Managing the Rapidly Growing Venture
Case In Point: Cisco Systems
In the early 1980s Stanford University had some 5,000 computers of various types. There was no campus-wide network, the systems were like islands. Bridges were needed to connect them together. Cisco Systems was founded in 1983 in the living room where Len Bosack and his wife Sandy Lerner lived. Their solution was to create the bridge that networked the networks.
For more than five years, they struggled and bootstrapped their venture by running up bills on their credit cards. In 1987 Cisco had $350,000 in monthly sales but was facing a serious shortage of cash. They needed capital to support their growth and found an interested party at Sequoia Capital.
Cisco’s founders and Sequoia agreed, according to partner Donald Valentine, that besides providing financing for Cisco “Sequoia would find and recruit management, and we would help create a management process. None of which existed in the company when we arrived.” Valentine hired an experienced manager, John Morgridge, to run Cisco in 1989. Morgridge immediately installed a professional management team and formal management processes. With these assets and resources coming together he established a revenue goal of $100 million, more than a twenty-fold increase from their revenues of some $5 million in 1989.
By 1991 they reached $183 million and along the way paved the road for an IPO in 1990. Between 1995 and 2000, Cisco’s revenue grew an average of 53% annually, an unheard-of rate for a multibillion-dollar company. Cisco had reached a $100 billion market capitalization value in 1998.
In March 2000, Cisco became the most valuable company in America with $531 billion in market capitalization, briefly eclipsing Microsoft as the world’s most valuable company. In 2002 with 36,000 employees and nearly $19 billion in sales, Cisco’s networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world.