Tropic Joins Canadian Cutback Crew
Tropic Networks Inc. has become the latest well-funded Ottawa startup to trim its workforce in an effort to ward off a possible future cash shortage. The company yesterday laid off 35 employees, about 20 percent of its workforce, in what it calls a "proactive" effort to stay on track.
"This was a move to ensure we can stay on our aggressive product rollout plan and still have a backup that would let us ride it out if an economic recovery is slower than we hope," says Tropic CEO Kevin Rankin. He says the company is well funded through 2003 and that no further cuts are anticipated.
The cuts came just a few weeks after the startup announced US$10 million in new funding, bringing its total to $80 million since its founding in May 2000 (see Tropic Reveals Investors and Tropic Lands $10M). Tropic is developing an optical edge platform with Ethernet connectivity for use in metro networks (see Tropic Networks Scores $60M). Delivery is still on schedule for 2002, Tropic says.
In Ottawa, where the optical networking community is relatively small and highly interactive, a number of startups seem bent on finding ways to weather the ongoing downturn in capital spending. Better to cut now, the thinking goes, than to be left without backing at a crucial stage -- a fate that seems to have caused the demise of another large Ottawa startup, Zenastra Photonics, earlier this month (see Zenastra Photonics: RIP).
Akara Corp., for example, which is developing a multiservice edge switch, recently laid off a third of its workforce and changed its target market from storage service providers to enterprise IT customers. All of it was in an effort to stay ahead of the trends and to make it safely through 2002, spokepeople said (see Akara Hacks Headcount).
"You have to be aware that times have changed. Many funds are facing the same challenges as the startups they funded. There's an ebb and flow of liquidity, and a CEO's main task is to ensure that a firm has adequate capital to deliver on its business plan," says Andrew Wolff, president and CFO of Peleton Photonic Systems, an optical subsystem company morphed from an earlier startup called Tellamon Photonics (see Tellamon Becomes Peleton).
Wolff speaks from his own experience: In June of this year, Peleton had just moved its 70-person workforce into a 72,000-square-foot former brassiere factory in Ottawa. But management quickly realized the business climate had changed from the time of the firm's initial $21 million funding a year earlier.
"We had an opportunity to review our position," Wolff says. Instead of blowing its cash reserves by launching its new subsystem on a bear market, the startup decided to make that product the basis for a second-generation development due out in 2003.
Nearly all of the employees who'd built the prototype were laid off, leaving Peleton with a skeleton crew of about 15, most of whom are PhD-level engineers, according to Wolff. Founder and CEO Hamid Hatami-Hanza resigned, and one of the VCs, Dado Banatao of Tallwood Venture Capital, took over as chairman of the board. Wolff, whose background includes twenty years at various data communications companies and a stint as a financial manager for the Canadian Medical Association, became president.
Wolff's now leasing out portions of his factory to other tenants, while engineers hunker over plans for the second iteration of Peleton's product. He insists this is the way to go and commends other companies that have taken similar actions. "It's a very positive thing. Companies are planning for the future in a very focused manner. If they don't do this now, we'll come to 2003 and have a large gap in development."— Mary Jander, Senior Editor, Light Reading