Ellacoya Cuts Staff -- Again

A $25 million round of funding doesn't go as far as it used to. That's what two-year-old startup Ellacoya Networks Inc. is realizing. Yesterday, the company cut another 30 jobs, reducing its headcount to about 70 employees.

This is the third time in the last year that the company has laid off workers. At one time, the company employed over 200 people. The last round of layoffs was in November, just before the company announced it had closed a $25 million round of funding (see Boston Area Startups Slash Jobs and Ellacoya Snags Third Round).

At that time, CEO Ron Sege said even with the new cash, he still had to reduce the company’s staff by about 50 percent to make sure it was sized accurately. Five months later, it appears that size is about 30 percent smaller than he anticipated. Sege previously said that the latest round would last until the middle of 2003. In total, Ellacoya has raised $111 million.

Sege wasn’t available for comment, but Matt Burke, a company spokesperson, stepped in to toe the company line.

"We’re still seeing a slump in demand," he says. "And we needed to cut our head count again in order to ride out the storm. We need as much run room as we can get now."

To date, the company still has not named customers for its flagship product, the SGS 44000. Back in November, Sege said he expected revenues to begin trickling in from the six beta customers that were testing the product, but these revenues don't seem to have materialized.

In fact, it looks as though the company is not getting much traction among its original customer targets. Burke says the company is now developing a new product to address the cable access market. He wouldn’t divulge details, but he did say the new product would be smaller and less expensive than the SGS 44000 and would help cable providers deal with the problem of "bandwidth hogging."

It is interesting that the company is developing another scaled-down version of its product, considering it had already released a smaller version, the SGS 6000, prior to the flagship product's debut. However, Burke insists the new product will have features specific to the cable market.

This isn’t the first time Ellacoya has changed its marketing focus. Originally, the SGS 44000 was geared toward CLECs and Internet service providers that wanted to bundle new IP services like VPNs and video on demand. Then the marketing team started emphasizing the product’s self-provisioning features. Now the company seems to be abandoning its old product and re-marketing a scaled-down version to act as a bandwidth cop for the cable market.

Is Ellacoya on its last legs? It certainly looks that way. With three rounds of layoffs under its belt, no customers to name, and a new product in development, Ellacoya seems to be grasping at straws.

— Marguerite Reardon, Senior Editor, Light Reading
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lu-alum 12/4/2012 | 10:44:18 PM
re: Ellacoya Cuts Staff -- Again If you look at their product, they were a very good idea at the time. Their products would have enabled non-vertically integrated DLECs to establish an instant portal presence and service creation capability. So in 1999, this would have been a very attractive product for people like Covad, Northpoint, Rhythms, DSL.net you name it. Trouble is, well you all know what they trouble is, there aren't any non-vertically integrated providers left. The big guys (RBOCs) are prevented from offering the kind of services that ellacoya enables so they won't buy. So in my opinion it was a good idea for the 1999 market, but shame on them for not seeing the writing on the wall. They should have restarted a long time ago instead of trying to milk some sort of exit with the existing product set. I think that the main reason they are as bad off as they are is because they have been in denial for the last two years. Now they will cease to exist or be sold for a pittance for their intellectual property. That makes me think that the layoffs are not over yet.
lu-alum 12/4/2012 | 10:44:16 PM
re: Ellacoya Cuts Staff -- Again "...and spent all the money like a bunch of drunken sailors."

I can atest to that. I still have a clipping of an Interactive Week article that talks about Ellacoya's corporate chef!

When I first read that, I decided that they would get whatever they deserve. Looks like they did.

joker_1234 12/4/2012 | 10:44:16 PM
re: Ellacoya Cuts Staff -- Again Who said the product was interesting, this was based on a product design that started as an LDAP enabled switch in the enterprise space (failed in that space just ask the boys from ctron) Then they decided to take this technology and repackage into a Carrier class product. Put together a few blades that support ethernet, gig, ATM, and some routing support. The interesting thing is they hired all the good old boys from ctron and a bunch of monkeys from lucent mixed em all together, in the margarita blender, and spent all the money like a bunch of drunken sailors.

So now poor old Ron after being sold a bill of goods and lot of bull, is stuck holding the bag.. And of course the bag is almost empty.

metro_ether_man 12/4/2012 | 10:44:15 PM
re: Ellacoya Cuts Staff -- Again What is it exactly, has this man
delivered to the organization and
for company, besides a major drain
on money ?
realdeal 12/4/2012 | 10:44:14 PM
re: Ellacoya Cuts Staff -- Again Any truth to the rumor that Ellacoya had an internal store to sell Ellacoya merchandise? If so, sounds like it may have generated more revenue for the company than the product ever did or ever will.

Maybe we should drop the "O" in the name:

Ella C Ya!
arbors 12/4/2012 | 10:44:13 PM
re: Ellacoya Cuts Staff -- Again "Any truth to the rumor that Ellacoya had an internal store to sell Ellacoya merchandise? If so, sounds like it may have generated more revenue for the company than the product ever did or ever will.

Maybe we should drop the "O" in the name:

Ella C Ya!"

All the start-ups have an internal store that sells company stocks. Ellacoya is no exception. Does the store have a "no return" policy for the laid-offs?
photon_mon 12/4/2012 | 10:44:11 PM
re: Ellacoya Cuts Staff -- Again I'm a loyal reader, and feel like a know alot of
you folks, though this is my first post (break out
the bubbly!). Next time: no training wheels!

I have to admit that one thing I enjoy most about
Light Reading is the inevitable and ubiquitous
"no-holds-barred / devil's advocate" critiques
(heck, even Harvey's!). Where else can I find all
of the dirt that companies strive to keep under
the rug? Fact or fiction, I never fail to be
entertained! Plus I am always enlightened in some

Of course it takes time and many different perspectives to refine any given picture into one
that likely approaches reality.

So in the case of Ellacoya, I can attest that -
based on my knowledge of the company and its history - lu-alum was close to dead-on in terms
of a FAIR analysis and accuracy in detail.

As for a disclaimer, no, I do not work for Ellacoya, and also do not have a vested interest
in Ellacoya in any way. I did work there for
awhile [pawn status], but do not have ties to
any who are left.

But c'mon, let's be fair. There's not a whole
lot of companies out there who by nature elude
our criticism these days! Or deserve to.

The past couple of years have made idiots out
of many (most, in fact) in our industry -
deservedly so in numerous cases. Ellacoya is no
different. IMHO, their concept will be viable some
day soon. Does Ellacoya have the best possible
implementation of that concept? Will Ellacoya be around to see their version of the vision become widely embraced? I think most of us would
agree on the answers to those questions ;) .

Back before the collapse of the markets that
lu-alum mentioned (along with the ever elusive
BLEC space), value-added incremental revenue
plays DID seem to many to be the next big thing
(get the subscriber to spend an extra $5 here and
there - above and beyond his/her broadband access
fee). Okay, okay, I'll stop reading to you from
my Ellacoya press kit! But hopefully I made my
point. Who knew that so many would revert
overnight to the land of dial-up, sub-rate and
n * T1?

Now on to one of my favorite recurring topics
regardless of company: perks! "Personal chefs"
and a "company store" were mentioned in
Ellacoya's case. I particularly got a good
chuckle out of the personal chef assertion. If
their humble cafeteria can be considered as such,
than I can also brag that my high school had its
own Wolfgang Puck catering to our culinary
delights! Who WAS that maestro in the hairnet?
Can I have one on my own Learjet?

Same thing with their company "store": boxes of
trinkets, t-shirts and hats in a storage closet;
typically - if not in all cases - given rather
than sold.

I could go on, but I don't want to get voted off
of my favorite island.

lu-alum 12/4/2012 | 10:44:10 PM
re: Ellacoya Cuts Staff -- Again photon_mon, good post. To clarify the corporate chef remark, Interactive week did a story about a year ago on the top 10 places to work and Ellacoya was mentioned.
Believe it or not I found the link...
photon_mon 12/4/2012 | 10:44:08 PM
re: Ellacoya Cuts Staff -- Again Thanks, lu-alum. Yes, I didn't doubt for a minute
that you were just passing on what you read. Now
I realize the context from where the "chef"
originated. Just chalk it up to hype. The cafe
was a mom-and-pop operation with good, basic
food --- but filtered through marketing it became
an east coast Spago's (sp?).

Personally I thought Ellacoya was fairly
conservative (not cheap, but reasonable) with
their capital. I won't bore you with examples.
It was a great place to work, at least during
the "salad days" (oh, that reminds me, they did
also have a small salad bar ;)

By the way, as lately seems to be the case with
most startups that find themselves into late VC
rounds with little traction (in other words ---
most startups!), layoffs appear to be mandated
by the VCs as a gating factor for more money.

It's a cruel world right now. But perhaps here
in my own small way I have helped to make it
less so through greater understanding.
bluey 12/4/2012 | 10:43:57 PM
re: Ellacoya Cuts Staff -- Again From that eweek link : "There is a lot expected of us in the workplace, and we have very specific goals," Work says. "But people here do have families and they do have lives."

There's the problem right there: They allowed their employees to have lives! Don't they realize that in high tech you're supposed to work 7 days a week, 12 hrs a day? C'mon guys, it's the New Economy!!
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