Bob Levine and Craig Benson built Cabletron Systems Inc. into a $100-million upstart by staying light on their feet. How long can they keep up the pace?
S. Robert Levine looks every inch the executive you'd expect to find running a fast-growing $105-million maker of computer products -- right from the top of his head down to the tips of his shoulders.
Then the carefully slicked-down hair and the gleaming wire-rimmed glasses give way to something slightly more, well, menacing.
It starts with the muscles. Levine's perennial short sleeves strain against his imposing biceps, trophies of a decade and a half of daily weight lifting. And since one or both of his legs always shake with nervous energy, you can't help noticing his giant ostrich-skin boots. In May 1989, when Cabletron Systems Inc. went public on the New York Stock Exchange, underwriters tried to persuade the company's president and chief executive to swap his swaggering style for something tamer. "I couldn't," he says with a shrug.
More to the point, he wouldn't. Levine, 32, likes to confound expectations. His office looks like a fun-house version of a standard CEO's work space. On one wall hangs a picture of President George Bush with -- if you trust the caption underneath -- Levine. Look closely; it's not Levine. "I don't know who that guy is," he admits. Pick up the Christmas card resting on the windowsill, and you'll be treated to a blasphemous hand-scribbled holiday message. Levine thinks it's from someone he fired. Now step over the piles of trade magazines and the barbells -- oh, and push aside the dry cleaning -- and you can get a splendid view of the plaque Levine received, citing his skill in designing silicon wafers. It's fake. "I'm not mechanically inclined," he says. Another expectation dashed: here's a high-tech garage start-up that was not launched by a technologist.
Nor, for that matter, is Levine much of a marketer. On that score, his latest brainstorm involved having decks of cards made up with a snapshot of his head, along with that of Craig R. Benson, chairman, treasurer, and chief operating officer, on the jokers. And it seems safe to say that Levine's gift does not lie in finance, for which Benson, who has an M.B.A., is much better equipped. Levine's unique genius -- which has propelled Cabletron, in just seven years, to more than $100 million in sales with aftertax profits of about 21% -- is much rarer and broader than that.
Consider this: though Cabletron has long left its original niche (and the one after that) behind, though 25% of its sales now come from abroad, though the computer-networking industry has exploded in recent years, the company has held on to something that most small companies can't help let slip as they grow.
There's no missing it: Cabletron clings to a distinct identity.
From the start, Levine shaped Cabletron in his own swashbuckling image, and he has been ruthless about not letting it stray. "Cabletronians," as employees call themselves, value speed, decisiveness, and responsiveness. But with an almost knee-jerk machismo -- remember, their leader not only pilots a Harley-Davidson but also indulges in another dangerous pastime, to be detailed later, that recently left him with a dizzying concussion and a lost tooth -- employees disdain any signs that the company is growing soft. Such big-company prerogatives as vice-presidents and massive meetings have no place at Cabletron. They'd just slow things down. Cabletron still moves as fast and as flexibly as a $25-million upstart.
Which is, to be sure, a remarkable achievement. For now.
But with analysts predicting that sales could skyrocket as high as $170 million next year and more competitors streaming into the computer-networking market, Cabletron may start bumping up against the limitations of its rebellious style. The lean company could, quite literally, work itself to death. Or, swept away by its continued growth, it may lose its edge. Levine must confront a sensitive and pivotal dilemma: how can Cabletron stay speedy while it grows huge?
"At some point you get big, and that's the way it is. I know that," Levine responds, shifting his boots from the desk to the floor. "No matter how big we get, I've got to be able to touch enough people so that the electricity zips down to everyone. I want to have influence over the philosophy, not over every piddling decision.
"We've written our own rules from day one," he adds. "We'll find a way to do this."* * *
Cabletron was truly born to run. In February 1983 Levine was a sales rep for a couple of cable companies -- including Montrose Products Co., founded by his grandfather and run by his father -- when one of his accounts, in the person of Craig Benson, told him about a company that needed 1,000 feet of Teflon cable immediately. The normal lead time would have been about six months. Eager to stay on Benson's good side, Levine went out and bought 10,000 feet of cable -- the smallest amount he could find -- worth $30,000.
Benson's contact took the first 1,000 feet of cable off Levine's hands, paying him $10,000. That left Levine with 9,000 feet, which he needed to sell within 90 days, when his bill came due. To find takers, he printed up brochures that promised 24- or 48-hour delivery, depending on the customer's needs and the size of the order. "I just wanted to get rid of the stuff," he says, "but people really appreciated the fast delivery."
He soon found out why. Some companies realized they needed cable only after their minicomputers had arrived, or they suddenly discovered that the new floor plan in sales would require 20 additional feet of cable. Not wanting to sully their high-tech image -- or tie up inventory dollars in low-margin fare -- few computer companies supplied the cable. And hardly any of them delivered it in less than six months. As Levine got orders he spooled off the appropriate footage and then called on Benson to perform the delicate task of stripping off the jacket, bending back the foil, and crimping on the connectors. Benson pitched in during his lunch hour, leaving invoicing chores for the weekend.
By the summer of 1983, Levine -- who by that time had sold much more than the original 10,000 feet -- recruited his two younger brothers to pound away on the phones and fill orders in his two-car garage. Soon, he also invested about $1,000 a month in getting lists of potential customers, including subscribers to computer magazines.
Though orders picked up at the rate of two or three a week, Levine did not expect much from Cabletron, and with good reason. His track record in entrepreneurial ventures was hardly encouraging. Among his previous endeavors: a landscaping business that killed grass and butchered hedges, a biorhythm company that had to hand out refunds when customers discovered their charts were not individualized, and a limousine service that quickly stalled out. Even in the fiscal year that ended February 28, 1984, when Cabletron amassed more than $120,000 in sales, Levine had begun seeking his fortune in real estate, inspired by a careful reading of the Forbes 400. Within five years he had lost a whopping $3 million -- getting out of personal bankruptcy only by selling some of his Cabletron stock as part of the IPO in 1989.
But by the summer of 1984, Cabletron had moved into a 4,000-square-foot office in Ashland, Mass. Benson, who still had a full-time job, got swamped trying to keep up with the invoicing. "I'd sit in his car and find invoices between the seats," recalls Levine. Orders grew larger and larger: one company signed up for $225,000 worth of cable. Levine and his brother Kenneth, then 20, went out and personally sealed some of the bigger deals, sitting down and negotiating the finer points as they chomped on chewing tobacco.
As the company sped toward nearly $900,000 in sales in fiscal 1985 -- branching into different types of cables as well as terminators and other supplies, all delivered "at the speed of light" -- Cabletron was slipping beyond Levine's grasp. "Get this," he'd brag to Benson, "I just made a 100% margin." "No, Bob," Benson would explain, "that's a 100% markup." So the employees wanted $8 an hour? Fine, Levine would say. Benson would later have to tell him he couldn't afford it. Actually, not many of the employees stuck around for long. Levine, more interested in lifting sales than morale, was hard on them. Benson urged him to ease up. "I had never had a person work for me," says Levine, "so this was all pretty new."
And awful. Levine was used to selling, and that was what he wanted to focus on. So in November 1984 he decided to bring aboard someone who could untangle the rest. "You gotta help me," he pleaded to Benson.
Benson had his doubts. For one, Levine was still representing other companies for a living; for another, Cabletron was losing $20,000 in its second year. Benson did not want to end up jobless, especially with his wife about seven months pregnant. "I won't leave you out in the lurch," Levine assured. Two hours later Benson joined up.
As a pair, they looked comical: one short, one tall; one husky, one thin; one impulsive, one careful. Here was Benson, three years older, always urging that they think things through. And there was Levine, who, as a kid, shot birds because they woke him up with their chirping. At times Benson giddily compared them to The Blues Brothers of movie fame. But as it turns out, there was nothing frivolous about their partnership.
Levine and Benson, in fact, would play off each other in ways no one could ever have anticipated.* * *
Many a growing company forgets the lessons of its earlier days. Though hardly sentimental, Levine has held tight to the principle that rewarded Cabletron with such staggering growth: keep your promises, and customers will take care of the rest. No revelation there. But most CEOs find it harder to remember, and more challenging to follow through on, as revenues soar.
Levine had seen that happen many times. As a rep, he had dealt with far too many suppliers from whom he could not even get a firm delivery date. Similarly, Benson had emerged from his previous job with an almost pathological hatred of vice-presidents. "They get wrapped up in their titles instead of getting work done," he says.
To a large extent their shared contempt for this insidious enemy -- Levine calls it deadwood, while Benson refers to it as bureaucracy -- dominates Cabletron's culture.
As the company has grown, the two have become more fierce about stamping out anything that even remotely resembles bloat. One of their biggest arguments, in fact, grew out of Levine's decision to let one salesman call himself a vice-president. There have been no vice-presidents since.
It's a good thing too, because there wouldn't be anyplace for them to congregate. In all 126,000 square feet of Cabletron's headquarters, now in Rochester, N.H., there is not even one meeting room. While that doesn't prevent get-togethers, both Levine and Benson argue that it does keep meetings to an average of 20 minutes or less. Benson once spied an 18-person meeting going on. Storming in, he threatened, "If you people all have the time for this meeting, then I guess I really don't need this many people."
It would be easy to pass off Levine and Benson's rejection of such big-company practices as superficial -- and, at times, absurd. Levine fires any salesperson who flies during company time. And "if you use a flip chart, you don't belong here," he says. But even in making difficult and defining strategic decisions, the pair have consistently kept flexibility and speed as their top priorities.
For instance, despite "some very scary days," Levine and Benson steadfastly refused any equity capital early on. "I didn't want some venture capitalist coming in and telling us what to do," Levine says. Characteristically, he couldn't just turn down suitors with a polite "No, thank you." After making a pitch over lunch, one venture capitalist found himself doused in 7-Up. "His valuation was ludicrous, but I didn't mean to soak him," says Levine. Benson differs. "Bob doesn't like authority," he notes.
Levine began with $100,000 of his own money. Then, with his father's help, he located a banker, who, he says, "kept lending us money. I don't know why, but he probably thought my father would make good." The loans started at $50,000. By early 1985 the company was taking out loans of $850,000, borrowing against inventory and accounts receivable. Later that year Cabletron received a $1.5-million line of credit that catapulted to $12 million four years later. Levine and Benson listed about 20% of Cabletron on the New York Stock Exchange in their 1989 IPO. Levine still owns nearly 40%, Benson claims 30%, and key employees own the balance. With Cabletron stock trading at about $25 last fall, Levine and Benson's combined ownership was worth about $440 million.
Cabletron has needed money steadily because both Levine and Benson believed they could stay their lean-and-mean course only by controlling as many facets of the business as possible. That's not so easy, given that Cabletron -- like Levine -- can't sit still. Disappointed in one of its suppliers, the company began to shift its focus from distribution to manufacturing in 1986. "That way, we didn't have to worry about hearing excuses from other people," says Chris Oliver, director of manufacturing and engineering. "And we don't have to deal with upset customers." While competitors' lead times stretch to eight weeks or longer on an established product, Cabletron fills orders within 30 days. In-stock items are shipped within 48 hours. "We can ship a large order and rebuild stock very quickly," notes Kenneth Levine. He now heads up the office in Washington, D.C.
To avoid draining resources, Levine and Benson moved into the manufacturing of electronics gingerly, investing just $50,000 at first in a special mold and farming out the assembly and testing. In 1987, with sales at more than $9 million, they shifted to semiautomatic machinery. By 1989 Cabletron's factory was fully automated.
Similarly, Cabletron controls the sales process by fielding a direct-sales force, instead of working through value-added resellers, the industry norm. "I want control over the people who sell my product," Levine says. Such "box movers," as he calls resellers, have no incentive to excel at customer service. Cabletron's 105-member technical-support staff vows to return all calls within an hour. And the department doesn't close: 3 employees wear beepers.
Building a sales team, of course, gets expensive. To keep costs down, Levine has hardly modified the telemarketing system that his brothers perfected back in his garage days. Inside salespeople develop and qualify leads, then make appointments for the outside salespeople, who are, notes Levine, "the most expensive people I've got." Free to concentrate on sales calls, his salespeople rack up sales three times higher than the industry average, Levine claims. "It's not easy to find good outside salespeople," he adds. "When we do, we optimize them by making them three times more effective."
Indeed, Cabletron's ultimate flexibility -- to spend money on manufacturing and sales or on new ideas -- flows from its well-preserved margins. Back in 1985 the company moved from Massachusetts to New Hampshire, where space was at least $5 a square foot less, and some employees were much cheaper. The digs are hardly ritzy: partitions, steel desks, small cubicles. "We pack them in like rats," says Benson. When the company wanted to open a factory outside New England, representatives talked to a dozen economic-development boards before settling on Ironton, Ohio, on the border of West Virginia. The town's winning traits? An 8.5% unemployment rate and space at $1.40 per square foot. Some 4,000 people applied for the first 50 jobs.
Cabletron's profits may be fat, but salespeople live under scrawny conditions. Woe to any who break the Cabletron Commandments: always fill up a rental car; don't make long-distance calls through hotel operators; never tip more than 15%; and observe strict ceilings on hotel and meal spending. "I once got a very nasty memo because my hotel was $73 a night," recalls Kenneth Levine. The limit, as he well knew, was $70. "Run the company as if it's not making money," says Bob Monaco, director of operations, "and you'll always make money."
That, Levine would argue, simply allows the company to hold on to something much more valuable -- and easily diluted -- than its margins. "The thing that has made us different," he says, rising to his feet, "is that we are absolutely fearless."* * *
Cabletron's uniqueness goes beyond moving faster than most companies to fill orders. Moving fast isn't just an internal magic trick; all the small speedy touches -- and the fat margins -- combine to create an entire company that responds quickly to external shifts. As a result, Cabletron has grown much faster, and more daringly, than anyone might have expected. The company could have grown at 10% a year simply by becoming unbeatable in cable delivery, its original niche. Instead, cable now constitutes less than 7% of sales.
Back in 1984, when local-area networking was still new, customers asked for recommendations about whom they should have install it. As a test, Levine told telemarketers to ask customers ordering cable if they were interested in having Cabletron do the job. If they said yes, Cabletron sent a project engineer out to meet with them. That particular project engineer also happened to be the chairman of the company, though he didn't advertise it. Benson explored the opportunity incognito, even printing up separate business cards. Some important details were learned along the way: there were few qualified electricians who knew, for instance, that the cable had to be guided away from fluorescent lights, which caused distorting static, and looped carefully so as not to impair the signal. In fiscal 1986 installations made up roughly 10% of sales, which totaled about $4 million. Cable installations now account for 4% of sales.
More important, perhaps, is how Cabletron followed that initial opportunity to its next leap: network-testing devices. When customers called with problems, the only available equipment required shutting down the computer network -- testing customers' patience and often costing them money. If only, Levine thought, Cabletron could find a way to test live networks.
Benson hired a few engineers he knew. Six months later they had developed two products: one tested the cable, the other tested other network equipment. The two devices, which cost roughly $200,000 to produce, represented Cabletron's first foray into manufacturing. Cabletron started by making 5 a month; by 1986 it was up to as many as 50, and testing constituted 15% of revenues. But, insists Levine, "it was because of our next move that we really took off."
Indeed, the company's most dramatic -- and costly -- diversification began with what by now has become a standard pattern: spot a consumer need, get ideas on how to improve on what exists, and then put together enough money and people to do it quickly.
Transceivers, as Benson likes to explain, are the traffic cops of networks, transmitting and receiving signals. Prior to mid-1986 Cabletron worked with a worthy supplier. But then a series of disputes led Levine to conclude that the supplier had become "nonreactive and bureaucratic." "We were getting a lot of friction from our customer base," says Oliver, who designed the company's own transceiver in the spring of 1986.
The best transceivers at that time had power-indication lamps enabling customers to tell whether their network problem could be blamed on the system's power source. Beyond that, though, they were helpless. Why, Oliver wondered, couldn't we incorporate several light-emitting diodes so that users could do more of their own troubleshooting? They could tell at a glance, for instance, whether data packets were colliding. Such a feature would also allow Cabletron to do more problem solving by phone -- a relief to Oliver, who was, until 1987, half of the technical support team. When he came back to them with a prototype, Levine and Benson responded appropriately. "Their eyes lit up," Oliver recalls.
With their go-ahead, Oliver handed out 100 transceivers for testing. "People said, 'This is exactly what we need," recalls Oliver. Between 1987 and 1988, sales shot up more than 160%, from about $9.5 million to almost $25 million. In 1988 the company earned the #7 spot on the Inc. 500, our ranking of the fastest-growing small private companies.
To keep its product line expanding in the right direction, Cabletron exploits the advantages of having a direct-sales force. It has even instituted a special program whereby salespeople hand out forms to customers, who are invited to fax in their product suggestions. They are guaranteed a response within five working days.
Cabletron doesn't waste any time deciding whether to make the products its customers suggest. Some, like a special wall plate that allows customers to plug phone wire in one end and coaxial cable in the other, have gone from consumer suggestion to prototype in just six weeks. "We don't research the hell out of something before we do it," Levine says. "It can happen within 24 hours."
Add a few hours, and the same could be said for new markets. In 1987 Levine was dissatisfied with a consultant Cabletron had hired to beef up business abroad. "Let's go over there and do it until it gets done," Benson suggested. "It can't take longer than a week." Levine and Benson identified a couple of good candidates to run foreign operations and, in June, traveled to the United Kingdom. They hired a person, leased space, and came up with a strategic plan -- all in six days. "Their enthusiasm was a breath of fresh air," says John Casson, head of international operations.
Last spring, Casson approached Levine and Benson about opening a subsidiary in Australia. In the morning he made his case that the market was growing fast enough to support it; that afternoon he got a $1-million commitment.
That makes seven offices that Casson has opened abroad. "I don't stop," says the 34-year-old. "To tell you the truth, I can't stand not doing this."* * *
It would be wrong to present Bob Levine's need for speed as simply a strategic imperative. As a teenager, he "exercised the engine" of his mother's white Cordoba by zooming along at 101 miles per hour -- or at least that's what the police claimed when they caught up with him.
Levine, it seems, can't get enough. His toughness arises from a need to prove something. There's nothing wrong with that, of course; every founder stamps his or her quirks on the business. It's fair to ask, though, whether Levine might grow increasingly militant as the company becomes harder and harder to push around.
He is, after all, prone to excess. Want to know how Levine has spent his newfound wealth? He bought a tank. A real one, with a howitzer on top and turrets that spin around. Last summer, for kicks, he chased a pizza-delivery boy, and the following day while "four-wheeling in the woods," he ran smack into a tree. He emerged with one less tooth and a concussion. The buddy with him got 17 stitches. Levine also owns 15 guns, which he has, on occasion, used to shoot up his own sprinkler system. His 67-foot Hatteras is named Soldier of Fortune. Some people swear they've seen the magazine of the same name lying on his desk. "I'm not a mercenary or anything," he says with a smile. "But if business ever goes bad. . . . "
Of course, neither Cabletron's sales, nor profits, nor quality show any signs of eroding. But there are signs that Levine and Benson's sometimes harsh style of management and Cabletron's self-image as a bit of a ruffian may not serve the company well as it struggles to stay ahead of the pack. "To counteract any problems associated with growth," suggests Casson, "Bob and Craig will simply shout louder."
But battering the company into submission won't work. Cabletron's turnover is already worrisome. Last year the company fired more than 10% of its white-collar employees. Thirty percent of outside salespeople don't make it through the first 90 days; another 40% are gone within six months. Last summer Benson joined 40 employees for a Sunday boat trip. Afterward he ordered two of them fired immediately. One had not even started yet. "I hated him," says Benson, who was eventually persuaded to give the new hire a chance. At sales meetings, reports Kenneth Levine, it's standard to conduct private polls on who will go next.
Such trigger-happy behavior takes a toll on morale. When Michael Welts, marketing manager, was hired, in November 1989, he was thrilled but a little scared. "I had heard about the people who had preceded me," he says. The longest any of them had lasted was six weeks. "Back then I'd sit in my cubicle and I'd fear the sound of those boots coming down the hall, moving fast, getting louder and louder," says Welts, 29. "I knew he was heading for me, so I'd stand up. He'd say, 'Welts, we have to talk.' " Welts doesn't worry as much anymore. But, he notes, "I know what will happen if I relax at all. I'll hear those heels." Is this management by fear? "If they're afraid of being fired," charges Bob Monaco, "they probably deserve to be fired."
As generous as they are about firing, Levine and Benson are stingy about adding people -- "I don't even ask anymore," says Casson. One way Cabletron keeps the staff small is by giving employees enormous autonomy; for example, salespeople have lots of latitude on pricing. Levine and Benson also pay well. When the company went public, they gave away $2.3 million worth of shares to employees. And 250,000 shares were sold to the employees at $4 a share even though the offering price was $15.50.
But the thin ranks mean that some employees get pushed to their limits -- or beyond. Dave Ayers, a regional sales manager in New York City, got so shaky and irrational at one point last year that Levine and Benson thought he had developed a drug problem. Confronted, Ayers confessed he was just worn out. "We needed more people," says Ayers, 36, "and we weren't getting them." He got to spend a week on Levine's boat, resting. Jack Branowski, who is a director of sales, has 17 people reporting to him. "It keeps me moving," he says. "You can always do a little more. I can always stay a few minutes later."
But at some point, he will reach his limit. Before then, Levine and Benson, who have so far tried hard to avoid any structure that feels big, will need to figure out how best to preserve the company's cherished speed. Cabletron's success, thus far, has been built on knowing what it isn't; now it must define what it is. "There is going to be another structure, and Bob and Craig know that," says Jim Sims, who also serves as a director of sales. "They see it coming."
Perhaps so. Recently, Levine and Benson hired a couple of high-powered executives: one to serve as chief financial officer, the other as director of manufacturing. Levine has also been expanding what he refers to as a management SWAT team. It consists, he says, "of a couple of people with no real responsibility for anything. They sniff things out." Could it be the beginning of a bureaucracy? "At some point, we'll need more layers," says Benson. "But we have to preserve the spirit."
Just now that spirit, who has been seated, glances at his watch and flies to his feet. He nearly hits his head on the picture hanging above him -- a sentimental shot of him and Benson outside a competitor's headquarters. "I've got to get going," he says, checking to see if the weather will accommodate his flight plans. Levine travels at least 30% of the time; Benson stays mostly at headquarters. It used to be that Levine could make the rounds of all the salespeople in a month. Now he's lucky to visit them all in a year.
He runs into his office and, sidestepping some dumbbells, grabs a shirt that is hanging from the ceiling. "There's a feel to this place," he says, furiously buttoning it. "It feels like it did just a couple of years ago. It doesn't feel like there are 1,300 people here. We don't want it to, and it won't."