bigger and bigger but it was a love-hate relationship
relationship
they loved the royalties from selling
all that software for IBM pcs and clones
but Bill Gates hated having to fit
Microsoft's plans into IBM business
strategy one thing that's hard to
remember now is that all of us were in
fear of IBM because IBM wasn't trying
most of the operating systems in the
world's personal computers might be
enough for some people but Bill's always
hungry for the next opportunity in the
computer market when the first person
comes along and does something very well
if they get over a certain threshold
then it really develops momentum because
the distribution channel doesn't want a
customer base they start talking to you
about why don't you fix this why don't
you improve that and we've seen many
many products like that in the history
of personal computing some Microsoft
products some non Microsoft products
NetWare it's a great example of that
whenever someone builds a big business
you know some people say that this is a
bad thing some but it's a good thing but
it's clearly a thing bill looks at how
does that business way to the businesses
we're in and if that's a good business
on a standalone basis let's get into it
and certainly if it's a good business to
Jason to our businesses we better get
into it [Music]
in the 80s there was a very good
adjacent business that Microsoft didn't
dominate networker Novell it was
stomping all over the competition Novell
grew up with a gun to its head remember
when when when Novell started there was
two companies I'll remind you they were
Microsoft and IBM Novell was an accident
in their minds should not have been and
you know I guess we challenged that and
we're an underdog we we had nothing to
lose and everything to gain
one thing about Microsoft is you know
we're very competitive and and if we
don't start seeing results I mean you
know it you know bill makes life tough
on everyone and I mean I kind of felt
bad for the networking guys because you
know we continued to struggle and around
83 and 84 and certainly 85 net where we
reached a critical mass and to Microsoft
felt really like there was a huge missed
opportunity on fact I remember some
memos bill wrote in Easter 85-86 where
he said you know one of the biggest
disasters for the company is that is
that we have no assets and networking
are very weak acid to networking why
Novell had great assets in networking
they even had net where conventions and
zany netware infomercials while IBM
wasn't interested in networking chi sees
microsoft was so bill cast his eyes to Utah
Utah
well Gates was very focused on Nova was
the first time he contact us late 1989
to see if he wanted to see if Novell was
interested in being bought really so
that started two episodes of Microsoft
trying to buy Novell we all thought
maybe if we band together we'll be able
to compete and get you know some portion
of the market in a world that that IBM
dominates and and so that was a
motivating factor both of the times that
we sat down and talked the thing that
makes it tough though is you get to
different development sites and if you
have this vision of an operating system
a single operating system it's going to
do everything having those multiple
sites and those different visions is
tough but I have to say it's it's
surprising that we never got together
there's a traditional Microsoft tactic
if you can't join them beat both
Microsoft looked for a partner to line
up against Novell at the time and we
thought that well you know wouldn't it
be great to align ourselves with someone
else and and we thought that the best
partner to compete against Novell you
know would have been 3.com and so we
actually entered into a kind of a
strategic relationship with 3.com that
ultimately you know didn't turn out very
well but but nevertheless it it actually
got us in our frustration with no Val we
throw in we 3com threw in with Microsoft
to unseat Novell in the networking
software business we both went into it
with a lot of enthusiasm a lot of energy
I think we wound up having a business
relationship that was cumbersome at best
a technical relationship that was a
little bit difficult and that Enterprise
met a horrible end in the late eighties
ultimate horrible and ultimately leading
the cause of Bob's horrible end is still
a matter of dis
but everyone now agrees that Microsoft
and IBM had a falling out and then so
did Microsoft and three top what
Microsoft failed to tell us was that
there our relationship with IBM was
falling apart at that moment which came
as a big surprise about three days after
we signed the deal we eventually
separated I think there was good intent
on both companies part I frankly did
this day think we managed the thing very
professionally I know Metcalfe has has
you know some bitterness about it but we
were both properly looking after our
business interests and properly both
companies trying to be good partners and
then in 1989 Microsoft announced OS to
land manager and I can remember reading
the headlines OS to land manager going
to put the network operating system out
of business and they predicted by 1991
Microsoft would have 60% share of the
network operating system market with OS
to land manager and said that Novell
share of the same market would drop to
25% by 1991 well by 1991 our share 50%
that we had in 1989 had grown to 75% and
they still hadn't made a dent so well
that product failed to take off to
Microsoft satisfaction the middle level
managers at the company there had to
blame someone they blamed us and so the
Microsoft double-crossed 3com and went
around us to our own customers with our
own product and so 3.com went into a
loss situation just long enough for the
board of directors and 3com to decide
they needed a new change a new
management I don't think he has the
reason to be as bitter as he is no I
mean we were two companies to grow in
companies with grown people are
operating the companies and we attempted
to do a business deal but was their
products and they weren't able to do
that and I think that he felt that we
sort of unfairly got them into the
contractual situation but you know takes
two people to sign a contract when I
complained to Microsoft about this so
why is it doing this
and the guy involved who I will not name
but the guy involved looked me straight
in the eye and said you made a mistake
you trusted us [Music]
[Music] [Laughter]
far from the high-stakes rivalries of
networking market share the grassroots
of the internet were steadily growing
and in unconventional directions more
users were tuning in and turning on
attracted by the chance to connected
no one should underestimate the
influence on the development of the
Internet of the Grateful Dead so get my
t-shirt my VW Microbus and I'm headed
out now to see a guy who knows exactly
what a long strange trip it's been to
you are listening to dead to the world
on KPFK or kpf be in Berkeley or KFC F
in Fresno my name is David Gans there
are a million ways to appreciate the
Grateful Dead and we found a lot of ways
to talk about them for space deadheads
could now meet in an online virtual
community called the well or whole Earth
electronic link even a virtual community
needs a real computer the wels server
was based in Sausalito calafate some
entities like the deadheads the people
that were basically following the
Grateful Dead we were not a regional
phenomenon at all and where they became
regional was on the well that was their neighborhood
neighborhood
on March 1st 1986 the Grateful Dead
conference opened its doors and various
people from the net came over and got
accounts and even more interestingly
various people went out and bought
computers so they could get online and
start talking with us we're credited
with generating sufficient cash flow to
keep the well going through its early
startup days it was it was great to see
it it was really really fun because we
were people who had a lot to talk about
well I know what his impact was on the
well which was it probably saved her but
al just gave us a commercial scale of
absolutely dedicated customers all in
you know a couple of months one fell
swoop suddenly there's a bunch of people
who want to talk to each other all the time
time
then take training I would imagine that
tape trading is responsible for 18
percent of the entire packet traffic on
the internet right now I made that up
but it's huge there's a book called a
great good place that came along about
half way long and starting with the will
which is about freight pubs and
barbershops and beauty shops and coffee
shops for play people go and they just
hang out and it's not work and it's not
their house it's this other third place
that they go to just hang the well
became a great good place [Music]
fringe Lee's fourth law of commerce
states new media create new
opportunities but what kind of profit
could anyone turn on the strictly
non-commercial Internet John McAfee was
the first person to answer that question
he gave away his antivirus software and
made a fortune nice life [Music]
[Music]
the unique thing about software which I
had thought about you know ever since
the mid seventies is that software
production is unlike any raw materials
are required no time is required and no
effort is required you can make a
million copies of a piece of software
instantaneously for free and there's
something unique about that and I kept
you know running it around in my mind
think you know what can you do this what
it's so unique it's so unusual nothing
like it has ever appeared in the world
before and finally it came to me aha
a new business paradigm you just give it
away because it doesn't cost anything
you simply charge for the update process
you get the copy free you can use it as
long as you want if you want the updates
we'd be happy to give them to you for a
nominal fee and after we had five or ten
million copies out there it was a very
simple process to turn the switch and
begin charging for updates it's time to
explain another key figure in our story
the venture capitalists without the VC
few new technologies would be built
fewer geeks would attain fabulous wealth
perhaps even the information revolution
itself would never have happened this is
a VC watering hole near Palo Alto in the
1980s networking companies became a
third industry segment alongside PCs and
software more companies met more venture
capitalists and more power breakfast
this is bucks restaurant in Woodside WA
the VCS meet to figure out how many
millions they'll give for what
percentage of each startup you want to
call it mega bucks must be a great place
for tips oh thanks
are the tips good here venture
capitalists you love them or you load
them but if you need money for your pet
idea you can't ignore them these digital
temples monuments to the success of
information technology all needed
venture capital to leave their garages
behind for all of them it began with the
occasion which strikes fear into the
heart of every Silicon Valley entrepreneur
entrepreneur
this is the mating dance of Silicon
Valley entrepreneurs with business plans
perform for venture capitalists with
bags of money to invest each needs the
other yet it's the VCS who decide
whether or not to mate they call this
dance the pitch and it can mean the
difference between failure and a billion
dollar IPO some entrepreneurs do this
dance a hundred times and never raise
anything we are the outsourced messaging
service for the Internet
despite cautionary tales and horror
stories that could outdo both grim and
ESOP this is a scene which has played
out thousands of times a year in front
[Music] [Applause]
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it's horribly repetitive for everyone
nine out of ten pitches failed but just occasionally
occasionally
a venture deal presents itself which
looks like a sure thing for example
McAfee associates in 1990 employees and
a run rate of a burn rate of $300,000 a
year so we didn't need money we needed
advice and so we took on the to venture
partners and certainly the best deal
they'd ever done and and for me I didn't
get hurt either they turned it into a
real company it just strikes me as a
kind of lay person here that fifteen
million dollars in the bank is a real
business it depends on its you know it
depends on how you want to measure
yourself yeah yeah invested ten million
dollars and I believe for my last
conversations with DEA in Summit that it
was the largest deal in terms of net
results today they have ever done each
autumn netted over a hundred million
dollars on this so they they each put in
five million bucks and each got a
hundred million you know as much of a
bad reputation as VCS have they are in
fact sharks there's no question but once
they're on your side they're yours about
they're your sharks and and it's like
wow you know so you know you if you
struggle with them and if you can come
out you know bleeding as little as
possible and survive then you're you're
in you're in Fat City John McAfee pulled
off the final coup in start-up business
the exit strategy of selling his company
for a couple of hundred million dollars
now there has to be a way for a geek
like me to get access to venture capital
back in Silicon Valley there's naturally
a very Californian way of conducting
business here instead of three-martini
lunches east VCS play Ultimate Frisbee
that's co-ed American football with a
frisbee instead of a ball but forget
about the rules and come up with a great
cruise league get-rich-quick scheme I
gotta get some money I'm gonna network
and I'll think oh never underestimate I
[Music] [Applause]
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[Music]
as I set out to test my Ultimate Frisbee
skills I also had ringing in my ears the
wise advice of one of the Valley's most
renowned venture capitalists John doar
Cesar said all of Gaul is divided into
three parts well all of risk is divided
into four parts there are really four
risks you've got to look for in every
project the first is people risk that is
how the team is going to work together
because invariably one of the founders
doesn't work out it falls out which is
why you want their options or equity to
vest the second risk is market risk and
that's incredibly expensive risk to
remove that's about whether or not the
dogs are going to eat the dog food is
there a market for this product and by
the time you get the product to market
you may have expenses of another the end
dollars a month you don't want to be
wrong about market risk [Music]
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[Applause]
the third risk that we're quite willing
to take on is a technical risk that's
about whether or not we can make a pen
computer that works we'll be the first
to commercialize a web browser or to
split the atom if you will that
technical risk is one we're comfortable
trying to eliminate and take on the
fourth and final risk is financial risk
if you have all of the preceding three
right can you then get to the capital
that you need to go grow the business
and typically you can there's plenty of
capital to finance rapidly growing new
technologies that are addressing large
markets there's this myth that Silicon
Valley companies are always started in
garages but there are other options the
biggest company in the networking
business for example was started in a
living room in this house where Len
Bozak and sandy Lerner used to live
they were Stanford academics but they
were in different departments on
different computer networks and unable
to send email messages like did you feed
the cat so they invented a way of
networking networks with things called
routers the company they started in 1983
Cisco Systems today does ten billion
dollars a year in business routers
created great wealth for the Cisco
founders sandy Lerner and her former
their story is a classic nerd saga that
started by accident and ended in a
boardroom drama that many company
founders have experienced - their cost
was it your your love of computers and
networking that drew you together or he
had great legs or what you know I'll
just have to tell you something that's
so bizarre you'll just have to assume
that it's true
lenz mother had done this miraculous job
and when I actually knew how to bathe
and eat with silverware and I was
absolutely enchanted there he used to
take risk and like wash his collars and
cuffs which was way more than I ever did
and I just I just didn't think that a
more perfect man could exist
let's meet Len Bozak and find out about
his work ethic sincerity begins at a
little over a hundred hours a week you
can probably get to 110 on a sustained
basis but it's hard you have to get down
to eating once a day and showering every
other day things of that sort to really
get you'll by Forgan eyes to work 110
hours a week and the and and the level
that follows sincerity what do we call
that commitment Len was a brilliant
Network technologist theory is art at
work in a snapshot from Sandy's Cisco scrapbook
scrapbook
it was do-it-yourself networking if you
wanted it you had better do it yourself
because no one else was going to do it
for you you couldn't buy it we basically
pulled wire through manholes we pulled
wire through just you'd sewer pipe we
built a lot of things by ourselves I
mean it was very very much at that point
a guerrilla action we had no money we
certainly didn't have any official
sanction in the end I guess the
university was kind of allowed not to
like it but they did get a net work out
of it the Stanford campus was 16 square
miles in 1984 it's 5,000 computers were
grouped in their own networks in
separate buildings like Islands they
needed causeways or bridges to connect
them into a campus-wide network we first
built some bridges and then we built
some crude routers and we built better
routers and that solved for Stanford the
same sort of problem that it solved 10
years earlier for ARPA how to use a
on the digital highway packets are
blasting this way and bath going from
network to network on the way to their
ultimate destinations and every point
where one network is linked to another
there's a box called a router think of a
router as a traffic cop like the cop a
router does three things it stops
traffic it starts traffic and it gives
directions so routers keep local packets
from leaving their own network and
plugging the internet internet packets
they let go through and even give them
directions to the next router what
routers don't do is eat donuts or give tickets
tickets [Music]
once Glen and Sandy had solved
Stanford's networking problem they saw
an opportunity to offer the solution to
other users but Stanford didn't want to
do it and so we kind of really tried to
get them to license the technology to
these other universities and they just
were not going to do it and so with
tears in our eyes we took our five
dollars up to this you know Secretary of
State's office in San Francisco and made
Cisco Systems and took it anyway so how
did you go about it well in the same
tradition that anyone else in the gulch
does you go out and buy a bunch of parts
and try and make the stuff and then go
sell it and solve the problems that come
up Len and Sandy's dedication wasn't in
question this archival gem from 1989 may
be a little low on production values but
it shows just how single-minded these
two were in part the result of some
well that's very interesting that wasn't
the Wellfleet marketing department
bombing the Cisco premises that was a
genuine San Francisco earthquake not
even an earthquake could divert their
attention from the glorious business of
routers and bridges so the Cisco
headquarters was their house the
technology was well borrowed from
Stanford and their operating budget was
plastic you sort of spend against your
credit cards and hope the checks come in
from your customers fast enough to meet
your expenditures how did you decide how
much to charge for your or your products
we guessed now how big a business could
you build on your credit cards about a
half a million dollars a month one
bedroom was the lab another bedroom was
office space and when it was time to
build and test something well that was a
living room we financed the company on
credit cards we were turned down by 70
or 80 venture capitalists yeah it was it
was pretty touch-and-go there's a
downside to VC involvement for all that
money they expect to own most of the
company to sit on the board to tell you
whom to hire to generally question the
competence of the founder to run the
company it can end in tears Don
Valentine was venture capitalists number
77 and his previous investments show
that he understood the potential of this
business we knew from the experiences
that Apple and had three-cone that the
world was going to be connected at that
point I think we were Cisco was doing I
think a quarter million maybe maybe 350
thousand a month without a professional
sales staff and without an official
conventionally recognized marketing
campaign so it wasn't a bad business
just right then and so I think just for
the novelty of it the folks at Sequoia
listen to us we ended up taking money
from Don Valentine in Sequoia Capital he
was a very savvy player and Len and I
were not and I think that's probably
about the best way to to
but that done does just what he does he
has a formula and he executes against it
and that doesn't make him a good or a
bad guy just what he is the commitment
we jointly made to each other is that we
at Sequoia would do a number of things
we provide the financing we would find
and recruit management and we would help
create a management process none of
which existed in the company when we
arrived sandy and I agreed to a
forfeiture contract a type of indentured
servitude where if we didn't do what the
company asked they would have the right
to repurchase the shares that we
actually already owned we ended up with
a four year vesting agreement and 30% of
the stock in a company and no employment
contract and I would strongly advise
anybody watching this program not to do
it that way how should they do it well
certainly get your own lawyer sandy and
Len soon discovered what many
entrepreneurs before them have learned
that the company you found it is no
longer the place you were it was August
28th 1990 but who's counting okay and
what what happened that day well quite
simply I got fired we had discussed this
event and that sooner or later the
venture capitalists always want to get
rid of the founders that's just part of
Don's formula both were very critical
and helpful people to launching Cisco no
question about it Len is a very very
good technician and recognizes that he
has little interest or little ability in
management and positions himself
accordingly so in the company he was the
chief technical officer sandy who is a
person very committed to a number of
aspects of business is or was very
acutely sensitive to how well the
customers were treated Don's opening
words to me you know the first time I
ever met
man I wouldn't have known him from the
man in the moon where I hear you
everything that's wrong with Cisco you
know I'm also the reason why there is a
Cisco what went wrong back at the ranch
well the end of the story is that one
day with the President John mortgages
prior approval seven vice presidents of
Cisco Systems showed up in my office we
had a reasonably civil meeting in our
conference room the outcome of which was
a very simple alternative either I real
nted and allowed the President to fire
sandy Lerner well they all seven would
quit it was probably time for Len and I
to go you know in that Len and I do not
have company personalities and I think
we we were finding it difficult to work
in a larger organization I think the way
that it happened was wrong the most
regrettable thing I would think from
their point of view is they lost
perspective and urgently sold their
shares in Cisco at a time when the
valuation of the company was a mere 1
billion dollars or so had they somehow
or other suffered this outrage with a
little more financial wisdom they might
have sold when the company's market
value was 10 billion or 20 billion or
the pain of not having 18 billion
dollars must be slightly lessened by the
pleasure of having 100 million to your
name what to do with all that money
sandy learners foundation acquired the
manor-house in the English village where
Jane Austen wrote her novels it came up
for sale in 1992 and I for some very
illogical reason bought it thinking that
it would be just a wonderful place for
the Center for the study of early
English women's writing today sandy is
also the proprietor of a successful nail
polish empire urban decay which
specializes in grunge colours called the
bruised mildew an acid rain whatever
would Jane think Pride and Prejudice or
Sense and Sensibility Len Bozak now runs
a Seattle technology company his
charitable donations fund the search for
extraterrestrial intelligence Len is not
kidding he's serious about the universe
very very serious it's one of the most
important questions that a sentient
being can ever formulate and that is are
we one either answer if you could obtain
it is of tremendous import but you
surely do not expect little green men to
come and present you with a message on
the other hand if you don't listen if
you don't in any organized way ask the
question of the universe what if it has
an answer waiting for you think of what
you've missed a billion dollars today
Cisco Systems is worth 60 billion
dollars in the intervening years Cisco
and its competitors went from steady to
spectacular to incredible rates of
growth much of it fueled by the next
great Internet invention the world wide
web and look what became of Len and
Sandy's living room [Music]
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funding for this program has been
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