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Eric Benhamou & the Turnaround of 3Com (Part 16)

Posted on Tuesday, Sep 4th 2007

With Palm successfully launched, and the merger with USR stabilized, Eric was now at the end of his tenure as CEO of 3Com. Here is details his final decisions, and reflects back on some mistakes.

SM: In our next series, I would love to examine Palm. Finishing up with the 3Com story, however, the USR merger stabilized by the 1999 time frame, correct? EB: It was in 1999 when we regained stride at the company.

SM: You were the CEO for how long after that? EB: Until the end of 2000.

SM: What prompted you to step aside as CEO – your commitment to the 10 year time frame? EB: Yes, I had completed my 10 years as CEO. I wanted to make sure I would turn over to my successor a company which would have gotten the valuation of Palm we wanted.

However, there was one other decision I made at the time, which I now regret. After the Palm spin off, our enterprise networking business had lost momentum over the previous two years, and the high end segment became unprofitable – at least on paper.

My business development team analyzed it and came to the conclusion that this segment of the business was unprofitable. My board was of the view that we should not be in unprofitable businesses – either turn it around and show profit, or get out. I did not have a short term plan to turn it profitable because it is so expensive to sell into the enterprise. I did feel that it was the wrong way to look at it because these businesses are so interconnected, more so than the analysis was showing.

I felt the analysis failed to capture the trickle down effect. If you get into the high end market, lots of good things happen because your products are adopted by powerful companies and you do not have to work as hard for the mid range and low end products. It is hard to capture that phenomena the way the analysts report the numbers, and my own controllers report the numbers the same way. I could not show it, I could not explain the potential relationship damage that would cause if we pulled out of the high end. I was not able to come up with credible explanations that would counter the analysis.

Perhaps I was mentally tired at the time, but I gave up too easily. The board was asking legitimate questions, but they were coming to an answer too quickly without understanding the nature of the business. At the time, I ended up saying, “Well, you must be right after all, we are not making money so we should pull out. It is not right for me to pass on an unprofitable business to my successor, so we should divest ourselves of it before I leave.”

SM: Readers looking for cues to the mysterious question of what went wrong at 3Com, and how the powerhouse company became a shadow of what it was over the course of the next seven years, may note, this is a decision that proved fatal for the company. The high end market became Cisco’s romping ground, and today, it has become almost impossible for any other Networking company to enter the Enterprise, earning the industry the saying: Networking is Cisco and the Seven Dwarfs. Sadly, 3Com, a former giant, became one of these dwarfs.

However, mistakes are as inevitable a phenomenon as life itself.

[to be continued]

[Part 15]
[Part 14]
[Part 13]
[Part 12]
[Part 11]
[Part 10]
[Part 9]
[Part 8]
[Part 7]
[Part 6]
[Part 5]
[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 16 in the series : Eric Benhamou & the Turnaround of 3Com
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