Born to Run

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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."

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