Benson interview on Business Week interactive 6/7
BW ONLINE DAILY BRIEFING
NEWSMAKER Q&A
June 7, 1999
Cabletron's Departing Founder: The
Company "Is Stigmatized by Me"
In an exclusive Q&A, Craig Benson explains why he's making
this dramatic move
Hours after his resignation from the company he
founded, Cabletron Systems CEO Craig R. Benson
spoke at length with Business Week Boston
Correspondent Paul Judge (for a news analysis, see
BW Online 6/5/99, "As Cabletron's Founder Steps
Down, Will a Buyer Step Up?"). Confident but
subdued, Benson laid out the reasons "I needed to step
down" and talked about Cabletron's future. Here are
edited excerpts from their conversation:
Q: Are you stepping down to remove yourself as
an obstacle to a possible sale of Cabletron?
A: I don't know why that logic makes sense. People
love to have conspiracy theories. Piyush Patel
[Cabletron's newly named president, CEO and
chairman] will run the company for the best interests of
customers, employees, and sharholders in that order.
I'm the biggest shareholder, so I've got a big stake in
this, too. But we're at a good size now, small enough to
be efficient and effective and big enough to put
resources into things.
Q: Siemens, Lucent, Nokia, and Ericsson are all
said to be interested in Cabletron. Are you
considering a deal with any of them?
A: We've got a great bunch of technology that I think
anyone would be interested in. I compare us to BMW
in the car world: They're not the biggest, but they make
a great product, and they have a certain karma. Of
course, the car business has less of an imperative to
respond to speed.
Q: Is Cabletron actively negotiating with any
potential acquirors?
A: No. We have been talking to investment bankers
about the possibility of spinning off Spectrum
[Cabletron's successful network-management software
business].
Q: Is Cabletron worth more to a potential
acquiror if Spectrum is kept inside the company
or spun out?
A: Spectrum is built into the value of the company now
in a very modest amount. If it was showcased, it would
value Cabletron higher. People see Spectrum too
closely tied to Cabletron now. I think we can break it
out and make it more successful. Cabletron would
retain a majority stake, that way we can still retain
access. My guess is that it would happen in next nine
months, and the likelihood that Spectrum will be spun
off, outside of market conditions which we can't
control, is pretty good.
Q: Does it frustrate you that many Wall Street
analysts and some investors believe the best
option for Cabletron at this point is to sell the
company to a bigger player in the industry?
A: It's a quick answer to something. I'm not sure its the
best answer. But it is frustrating. We've been rumored
to be for sale for the last five years, and it hasn't
happened. You kind of get sick of trying to defend
something you have not done.
Q: Cabletron's market cap lags far behind your
primary competitors, and even some startups with
much smaller business than Cabletron have been
valued at nearly the same level.
A: Extreme Networks is a great example. Their market
cap and ours is the same, but our Yago switch has
twice the growth rate and twice the sales volume.
We've got No. 1 market share in that product
category, and Extreme is No. 5.
Q: What's going on?
A: That's part of the reason I needed to step down. A
lot had to do with the Craig Benson phenomenon. A
lot of people read into my will or lack of will to do
things, what I know or don't know. People think of me
as bull-headed. I think people read a lot into what the
company will or won't do based on my disposition.
Q: Because you were slow to make a technology
transition? A: Not so much that. We've been
supposedly a go-it-alone company for a long time, but
that's not true. With Spectrum alone, we work with a
number of people. In our hardware business, we're still
doing business with Fore Systems. It works well.
Q: Many of the issues Cabletron faces now --
building business with telecommunications service
providers, coming up with a more effective
channel strategy -- are the same things you talked
about back in August of 1997, when you brought
Donald R. Reed on board as CEO for eight
months. Why has it taken so long to fix these
issues?
A: It takes a long time to build a channel. While it's
easy to say, it's hard to do. Part of it has to do with
trust. It's taken a long time to do that.
Q: Why hasn't Cabletron grown its
service-provider business faster?
A: You're absolutely right. We also needed some
products to knock that off, and until recently we have
not had the set of wares to go after that market. Back
to the channel, though. In Asia and Europe, 100% of
our sales move through channel partners, and in the
U.S., where only 20% of our sales moved through the
channel a couple of years ago, we're now about 60%.
So we have made pretty big inroads.
Q: Where's the revenue growth?
A: Revenue has slipped, because you have to prime
the pump. That's what I mean about trust, we're
priming the pump by changing the business model a bit,
we've taken some opportunities to the channel that we
would normally take ourselves.
Q: Why has it taken this long for Cabletron to get
the products you needed to attack the
fastest-growing market, which is service
providers?
A: In the service-provider space, some of the
traditional products fit, some don't. We didn't have a
routing product two years ago. We funded Yago two
years ago, when we knew we needed to get into it.
Most traditional service providers are still using
traditional routing, which will flip over pretty quickly to
newer switching technology. In the next two years, they
won't buy any more routers, because they don't handle
voice or video. The question for us is, do we want to
go back and invest in a routing technology that's dying,
or work up the new opportunity.
I think we are starting to build some momentum, but
don't forget that 70% of our business went away. We
had to build it from the ground up. No one else in the
industry faced a transition like that. We did it in two
and a half years.
Q: Why did that technology transition catch you
the way it did?
A: When 70% of your business is dominated by one
product, you have issues. If mainframes go away, IBM
has got problems; if Windows dries up, Microsoft has
problems; if routers are replaced, Cisco has problems.
Some issues you can't dodge.
Q: Are you confident that Cabletron will get
through it?
A: Yes, because we have a high percent of advanced
switches as part of our revenue -- 60%. That's higher
than anyone else. We've been able to move past that
dying business.
Q: If you're turning the corner, it seems like a
hard time for the founder to step down.
A: Yeah, but I go back to three things: New
technology is forming a new basis for building
networks. Piyush Patel has been at the center of this,
he knows it better than anyone else. He's a great guy to
be able to have as the icon for Cabletron.
Second, when we started Cabletron in 1983, there
was a group of others who also started networking
companies. Every one of them has been gone for 5 or
10 years. I'm the last holdout. Everything has its time.
That's the way I look at it.
Third, Cabletron is viewed as Craig Benson at this
time, very closely. A lot of people I have never met
have very deep thoughts about what I will do and
won't do. I don't know where they come up with this
stuff. Cabletron is 5,000 people, not one. It's time for
that to change. When you found a company, the
personality of the founder becomes the way the
company is viewed. I think at this time, Cabletron is
stigmatized by me.
Q: Does Piyush Patel have the skills Cabletron
needs in sales and marketing?
A: He's done a pretty good job marketing Yago.
Analysts know him. He knows a fair number of people,
and he also knows about the marketing side of the
business, not necessarily from his job background but
because he's in tune with it. He's going to need some
help, either inside Cabletron or going outside. But I do
have confidence he can run this company.
Q: What were the high points for you during your
16 years of running Cabletron?
A: Launching a networking company with no venture
capital is a big one. The fact that Cabletron is even
around, with 5,000 employees and $1.5 billion in sales,
when we thought we'd be lucky to have 30 people and
$3 million. It's the American dream. Cabletron has
blown way past my expectations.
EDITED BY DOUGLAS HARBRECHT _ _ _ _ _ _ _ _ _ _ _ _ _ _
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