Wednesday, April 22, 2015

Cisco's Clever Spin-Ins

Cisco’s novel R&D approach of creating a start-up with Cisco money, only to buy it back after it succeeds, is an unusual approach to product development.  Why do ‘spin-ins’ work for Cisco?

Cisco assembles teams of employees to break away from the company and operate like a start-up while developing an experimental product.  Cisco predetermines the price it will spend to ‘buy back’ the start-up after the product is launched.  But why take this approach when it is already the job function of these engineers to create products for Cisco? 

There is something intangibly exciting about start-ups.  Start-ups make a difference.  There isn’t room in a start-up to feel like a ‘cog’ in a large machine.  Each person’s contribution is visible and meaningful.  And, start-ups are nimble.  They can quickly change direction when required.  Start-ups naturally foster an environment of innovation.  It’s a little like being a freshman in college.  No parental oversight, just lots of freedom to learn and make mistakes, but especially to chart one’s own destiny.  Lots of responsibility, and practically infinite opportunity. 

But can a massive company like Cisco really recreate the feel of a start-up, within its own corporate structure?  Judging by the incredible success enjoyed by Cisco’s several ‘spin-ins’, it would seem so.  And the credit may be due, in part, to who is doing the spinning.  Cisco has done three spin-in deals with the same three engineers, paying on average $763 million to acquire each spin.

Who are these engineering legends?  They’re affectionately known throughout Cisco as ‘MarioPremLuca.’  You’d think that after having ‘spun’ back into Cisco three times and making millions they might face disdain from fellow employees that haven’t been offered the opportunity.  But it seems they are actually beloved by the Cisco community, probably because they are widely described as pleasant, humble individuals.  

Mario Mazzola was raised in Sicily and began working in telecom in the 1970s.  He is known for establishing the “Mario Rule” at Cisco.  Before any employee of an acquired company is terminated, both CEOs must give their consent.  He is also terrible at retiring, having first attempted in 2000, only to return for Cisco’s first spin-in in 2001.  He retired again in 2005, only to return for the 2nd spin-in.

Prem Jain was raised in India and attended the ‘MIT of India’.  He is described as being very humble, having given this advice, “Stay grounded; never try to become a star.”

Luca Cafiero, also of Italy, rarely speaks publicly and is also known for being a very nice guy.  Like Mazzola, he retired in 2005 only to return for the 2nd spin-in. 

Whether the spin-ins were necessary to successfully develop these products is debatable.  Some argue that the necessity of the spin-in model demonstrates that Cisco is unable to build what it needs internally.  But the ‘spin-in’ does appear to have been a driving force in the decisions of Mazzola and Cafiero to remain at Cisco, generating billions in revenue with their innovations.


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