Who's in Charge Here?

Portrait of the relationship between a founder and a professional manager

You know the syndrome: founder hires manager to be CEO and either doesn't give him any real authority or turns over the keys to the company, only to resent the hell out of the guy. Not Bob Metcalfe, founder of 3Com. This is one entrepreneur who calls his professional manager "boss," and who says he hopes one day to apply for the presidency -- of his own company. The story of how these two manage together reveals much about what it takes to make one of the thorniest business relationships work to everyone's advantage. -- T.R.

Ten years ago Bob Metcalfe started a company he called 3Com Corp., but when he got venture capital financing he gave up the president's title. Soon he lost the CEO's role. Eventually he yielded the chairmanship, too. Poor Bob Metcalfe.

Poor Bob Metcalfe?

The man is now worth well into eight figures, he's acquired an education no business school could have given him, and at a mere 43 years of age he's back in line for the presidency of the company, which, by the date of his possible reascension, should be closing in on $1 billion a year in sales -- a level it never would have achieved with him in charge for these past eight years.

Metcalfe, an engineer, founded a business first and only later decided to become a businessman. That may be the hard way to go about it. He can see now where he has been, but on the way it wasn't always clear where he was going. He hadn't mapped out a route, and there were several difficult intersections to negotiate -- three of particular note -- and at least one still to go.

On the other hand, Bill Krause decided to become a businessman first, then to build a business. When Metcalfe founded his company, Krause was running Hewlett-Packard Co.'s $60-million general systems division, managing roughly 500 people, and riding the fast track to the top slot at that well-thought-of corporation. Then, with 14 years' experience under his hat, he took a 35% pay cut to be president, not even CEO, of Metcalfe's company, a dirt-ball start-up that didn't have a market for its technology. With just nine employees, including himself and the assertive founder, it wasn't obvious who or what this consummate manager, this issuer of memos and drafter of plans, expected to manage.

Was he nuts? his spouse wanted to know. There was no organization, he lacked the authority of title, and wouldn't he have to jolly the man he was bumping, who still owned a majority of the company's stock? Her skepticism was well grounded, although, as time would prove, unnecessary. Krause has always known where he was going. Unlike Metcalfe, who prefers to let his instincts guide him, Krause carefully maps his journeys before setting out.

Many entrepreneur-executive teams have attempted what Krause and Metcalfe have accomplished, and more of these partnerships have failed than have succeeded. Each party to the failure usually blames the other.

A seasoned professional arriving to manage a start-up normally wants the entrepreneurial founder gone, or at least out of the decision loop. Ambiguous arrangements, such as the one that Krause and Metcalfe cooked up, seldom work. Oh, they're OK when things go well, because when things go well it matters little who's in charge. But when losses loom? John Sculley didn't see how he could possibly turn Apple Computer around with Steve Jobs, petulant and pedantic, still underfoot.

By the same token, entrepreneurs who act largely on instinct usually admire the acquired skills that cool professional managers bring to their jobs. Seldom, though, do they trust these people thoroughly. Billy Ladin, founder of Houston-based ComputerCraft Inc., a once fast-growing chain of computer retail outlets, demoted himself to vice-president of sales and hired Paul Frison, a veteran executive, to be CEO and run the business. Except he didn't put Frison completely in charge. Ladin kept the title of chairman to himself, and when ComputerCraft lost its headway, he reclaimed the conn. "If this ship is going down," Ladin said, "it's going to be with me at the helm." Frison, they jointly decided, would swim ashore. Ladin later merged a considerably smaller ComputerCraft into Businessland Inc.

So on the surface, it's a wonder why; but somehow and against the odds, the Metcalfe-Krause arrangement has survived.

And the company hasn't done badly, either. From sales of $1.8 million during Krause's first full fiscal year (1982), 3Com's revenues rose to $252 million in the year ending May 31, 1988. Company and analyst estimates have this year's sales exceeding $350 million. Per-share profits have climbed every year since 3Com's 1984 initial public offering. Only Digital Equipment Corp. (DEC) is bigger than 3Com, which edges out IBM, in the computer-networking market.

Quick background:

While employed at Xerox Corp.'s Palo Alto Research Center (PARC) in the early 1970s, Metcalfe, an MIT-educated engineer, coinvented a technique for linking multiple computers and their associated terminals and peripheral devices together into what has come to be called a local area network (LAN). He called the invention Ethernet -- for the massless medium scientists once believed to be the cosmic conductor of electromagnetic radiation.

In 1973, when Metcalfe developed the technology, there wasn't much call for computer networks, largely because no one had invented the personal computer yet. Businesses that had computers were still using mainframes and minicomputers -- one per company. At the beginning of 1979, after attending an MIT alumni luncheon on starting your own business, Metcalfe resigned and returned to Boston to consult.

By then, however, the rapid evolution of information technology had already changed business computer use. DEC, Metcalfe learned, was trying to develop its own networking technology that wouldn't infringe the Ethernet patent. But why reinvent the wheel? If Xerox would permit, Metcalfe believed that Ethernet could become an industry standard for networking the growing number of PCs, minicomputers, workstations, and peripherals that were augmenting or replacing mainframes. Xerox agreed and joined DEC and chip-maker Intel Corp. as a collaborator on drafting standard Ethernet specifications.