable. And because portability was high priority of BayRS2000 things went the way they did.
I'd like to give my $.02 and address #2 in OZIP's opinion. SW developers had no problem with making good use of GAME (that was the name of OS on BN series). I was part of a SW team that worked closely with ANS and they were happy with the result - protocols (OSPF and BGP with extensive routing policies) and CLI. The problem, as I saw it than, was: - perception by ISP of Welfleet as "good HW and buggy SW"; - lack of CLI and existence of MIB oriented TI with little scripting available; - lack of ISIS since it was preferred by many ISP as IGP of choice.
In fact if you look at Wellfleet's router strategy circa 1993 (the year of the merger), it was kind of in neutral. The only "strategy" was to beat Cisco, and little by little we were starting to gain some market share. By the way, I'm not saying that we were taking that share from Cisco, but in 1993 we were probably taking it from the "also rans" of the router market at that time - the remnants of DEC, 3-Com, etc. I'm pretty sure Cisco was increasing its market share too.
In contrast to Wellfleet, Cisco was busy innovating in the Internet space with BGP. The time I spent asking the Wellfleet US product managers for BGP!!! Don't get me started!
Cisco also innovated, as ozip pointed out, in the IBM space. When I was at Heavy Reading I had the opportunity to interview Cliff Meltzer of Cisco. He's the head honcho for the management BU these days, but back in the early 90s Cliff was helping Cisco to develop an IBM channel interface into the mainframe. I remember Wellfleet's answer to that was "IBM'll never let them get away with that when they realise it'll mean fewer FEP sales". But Cisco did "get away" with it, and turned it into a major success story. I think that strategy took guts, and staying power. Initiatives like that were essentially absent within Wellfleet.
Good post. Specifically regarding the routers, there were a couple of mistakes that Wellfleet product management made that provided key opportunity to Cisco circa mid 90's (And I dont really think site manager contributed).
1. Large Enterprise IBM Integration. The IBM/IP integration business was just getting off the ground. Channel attachment was the logical way to reduce cost and integrate IP but Wellfleet just wouldnt do it. This decision significantly contributed to the loss of larger enterprise customers which had been the strong hold.
2. Emerging ISP Market. ISP's we just getting started and those who ended up (through merger and aquistion) as the big guys wanted Packet over SONET. Wellfleet just kept pushing an ATM SONET strategy while Cisco gave the customers what they wanted. Add a poor BGP implemention. Not that the engineers were bad developers, the OS used in 7 series was a bit unique and did not have pre-emption, therefore complex, long running state machines (like BGP) did not work well. This stopped Wellfleet establishing a position in the ISP router market.
As for business management, well lets say Paul checked out and Andy wouldnt listen to bad news.
I'm going to put a different view of why Wellfleet collapsed in a separate post.
Howdy Geoff
Yours is clearly a well informed insiders view of the happenings in that era. Mine is as an outside observer, customer, competitior, et al.
I guess I don't see sales strategy as the sole and inevitable culprit in Wellfleet's case.
Wellfleet, and even Bay were in the right place at the right time, and very easily could have succeeded in spite of themselves.
There was volume to be had in hubs, sure, but soon those ports were being added largely because of post commercialization internet... or applications (somehow) driven by same. In this period, networks of scale and Internet both made routers inevitable; the high margin, strategic part of the sale. A possibly superior router had few obstacles, and sparse competition.
By the time TI was ready to do everything (under human control) that 'mangler did the war was over.
However, the chance that passed Bay by would return again, as success and growth in the network driven by (other people's routers) threatened to obsolete processor-based routers.
Of course they screwed up the do-over as well; even though they seemed to learn from TI this time around, the success criteria were different, as Bay no longer had a position of advantage... and thus Rapid City and Fiddlesticks were relegated to obscurity just like BCN...
It seems to me that West Coast folks are way ahead in understanding the significance of software component(*), while NE folks are concentrated on moving bits over wire.
I was at Nortel at the time of the aquisition, but I was pretty much a DMS and AccessNode guy at the time. This was part of Roth's right angle turn *shivers*. The only thing of interest I remember is something being said about some IP code stream that made it all worthwhile - it never did sink in or make any sense to me and I just turned another year older today so maybe I do not remember correctly.
Anywho there are 3 BCNs ticking away where I currently work. And ya the Site Mangler is horrid. All of the circuits have been moved off except 1 PTP T. The other Frame Ts went to a set of Cisco 3745s at diverse locations and PTPs to one or the other, but we cannot convince one end user to move so I can pull the things out and I cannot force them due to a layer 8 (political) issue. They do not trust the new gear - hehe.
A couple of posters here have highlighted the lack of usability of the Wellfleet UI as a reason that Wellfleet and Bay Networks failed. I've mentioned the multi-CPU architecture and how it tended to slow down feature development.
I'd like to put it to you that neither of these were the "killer blow" to Wellfleet/Bay. Here's my 2 cents.
October 1993. When Wellfleet and Synoptics merged, we had the #2 router company (with a growing market share) and the #1 hub company getting together. From a product point of view it should have been an ideal marriage. I think there were two critical areas in which the overall company came to grief.
1: Product Mix
OK, so Wellfleet sold routers. Synoptics sold mainly hubs.
Between us we've highlighted some of the Wellfleet product deficiencies in other posts in this thread, and I can tell you there were plenty of others :-)
In the spirit of balance let me take a look at the Synoptics product deficiencies.
At that Synoptics was between its old hub product line and it's new products. The old products were the 3000 series - very widely deployed, stable products, feature-rich - BUT getting old. Competitors had begun to introduce new, entry level "stackable" hubs (I think it was Cabletron who were first here).
Synoptics had new products coming along – the 5000 series (big, data centre hub), and the D5000 (D for “distributed), which was a smaller stackable that was intended to be deployed along with the big 5000. Both products were seriously delayed. In addition to the usual engineering screwups, Synoptics had to re-think its integrated router strategy on the new products. You see Synoptics had been a big Cisco reseller, and had even integrated a low end Cisco router into the 3000 series hub. Routers were becoming commonplace features in hubs by then, and the flip between possible routing suppliers couldn’t have come at a worse time.
So the Bay Networks sales folks only had the old 3000 series hubs to sell. And because these were getting old, they were shipped out at very low margins to be competitive.
But Synoptics also had a range of sexy new products in the pipeline. They had developed the world’s first “Ethernet Switch”. The “LatticeSwitch” was a 10/100Mbit/s design and it looked brilliant – on paper. Unfortunately the designers of the LatticeSwitch had forgotten to put buffers in the data path. So when traffic was sent in a burst from a Fast Ethernet server to an Ethernet workstation, the switch got clogged up, and all the bits fell on the floor. The LatticeSwitch had to be redesigned – not once, but TWICE before it worked acceptably well. By then Cisco had bought Kalpana and the rest is history.
But never fear – Synoptics had also developed one of the first ATM LAN switches - “LatticeCell”. I don’t want to go into too much detail, but when I left Bay to join FORE Systems in 1995 I realised that the LatticeCell was like a bow and arrow compared to the AK-47 that FORE had developed. By May of 1995 Bay was able to finally brush the LatticeSwitch into the trash after it acquired Centillion. I left Bay to go to FORE in June of 1995 so my first hand knowledge ends at that point.
Sales Strategy
Q4 1993. Sales management at the fledgling Bay Networks obviously wanted to make the merger a success. So they devised a cunning plan. Offer the sales guys 4x accelerators if they hit 150% of targets. Sure enough, the sales guys went mad pulling every scrap of business out of the market. And interestingly enough Bay never set separate targets for the router and hub product lines. It was all one, big number. The sales cycle for a router at that time was 6-12 months, and required a system level knowledge. The sales cycle for a hub was the duration of a phone call and simply required the ability to discount until it hurt.
1994. The first year was a bumper success for Bay in terms of revenue. But to win all that hub business with the old 3000s meant that margins were cut to the bone. And because the former Wellfleet sales guys had been too busy selling hubs to make their massive bonuses, they hadn’t bother to sell any routers. Bay Networks lost 15% of market share to Cisco in that year.
Company Strategy
Bay should have been the ideal marriage. It turned out to be an ideal MBA case study on how to screw up a high tech merger.
There was a total lack of leadership from the top. Andy Ludwick (from Synoptics) had taken the CEO position, and Paul Severino (from Wellfleet) the Chairman position. Paul is one of the great innovators in the industry with a set of IPO successes behind him. But he’s not the megalomaniacal type and I think he was ready to settle down and spend some time with his grandkids after a hectic few years. I’m sure Andy is a very capable guy, but really is a Layer 2 thinker. Neither of them were able to stop their respective engineering and product management groups (East Coast vs West Coast) from squabbling like kids, and building their own empires.
For instance. A hub was the ideal place to put routing intelligence, right? So why was there never a Wellfleet-developed router card for either the 5000 or D5000 hub families?
Wellfleet router code was as solid as a rock by 1995, and yet Bay chose to make the Rapid City acquisition to make up for the LatticeSwitch screwup, and it was the must less stable and much less feature-rich Rapid City code that went forward into next generation Bay products.
Succession Strategy
1995. In late ’95 the Bay folks realised they had no leadership and brought in Dave House, who had been #2 at Intel. A lot has been written about Dave’s wild lifestyle, and I’m trying to stick to first hand knowledge in this post.
Whatever you think about Dave’s character, he did manage to unload Bay to Nortel for the staggering sum of $9.1B. He made a great deal for a sucker price, and Nortel pretty much frittered away the acquisition.
Since I wasn’t at Nortel at the time, I wonder if anyone can take up where I’m leaving off. So what went wrong for the Nortel Enterprise Division?
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