Russ: This is The BusinessMakers Show heard on the radio and seen online at thebusinessmakers.com. This is a special episode of The BusinessMakers Show because I'm in front of a live audience, the MIT Enterprise Forum [clapping and cheering] - a very live audience I might add. And I'm very pleased to have, as my guest, IT inventor and innovator extraordinaire, entrepreneur, inventor of Ethernet, founder of 3Com, actually partner emeritus at Polaris Venture Partners, the professor of innovation at the University of Texas and Murchison fellow of free enterprise, Mr. Bob Metcalfe. Bob, welcome to The BusinessMakers Show [clapping].
Bob: Thank you.
Russ: Okay, I wanna get into Ethernet, but what's so fascinating about it to me is that it sorta was born in a four- or five-year period when you were part of Xerox PARC, the Palo Alto Research Center, the place that had so much innovation - the mouse, the GUI that turned into Windows, the laser printer, and Ethernet and more. Tell us about the culture, about the ambiance. Why so much innovation out of one center
Bob: Well, it begins with a monopoly. Xerox at that time had a monopoly on the copier, and it decided to allocate 1.4 percent of revenue to basic research and created the Xerox research center in Palo Alto and chose some good people to run it, and they immediately began raiding research universities for professor types and their researchers to join. They built a beautiful building in sunny Palo Alto. They flew us first class everywhere, which was weird 'cause we all had beards and Birkenstocks, and we did transcendental meditation. I had a - I don't know what it was - but I had one of those things you said. What's that called?
Bob: A mantra.
Bob: Yes, we all had a mantra. I don't remember mine. And the conference room had beanbags in it, and there was only one meeting a week, and it was Tuesdays at noon, which was a bit awkward because you had to be there. That was the only required meeting, and, of course, a lot of us worked until we got tired, and then we went to sleep, and then we slept until we woke up - no alarm clocks. And then we would work, but then on Tuesday, we had to be there at 12:00, and that was a problem.
The meeting was called "Dealer," very much a part of the culture, and there was usually one guest speaker, often a job talk from some professor who thought he might wanna join the lab. And then we would all criticize this person, and if they were from CMU, we would hire them, and if they were from the University of Arizona, we wouldn't [laughter]. It was a very snobby thing.
We had a general idea that we were working on the "paperless office of the future," which was ironic since we worked for a company whose job was producing paper [laughter], but don't worry. The first thing we did was invent the laser printer, and the building filled up with paper, so that didn't work out as planned.
Russ: Wow, did you -
Bob: So that was -
Russ: Did you all get along? Was there camaraderie? Did you go have a beer together or -?
Bob: Yes, at the Dutch Goose in Menlo Park at the - a lot of biking and a lot of beer [laughter], but it wasn't entirely. There were occasionally too many bulls in the china shop, and, in fact, I was involved in one of the more outstanding conflicts. One of my colleagues and I just did not get along, and not his fault, not my fault. We just - as you can see, I'm very easy to get along with [laughter]. I don't know.
I think the source of our conflict was this guy - I don't wanna name - built computers like nobody in the world, but then he bragged that they were done slightly before they were done. And my job, of course, was to network them, which meant I had to go up to this computer - this happened twice - and plug my network thing into it and make it work. Well, and, of course, I would discover all of the bugs that were still in his computer. So you see how that put us, immediately, in conflict. He claimed the bugs were in my network thing, and I claimed the bugs were in his computer thing, and so we didn't like each other.
Russ: I get the picture. All right. Well, did you know, though, that these game changers were happening all around you at the time?
Bob: Yes, I think we did.
Bob: We had been generally recruited from the ARPA - Advanced Research Projects Agency of the Department of Defense research community, a bunch of research universities all sponsored by ARPA. A lot of us had known each other when we were there. I was getting my Ph.D. from Harvard, but I was doing my work at MIT. Oh, and my colleague at MIT went to help run the lab at Palo Alto, so that's how I got in. I didn't go to CMU, but I got accepted anyway because I knew this guy who had been an ARPA guy. So the ARPA community had a tradition of esprit de corps, and so we sort of brought it with us.
And the lab was wisely located right next to Stanford, so immediately we all became part-time professors at Stanford. So PARC was part of the Stanford - there were some Berkeley people there, too.
Bob: Yeah. So there was a university feeling about it.
Russ: Okay. Ethernet, your company, your invention, was actually born there. We always like to focus on this show on idea triggers, but you were kinda going in that direction already even before you got to Xerox PARC, right?
Bob: The thing I did at MIT was to build a device to connect the computers into the ARPANET, which is - think of it as Internet 1.0. So my specialty was building high-speed network interfaces between the Internet and whatever computer you had, so I did that at PARC, but I lucked out.
I arrive at PARC, and a problem occurred that no one else in the history of the world had ever had: "We're gonna put a computer on every desk, and you're the networking guy. Your job is to tie 'em all together, and we really wanna do two things. We want you to take those computers on every desk and hook 'em into the Internet, and we want you to be able to send documents over to this laser printer." And the laser printer ran at a page per second, 500 dots per inch, 20 megabits per second. So connect computers on every desk at a speed in the ballpark of 20 megabits per second, and it has to be cheap because there's gonna be one at every desk, and that was the problem.
It was my second stroke of luck. You realize my first stroke of luck was being born to my parents. This was the second one, which was getting this problem for which Ethernet was the obvious answer.
Russ: Right. So and this was about 1975?
Bob: Well, I arrived at PARC in '72 and did Ethernet - that first memo's in '73.
Russ: Okay. So at the time when they ask you to do this, were they asking you just to kinda like help out in the office? Or was this actually challenging to you to come up with an invention that would turn into what it turned in?
Bob: Help out in the office?
Russ: Yeah. You were just connecting computers [laughter], like you were the IT guy. That's what IT guys do today.
Bob: Well, you're right. It is sort of routine IT today [laughter], but that was 40 years ago - May 22, 40 years ago, and the bandwidth that we all had at our desks then - we had computer terminals on our desks, and we had really fast ones - 300 bits per second [laughter], zipping in and out of our desk. Ethernet, the first one, ran at 2.94 megabits per second - 10,000 times faster, so I wouldn't characterize it as "helping out in the office." [Clapping and cheering]
Russ: Ultimately, you helped us out in all of our offices, though, obviously. Really cool, though. But what I found fascinating, too, about what you did, once you pulled this off, and you kind of owned this capability, you didn't just sorta let it sit. It seems like after Xerox PARC, you knew, "Wow, I need to champion this cause," and you became much more of a salesperson than any engineer or inventor that I've ever known, which, in my opinion, turned out to be why you became so successful. Do you agree with that?
Bob: I do agree with that. I wrote a paper. It appeared in Technology Review magazine in 1998. It's available on the Internet. You can Google it up. It's called the "Zen and the Art of Selling," in which I wrote this paper to MIT people, but other people can read it, too [laughter]. But it's basically a letter agreeing with what you just said, which is that sales is important, and that one of the almost fatal to me but fatal to many companies is the technical founders of a company looking down on salespeople and not appreciating what they do.
So what I argue is that salespeople are a different life form, but we are carbon based [laughter], and if you want your company to succeed, the suits and the nerds better get along. And if the suits and the nerds disrespect each other, that's the end of your company, generally speaking.
Russ: But do you meet with engineers sometimes and try to persuade them to be more like you were and taking responsibility for persuading the market to understand the advantages and by the product?
Bob: I just gave my annual - actually, it's twice per year - lecture to my - it's a lab course on that very topic. The homework is to read that paper that I wrote in '98 and the lecture is about selling. I encourage them to sell something every day just to get practice, and I give 'em the secrets. And by the way, if you wanna know the secrets, I can tell you [laughter].
Russ: We're ready. Tell us.
Bob: There's several. This is very exciting 'cause when I say this to these undergraduates, they just can't believe that it's so simple. The number-one deterrent to selling is the word "no." We're afraid of getting a "no." I wish I had known this in high school.
You know, one of my high school chums is here in the audience, Leon Friedman. There he is. Do you remember Lynn Seffe?
Leon: Yes, sir.
Bob: I found out at our reunion that she would've gone to the prom with me if I had asked her [laughter and clapping]. So you just gotta know you're gonna get a "no," and ask, and you gotta be ready for "no." And the way you deal with "no" is another word: why? "No? Why?" And then if you're lucky, you'll get a list of reasons why not. Those are, in the trade, called "objections," and then you need to work on the objections.
And then the ultimate - two more tricks. These are great: listening and promising. So listening, what did I say to the students? "God gave us," or Darwin - you get to choose, "gave us two ears and one mouth. Take the hint [laughter]." That's listening. You gotta listen to the customer.
And then finally, since selling is basically a credibility game, the way you build credibility is by making promises - at first, little ones, like, "I'll be there at 8:00." If you say you're gonna be there at 8:00, you better be there at 8:00. You can't stroll in at 8:15 because that's communicating to the customer that your credibility is low, but then you make bigger and bigger promises until finally the big promise of all, which is, "This product's gonna be great for you, and you should buy it." And then you get that other word that we're all looking for, and what word is that?
Russ: Yes. Really cool. Well, thank you for teaching us about that [laughter], but that is unusual, though, coming from an inventor and an engineer for sure. Do you find that you have an impact on students that you -?
Bob: Well, let me tell you how I came to this. It was June of '81 - no, '82 - and I was CEO of my company, and I had 0 revenue, and I was burning through my venture capital cash because my predictions about the adoption of Ethernet had been "optimistic" [laughter]. So my board of directors - who I handpicked, so how could I argue with them? - said, "It's time for you not being CEO anymore. We gotta get your partner, Bill," who's a very experienced guy. "He should run things now and try to save this company. And by the way, we'd like you to be head of sales and marketing." So I suddenly began to think sales and marketing was a really good idea.
So we had zero revenue, and as was hinted earlier, I managed to figure out how to do it well enough to get us to $1 million a month, and then I redlined. You familiar with manual transmissions?
Russ: Oh, yeah.
Bob: Do you know what redlining is?
Russ: Oh, yeah - on the tachometer? Yeah?
Russ: Yeah, okay.
Bob: Well, in startups, people redline. They just rev up, and then finally they hit red line, and then the company's growing rapidly. This doesn't always, but it happened in my case. I redlined at a $1 million a month because selling is very complicated and technical. You gotta know about sales compensation, activity management, territory management, channel management, conflicts of channels, blah, blah, blah - stuff that other people knew, and I didn't.
So we went out and recruited Mike, and Mike took us from $1 million to $5 million a month, and then he redlined. And we replaced him with Chuck Kempton, and Chuck took us from $5 million to $25 million, and then he redlined. And then we moved in Bob Finocchio, and he came in and took us from - where was I? - $25 million to hundreds of millions of months.
So and every one of those people, including me, succeeded, but then we redlined, and I did not lead the company when I was replaced. I became chairman. You know VP of sales and marketing "and" chairman, that's a great position [laughter].
Russ: Okay, so how do you explain that? It doesn't happen very often that a founder stays all the way, but there are some - Fred Smith of FedEx. There are guys that don't redline, apparently.
Bob: Yep, there are exceptions, but they are exceptions. So I managed to stay 13 years, but I figured that was three years too long. I should've left three years earlier.
Russ: Okay. All right, so I'm curious, now. I studied your background quite a bit. I find this thing we just talked about one of the most fascinating things, but today, here we are, 2013. What's important to you today?
Bob: Well, I have a new career - being a professor. So what's important to me is figuring out how to be a good professor, and I'm telling you I don't know. There are some hints. Have you noticed how bureaucratic universities are?
Bob: So you go from a startup world and a venture capital world into a university bureaucracy; it is stunning.
Russ: Right. Right. How do you deal with that?
Bob: I get peevish and obnoxious, and I lay down the law, and I threaten to quit, and I - just childish, I know. But on the other hand, we've got 51,000 students to play with there, and 8000 new ones come every September - August, so it's a mixed bag. There's the thrill of the students. You notice I didn't mention faculty there 'cause the faculty's the hard case. I'm a faculty member, but I'm not really a faculty member 'cause I don't feel like - 'cause I don't know how to be a professor, and they do. So that's my hardest challenge, I think, is relating the bureaucracy and the faculty, but the students, we get along fine.
Russ: And isn't there some disruption taking place in that space these days?
Bob: Well, as I said in my remarks, the MOOC is disrupting. It's just beginning, and to the credit of the - all the universities that I'm associated with - I collect them - Texas, MIT, Harvard, Stanford, University of Southern California, Boston University - those are all schools that I have either been to or my wife has been to or my children have been to. And they all think I'm an alumnus, and I have an assigned development person at each of those universities, and I get the alumni magazine even if I just walked - like I bet you after today -
Russ: You'll get one from Rice [laughter]. For those in our audience that aren't here today, tell 'em what a "MOOC" is, right now.
Bob: So a "MOOC" is a, well, a massively online open courseware. Think of 100,000 students taking a course online at the same time. The marginal cost is estimated to be 60 cents per student per week or something like that. I just heard Daphne Koller, who's the CEO of Coursera ________. I think her number was 60 cents a week. But the scale is so huge that the production values can be much higher than your average professor with a class of 30 can muster. You can invest a lot in production values with that kinda audience.
In these courses, there are people now taking them from all - there's some disagreement about how many countries there are in the world. Some people don't count Texas, and the -
Russ: But everybody counts Louisiana, don't they?
Bob: Yeah, well - but MIT had, in one of its courses - oh, the one I'm taking now has - I'm taking 600X Python Programming with my son. We're both taking it with 55,000 other students from 194 countries, which is, I think, MIT thinks is all of them, and it's heartwarming. There are people all over the world that are able to take MIT's introductory programming course or Rice's program. You have a Python course here, which is probably directly competitive with MIT's.
So we are solving ignorance is how I like to put it. We are now on the verge of solving ignorance like we solved bandwidth. The Internet solved bandwidth. Now, we're going to solve ignorance. That's annoying what I just said there -
Russ: No, it's okay. It's pretty cool. But we're out of time almost, so before I let you go, let's imagine you just kinda woke up and found yourself a college kid now, knowing what you know about the world. What would you do in 2013 if you were a 20- - 21-year-old planning for the future trying to replicate something like you accomplished? What would you do?
Bob: Well, you would choose to do what's fun, and that varies from person to person, and the thinking there is that in order to be any - oh, so my father used to say, "You can be whatever you want. You just have to be the best in the world." No pressure. By the way, that's why I have an electrical engineering degree from MIT. I intended to only get a management degree. My father said, "We didn't send you to MIT to get a management degree," [laughter] so I got my EE degree to keep him happy.
But the argument there is in order to be good at something, to be the best in the world, or just even passably good, you have to like it. It has to be fun. And if it's not fun, you can't be good at it and vice versa. So you should be choosing what you find to be fun, and that varies from individual to individual.
Russ: Okay. Bob, I really appreciate you sharing your story with us on The BusinessMakers Show.
Bob: Thank you.
Russ: You bet. That's Bob Metcalfe, inventor and entrepreneur extraordinary, and this The BusinessMakers Show heard on the radio and seen online at thebusinessmakers.com [clapping]. Thank you.