Rob Ryan on Blackout- The Untold Story of the Internet

About Rob Ryan
Rob Ryan founded Ascend Communications in 1989. Rob served as President, CEO, and Chairman of Ascend, taking it public Friday the thirteenth of May, 1994, at $13.00 per share. Under Rob’s leadership, Ascend became the leading manufacturer of Point of Presence boxes (POPS) for Internet providers. Rob describes Ascend’s business as selling the picks and shovels for the Internet gold rush. Ascend has grown from zero sales in 1989 to over 500 million sales in 1996. In 1995, the last year Rob served as CEO of Ascend, the stock was acknowledged as the best performer of the year on all of Wall Street returning a whopping 721% (Business Week, December 25, 1995; pp. 126-127). If you had invested in Ascend two months after the IPO, you would have gained 3,223% one and three quarters years later (Investors Business Daily August 30, 1996; p. A3). At the end of 1995, Rob won the Ernst and Young Entrepreneur of the Year award for Northern California (including Silicon Valley). Rob was selected as the Cornell University Entrepreneur of the Year for 2002.
Rob Ryan’s current focus is his Entrepreneur America facility in Montana. In this Rocky Mountain setting Rob mentors promising entrepreneurs, assisting with focusing product ideas, writing business plans, sharpening presentations, and raising venture capital.
Transcript:
Alan:
I’m with Rob Ryan here today, and Rob is a co-founder of Ascend Communications, which, which had a great influence on establishing what we now know is the internet. Rob, it’s good to be with you today.
Rob:
Good to be with you as well.
Alan:
So Rob, in the early days when Ascend was created as we see the internet today really wasn’t around. So can you walk us through the vision that you have with the Ascend Communications?
Rob:
So the vision actually has to start a little bit earlier before we actually got it into the internet, we we started as a company that was going to do communication, wide area networking communication gear, and it was funded by Kleiner Perkins and Greylock and NDA. And shortly after getting funding and actually building the first product, which was supposed to connect to a new digital service called ISDN, we discovered that the rollout of is ISDN didn’t roll out. We had equipment, but it wasn’t going to be able to connect to anything. So we began a reinvention that was reinvention number one on the company. And we reinvented ourselves rather quickly into a bandwidth on demand product and that product could build and shrink bandwidth. And we utilized that product for video. But video at back in those days was room video. And we provided the communication gears to shrink or add bandwidth for communication. And that had a pretty good run, grew $16 million dollar business, but that was topping out the size of that opportunity. And at that point, the team and I began a process of innovation in a collaborative process utilizing members of the team. And I called that the sunflower model. And we began to dig into our core competencies, understand them, and ideate off of those core competencies and then began to vet and discriminate between all the ideas that were generated by a whole model criteria based model that actually predicted that our best place to utilize our core competencies was in this thing called the internet infrastructure. This was early 1990s. And now we begin the internet infrastructure story. The second phase of that sunflower model was what we call the walk about a deep intense walk about so we did 180 internet providers. So you have to think of the internet service providers in the 1990s says small providers that were scattered around the United States, the largest provider was AOL, they had 200,000 accounts. They also were being sued by over a dozen Attorney General’s for poor service. The other hundreds of internet providers had names like Barnett, Surf net, and similar psi net, UUnew unit. And they were scattered all about they had regional areas that they serviced. And every single one of them was going bankrupt. And in essence, and this was in the mid 90s, you were looking at a situation where the internet was converging rapidly to blackouts. And if you look at any of the graphs on, you know, the emergence of the internet, you’ll see, in fact, that was the case, it was flatlined in the early 90s. And then it started to pick up Nike curve up in say the mid to later nine days. So if you’re a curious type of person, you might have asked yourself why all of a sudden it go from flatlined to the to the picking up. So that’s the story that’s going to unfold. And that’s the story that actually has not been written up in any of the history books on the internet, you’ll see
Alan:
So Rob I have one question here. So to put it in context, it what we see today is we can get online and automatically we get into the internet. But back then, when you said AOL had 200,000 users or a bunch of accounts, there was only so many slots that those people could go into.
Rob:
Yeah, that’s absolutely true. So they had two, very severe or two or three severe challenges, technical and regulatory challenges that was preventing the scaling of the internet. One challenge was that they were priced at voice call rates. So about $30 a month that they could charge, so maybe three $400 a year, it costs them to get a person on the Internet at that point in time way over $1,000, close to 1500. dollars and the running costs and the maintaining costs was very high as well. So that business model was you can make maybe $300. And you could lose 1200. And so the way they handled this incredibly non scalable business model is for every port on the internet that an internet provider enjoyed. They had a blocking factor they called it. And that could mean that 100 subscriptions for sold for a single port. So imagine if you were in a restaurant, and it had a limited number of tables, and they took reservations, they were 10 tables, let’s say 10 seats, and they took reservations, let’s say for a thousand people, and people start showing up and of course the first 10 sit down and the rest of the 990 people are Mullen ground. And as you know, as people get up, the person sits down. But basically, the service was you were being blocked. That’s why the lawsuits were flying around. For the LLC, the probably word flying around for the smaller ISP is because they were already bankrupt. They were literally heading in converging and in that direction. And the other technological problems that they enjoyed was that they didn’t know what was going to dial into them. So it could be modem, low speed modems, it could be digital devices, what did that mean? So in their rooms where they accepted their calls, and they service their region, they would have to guess what they mix boxes were supposed to be. And each of those boxes, of course, would enjoy one line coming into it. So maybe they guessed that they’d have several dozen modems, dialing in it, and maybe some ISDN and some DSL. But that mixture was always wrong, you know, you can never guess that. So the two issues of the mixture, and the scaling issue and the economics issue created a paradigm a conundrum for them that it was not a business. And hence there was no way to scale it now. During that exact same time. On the user end of things, the users were increasing their desire to use them. So you had a supply, man was increasing. And that was being driven by email and porn, but it was going up. On the other hand, the ability to be fulfilled by the small internet providers was going down because they were converging to bankruptcy or loss.
Alan:
So when you saw this problem, and you’re addressing it, you said, there seems like an opportunity to come in, and to put in some type of device that will help to facilitate a lot more people to be accessing into the internet.
Rob:
Yes, that’s actually correct. In the second phase of our little analysis on my own company, that was the thing called the walkabout, which is similar today, to what people call lead. So we had a very intense hundred and 69 interviews of service providers. And we use three or four team members that were key founders in the company. And we have three or four questions that we would ask them, what keeps them up at night. And we got it your full on what was keeping them up at night. And I shared with you some of the that already. And what were the competitors doing? Who were they talking to?
Alan:
Who was your competitor?
Rob:
Cisco Systems, Newbridge NET, Alcatel Lucent, all active in, in that space and what I found out is every single one of them had engaged with these accounts, and basically didn’t see an opportunity there and or didn’t have the wide area networking skills to address the opportunities. So when we compiled all the answers to all these questions, what we discovered is that, on one hand, you have the rising supply and need. On the other hand, they had an inability to deliver that, that service, they couldn’t price the service in a way that they could make money, the competition had completely abandoned that field, they had neither the skill set or the interest to be in the field. That’s the perfect trifecta for a startup. And we were a startup that was dead ended in our business and was going to be sold. So we were desperate, as well as the ISP is being desperate, but in a slightly different way, we were just going to go away as the sale, you know, to XR read revenue. So I was desperate to find an opportunity that could increase, you know, increase the company. And all of these things converged at the at the same time. And one other thing which I hesitate to say this, but I am going to say it, I’d say destiny.
Alan:
Whose destiny?
Rob:
my destiny. My training was in math and physics and all of my career planning and execution was in wide area networking and networking. at Intel Corporation at Digital Equipment Corporation at startups, everyone thing was wide area networking. And so we had all of the tools to and all of the group of founders were alike, and that we had all of the understanding of wide area network and local area networking. And we were exactly at the right place. At the right time, we absolutely needed to turn our ship or that ship was gone. And the rest of the guys were desperate for a solution and the customers for crying for more for more service.
Alan:
Where did the ISP address come from?
Rob:
Internet service providers. And that just an acronym for internet service provider. And the way you can think of the internet service provider back then was like little tribes. And they were scattered all around the country and they surfaced region might be a very small region. And the way they service that region is they had these physical buildings called points of presence and a Point of Presence. It may service a five mile radius. And in that room, you would have equipment. And there if you had open that room prior to ascend, you would see a whole bunch of modem boxes. And so occasion boxes.
Alan:
So what you would have seen with the modem box is an actual phone number calling in okay. So Ascend changed the landscape of the ISP, correct by putting a different format of the protocol.
Rob:
Yeah, so what a standard is. So let’s say they had 100 boxes inside a Point of Presence. And each of them had many, many points of presence could be up to 1000. So like an arrow wealth, but say take one, let’s say there are 100 boxes in there. And let’s say 30 of them were v 32, high speed modems, somewhere is DN boxes somewhere DSL boxes and some composition and they have wires to each one of them. So it’s a it’s a massive wires and boxes, what we did is we said, we can take all of that mess, and we can make one box that looks like a small pepperoni pizza, it would have four high speed trunks on and we can then take those high speed trunks 41 trunks or tea tree trunks later on. And we can logically subdivide those trunks up and allocate bandwidth any way you want and talk any protocol you want. So the issue of what kind of protocol they were calling in is gone, the issue of allocation of bandwidth is gone. The issue of a hundred boxes and hundred wires is gone. It’s one box with four with four wires. So a whole host of issues and finally, the economic issues was solved, we could provide that cost of service at a much lower cost rate so that they could scale the product at first, they could drop that hundred factors blocking that they had down to maybe selling two or three seats. You know, for one seat at the table, much more logical locking factor that isn’t going to have people screaming almost 100% of the time.
Alan:
Now there is a period of time then as you as you begin to evolve this new product but to send in the pizza box that it almost didn’t happen. And you refer to it as blackout. What can you give the story there and the perspective of what was going on?
Rob:
Yeah, so it was a desperate time. You can check with the ISP is you can track them down. There’s about 300 I’ve actually talked with all of them ended up being our accounts. So I can actually talk with many of them. And they will tell you very point-blank that they were going out of business. These were people in Illinois Chicago area, The Rockford, Illinois area that Euston Texas area, they were all all over the place. And they were desperate because they really didn’t want to go out of business, little family businesses and such. Because they could see the uptick of customers wanting the dog food wanting the service, but then they couldn’t provide the service in a way that they could make money. So they had no choice. They were, you know, incredibly, they were borrowing money. They were doing everything they could to stay in business, but they were, you know, they were failing. And from our perspective Ascend was also failing, the board had decided that the business that we have constructed, the bandwidth on demand was going nowhere, it was going to sell the company for $30 million to a video company. And that was the end of it, by the way that $30 million was exactly two x what they had put in. And that was what their contract called for a two x return before distribution to any of the employees, which meant that all the employees all the founders got nothing but guess for all of the work. And that didn’t seem very fair. And we had worked a long time. So we were also desperate, desperate, so that yet two sets of desperation. And the sunflower process, which was a complete the logical reasoning process that we had done, you can call it an early machine learning process was a collaborative process that takes a community of people, and it minds their minds, to see if we can find criteria and predictions of where we can take our competencies and enjoy some success had predicted the internet infrastructure we had followed that with that walkabout and it really reinforced us. So now we’re at this stage of Okay, what do we do? So we took this picture into the board. Before I took the picture into the board, though, I thought, why didn’t I see if I can work with a handful of these is peas, and collaborate on what the product would look like? Remember, we didn’t have the box to give it to them. So we started to draw up a product. And how did we do that we took our old bandwidth-on-demand box, which we had it did have T one spigots and all of that on it and we start to take it apart, couple it, cobble it and talk about how we could cobble that to put server, put software on it that would solve some of the problems that they were facing. So we were doing that in parallel, didn’t tell the board about it. But we were making very good progress on that. And we were collaborating with UU net and psi net, and, and then ISU unit and psi net to actually pay me. I said give me a check for two to four units as an expression of love and desire and, and they’re and their need for this. And I will never actually cash that. But I’m going to use that with my board to demonstrate that the dogs really want the dog food. And they did they first said how can you price it rub what you know, how do you press it? And I said, Well, you already told me what it was costing roughly produce about $1,000 per user. And I said we can provide the service for well less than that, and I priced it accordingly. And I priced it about $50,000 a box. And the box was about $600 building materials. They were absolutely thrilled with the functions that the box was performing because it increased their capacities. Obviously, the gross margins on that were absolutely fantastic. The board got all of this information. When they looked at it, they thought, well, this must be some sort of hoax at the last minute to read, redirect the sale of the company. But they actually followed it through they talked to the ISP themselves, and they realized that the opportunity was real. And that the eyes peas were very serious. And they had written these checks and purchase orders. Because they weren’t very serious. And so the board gave us a one year stay of execution, to see if there’s anything we could do in this internet space.
Alan:
You know, Rob, I think in the context of this, those you built this out there, the brilliance of this was introducing the sunflower, because, from a communication standpoint, people could meet immediately visualize the flower. And then you were able to break it into basically three component pieces. And you know, a lot of companies when they’re doing their critical thinking that one of the biggest challenges and communication is getting everybody on the same page. And so with the stage set to say, Okay, now I have value at a price. And now we’re going to move forward, can you walk us through how you use that sunflower within your organization because you’re about ready to absolutely explode with growth. And in the explosion of growth, adding the new people keeping people focused, how did that flower, play the role that model.
Rob:
So if you think of the flower, the flower is a great image. And the petals on the fire are your choices on opportunities. And the center of the sunflower is your core competencies that are used to build those choices. The stem of the sunflower are the external driving forces, such as the internet providers faced which regulatory forces lack of technology things that are outside their control. Another way of looking at the sunflower is that it’s a learning system. And it’s an hourglass type system. So an hourglass and is wide at the top squeezes down in the middle and widens out at the bottom. So wide at the top is the stage one where you’re collecting information on your competencies, you’re collecting information on your choices, you’re collecting information on the criteria by which you’re going to judge all of this. And you’re collecting a team to process all of this the sunflower a team. And it then it creates a decision-making process, that predictive system. And it spits out what your best opportunity is given your situation of competencies, what you told him about criteria, and it spits out the internet infrastructure. The bottleneck and the hourglass is where you go about the walk about was extensive. This isn’t two people that you talked to by email, this was 160, up close face to face meetings around the country, where we ask identical questions all four of us so that we had a base of comparing answers that took months and months. But what it did is we had an amazing amount of data that came in, it reinforced our criteria that selected the infrastructure. In fact, it reinforced it very heavily. In fact, new criteria popped up that was even stronger pointing, pointing to it, it got rid of the second and third place choices, it put all of the team on the same page because they had done those interviews, right. We each had 50 interviews or 40 interviews that we had to do. And they were out there doing these interviews, and they were hearing, seeing and getting the data and they were getting more and more excited. These were manufacturing engineers, marketing people. So now the team is coalescing around and converging on this process that would use and a prediction that is made and the prediction is looking really good, you know, and then the next phase was essential. That’s the widening out fish on the bottom. What I did with the team, as I said, so we seem to have stumbled into a gold mine. But nobody seems to know the gold miners there are they know it’s there, and they don’t care. So I would like all of us to think about King up, I said, What do we want to be? What do we want to be king up as a whole concept of King of was? Well, they started talking about what do you mean? And I said go do we want to be a king of the internet or a subset of the internet or what would we like to be and, and we talked on this for a period of time, and we came out that we wanted to be the Kinect, King of the entire worldwide internet infrastructure. That means every Point of Presence for every Internet Service Provider worldwide internationally as well as domestically, would have to send equipment in there and be enjoying and using ascend equipment. Meaning that we will completely have locked out Cisco Systems and all the other competitors that from the inside of the internet, they would be relegated only to the outside on the edge of the of the network. So when we made that statement, which is a bold and audacious statement for 30 people, we said about each of the team members putting a set of audacious goals down to reflect that. So engineering went ahead and did an 18 month plan on what products and services they needed to build and rapidly sales went and said, which counts and we named accounts all of our targeted accounts for by name and environment region. And we went through and put goals down like nine out of 10 of these accounts or, you know, five new products that interface interoperate in this area, a very aggressive goals and all of the departments. And we manage the company against these king of as measured by goals, meaning the board would see those goals and our progress against them. And the person responsible with stand in front of the board and talk I sat as a board member and listen does my team would one by one get up in front of the board to complete transparency to the board on the progress on the execution. Well, this plan also emerged, the king of also emerged, all of the things that we had to do became things that were strategy, if you will. So if we said that we had to fill in a whole host of wide area networking interfaces and make them into work, that became a strategy we called any to any meaning that we would do any interface would make them work at any point in time with any other interface. So that was the NE strategy. If sales said we’re taking every international country and getting certified, that became known as the international strategy, because certification and countries is hard, it would be harder and harder for any competitor to crawl up and attack us if we had all the international certifications as well as obviously playing to domestically. And then another strategy, we concocted an engineering and sales was an inside outside strategy very similar to Microsoft, Microsoft built the operating system early on. And then they would tell everyone where the best one for you to buy the spreadsheet from the word processing system, what we did is we had the inside of the Internet, and then we started building address at routers, we put special features in the trash is only work with our equipment, inside your edge router, you’re a competitor, yeah, it would work with our boxes, for sure. But if you want special features, you would have to buy our edge routers. So that launched us that was called the inside outside strategy of the Trojan horse strategy. And we went from zero to 40% market share and the edge router business. So at that point, we were controlling the inside of the internet 90% market share. And we were attacking the outside of the internet, where Cisco was dominant and taken away about 40% of the outside of the internet. All in all, we were real PIA for Cisco Systems and a number of other companies
Alan:
know Rob, I want to I want to roll back. There’s a lot of people that are critical thinkers are trying to launch your companies. And then they get to the exponential possibility for exponential growth. And they follow their source or not sure how to do it. So here you were 30 people playing king of and you have these big, audacious goals. And we’re going to move forward with this. However, it was going to take a lot more than the 30 of you to get this done. How did you decide? Who do we hire? Who do we need in order to start filling in the gaps to move this forward to execute the strategy? So that’s
Rob:
a great question. So as you can see, we are we’re friends, we were a fairly analytical in our systems, and a bit contrarian in the way we kind of moved around. We did the same thing when it when we’re getting to the expansion mode and trying to add assets and resources. I decided that a fallacy that companies making startups make all the time is they look at that measurable set of goals that have to be done. And they say, Oh my God, we need 15 of those and 12 of these and 18 of these and we didn’t do anything of the kind, we never added multiples like that, at best at ascend the goal, it operated This way, you would come in and say I need three resources to implement are my audacious segment of my goals and or I can’t do it. And I had this discussion with many of people. And I’d say, oh, wow, I’m, I’m really sad. You said what are you sad about? I’m sad, you’re quitting? Sorry. I didn’t I didn’t say it was quitting. I said, Well, yeah, it sounded like you were you were quitting because you said you couldn’t do it. I wish I had three more resources. And I’m not going to give you the three more resources. So therefore you’re quitting? No, no, I’m not quitting. I said, Oh, okay. Well, I want to just go back to work and work on the stuff. And I’m now to try to get you one resource. So imagine that now replaying out over all of the different functions, it became a paradigm inside of the company that everybody understood that very, very well, Rob is not going to give you three or 10 resources, he’s going to go through that exercise. So you go and prove to him that you’re worthy to get one or two X and resources. So what that paradigm did is we were so cost efficient, the how that reflected itself is, you know, these measures quite well, but revenue per employee, and profit per employee, were off the charts, it was the highest in the United States revenue per employee and profit from play. And we kept the company incredibly lean. But the philosophy as we grew, we were doing like 1.7 million revenue per employee, we’re a hardware company. And that 900,000 profit per and play our profit per employee was on this two or three times more than many companies revenue per employee. So you could see how well the company was oiled and how well it was executing. And we just continued that. Don’t let it get fat, don’t think you need 30 of anything, you don’t need 30 of anything, go start the work, and we will possibly add one, you know, you know, to do it, and it became people would tell each other don’t bother to go into Rob’s rooms, this is exactly what will happen. And l and so the culture begins to get set as a very aggressive culture that doesn’t think it needs, you know, several divisions of troops, it feels that it just needed a few more good men and women, it and I constantly was looking for a second I refuse to start looking for bees. So I was always on the hunt. RH not, these are B pluses. I wanted this, this early team was taking on the biggest challenges. So I wanted an entire team of A’s and I was constantly in arguments with my DPS, that it’s impossible to find all, you know, always and I said, Well, we have to be patient, you know, I’d rather wait a little bit longer and get an eighth and to get to bees.
Alan:
How did you decide who got to come in and be part of the teams?
Rob:
So that’s an interesting question, a deciding who actually makes it onto a sunflower analysis is the very first decision you have to make. Because you know, you could have put any subset of the 30 people or all 30 people, what I did is I wanted not titles, there were no titles. And in the room, they’re probably the worst people to put in vice presidents. And you know that I was the decision maker. So I can certainly make the decisions I put in the lead engineer, who also ran my engineering. But even then her title was, you know, manager of engineering wasn’t a fancy, fancy title. But real pepperpot understood how we’re understood software. Under understood the accounts very well. I put JN who really understood the accounts, inside and out another co-founder, I put the manufacturing guy because we got to build these things. So I put representatives that were really the movers and shakers, think about it, a company, if you’re in a new company, you get into the company, you’re befuddled, and you ask around and they say, Oh, you need to go talk to Joe, you got to find the Joe’s of the corporation. They’re in every department. They’re not necessarily a title folk, but they’re the ones that you go to, you need to go talk to him, you want him on your team. Those are the people that you want to pull into the sunflower exercise that and you have to have the decision maker in it, meaning the one who could hit the button, say, let’s go with this, that would be me. I participated in the sun Florida as just an ordinary participant with no further rights than anybody else completely democratic process, I had one vote, they had a vote I there was no bullying something that was going on to influence their votes or maybe pontificating on my favorite direction or non favorite direction. That isn’t actually how my mind works, my mind is actually a hungry mind for learning. So I liked the fact that I’m getting more data and giving us a better set of choices, and potentially a better outcome, which it certainly turned out that way for us. Do you recall that team of 30, with that expanded to within the first year of executing the king of Oh, yeah, the headcount started really moving up into the hundreds and many hundreds, and then over a handful of years were thousands, you know, 5600 employees, but everything gets set in the early hundred people, that early hundred people and the excellence of it. And, you know, frankly, the plan and the execution of the of the plan, really set everything and in motion for the company. And we reap the benefit of that. And with that sunflower process has told us that there’s a number one number two market space that we can enjoy. So we went in attack the other number twos and number threes, about a year after. So we picked out the petals of one at a time. And they came first one became multi billion dollar market. The second one was hundreds of millions. And the third one was, you know, maybe a $200 million market. But we were picking them up one at a time leveraging our core competencies and our hardware and software, about two thirds of all of our hardware and software, it was leverage. We were also leveraging our channels. We had massive channels that we had put together so we could leverage those channels and introduce new products into into those channels.
Alan:
Now, Rob, from an operational standpoint, it costs money to grow. And because you were doing value added pricing, you didn’t immediately have to go out to the ambassador’s or take outside capital, did you?
Rob:
I That is correct. We didn’t take any capital, we grew up our profits. And so the funny story, Alan is that the board insisted on that same issue. They said you’re going to need capital and I said I don’t need capital, I’m running off my profits ZU jar argument. Well, they won that argument. And so they, they wanted to put they wanted to buy more shares, right. And they put another $11 million into the company and bought more shares at a very low valuation by the by. And that $11 million was never touched. Never touch 17 million was put into a sand in the course of a sad 11 was still in the bank. The six three was on the aborted product and three built the entire, you know, worldwide internet, three millions. And, you know, I understand the board’s need to have a comfort zone because of the statements that you made. But we honestly we’re funding the scaling through our profits,
Alan:
which was a proven model. Now, Rob, in context of this saw you as you begin to scale this company, eventually, those investors want it out. They want to cash in. So you did that through is that the IPO?
Rob:
We did an IPO Morgan Stanley I think Piper Jeffrey and Montgomery took us public, our valuation of hold on to your socks, there’s was 130 million dollars going out, we were a profitable company had been profitable for four quarters, we were doing about $35 million dollars and going towards 116 million dollars. And that’s the number we got. We went out in a very short order, probably a year, a year and a half the stocks started to split one time, two times three times there was a lot of very happy investors. You know, people like myself and the founding team were little one happen. Look that valuation compare it to valuations of today for companies that don’t enjoy the same profile, revenues and profits, and opportunity, frankly, but in the case, that was the story. And then you know, the company kept executing, the revenues kept going up 150 600,000,001.2 billion 2.6 billion. And then five years later, AT&T loosen, made an offer that nobody could ignore it. They had been many offers along the five years. But this offer came in at 24.3 billion to buy the company, which was I think about eight times projected revenue for the following year. And we accepted that, that offer and it became an AT&T Lucent company. So exactly 10 years after its inception 1999, it was conceived by me in 1989.
Alan
That record still stands today as the largest exit for a startup company out of Silicon
Rob:
Valley. That is correct. For a venture backed, startup company is still the standing record. It’s pretty amazing when you think about it, with all the great companies that
Alan:
You got out right before the dot bomb hit. I
Rob:
also had the luck of getting out just right before the dot bomb. My wife and I just weren’t greedy. And I said every 13th of every month we sell x shares regardless. And that was kind of clean way to do it. So it was up down in different I didn’t even look at it because we’re just selling the shares and a rigorous way I didn’t want to ever incur the SEC or any insider trading comments. And if you looked at how we traded the you’d say this guy is just spending the same amount on the same day, regardless of price and no timing. No, nothing is going on. There’s a good way to do it. And can could you optimized, maybe. But I don’t really think that you can optimize when things are mechanical. So I think this was a very good way to do it.
Alan:
Now during that period of time, you had a competitor Cysco How did ascend line up with their model and Cisco.
Rob:
So recently actually met an early 100 employee of Cisco, Cisco was in charge of a lot of their support and customers, in fact, their top 2000 accounts and he was giving the view of Cisco head of SM, which was very interesting view basically, it said, you know, we had crushed or eaten or bought every company’s except descent, and we were trying to figure out, you know, what was going on. And he said, it became a topic of a half an hour executive CEO meeting every day. Sam did cascade where the topic every day, and I thought how I’m using. So it was very funny talking with a matter of recent fishing event where we lined up in the following way, their core competencies, were really strong in the routing world, tons and tons of routing protocols. And we couldn’t compete on that. But we didn’t have to compete in that, because we only needed what the internet needed. In the wide area networking space, we had tons and tons of wide area networking protocols, and they couldn’t compete with that. Then there was network management and other things. And neither one of us had any great offering to shake up but we both had offering. So it appeared like there was a time but it’s not really a time because the internet only required that limited set of protocols that they enjoyed, whereas they did not have any of the protocols suites in the wide area networking and the idea and networking has another joyful thing that you have to go through is you have to get an internationally especially certified, and every time you change the board or the hardware or software you have to get recertified so a certification France or the UK or wherever, is a real Roadblock, because an American company is not isolated it sells around the world. So we could go in and say, you know, we you can use any kind of communication device you want. And you can do it in any country you want. And here’s a book of certifications, we had a three ring binder, they could go through our certifications. Cysco first of all didn’t even have the product and domestically to compete with us. And then of course, they didn’t have the product and internationally with the certification. So they were somewhat desperate, they started to give routing deals, you could get a big discount on their routers, if you would wait for them to catch up on the on the internet stuff. And that would have worked. But unfortunately for them, the internet was exploding. And nobody could wait right that you couldn’t sit there and wait because your competitors were building out their networks and everybody was building out their networks that are rapacious rate. And I whenever is dealing with any CEO would say Yo, yeah, you can wait, but I trust you, all your competitors, I’d name they’re not waiting, you know, so you do whatever you want. And then you know, a couple of days later, they the order would come in for the for the unit. So there was no waiting going on. And they were bringing us like AOL orders a $300 million order, for example, huge orders from Microsoft network AOL from all the telephone companies for were coming in. And they the placement of those units took time, right, they didn’t build out a network in two days. It was an interesting business we had smaller eyes, peas, they were still around and now they were healthy. The big guys that you now know and love and us they didn’t come in until much later. So the internet would have been way blacked out. They weren’t even in it. AOL was the biggest guy. And they had 200,000 customers that time frame. It was an interesting, you know, set of the trifecta that happened sort of destiny of ascend and myself and bat and background, you know, the hunger them for a solution, the hunger for us and to do something rational to have a business all converge that they at the same time.
Alan:
If you look at the telephone today, and you go to different countries, you find that the pattern and the number digits it takes to make a phone call is not consistent from country to country, who developed the ISP standard on the protocol. Did Ascend play a role in that with your pizza box?
Rob:
we played roles in promoting standards. And obviously, standards that we would like, like to see. As you would imagine, it’s a fairly political process. And each country utilizes that somewhat as a weapon, you know, they, they don’t really want to be exactly the same. France doesn’t want to be exactly the same as the UK or Germany or the US because they used it to prevent communication suppliers such as myself and others from actually competing in the in the country. Plain and simple. And the hurdles that they would put up or severe. I mean, it could take you six months to 18 months to get a certification. That’s a long, long time and the speed of silicon space. Right? That’s a long time. But now on the other side of the coin, if you do get those certifications, it’s a big barrier for competitors, right? Because it’s going to be a long, long time for them as as well. It it, the hodgepodge of the communication world. In terms of the standards, the interpretation of the standards, created a huge opportunity that I defined inside of the company is any to any try to make all these things into work. Amazingly enough, they were communication standards that didn’t work with another communication standard. And so the art and purpose of communications, at least that’s what I thought was to communicate. So we actually made it. So we interoperate, Believe it or not, most of our competitors would pick one sort of standard and say, you know, we we deployed this, it’s the best and and we wouldn’t do that we would be agnostic, we would say we’re going to do a moth, we’re doing all we have them all and we make them all into work. That was a huge decision. They made a real strategic or when they were picking favorites, we pick no favors. We were Switzerland, we were agnostic, and we would we did them all. And they were very strategic move,
Alan:
you know, it is growing back into the history of time, this was also the era where they were converting from VHS tape over to a CD ROM and, and they weren’t quite getting the format of the CDs correct because everyone was proprietary. I think brilliance though, is what a sin did is, is making things user agnostic. And as you put your box in there said, don’t worry about it, put our box and we’ll handle getting everything in a uniform basis and get it connected up. And I think that was a secret sauce that you guys did, it was in allowing you to
Rob
edit that secret sauce, by the way, and this is a lesson for young entrepreneurs is I could value-based price. And really value-based price, I didn’t price on my bill of materials, my bill of materials, pretty low, but the pricing on the equipment was very high. Because what it was doing was this magic, right. And the magic that they truly needed. And nobody else had done this any to any and all the confusion was being D confused from the space. And I charge for it. And as time went on, competitors would pop up with boxes that were half or a third of our price. And, you know, I would always tell the accounts, you know, go ahead and test them out and try them out and see if they actually give you the same kind of interplay that you actually have right now. And I believe he’ll be back. And we’ll welcome yours with welcome arms. And that always happened, you know, they test out and they’d come back a couple of weeks later and say you were right. Here’s our order for x units. You know, the strategy is when you produce something that first of all is here, the market is exploding, you have solved a huge heart problem. You priced it very, very aggressively, inexpensively. The barrier to entry for competitors is enormous. It’s like climbing Mount Everest. I was told by venture people at the time that they were not funding any startups against a sin. So think of that, that Silicon Valley not funding startups if your business model was to it to attack ascent. Wow, I imagined Sysco at some point had that same thing we they wouldn’t fund started it attacked Cisco. And then I didn’t have to deal with 10 or 15 really great startups and what would their young engineers I can focus on the big behemoth companies and what and what they were doing it, it becomes a self-fulfilling something like the warriors. So you know, the worst build this core team, they’re really good. It’s then easier to maintain, you know, the warrior dominance, they may lose an element, but they still have three elements, right? And they just add one or two new ones, and they’re right back there. And that’s the similar kind of thing for the 49ers
Alan
I love the analogy of the warriors. So that’s really it. And you recently went to war your game, didn’t you?
Rob:
Yeah, I’m, a real fan of the Warriors
Alan:
Rob, there’s a story of the value that you put in the quality control of these little pizza boxes that you want to make sure that they didn’t break. And it could you tell us what happened with the UPS guy?
Rob:
Yeah, so we were having a sprint was one of our accounts, and we were having a lot of debt on rivals. And this is an expensive box and debt on arrivals is totally unacceptable. And they were a lot. So I went in, and I had an intuition that it was due to our packaging. And it went into shipping and receiving was watching ups, you know, picking up boxes, and they were tossing the boxes into the back of the truck. And these boxes were kind of flimsy like pizza boxes, wrapping our hardware. And I’m thinking this is not so good. So I always look to minimize the amount of writing and pontification and dramatic visual, symbolic types of things stick in people’s head. So I picked up one of the boxes and the other team and shipping received was around me. And I think the VP of manufacturing was with me. And I raised it over my head and I crushed it into the ground, I threw it as hard as I could into the ground. And I stomped on it for good measures, like a bizarre co gorilla. On top of it. I asked one of the people to pick it up and just shake it because I said I think in theory, if you shake it, we shouldn’t hear anything, right. And of course, when he shook it, you could hear parts rattling around in the heart and the hardware case. And it was now dead on arrival box. And I said, You know, I think we QED that one quite easily done. I think in two weeks, I’ll come back. I’d like to have a nuclear box. Done. And I’m going to repeat this and probably jump an extra few times on top of it. And when I came back in two weeks they had built incredibly beautiful packaging. I don’t think Ella jumping up and down on it would have actually changed no do is went almost to zero. And the customers, of course, sir, we’re delighted but these symbolic actions and visual actions were kind of my style a minute.
Alan:
Okay, Rob, I appreciate you. Sharing the thoughts today and then the emergence of Ascend and the blackout and appreciate you being with us on American Dreams.