THE BATTLE FOR CISCO:
These two right here stole Cisco from Stanford University. While immoral, this is nothing out
of the ordinary within the business world. For example, Mark stole Facebook from the Winklevoss
twins and Divya Narendra. Steve Jobs stole the Mac from Xerox. And Bill Gates stole Windows also
from Xerox. Facebook, Apple, and Microsoft are all multi hundred billion if not multi trillion dollar
companies today. So, clearly, the punishment for stealing ideas isn’t all that high in the
business world. Worst case scenario, you might have to pay $65 million to settle a lawsuit,
but this wasn’t the case with Cisco. You see, like the other victims, Stanford wasn’t really able to
do anything about Cisco through the legal system. They thought about filing criminal charges against
the founders, but they figured that it would just be a better idea financially and stress wise to
just license the technology to Cisco themselves. At this point, Cisco’s founders probably thought
that they were in the clear, but karma often works in weird ways, and Cisco’s founders would end up
losing the entire company to predatory VC firms. Normally, you might feel bad for these people,
but in this case, they really just got a taste of their own medicine. Not to mention,
it was them who brought in these VC partners, so really, there’s no one to blame but themselves. By
far the worst part about all of this is that Cisco actually ended up doing extraordinarily well under
VC leadership. In fact, in the 10 years after the founders were pushed out, Cisco would grow from
being a couple hundred million dollar company to being the world’s largest company. At least, they
got a massive pay day thanks to their stake in the company right? Psyche, they actually sold their
entire stake for peanuts when they were pushed out of the company out of resentment. Clearly,
they didn’t enjoy being on the victim side of having Cisco stolen. So, here’s the insane story
how this couple tried to pull a quick on Stanford only to have a quick on pulled on themselves.
STEALING CISCO:
Taking a look back, the story of Cisco can be traced back to a couple named Leonard Bosack
and Sandy Lerner. Naturally, they were both highly educated individuals. Leonard had a
bachelors in engineering from the University of Pennsylvania and a masters in computer science
from Stanford. It was while he was pursuing his masters that he got the opportunity to work on a
special university project. The project entailed connecting Stanford’s computer science wing and
business wing through a network so that data can easily be communicated between the two. Hey isn’t
that Cisco’s entire business mod..anyway, it was also around this time that he met Sandy Lerner
who was at the time pursuing her own masters in statistics and computer science at Stanford. The
two would get married almost instantly and they would both get jobs at Stanford after graduation.
Leonard would become the director of the computer science wing for Stanford’s business school. And
Sandy would become the director of the computer science wing for Stanford’s computer science
department. Most couples would call it right here, but that was easier said than done for Sandy and
Leonard. Due to their jobs, they were constantly coming across the smarted engineers in the world
and their latest inventions which created a lot of temptations. One such temptation was the Blue Box
created by Andy Bechtolsheim and William Yeager. The Blue Box was a simple multiprotocol router,
but back in the early 1980s, this was the voodoo magic that was connecting Stanford’s various
departments. Imagine what you could do with this in the real world, but unfortunately, that wasn’t
possible. Stanford had made it explicitly clear that the Blue Box was for internal use only.
This applied to even the original founders. In fact, William Yeager claims that his request to
commercialze the invention was outright denied. But, it doesn’t seem like this denial put off
Leonard all that much. In 1985, Leonard would join forces with another Stanford employee named
Kirk Lougheed and the two would basically rip off Yeager’s software to create Cisco IOS. With that,
Cisco was born, but not everyone was happy with the company. Stanford was naturally furious,
they had specifically told even a cofounder to not commercialize the product. Yet, here they were
dealing with a couple of hot head recent grads trying to rip off the tech. I don’t think you’d be
surprised to hear that Leonard didn’t keep his job at Stanford for much longer. Stanford would turn
around and threaten to file criminal complaints against Cisco for theft of software, hardware,
and other intellectual property. But, after thinking about it for some time Stanford decided
not to pursue this route. The reality was that it would be Stanford who would have to deal with
years of lawsuits to prove their case just to win a pity settlement from Cisco. So, Stanford made
the smarter choice and decided to just license the tech to Cisco in 1987. At this point, they
couldn’t stop Cisco from commericalizing the tech, so they might as well profit from it. Leonard
and Sandy probably thought that they were in the clear, but they had yet to face the real predator.
GROWING CISCO:
By 1987, just 2 years after the company was founded, Cisco was pulling in nearly $2 million
per month in revenue. Originally, the people buying their network technology was research
centers, government facilities, and universities. But, slowly, more and more companies became
interested and they started making big orders. While this was great news for the company, it was
also terrible news because fulfilling these orders was much easier said than done. Unlike startups
today who can just scale to the entire world using insanely powerful cloud computers, Cisco had to
scale the old fashioned way. After all, they were producing physical routers and networking gear,
so they had to deal with suppliers, manufacturers, logistics, scaling, inventory, and all of that.
This is hard enough for a consumer company to deal with. So, I think you can imagine how hard
it was for a startup to fulfill orders of 10,000 or 30,000 routers. So, Cisco really had no choice
but to raise venture capital. In 1988, they would approach the famous Sequoia Capital to give them
some extra cash to grow the company. Sequoia would happily give them cash the first time around,
but this cash didn’t even last 12 months, and it wasn’t long until Cisco was asking Sequoia for
more which Sequoia wasn’t exactly comfortable with. This was not long after black monday,
so the stock market wasn’t exactly performing great. Not to mention, Sequoia had just gave
them money. For Sequoia to get even more involved, they needed more assurance that this company would
actually make it to the other side. So, they proposed a deal. Sequoia would continue funding
Cisco if Cisco gave them controlling voting power and allowed for Sequoia’s founder Don
Valentine to become the chairman of the company. Obviously, this was a pretty aggressive ask,
but Cisco had no time to shop around for more money. It was either, take the deal with Sequoia
or gamble with the company’s life. Leonard and Sandy of course chose to take the deal, and from
a financial perspective, it worked out great. By 1989, Cisco would be able to expand to 3 products,
111 employees, and a cool $27 million in revenue. But, all of this of course came with a price. They
now had to deal with Don Valentine who wasn’t exactly a friend. This isn’t to say that Don
didn’t have Cisco’s best interest in mind. The problem was that that was the only interest he
had in mind. Frankly, he didn’t care about Leonard or Sandy. He had poured a lot of money into this
startup and he was gonna make sure that it panned out. To increase the chances of this happening,
he would go ahead and hire a computer veteran named John Morgridge as the company’s new CEO.
Leonard would be demoted to the role of Chief Scientist which wasn’t too bad. Sandy though
was demoted to the role of wait for it: leading customer service. At this point,
Don Valentine was straight up insulting the founders and things would only get worse.
LOSING CISCO: In February of 1990,
Cisco would go public and enjoy a roaring IPO. The company would close off the first of trading with
a market cap of $224 million which made the founders centimillionaires. Not a bad sum of
money, but the company was just getting started. They had just barely escaped the funding crunch,
and companies were just starting to leverage their tech. So, they had a bright future ahead in the
billions and tens of billions. But, it seems that Don may have had some ulterior motives when it
came to taking Cisco public. You see, Leonard and Sandy now had an easy way to sell their stakes,
so it became that much easier for Don to push out the founders, and that’s exactly what he
would do. On August 28, 1990, Don and John would straight up fire Sandy. Leonard would instantly
resign thinking that it would be some sort of protest, but Don didn’t give a crap. The reality
was that Cisco didn’t need Sandy or Leonard to be successful. Afterall, they didn’t even
invent the technology. To make things worse, Don and John felt that Sandy and Leonard were
completely incompetent. In fact, during Sandy’s first meeting with John, he would tell her quote
“I hear that you're everything that's wrong with Cisco." This bad blood only increased over time
as John felt that the founders had no clue about sales. He felt that the only reason Cisco was even
able to grow so far was thanks to companies that would go out of their way to have the latest and
greatest. Cisco was by no means appealing to the average company which is where the real money was.
And considering that Cisco would literally grow a 1000X over the next 10 years under his leadership,
it looks like he was right. So, to be honest, when Leonard resigned, Don probabaly didn’t
think “Oh no, I lost a cofounder.” Instead, he probably thought, “Great, two birds with one
stone.” Leonard and Sandy should’ve just taken the hint, stepped away, and enjoyed their lives,
but they wanted to send Don and John a message that they didn’t need Cisco either. And with that,
they would go ahead and sell their entire 66% stake in the company for $170 million in a fit of
rage. That may have felt good at the time, but it was objectively a brain dead decision. I mean,
it’s not like they needed the money or that they didn’t believe in the future of the company. There
was literally nothing to this sale other than ego and resentment, and they would be the ones
who ended up paying the price. 10 years later, Cisco would become the world’s largest company
with a market cap of $569 billion. This means that they’re 66% stake would’ve been worth $375
billion. Even if we assume they sold off 46% of their stake within the next 10 years, the
remaining 20% would be worth over a $100 billion. Yep, they done diddly do screwed up.
THE AFTERMATH:
Shortly after the whole Cisco fiasco, Sandy and Leonard’s marriage would also fall part and this
was really the rock bottom for these two. But I do gotta say, they did pull themselves back
up and focused on giving away the money that they did recieve. They would donate
70% of the proceeds to charities focused on promoting animal welfare and science projects.
If you ask the duo about Cisco today, they have some pretty diverse answers. Leonard plays it off
pretty cool and simply says that they walked away with a bunch of money anyway so there’s
nothing to regret. As for Sandy, however, she’s understandably still pretty triggered about the
situation. “Len and I under-estimated our skills. I certainly could have run that business. I had my
hands on the reins." Also, if you’re wondering what happened to the founders of the blue box,
well, Andy Bechtolsheim would go on to found Sun Microsystems and he now boasts a net worth
of over $10 billion. So, looks like he didn’t need the blue box to make it big.
The only ones regretting their choices today is the ones who tried stealing. Do you think that
Leonard and Sandy just got what they deserved? Comment that down below. Also, drop a like if
you’re happy for Andy. And of course, consider checking out our discord community to suggest
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