Tag Archives: Australian Dollar

About 3029 days ago Computer Security

Larry’s Kids

Al Mcgorry is a small-business man who thinks big. So in 2002, when this CEO of a 12-person software consultancy in Sacramento heard of a new, inexpensive service called Oracle Small Business Suite, he thought that Oracle’s CEO, Larry Ellison, was finally offering a scaled-down version of the software that its big, multinational customers use — at a cost of a quarter of a million dollars and up — to run their businesses. But unlike traditional Oracle products, this one was simple to use, integrated, delivered over the Web, and at only $49 per month, surprisingly affordable. McGorry was hooked. The fact is, it wasn’t an Oracle product at all. This innovative new business software solution was the work of a small San Mateo company called NetLedger (later NetSuite) that was launched in 1998 by Ellison and a young protege, Evan Goldberg. NetLedger got to use the Oracle name at a time when upstart Internet companies needed all the branding advantages they could get. In return, Ellison got a foothold in the small to midsize business space. It was an inspired partnership. So much so that NetSuite reached No. 12 on the Inc. 500 this year, with four-year growth of 5,763%. Its 2003 revenue was $16.5 million, and 2004′s number will approach $50 million. And if you ask Goldberg and his team, they’re just getting warmed up. “This is a massive, massive market,” he says, citing the nearly seven million small to midsize businesses in the U.S. alone. It’s a fact not lost on Ellison. At the same time he was funding NetLedger, he was also helping bankroll another Web-based software company targeting small and midsize businesses: SalesForce.com. And now, years later, Oracle has launched its own product — which bears more than passing resemblance to NetSuite’s — aimed at the small and midsize market. That gives Ellison a stake in three companies that are, or soon may be, fighting a turf battle for the small to midsize business dollar (he owns more than 50% of NetSuite; Goldberg, other employees, and venture capitalists own the rest). If you’re Larry Ellison, those are pretty good odds. And if you’re Al McGorry, the competition is pretty good for you, too. For McGorry, the NetSuite product, which started as a simple competitor to QuickBooks, delivering accounting software over the Internet via subscription, has made a huge difference in his business. Instead of buying software on disks that you (or well-paid engineers) load onto your computers, the software is accessed over a Web browser, allowing you to log on from anywhere. All of your employees can access real-time data, which is backed up every night on class A servers. There are no upgrades to buy, and there’s far less maintenance. And the software is constantly growing, adding the ability to manage contacts, keep appointments, track sales, manage employees and payroll, manage customer orders and inventory, and build and maintain a website. As the service evolved, the name of the company was switched from NetLedger to NetSuite to reflect its lineup more accurately. “Everything just fits together,” says McGorry, who had been using at least four different software programs — none of which were integrated like the Oracle Small Business Suite — to do the same thing. But then in 2003, McGorry’s annual cost for the suite doubled to $1,200 a year ($99 per month). And in 2004, he had to write a check to NetSuite for $7,200 ($399 per month for one user; $99 per month for each additional user). That figure allowed him to increase the number of users from one to three, but it’s still an eightfold increase in his annual payment, which is always required up front. An avid reader of Internet technology bulletin boards, McGorry says that many in the small-business community were apoplectic each time the price jumped. “People were ripping them apart in these user-community forums,” he says. “My God, there were a lot of defections.” Still, McGorry says NetSuite makes sense for his growing business, Capital Datacorp, which has annual revenue just shy of $5 million — especially since it has engineers who work almost exclusively in the field and other employees (including himself) who occasionally work from home or at a customer site. On a recent trip to the Alps, McGorry, thanks to NetSuite, was able to duck into a tiny Internet cafe and get up-to-the-minute sales figures. To goldberg and zach nelson, NetSuite’s CEO since 2002, customers like McGorry are proof that they’re on to something. Trying to keep up, they hired nearly 100 new employees in 2004 — most of them sales staff — bringing the total to about 300. They’re already expanding into Europe, Asia, and Australia, having established sales offices in Canada and the U.K. in the past year, and they’re working on translated versions for countries from France to China. In advance of an IPO planned for late 2005 or early 2006, they’re on a tear to grab market share, and their confidence is riding high. “This is a CEO’s fantasy product,” says Nelson, a nearly evangelical promoter of NetSuite. As he demos the software, his enthusiasm is infectious. When it comes to competitors, he patently dismisses them, regardless of their size (like Microsoft and its Great Plains product) or market share (Intuit’s QuickBooks, the 800-pound gorilla of small-business software). Nelson is, rather boldly, even dismissive of Oracle’s ability to move into the smaller market space. And yes, that’s his boss’s other company he’s talking about. NetSuite is like the Chihuahua that thinks it’s a German shepherd. But it’s a fast-growing Chihuahua, and NetSuite has one big advantage. While its competitors targeted specific slices of the market (QuickBooks focusing on accounting, SalesForce.com on sales-force automation), NetSuite was first out of the gate with all-in-one business software delivered over the Web. Is there even anyone else in the race? “No, believe it or not,” says Yankee Group analyst Sheryl Kingstone. “Not the way they do it.” Ultimately, the company’s greatest challenge may be its ability to retain its small-business focus. Can a company that’s owned by one of the wealthiest men on the planet, a company that’s growing spectacularly, expanding globally, and competing against the likes of Microsoft and Intuit, stay close enough to the small-business mentality of its customers to truly understand them? Goldberg says that one of the company’s advantages is that it’s run entirely on NetSuite software, which forces it to evaluate its own product daily in a real-life setting. But will NetSuite be a candidate for its own software if it keeps up this pace? “It’s an interesting question that we think about,” says Goldberg. “Will we still be using NetSuite when we have 10,000 employees?” Early in his career, Goldberg’s own focus was on big business. He went to work for Oracle as a database architect in 1987, right after earning his degree in applied mathematics at Harvard. Then, after eight years, Goldberg — with the blessing and backing of Ellison — set off with three other Oracle employees to create his own multimedia software start-up in San Francisco. An early, ill-fated competitor to Macromedia Flash, the company was called mBed. It never connected, but as Goldberg struggled with managing his fledgling operation, he began to sense a greater opportunity. He had gone straight from software genius to CEO and was now dealing with employees, sales, and all sorts of start-up issues. And he needed help. “The main thing I learned,” says Goldberg, “is that, if you were a small or growing business, the tools that were available to you were extremely limited.” Goldberg called Ellison in 1998 to suggest that they create small-business applications. Ellison encouraged Goldberg to focus on accounting but to do it, unlike QuickBooks, over the Web. “Larry really was, even at that point — and this is in 1998 — sure that this was how all software was going to be delivered,” says Goldberg. “And he was trying to transition Oracle to do that for big companies.” Goldberg wanted to pursue sales-force automation, but Ellison pushed for accounting first, arguing that that’s the core of all small businesses. Accounting it was. “The entire vision of the company,” says Goldberg, “came together in about five minutes.” Thus, NetLedger was born in late 1998 in a small office south of San Francisco above a hair salon and an Indian restaurant. Goldberg says that while the first four employees were all ex-Oracle, the next 50 were deliberately not. “We really knew,” he says, “that because we were delivering software for small and midsize businesses, we needed a different culture at the company. We needed different blood.” The company was launched on QuickBooks and stuck with the Intuit product — for the first two months. “I remember that day when we imported the QuickBooks file [to NetLedger's nascent online software program], and our business was sitting there, right on the Web,” he says. “We could see everything that was happening. That was a great moment.” The first product, also called NetLedger, debuted in 1999 at a cost of $4.95 per month. At that price, Goldberg got NetLedger in a lot of hands, which was the goal. One of those early customers was Rene Vandockum, a small-business man running a San Diego company called Racebolts.com, which imports and sells titanium nuts and bolts for motorcycles and racecars. Vandockum dropped QuickBooks because of NetLedger’s integration, tying together the front and back offices. But the software was hardly perfect. “Back then,” he says, “it was down a lot, awfully slow, and every time a new version came out, the whole thing crashed.” But it was cheap, offered good (and free) customer service, and was constantly improving and adding features. It was during this early phase that Goldberg was stunned to learn that his friend and former colleague at Oracle, Marc Ben-ioff, had decided to target the same market. “He came in three months after we started NetLedger and sheepishly said, ‘Yeah, I’m doing a company. I’m going to do sales-force automation for small businesses delivered over the Web.’ ” It was precisely the plan Ellison had talked Goldberg out of pursuing. Benioff’s business — launched in 1999 with a $2 million investment from Ellison — became SalesForce.com, which is now the market leader in the category and has a post-IPO market cap of $1.7 billion. “He went a different route,” says Goldberg of Benioff, “with a different approach that allowed him to get to market quicker — but focused on a more narrow area.” I’ve always allied myself with somebody who lives and breathes sales and marketing so I can live and breathe technology.” -Evan Goldberg The news brought a heightened sense of urgency. By 2000, NetLedger had launched its Web-store application. By 2001, it had delivered its own sales-force-automation application. With that came the realization that it no longer made sense for Goldberg to serve as both CEO and chief technology officer. “My whole career,” he says, “I’ve allied myself with somebody who lives and breathes sales and marketing so I can live and breathe the technology and product design.” He knew he needed a professional CEO. His first choice lasted just a year and is now a VP at Intuit. After Goldberg dispatched a headhunter to try again, the executive recruiter sent an e-mail to virtually every executive at Intuit with a subject head reading: “Larry Ellison.” The message said Ellison was starting a great company that was going to be huge. “I actually know some people over there,” says Goldberg, “and Steve Bennett [the CEO] wrote me and said, ‘Interesting way to recruit.” Despite the aggressive approach, no successful candidates turned up. In early 2002, Goldberg called Nelson. They had known each other at Oracle, and once they started talking, says Goldberg, “it was immediately apparent that this was exactly who I wanted — he was the yin to my yang. And he gets into the company in a way that makes it really, really fun to work here.” Five years older than Goldberg, Nelson, 43, had already been on the scene in Silicon Valley when Goldberg arrived from the East. A graduate of Stanford, Nelson had bounced from Motorola to Sun Microsystems and eventually to Oracle, where he became VP of worldwid. It started with obtaining the naming rights for Oakland Coliseum, where the A’s and Raiders play. Network Associates Coliseum proved to be an unpopular stadium name, but it was a marketing coup. In fact, the A’s are now a NetSuite customer, and Nelson has already negotiated for ad space behind home plate. But he doesn’t want to stop there. “Someday we’ll have our own arena,” he says. “That’s my goal.” At MyCIO, Nelson pulled off another stunt, draping the company’s entire 11-story building — a la Christo — in a billboard. “It was at the peak of the dot-com craziness,” he says. “We broke every ordinance known to man. You could see it from five exits away. It was beautiful.” Just before the company was set to go public, though, the bottom fell out of the market. So, here was Nelson, a former Oracle marketing whiz with CEO experience, looking for a new gig. And he had one other important advantage. Goldberg knew that any CEO he brought in would have to pass a crucial test: the Larry test. “And that’s a relatively high bar,” says Goldberg. “But Zach obviously had had a lot of exposure to Larry [at Oracle].” While Ellison rarely sets foot in the offices at NetSuite, he is a constant presence. The background image on Nelson’s PC is a photograph of Ellison at the helm of his America’s Cup boat. “When Larry calls,” says Nelson, “everything stops.” And he calls regularly, usually toward the end of the month as sales results are coming in. He often advises Nelson on topics such as sales structure and how to get to market. He calls Goldberg about products, especially the “dashboard” — the system’s front page, which brings critical bits of data such as new sales, year-over-year figures, appointments, etc., onto one easy-to-read and customizable page (see photo on page 69). “When we launched the dashboard [in 2002],” says Goldberg, “Larry called me and said, ‘Okay, now you finally have something in your product that I want to use.’ And ever since then, he logs on basically every single day to see how we’re doing. He’s effectively the product manager.” When Nelson joined NetSuite, he asked Ellison how anyone could run a business without such a product. “Larry said that CEOs historically have been able to make decisions based on 1% of the data that they actually need to make the decision,” says Nelson. “Here, we give you almost 100%.” Larry has a wealth of knowledge, and he’s not shy about sharing it. I call him belligerently consistent.” -Zach Nelson Sitting in Nelson’s spacious San Mateo office with a yin-yang glass coffee table in the middle of it, Goldberg says to Nelson: “I remember that the first thing you said to me when you got done talking to [Ellison about joining the company] was, ‘He takes this thing very seriously.” That would surprise no one who knows Ellison — or has watched Oracle’s pursuit of PeopleSoft. “Larry has a wealth of knowledge about what works and what doesn’t, and he’s not shy about sharing it,” says Nelson. “He’s very focused. I call him belligerently consistent.” All of which makes NetSuite’s evolution toward higher prices and bigger clients and Oracle’s turf even more interesting. As NetSuite works hard to broaden its customer base, seeking larger and larger clients, is there a danger of leaving smaller customers behind? Racebolt.com’s Vandockum certainly thinks so. With only one employee and annual sales of around $100,000, he’s stayed with NetSuite through years of missteps and growing pains but says its pricing structure is shutting him out just as the product is hitting its stride. Over five years, he’s seen his annual payments go from about $80 a year to $1,800 a year and claims NetSuite wants nearly $8,000 next year ($4,800 for the main user, plus $1,800 for a second user, and $1,000 for an annual live tech support package that used to be free). Vandockum is considering letting his contract with NetSuite expire in May and returning to QuickBooks Pro. One reason: He says computer-based, as opposed to Web-based, software means faster response times to questions when customers are on hold. QuickBooks Pro will be a one-time $250 purchase, and Caldera Volution, a Linux-based website builder he’ll use for his online store, will charge $70 a month. But he’s dreading the change. “The switchover is a big drag,” he says. “It’s a lot of work.” While Nelson is adamant that NetSuite is not abandoning small businesses, he emphasizes that the company is targeting “growing” businesses. Seventy percent of its customers have fewer than 100 employees, but NetSuite is also signing up 400- to 500-user customers that are divisions of companies such as Weyerhauser and DuPont. And it just landed its first 1,000-user account. Still, Nelson acknowledges that the price bumps have been tough on smaller customers. Of the $399-a-month fee, he says, “Most small businesses, we know, can’t afford that.” That’s why NetSuite introduced NetSuite Small Business in August — priced at $99 per month for the first user and $49 per month for each user after that. The product has been positioned for businesses that have outgrown QuickBooks, and the price does make it far more attractive to smaller users — but some longtime users will undoubtedly be disappointed. NetSuite has helped even the smallest of companies grow more sophisticated, and these clients have been conditioned to expect more. The Small Business version, for example, doesn’t satisfy Vandockum’s desire to customize his website. Capital Datacorp’s McGorry can’t see himself giving up the features he loves for the cheaper, scaled-down version either. Nelson is quick to say that he hopes to retain Vandockum as a customer and may consider offering some limited higher-level functionality, such as website customization, at a reduced price. “The last thing you want to do is see a customer leave,” he says. “I bet we’ll work it out.” But there are skeptics — especially at the competition. Although NetSuite recently built an ad campaign on poaching QuickBooks customers, Bill Lucchini, director of QuickBooks Enterprise at Intuit, says he doesn’t consider NetSuite to be a small-business company anymore. “I think of NetSuite as a midmarket company,” he says. “If you want to put 10 users on its system, you’re talking over $6,000 a year, and that’s just not a small-business solution.” Like NetSuite, QuickBooks is segmented into multiple products, depending on the size and needs of the businesses. They range from the new $99 SimpleStart program to the $3,500-a-year QuickBooks Enterprise software, which targets companies with 20 to 250 employees (with live tech support built into the price). And Intuit now offers its own Web-based small-business solution, called QuickBooks Online, for $19.95 per month. Nelson dismisses Intuit’s new offering as a “neutered version of QuickBooks Enterprise.” He is equally dismissive of SalesForce.com’s move into the midsize market. “There’s only one thing you can’t do with SalesForce.com: sell anything,” he says. “SalesForce.com is about managing leads and prospects. The minute they become customers, all that data leaves SalesForce.com.” For his part, Marc Benioff professes scant respect for the suite model. Which is all the more surprising because it’s a model that Oracle has embraced, and Ellison, of course, helped fund SalesForce.com and still retains a small stake — although he did step down from SalesForce’s board in 2001 because of product conflicts. At NetSuite, Ellison relinquished the title of chairman in March 2003 but remains on the board. But the sibling and oedipal rivalries may just be getting started. Last summer, NetSuite shed the last vestiges of the name Oracle Small Business Suite, which had been slowly reduced to about 5% of the company’s sales. Nelson says this was done to allow NetSuite to establish its own identity. But it also likely had something to do with the fact that in September, after years of testing it overseas, Oracle released its Oracle E-Business Suite Special Edition. Oracle is explicitly targeting small to midsize businesses with a full suite of integrated business software delivered, of course, over the Internet. The difference is that instead of renting the software in perpetuity, as with NetSuite, customers purchase a one-time license (the minimum order is for 10 users at approximately $2,000 each) and then pay local resellers to maintain the software. Nelson denies that there’s any real competition between the two Ellison-controlled companies, saying they only cross paths a couple of times a month. But with its first 1,000-user deal in the bag and another in the pipeline, there are sure to be more and more awkward moments in front-office waiting rooms when Oracle’s salespeople walk in and NetSuite’s walk out. “We’re going to continue to march upstream,” says Nelson, “still servicing small businesses but also reaching much larger companies over time.” But, according to the Yankee Group’s Kingstone, both NetSuite and Oracle have their work cut out for them. NetSuite’s challenge is that new customers have to dump years’ worth of expensive software to use them. And the bigger the company, the more entrenched they are. As for Oracle grabbing a slice of the small-biz pie? “They have never been able to pull that off,” says Kingstone. “In the back-office, yes, in the front-office, no.” Of course, Oracle’s new E-Business Suite is only just getting started here in the States. When big businesses want to innovate, what do they do? They take a bunch of guys, throw them out, and let them create a small business.” -Zach Nelson Ellison declined to be interviewed for this article, citing the desire to avoid any perception of conflict of interest, as his three kids duke it out in corporate boardrooms across America and beyond. It’s hard to know if he’s conflicted or overjoyed. But it’s even harder to imagine that any of his progeny would have set off down this path without at least his tacit approval. The executive overseeing marketing for Oracle’s small to midsize business market, Frank Prestipino, downplays any rivalry, but his words about NetSuite’s product aren’t entirely brotherly. “If financials are all you’ll ever do,” he says, criticizing NetSuite for not being as customizable as Oracle, “and you don’t care what your general ledger is going to look like, and you’ll take whatever comes, then great, that’s the thing for you.” He also suggests that NetSuite’s rental model is ultimately more expensive than buying the software outright, and points out the lack of manufacturing-systems software in the suite. But does he expect to see NetSuite pop up more frequently as a competitor, as NetSuite moves upmarket and Oracle moves down? “Yeah,” he says, “I would say so.” But for all NetSuite’s drive to go after bigger fish, Nelson zealously espouses the small-business model and its contributions to society. “When big businesses want to innovate, what do they do?” he asks. “They take a bunch of guys, throw them out of the building, and let them create a small business.” That, of course, is pretty much what Larry Ellison did with NetSuite and SalesForce.com. But how much longer will each one be happy serving its own niche? “That’s always been true with software,” says Nelson. “Everybody wants to be where they’re not.” Rob Turner, who wrote about celebrity entrepreneurs in Inc.’s December issue, can be reached at dashboard@inc.com.

About 3426 days ago Wireless Networks

Entrepreneurs of the Year

Just like Bill Hewlett and David Packard, Janie and Victor Tsao had a garage. “Everybody starts with a garage,” Janie says. Hewlett and Packard’s was a tinker’s shed, a rustic hut that to this day whispers of science-fair projects and woodshop dreams. It’s the epicenter of technology’s sepia-tinged creation myth, the kind of place where you find a stone and brass monument naming it the “Birthplace of Silicon Valley.” The Tsaos’ garage, on the other hand, sits on a cul-de-sac in the Woodbridge section of Irvine, Calif.–the preplanned heart of Orange County–and dominates a khaki-colored house that faces a park dotted with bolted-down picnic tables. Framed by brick columns and a basketball-hoop crown, the garage speaks of SUVs, recycling bins, and home repair. It is an unexceptional place: mass market, suburban, retail. It is in this garage that, in 1988, Victor and Janie founded the company that would become Linksys, the computer peripheral company whose seven-year run on the Inc. 500 list culminated last spring with its purchase by Cisco Systems for $500 million. And if the Hewlett-Packard garage symbolizes the quintessence of an inventor’s jolting inspiration, the Tsaos’ garage signifies the other side of entrepreneurship, an immigrant story of hard work and calculated risks. THE ENTREPRENEURIAL CLOCK Two decades after emigrating from Taiwan, Janie and Victor Tsao have created, in Victor’s words, a high-tech version of a “mom-and-pop Chinese restaurant,” dividing the work in half and watching costs with the tight fist of someone who turns out the light on leaving a room. They are both tall and straightforward and they are steeped in the minutiae of their company, even now with 300 employees. They are frugal but not cheap (until recently they drove a 12-year-old car, but it was a Mercedes) and they are willing to let their company permeate their life to an incredible degree. “We never set up any systems or boundaries, like not talking about work at dinner,” says Victor. Most important, they work hard and fast. They don’t fancy themselves as inventors; they are popularizers of technology, which means any advantage they have in a price-slashing, commodity market that includes brutal competitors like NetGear and D-Link comes from making the right intuitive leaps, getting out new products a few weeks faster, keeping costs down, and negotiating tough. Like not a few business owners before them, the Tsaos heard the entrepreneurial clock ticking: They were determined to be independent before they reached the age of 40. Victor was 37 and Janie was 35 when they decided to put to use their familiarity with Taiwan (where they’d met at Tamkang University). They were both working in information technology–Janie at Carter Hawley Hale and Victor at Taco Bell–and with Victor a step higher on the corporate ladder they decided that he would continue to punch the clock while Janie launched the business, a consultancy they named DEW International. The new company mated American technology vendors like Northgate Computer with Taiwanese manufacturers that could make their wares cheaply. Soon, one of those manufacturers brought them an idea. At the time, the cables used to connect printers and PCs could extend only 15 feet before the data began to degrade. To solve this, the manufacturer invented a setup that used telephone wire to extend the reach to 100 feet. This company needed someone to market the thing in the U.S. “With companies like that,” says Victor, “actual English was not their strength.” The manufacturer came up with products that connected multiple PCs to multiple printers, and the Tsaos renamed their company Linksys. Victor quit his job in 1991, and within two years Linksys had moved twice, eventually to a 2,000-square-foot office, and each month was selling 8,000 Multishares, as those units were called, through tech catalogs like Black Box. In these early years, the Tsaos invested $7,000 in Linksys, the only capital the company required until it tapped a bank loan for the one and only time, in 2001. (They paid that loan off in less than six months.) Linksys slowly expanded from printer-to-PC connectors to PC-to-PC Ethernet hubs, cards, and cords, gear that let small businesses and nerdy households connect computers so that they could share data. It was a niche market, and with 1994 revenue of $6.5 million the company was far from a behemoth. But slow growth was the only way the Tsaos could expand without taking on debt or investors. While Victor managed operations and finances as CEO, Janie handled sales in her job as vice president of business development. As Mike Wagner, the company’s director of marketing, puts it, “Janie brings the money in, Victor keeps everyone from spending it.” Frugality and a focus on the future were obvious in the Tsaos early on. While taking M.B.A. classes at Pepperdine in the mid-’80s, Victor met Bob Klein, who recalls Victor telling him that someday he would move to Newport Coast, far tonier than Irvine. The Tsaos made that dream a reality in 1997. Klein and Victor’s first business lunch occurred at the Japanese fast-food chain Yoshinoya–and they meet at comparable places to this day (though, Klein says, Victor has taken to picking up the check). Indeed, on the night the Cisco purchase was announced, there was no celebration. Instead, Victor ate a $5 dinner box at his desk. “It wasn’t good at all,” he admits. With the birth of Linksys, Victor took to working 100 hours a week, with occasional naps on the office floor. He involved himself in every part of the business, dealing with U.S. operations during the day and Taiwanese manufacturers at night, and his employees still know him for his 3 a.m. e-mails. He drew no salary until the mid-’90s–he refers to the preceding years as the “Linksys Peace Corp” era–while the couple and their two boys got by on Janie’s salary of $2,000 a month. Linksys operated with comparable leanness. Calvin Liu, a designer who Victor calls “Mr. Linksys Look and Feel,” first worked for the company as a freelancer in 1991. As it still does, Linksys produced its own graphics. Liu would photograph the products, scan the photos, send them to the printer, and later glue the labels to the product boxes. Linksys caught a crucial break in 1995. Until that point, tying computers together with Linksys gear required installing software. But when Microsoft moved from Windows 3.1 to Windows 95, it built in networking functions. Suddenly it was simple for small offices and homes to operate networks. Instantly Linksys’ potential market expanded. Janie attacked sales with tenacity. She went to the opening of a Fry’s Electronics store and watched in fascination as customers with full shopping carts queued up a dozen deep at the cashiers. “That really opened my eyes to the potential of retail,” she says. By 1995, Linksys was in Fry’s and revenue almost doubled, to $10.7 million. Still, if catalogs like Black Box and regional chains like Fry’s were good, national retailers were better. They promised the big score. The problem was that they were nearly impossible for a tiny company to crack. Janie wanted to get Linksys into Best Buy, but she called for months to no avail. Then, in April 1996, she attended RetailVision, a trade show intended to introduce manufacturers to retail buyers. Janie set her sights on Best Buy, and when she wasn’t able to make contact with Best Buy’s buyer–Wayne Inouye, now CEO of eMachines–at the scheduled sessions, she and a sales associate tracked him right to his hotel room door. They presented to Inouye right in his room and, amazingly, he ordered just under $2 million of gear. Janie kept cool until she made her way from Best Buy’s offices to her rented car. Then, in a move that is difficult to imagine for this sensible, focused woman, she started to scream. NO SECRETS, NO GENIUS Revenue doubled to $21.5 million in 1996, then leapt to $32.1 million in 1997 and $65.6 million in 1998. Linksys moved its headquarters to a 20,000-square-foot office. But success did not lead to extravagance. To this day, Victor and Janie file vacation forms like anyone else and all new employees–even executives–must endure a 90-day waiting period for benefits. No one is allowed to work from home, with the exception of a small mobile sales force. “Victor and Janie are willing to let good talent walk away if they’re not the right fit,” says the company’s human resources head, Niki Lee. “We could get the best VP of marketing out there and if Victor and Janie realize that he’s not hands-on, he wants an admin [administrative assistant], and he only wants to give orders and not be in the trenches, then they just won’t deal with it.” Not surprisingly, this lean, fast, hard-working environment, coupled with a pay scale that in Lee’s words is not “top dollar,” leads to a young work force (average age: 27) and high annual revenue per employee (about $1.8 million per full-time employee, compared with about $560,000 for Cisco). More surprising is that annual turnover is only 5%, compared with an industry average of 9%, according to Mercer Human Resources Consulting. Glen McLaughlin, vice president of North American sales for Linksys, attributes this to a culture in which employees are allowed to run their own projects. “We’ll give you enough rope to either hang yourself or be successful,” he says. McLaughlin tells of Victor and Janie letting him switch from 15 regional to three national product distributors in 1996 even though they doubted his rationale. Other than e-mails from Victor demanding updates, they did not meddle. Luckily for McLaughlin, it worked. “Victor and Janie really like to see people execute,” says Mike Wagner. “They’re not afraid to weed people out.” As home broadband Internet use began to bloom in the late ’90s, at costs significantly higher than those for dial-up connections, Victor realized that people were going to want to hook all their small-office or home computers to one line. To do so they would need a router, a high-tech cord splitter allowing multiple computers to hook into one modem. These already existed–Cisco was making its living off them–but at $500 and up they were too expensive and complicated for a non-techie home. So Victor ordered up the product that proved to be the turning point for Linksys: a $199 four-port router that employed an easy browserlike program to lead people through installation. After introducing the product at a trade show in late 1999–the first sub-$300 consumer router to market by three months–Linksys exploded. The company’s share of the networking market leapt from 10.8% in 1999 to 18.6% the following year, according to NPD TechWorld, an organization that tracks trends and consumer sales in the industry, and revenue went from $107.6 million to $206.5 million. “They invented consumer home networking,” says Steve Baker, an NPD analyst. The introduction of the four-port broadband router was in perfect tune with Linksys’ personality. The decision to go with it was based on intuition and listening to manufacturers, not drawn-out market studies. Liu handled the product design in-house, the price was cheap, and the technology was off-the-shelf. It was not a futurist’s invention but an obvious technology made easy. “Everyone knew in the late ’90s of the broadband explosion,” Victor says. “It wasn’t really a secret.” “I won’t say Victor has a vision for 10 years,” says Liu. “But I think he has a vision for two, which gives you a good chance to be successful if you do the right things.” With the industry’s eyes on them, Janie and Victor had to keep running. Janie continued to sign up catalogs, distributors, and retailers (the list now runs from Amazon.com to Radio Shack). Victor kept introducing products around the four-port broadband router–products such as cards that allowed laptops to connect to routers–while he looked for the next big thing. He found it in wireless networking. The only thing better than letting people connect all their computers to one modem was to let them connect without a cord. In January 2001, several months after a wireless transmission standard called 802.11b (or, less clumsily, Wi-Fi) was finalized, Linksys launched a system of wireless routers and computer cards. Though Linksys wasn’t first out of the gate this time, the brand was embedded in consumers’ minds, and in 2001 Linksys revenue and market share jumped to $346.7 million and 34.2%, respectively. Again the Tsaos had capitalized on a known technology by introducing inexpensive products before most of their competitors. In that way, Victor makes his moves in the open, much as he plays basketball, his only hobby. According to Roger Bundy, his Taco Bell boss, Victor telegraphs his basketball shots with his eyes. “Shorter people could block him because he’d announce to the world that he was going to shoot,” Bundy says. The difference here is that Linksys gets off the shot before its competitors get off the ground. Liu describes an instance last February when a Taiwanese manufacturer was in town. Victor asked him to come to a meeting at 10:30 on a Saturday night. The two men talked about a new design for a small-business product. The basics were decided that night–square instead of rectangular, gray and silver instead of blue and black–and by Monday the design was finalized. That’s not unusual. Malachy Moynihan, the company’s vice president for engineering, says Linksys and its Taiwanese partners were recently able to move a product from idea to production in three weeks. Sometimes Linksys even jumps ahead of itself. In fall 2002, while an industry board was finalizing a faster wireless standard called 802.11g, the Tsaos decided that they wanted to have 802.11g products in stores for Christmas, final standards be damned. After a September meeting with chipmaker Broadcom convinced them that users could easily upgrade the 802.11g chips with free software if the final standard changed, they plowed ahead. On December 24, Linksys launched its 802.11g products, beating its competitors by three months. It sold 300,000 units in the first two months. Again: no secrets, no particular genius. The company was fast, frugal, and right, as it had been before. Victor seems almost proud that his success is not built on something more spectacular. “There’s not a lot of difference,” he says. “We all went to business school or read books or listened to lectures. We all know we need to work hard, make sure capital is coming in, all these things. Execution is the key.” Linksys now owns 49% of the networking market, and Glen McLaughlin says it is aiming for 70% by 2005. Because the brand is so well known, Linksys products fetch a $20 or $30 premium over competitors’ wares. “Their dominance is unbelievable,” says CompUSA buyer Doug Lane. Linksys hit revenue of $430.4 million in 2002, and Ehud Gelblum, a JP Morgan analyst, estimates the company will pull in $538 million for the fiscal year ending this June. But the Tsaos have never stopped sweating the small stuff. Victor still occasionally answers customer-support calls and Dan Sherman, the Cisco senior vice president who led Cisco’s investigation of Linksys, was shocked when he brought up complaints he’d read on an Amazon.com message board and Victor not only knew the exact problems but had read the same board and responded to several of the posters. For her part, Janie continues to supply a straightforward approach to negotiating with retailers. CompUSA’s Lane describes her sales force as “definitely not shy,” and Todd Magnuson, a buyer at Best Buy, says, “The first time I met Janie, it was a short greeting and right into business. Very focused and very adamant on protecting their market share.” She isn’t all steel, though. “Janie impressed me because every year she would call at Christmastime and leave a holiday message,” says John Herr, a former Buy.com buyer who had received plenty of holiday cards before but never a phone call from a company founder. “It was a nice personal touch.” STILL DRIVEN Riding an essentially unbroken string of successes, the Tsaos weren’t particularly eager to sell their company. But it was–of course–a practical matter. More than 90% of Linksys’ revenue came from the U.S. and Canada, and the company didn’t have the cash or the infrastructure to expand overseas. More important, Dell, HP, and Microsoft are all aiming for the market, and Victor felt certain that eventually somebody would try to crowd Linksys out. Victor met with bankers from CSFB to examine raising money with a public offering. CSFB instead suggested a sale, and Victor agreed to consider it. The attraction for Cisco Systems was obvious: With a huge share of big-business networking but no small-business and home-office products, Cisco was hungry for a retail company. Cisco contacted the Tsaos in fall 2002, and by March 2003 a deal had been announced. Cisco would pay $500 million in stock for the company, which, except for a small employee stock option plan, was owned by Janie, Victor, and their two sons. As part of the deal, the Tsaos agreed to stay on for two years and Cisco agreed to let the company remain a standalone unit, something it had never done in its 80 other acquisitions. “Going forward, their biggest risk is that they stop being Linksys and become Cisco,” says NPD’s Baker. Victor says he wants to quit if that happens, but so far little seems different. Except for six Cisco transplants, the executives are the same, and the decision-making speed remains that of a small company. Mike Wagner describes going to the company’s new vice president general manager, a Cisco exec named Tushar Kothari, with plans for a $600,000 German ad campaign. “Within four days he had made the decision,” Wagner says. “Maybe it’s not one hour, but it’s not six weeks. He’s definitely got the spirit.” Linksys has started to sell an 18-product collection of wireless networking devices, including a wireless router and a wireless adapter that lets people link televisions and stereos to a network so MP3 songs can be streamed from computer to stereo and chosen on TV. And Cisco has launched Linksys offices in China, India, Australia, Hungary, and Italy, and has made it possible, for the first time, for Linksys to advertise on national cable and broadcast television. As for Janie and Victor, they’re traveling more to open new markets and Victor is saying he plans to retire in five years and maybe teach, a claim no one believes. “If there’s a contest for the most boring couple in Orange County,” says Janie, “I think Victor and I would win.” Victor is now 52, Janie 50, and the company has been their life for 15 years. Victor says he has no significant regrets, except in one area: his children. His sons are now in college. Sometimes Victor managed to play basketball with his boys, but too often, quality time together took the form of the kids coming to the warehouse on Saturdays to help ship products. That’s what 100-hour weeks will do. “From age 13 to 15, they just shot up, taller and taller,” says Victor. “Whoa, what happened?” But the family tries. Victor started to delegate more two years ago, and he’s down to about 70 hours a week. Last February he even found time to hook up a home network at his own house. The Tsaos have even taken a vacation. Last May the family took a car tour of the Grand Canyon. “For four days,” Victor says. “The four of us just drove.” Linksys’ Irvine headquarters is a modest, two-story structure in a pedestrian-unfriendly office park where people walk in the street because there is a dearth of sidewalks. Desk-high scuffmarks circle the walls where temporary tables were erected at a time when workers had to cram two to a cubicle, before Linksys opened its new warehouse and call center in 2001. An ad hoc photography studio overlooks the old warehouse space, where overflow customer service reps were once housed in temporary heated tents. In the back, Janie sits in a windowless office unadorned save for four art prints and neat piles of manila folders. In the front, a temporary divider splits the office that Victor shares with Kothari. Wearing a monogrammed white button-down, Victor looks surprisingly lively–considering that less than 24 hours before, he and Janie had returned from a four-day trip to Taiwan. The trek had started after a sleepless night (he’d worked through until morning, with only a 20-minute break to pack) and came four days after he’d returned from another 10-day Asian excursion. Victor’s dark office is as unadorned as Janie’s, except for a burst packing box on the floor and an AARP cord taped to his monitor in a mocking gesture at age. Soon Cisco will move the headquarters to something grander. That suburban garage may become legendary yet. Sidebar: Be Patient For the Tsos, growth is central, rewards are for later. 1988 Revenue: $500,000 Employees: 3 Janie and Victor Tsao form DEW International, later to become Linksys, in their garage. The company popularizes technology like this Multishare print server. 1991 Revenue: $1.5 million Employees: 4 Victor quits his IT job at Taco Bell and begins working 100-hour weeks. Linksys outgrows the Tsaos’ garage and moves to a real office. 1992 Revenue: $2.2 million Employees: 8 Linksys grows enough in one year to need an office upgrade and moves to a new 2,000-square-foot location. 1994 Revenue: $6.5 million Employees: 55 Victor starts to take a salary from Linksys. He is not the highest- paid employee and will never get a raise. 1997 Revenue: $32.1 million Employees: 60 Linksys debuts on the Inc. 500 list at No. 304. The Tsao family moves to a new home in Newport Coast, Calif. 2000 Revenue: $206 million Employees: 180 Having signed up distributors from Amazon to Radio Shack, Janie moves from a clear plastic cubicle to a windowless office. 2002 Revenue: $430 million Employees: 305 Linksys gets out ahead on the new Wi-Fi standard (and celebrates at a holiday party). Victor cuts back to 70 hours a week. 2003 Projected revenue: $538 million Employees: 305 Cisco Systems acquires Linksys for $500 million in stock. The Tsaos take a rare family vacation: four days in a car. Ian Mount is a New York City-based writer. His story about the bar chain Coyote Ugly appeared in the November 2003 issue.