Making the Cisco Connection: The Story Behind the Real Internet Superpower

• Authors: David Bunnell;Adam Brate;Karen Southwick
• Venue: Making the Cisco Connection: The Story Behind the Real Internet Superpower
• Year: 2000

From the Book:In late 1999, Cisco Systems usurped venerable Intel's place as the most valuable company in Silicon Valley. Then, a few weeks shy of its fifteenth birthday on December 10, 1999, Cisco became only the third company in history (following General Electric and Microsoft) to burst past the $300 billion mark in market capitalization. And yet, Cisco, based in San Jose, California, remains relatively unknown compared to its peers. Its products, networking equipment such as routers and hubs, do not generate the instant recognition that Microsoft's Windows or Intel's microprocessors do. This book-which describes Cisco's history, its ambitious expansion plans, and its unique acquisition strategy-should help catapult Cisco to the place it deserves among business success stories. Two years ago, when I was writing Silicon Gold Rush, which included Cisco among two dozen technology companies I explored as emblems of a new way of doing business, I was already impressed by Cisco's rapid ascent to greatness. Certainly its two founders, Leonard Bosack and Sandy Lerner, who were attending Stanford University, happened to be in the right place at the right time. Silicon Valley in the mid-1980s was at the center of the computer revolution. When Bosack and Lerner devised a way to solve a growing problem-allowing disparate computer networks to communicate via their electronic muter-a market quickly developed. Bosack and Lerner, who later married and are now divorced, turned to venture capital, another Silicon Valley institution that had grown up alongside the computer industry, to fund their little startup. Sequoia Capital's Don Valentine invested $2.5 million in 1986 and reaped $10 billion when Ciscowent public the following year. But Cisco is not a success merely because it invented a hot new technology and made a lot of investors and employees very, very rich. In that it was following in the footsteps of other Silicon Valley pioneers, like Intel, Apple, and Sun Microsystems. What is especially impressive about Cisco is how it has managed to achieve its sizzling growth and to dominate the networking industry even in the face of formidable competition. While companies like Microsoft and Intel had the advantage early on of being handed a near monopoly by IBM, Cisco had no such jumpstart. From the beginning it faced competitors such as 3Com and Cabletron, and convincingly trounced them all. Today, it is defiantly challenging much bigger competitors (in terms of revenue) that have moved into networking from the telephony equipment market-Lucent and Nortel. Still, the fact that Cisco's market cap is third highest in the country, while its sales place it at only 192 on the Fortune 500 list, tells you what investors continue to expect from this streaking company. In the 1990s, Cisco did two things that kept it among the leaders of the technology revolution, while many other pioneers slipped: It developed a once-derided, nowrenowned strategy of innovation by acquisition, and it correctly identified the Internet as the wave of the future and leaped on top. Before Cisco, new technology powerhouses such as Intel and Apple, and old players such as IBM, prided themselves on their ability to innovate from within. The not invented-here syndrome was rampant in the industry-if something new wasn't created by your own internal teams, it couldn't be worth much. Cisco turned that adage on its head. Realizing that the networking market in which it operated was evolving far too rapidly for any one company, no matter how big or inventive, to keep up, Cisco used its appreciating stock as currency to launch an unprecedented acquisition drive. It took over mostly small companies-some barely more than research teams-that had technology it could enfold and leverage with its formidable distribution network. Thanks in large part to Cisco, acquisition became as acceptable an exit strategy as an IPO for technology start-ups. Not only that, established technology companies had to abandon the not-invented-here philosophy or be left behind by the ever-acquisitive Cisco, which has now snapped up dozens of companies. John Chambers is Cisco's third CEO, but he is the one who indelibly stamped it as an Internet company. After taking over in 1994, he moved quickly to position Cisco's networking capabilities to satisfy the Internet's insatiable appetite for communications systems that would link its millions of users. Today, Chambers has an even grander vision, as the Internet becomes part of a global communications network that encompasses wireless and wired communications, satellites, and telephones. Cisco hopes its Internet prowess will enable it to become a central hub in this worldwide network, as Marshall McLuhan's global village finally becomes a reality. Cisco's journey, as depicted in this book, is a fascinating account of a company that invented a new technology and reinvigorated a once-denigrated business strategy. The journey is filled with eccentric, colorful, innovative characters, like Bosack, Lerner, Chambers, Valentine, and former CEO John Morgridge. If you join in, you'll learn how Cisco enfolds acquired companies in a way that maintains their own innovative abilities, and how it has managed to avoid much of the animosity that dominance usually brings. Cisco's eclectic culture, defined as "a solid core and fuzzy edges" by one of its human resource directors, deserves to be studied as an example of how a leadingedge company embraces and leads change. If you want to understand how the successful twenty-first century business model might evolve, Cisco is a good place to start.