Chapter 14 - Internetworking: Emergence 1985-1988
After Micom acquired Interlan on March 1, 1985, Paul Severino, the then President of Interlan and key founder, became Vice-President, Product Planning and Technology for Micom. Moving to a staff position made sense but was not without its own risks. Severino remembers:
I had been trying for a few years to get out of day to day operations and become more of a strategy technology-oriented person, but still with my eye on getting the next generation of products out the door. So the deal that was cut with Micom was that I would become a Micom VP and I would be looking at this whole corporate strategy thing, which I did for the first four or five months. But the problem was that the Interlan side was just being kept closed, even to me, and I wanted ‑‑ I knew that Micom had to make some leaps in order to really compete again, and I wanted to take off a group and just go build the next generation of product, and Roger and I just couldn’t come to an agreement that that was the right thing to do.
Unable to reach an agreement with Roger Evans, the CEO of Micom, and tired of the cross country travel from his home outside Boston to and from Micom’s headquarters just north of Los Angeles, Severino resigned in September 1985. He harbored no fear of being unemployed, only excitement about starting another company. His entrepreneurial nature had free reign once again to shape his future. He fondly recalls:
When I left, in September of 1985, I actually started working on a project to build a company that was going to be doing factory automation systems. I was going to go back to my Data Acquisition days, but I was going to do it with MAP. But I wasn’t going to be a networking company. I wanted to be a computing company. I wanted to provide the workstation of the factory that was networked like an Apollo system. I wanted to do this real time cell ‑‑ they call it cell controllers ‑‑ real time cell controller, UNIX real time, with integrated MAP networking and literally using the MAP network as a mechanism by which you could have real time networked operation over the network.
In November at the Autofact Trade Show, Severino saw Ralph Ungermann, CEO of Ungermann-Bass. He remembers a snippet of their conversation:
Ralph says: ‘What are you doing here.’ I said: ‘Well, I’m looking at factories.’ He said: ‘You’re not going to go be an industrial networking company are you?’ I said: ‘No, no I’m looking at the computer side of the business,’ which I was.
Severino and his team continued their investigation until they realized:
We looked at that for six months, there was about four of us. The problem we found? First of all, factory users don’t buy from new companies. Secondly, there isn’t an application in the factory that drives a network like there is in CAD, like there is in the engineering environment, like there is in just a distributed data processing environment. There isn’t an application. The only application that we found that drove a network into GM was literally downloading programmable logic into numerical controllers with programs instead of ROMs. That was the only application that we found, and clearly that’s not a fancy application, so we just made the decision, even though we had a plan and we had figured out what the products should be, we just said: “This is crazy. This is not going to be where you grow in the networking business.
On seeing Ungermann at an Alex. Brown & Sons conference in March, 1986, Severino shared his conclusion to an unconvinced Ungermann. Again:
He said: ‘Did you start that company?’ I said: ‘No, I didn’t.’ He said: ‘Why not?’ I said: ‘I can’t find an application that’s going to drive networks in a factory.’ He said: ‘No, it’s there. We got it. We got all the OEMs lined up. It’s all happening.’ I said: ‘Ralph, I’m telling you, I just can’t put my finger on what’s going to drive users to install networks in a factory. It isn’t flexible manufacturing. It isn’t this concept of time cards all over the factory. I don’t see it.’
Not discouraged in the least, he and his team began looking elsewhere. Severino then recalled learning about T-1 at Micom:
I became aware of T1 when I was poking around for Micom looking at different kinds of companies. In fact, the first time I actually became aware of T1 was when I actually went down to visit Avanti. Now it became clear to me that T1 was important and that, if you believe the way I do, that LAN traffic is going to dominate what happens in computing and computers, then computer systems are going to be connected with LANs from now on until I can see. As soon as you understand that then the next step is, the world still needs to be interconnected. Companies still have remote sites and they still want to get at the classical datacom problem, therefore you need different kinds of devices than modems and multiplexers. You need routers and bridges. You need things that work differently, and if you mate those up with the technology of T1, you ought to be able to access a group of customers and have that problem and make a business out of it.
In May 1986, Severino and four former employees of Interlan, William Seifert, Steve Willis, David Rowe and Jennifer Lamonakis, incorporated Wellfleet Communications, Inc. The mission: to develop, manufacture, market and support a family of high-performance, multi-protocol internetworking products. Next came the task of raising the money needed to adequately finance the more encompassing vision to create a systems supplier not just a product-oriented company, as had been the case with Interlan. Severino naturally turned to his friend and business partner, Russell Plantizer of J.H. Whitney, his lead investor at Interlan, to play that role again. Plantizer agreed. They immediately approached Ed Anderson, a former investor in Interlan and associated with Alex. Brown & Sons. On the strength of his experiences with Severino, and having made money as well on the Interlan investment, agreed to participate. They both joined the Board of Directors, and before the end of fiscal year ending June 1987, had raised nearly $6 million with J.H.Whitney investing $3 million. In July 1987, Art Carr, now President and CEO of Bytex and formerly CEO of Codex, also joined the Board of Directors. Severino remembers the distinction between Interlan and Wellfleet:
In the Interlan approach I had my eyes focused on a particular segment and I didn’t care whether I was the number one company or number two company. All I wanted to make was a profitable business. But now we raised a lot more money, and our product is going after a segment which we think is going to be a very important segment, and we’re going after it with a product that’s very fully functioned as we come out the door.
To build an Internetworking company also required recruiting an engineering team with a diverse set of experiences, just as Bruce Smith had done at Network Equipment Technologies. In Severino’s words:
If you look at the people that are in Wellfleet today, the engineering people, we have people that are out of BBN, we have people that are out of AT&T, we have people that are out of the computer companies that are doing LANs: a wide spectrum of people with different kinds of expertise.
The challenge now became getting product to market as soon as possible. In deciding which elements of their product were most important to introduce first, they had to assess who they thought their competition would be. Severino remembers:
I believed that Vitalink would probably be the biggest threat.97
Severino would be surprised to encounter another start-up: cisco Systems.
Product development began in earnest in mid-1987. Indicative of the productivity that is so often evident in start-ups, Wellfleet Communications shipped the first of what will be three major products able to bridge or route LANs and WANs in April 1988. The Link Node, or LN, could support an aggregate of 16 connections (eight of which need be LANs). In June 1988, the Concentrator Node, or CN, was released and able to support an aggregate of 52 connections. Then in May 1989, the Feeder Node, or FN, was released and supported an aggregate of 4 connections. These three products plus an UNIX-based software package that provided network management tools, could be configured in systems to support thousands of connections.
Soon after the CN was released, Wellfleet Communications encountered performance problems with both its LN and CN products that delayed shipment schedules until late 1988.98 Brad Baldwin, an analyst with the market research firm Dataquest, reported “the delays caused Wellfleet to virtually concede the T-1 side of its business to Vitalink and cisco Systems.”99 Fortunately the company had raised nearly $4 million in a third round of private financing that had been intended to finance the company’s growth and would now be largely consumed by the delays in revenues. For the fiscal year ending June 30, 1988, Wellfleet Communications reported revenue of $320 thousand with a net loss of $4.1 million. Ending cash was $3.8 million.