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Eric Benhamou & the Turnaround of 3Com (Part 8)

Posted on Monday, Aug 27th 2007

SM: In general, was the workforce at 3Com more aligned with your vision than to Krause’s? EB: It was a split workforce. We had some computer experts, and we had some networking experts. What I ended up doing was to choose one – we could not do both.

We built upon our roots at Bridge, this is what we would have done if we had not been interrupted and distracted by the 3Com transaction. In 1990, after validating that this was the direction I wanted to take, we ended up restructuring the company. We let workstation and server divisions go. I cut an agreement with Steve Balmer at Microsoft and we wrote a big check to get out of the contract. Bill Gates, Steve Balmer and I were doing keynotes at the ETRE conference, so I cornered them and we had a long drawn-out discussion and negotiated our way out.

Of course we had lost time. We had to re-engineer our entire networking product line, and attempt to leapfrog the current industry. I knew we were going to have to go through two years of hell before we could get traction; it was a complete restart of the company. I call this crossing the desert.

I did not want to mislead employees, I knew it would be tough, and there was no guarantee we would make it but if we did we would have fun, make a big impact and be rich. I had a slide in my presentation which had a picture of a desert and an oasis way in the distance and said “this is where we are going”. Those who ended up staying were those who were hard core, those who believed in the vision.

Technologically there was a transition from microprocessors to RISC processors. This was the time when the first ASIC started to appear. We planted a stake in the ground and said we would be the first company to have RISC and ASIC routers. I knew this would get us an order of magnitude of performance at lower cost than our competitors.

SM: And the competitors included Cisco? EB: Also Ungermann-Bass. There were a few companies on the East Coast, and all the main computer companies had some offerings, but Cisco was the biggest.

SM: How big was Cisco? EB: They were less than $100M, but all in networking products. We were three times their size, but shrinking. They were doubling every year. They passed us as we were crossing the desert and we never caught back up, although we came close in the 1990s.

SM: While crossing the desert, what were some of the points when you felt this turnaround was going to work? EB: There were two pivotal points. After announcing the restructuring, we reduced close to 15% of our people. Somehow I felt a sense of relief, because of the types of folks who stayed. We were no longer dealing with the past. We let go of all of our old stuff. We had some legacy customer situations to deal with, but we roped them off on a separate building on our campus, the rest of the company was dedicated to restarting. It was a great sense of relief to move forward.

The second pivotal moment was when a second generation of products started to work in the lab. When you build the chip you do all the models and simulations you can, but you pray when it comes back from the foundry, it works. You can handle a few bugs but not a re-architecture of the system. When that happens it sets you back months or years, and we did not feel we had slack in the schedule. In the mid 1992 timeframe, the chips came back and they worked, they passed packets.

In the fall of 1992, we launched our products at a trade show, and there was a buzz in the industry. We had the fastest routers on the floor, we were routing the traffic at the show, we changed the logo of the company to signal this was 3Com the networking company. We started to have customers show up at our booth and it was very exciting. Forward, it was a great drive through the 1990’s.

[to be continued]

[Part 7]
[Part 6]
[Part 5]
[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 8 in the series : Eric Benhamou & the Turnaround of 3Com
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