The Origins of Cisco Systems

That would be Cisco, also known as Cisco Systems. This is a company that many of you probably have heard about, uh, but maybe you don't know too much about it. The company's mission statement is pretty humble all things considered. It is quote shape the future of the Internet by creating unprecedented value and opportunity for our customers, employees, investors, and ecosystem partners end quote. So, you know, just shaping the future of the Internet. As it turns out, Cisco and

the Internet are deeply connected. The the company would not exist without network computers. That's the whole core of what the company was about, especially from a hardware perspective. Early on, So Cisco Systems, particularly back when it was called Cisco Systems, really made its fortune through creating the equipment that serves as the infrastructure for various computer networks, including the network

of networks we call the Internet. It's mainly a business to business corporation, meaning its customers tend to be other big businesses. It did kind of dip its toe in the consumer market, where it sold some products meant for the average person such as myself, but it doesn't really do that anymore. However, Today the company employs more than seventy thousand people and it generates more than forty eight billion dollars in revenue. But that's not how it all started.

Way back in and actually, Cisco Systems origin story is one that has over time been somewhat oversimplified and romanticized. This should come as no surprise to anyone who has ever followed any companies in the tech sphere, really any company at all. A lot of companies oversimplify their origins because the truth of the matter tends to get pretty complicated and sometimes it requires a whole lot of explanation. Now, a lot of Silicon Valley companies have a similar mythic

origin story. Typically, you hear stories about how young engineers turned into entrepreneurs. Sometimes they're fresh out of college. Sometimes they drop out of school in order to pursue a business opportunity, and they're almost always seems to be a garage involved in some pivotal part of the early business history, and after some vague amount of time, the company's profile skyrockets and the entrepreneurs become gazillionaires. See also Microsoft, Apple, Google,

et cetera. Cisco Systems origin, or at least the version of the origin story that tends to be told, is not that far off from that particular archetype. However, instead of students, the founders were employees of Stanford University. They were computer scientists who are managing various computer departments at Stanford. In fact, at the time they were a husband and wife team. They headed up different computer labs essentially at Stanford, and instead of a garage, they operated outside of their

or in their living room in San Jose, California. That's where Cisco Systems got its start, was in their living room. They named their company after the sister city of San Francisco, so Cisco Systems. Also, if you look at the logo, it's these the lines of vertical dashes. Uh, those vertical dashes are an abstract of the Golden gate Bridge. Now, the simplified story of the origin of Cisco Systems has

two protagonists. There's Sandy Lerner, she was in charge of the computers for the Graduate School of Business at Stanford, and there was her then husband that they've since gotten divorced, Leonard Bozak, who oversaw the computers in the computer science department. Now back, as the story goes, the two were frustrated that despite working for the same university and having offices five yards apart from each other, they could not send

emails to each other. Their respective accounts were on different computer networks and there was no intercommunication channel between those two networks. The Business school had its network, the computer science division had its network, and the two were kind of autonomous and step brit entities. Then, as the story goes, the two decided to create a multi protocol router to connect the two systems together and allow this couple to

communicate via email. And then they saw how useful their technology was and decided that they should turn it into a product, asking Stanford to do so. Stanford said that they they the the university could not really do that. So then they decided to launch their own company called Cisco, and the rest is history. But again that's an oversimplification. The reality is that a lot of different people were working on a solution to this problem of facilitating communication

between disparate computer and networks. But before I detail that history, I thought it might be helpful to talk about what the heck a multi protocol router is, why are they necessary? And that means that we need to define a few different terms like land when, and explain the purposes of protocols in general and what a multi protocol technology does in particular. So first of all, let's talk about lands. So a land L a N is a local area network.

This is a computer network that covers a limited area. It could be a single home. You could have a local area network set up in your home, and you may very well have this. If you have a router connected to a modem in your home, then you have a local area network. It could also be an office, it could be an office building, it could be a university campus. So the scale of a local area network can get quite large, but it's still confined to a

geographic region. So let's say your office has a local area network and your office purchased all the equipment to run and maintain this network. So while some other companies made the actual uh the components of the infrastructure, the infrastructure is owned by your company because they bought those products and then installed them. So there's no connect ativity to any other network, So you don't have a channel

out to the Internet. This is all self contained. Anyone who connects to that network and they have privileges on that network, they have the ability to communicate with others on that same network, or they can store and retrieve files on the network whatever system has been set up. But that's the extent of the reach on that local area network. And these technologies really begin to emerge in the early nineteen seventies, particularly with the invention of Ethernet

out of Xerox Park. I'll talk a little bit more about that in a in a second. A WHEN or w a N is a wide area network. These networks cover larger geographic regions and also tend to rely upon telecommunications circuits that are owned by some other entity. So there's some company that owns the actual infrastructure that a wide area network is relying upon. Typically it doesn't have

to be that case, but that's typically what happens. So that means there has to be some sort of agreement between the administrators of the wide area network and the companies that actually own the infrastructure, the actual fiber and the switches that the network relies upon. A wide area network might connect numerous local area networks together, which allows for a channel of communication between those local area networks.

But that's easier said than done because back in the early early days when everyone was trying to start creating local area networks, there were a lot of different companies that were developing their own proprietary approaches to creating these local area networks, with their own proprietary hardware and software

and their own protocols. So if you like analogies, like I do because it was an English lit major, just imagine again that you are in a big office building, and each floor of that office building has an office where people speak a single language and only that language. And let's say that the first floor is all French speakers, the second floor is all German speakers, the third floor is all Finnish speakers, the fourth is Swahili, and the fifth is English. People within a single office have no

problem communicating with each other. Right, if you're one of the people who speaks English and you're on the fifth floor, you can speak to everyone else on the fifth floor. They can understand you, you can understand them, because you're all communicating within that same language. However, communication between offices is much more challenging because the inhabitants of those different offices speak different languages and they do not speak other ones.

This is where protocols come in. So a communications protocol is similar to a language, but a communications protocol is really a set of rules that computer systems have to follow in order to send and receive data right to send data to other computers and received data from other computers or other devices that are connected to the network. It's not just computer systems. It could be things like handheld devices, or it could be printers, could be lots

of different stuff. These protocols dictate the form or syntax that the data has to take in order for it to transmit across this network, and there are also rules that govern what to do in case and error occurs. How do you recover data in that in that instance, or how do you synchronize data between different components on

the network. And these protocols often will depend both upon hardware and software, and because you have different companies creating these different local area networks, it could mean you have different incompatible protocols that are making up all these rules. So, again going back to that office building analogy, think of each office floor not as having people who speak different languages on every floor, but different computer networks that are

working on a different prietary protocol in each floor. That means that computer systems on a single floor can communicate with each other easily because they're following the same set of rules, but computer systems on different floors can't communicate easily they are each following a different set of rules, so you have this disconnect. This is where the concept of multi protocol infrastructure comes in. In the case of Cisco, it was a multi protocol router. Now, a router is

a device that sits between networks. It's kind of a connecting point. Sometimes we call them gateways, although for a while there was a differentiation between router and gateway. Today they are largely one and the same. But these are connecting points between one network and another network. It could be two local area networks, so you could have a router between those two. It could be a router between a local area network and a wide area network, include

being a local area network and the Internet. So your typical home router sits between a residential networks such as one that covers one household. Let's say that it's your personal router, and it sits between that and the Internet at large. Routers direct traffic on the Internet, so when data flies across the Internet, it does so in packets.

I've talked about data packets many many times. I won't go into it here, but packets can hop from one router to another until they arrive at their intended destination. At different packets from the same file can travel very different pathways to get to that destination. Multi protocol routers, as the name suggests, are able to communicate through more than one set of rules, so they're kind of like interpreters, right.

They can kind of interpret in one language and translate it into another language, So they can accept data following one set of protocols and send it in a different set acceptable to the recipient and vice versa. So if you have two local area networks and a multi protocol router in between the two, it can accept data from network number one and then translate it into a form that network number two can facilitate. So it's an important

component if you want to have communication between networks. So now we recognize that computer networks communicate through various protocols, and that those protocols can be different from one another, especially in the early days of networks, and that necessitates some sort of component between the networks to facilitate communication. But back in this wasn't something you could just pick up off the shelf yet, at least not until Cisco came into being. People had to suss out how it

would work. So the story of Cisco's origins are tied together with that process. When we come back, we'll look at the people and events that led to Cisco becoming a company. But first let's take a quick break to thank our sponsor. Before Cisco was launched in nineteen eighty four, a few years of work went into the development of the technology that would give the company it's real start, and while Lerner and Bozak were involved, so were a

lot of other people. First, Stanford's connection to the Internet, both figuratively and literally, stretches back to before there was an internet, way back in nineteen sixty nine, Stanford was the site of one of the four original Interface Message processors. Those were special mini computers that were part of the experimental ARPA Net. That was the computer network that would serve as a stepping stone toward the development of the Internet. A lot of the protocols that would be used on

the Internet were developed for the Arpanet first. The other three imps. By the way, those are the the interface message processors. The other three were at the University of California, Los Angeles, the University of California Santa Barbara, and the University of Utah. Back around late nineteen eighty or early nineteen eighty one, Stanford received some Alto workstations from the Xerox Palo Alto Research Center better known as Xerox Park. If you listen to my episodes about Xerox, you might

remember the Alto. It was the computer system that would inspire Steve Jobs to return to Apple and push for the Macintosh and the Lisa systems to incorporate a graphic user interface or gooey. It was bigger than a computer desktop would be these days, but smaller than a lot of other mini computer systems. Xerox only reduced a couple

of thousand of these machines. Mostly they used them internally at Xerox, but they did distribute around five hundred of them to various universities and research facilities, including Stanford and The Alto was pretty cool, especially since Xerox first started producing them in the early nineteen seventies, more than a decade before we would see gooey based computers in the consumer marketplace, stuff like the Macintosh and then later still

the Microsoft Windows operating system. But the technology that really got computer scientists excited that was incorporated into the Alto was ethernet. I mentioned it earlier while Bob Metcalf over at Xerox, pioneered ethernet development in nineteen seventy three. Over at Park he was working on a way to connect auto computers to printers initially, and he developed a networking

platform and cabling system in order to do so. See, printers were really, really expensive, so it didn't make a whole lot of sense to get a printer for every single computer system. It made more sense to set up a system where multiple computers could share the printer as an asset. After all, you're not sending jobs to the printer all the time, so most of the time the printer would just sit idle, which mean it wasn't a

very efficient use of technology. By allowing multiple computers to share the single printer and meant that you have you have boosted the efficiency of the printer. It's in operation more frequently and it's not just sitting there. So it was an interesting approach to this problem, not just connecting a computer to a printer, but a way of making a printer a more effective asset for the team at large.

So he developed the networking platform and the cabling system in order to do this, and he designed the standards that would guide communication across the cable. The Ethernet standard either NEET made it easier to create a system in which computers and other devices like printers could communicate with each other. But how would you connect disparate networks, particularly ones that relied on other protocols besides the Ethernet standard.

The director of Computer Facilities at Stanford at the time, Ralph Goren, made a general request. He said, I kind of want some form of technology that could serve as something like a network extension cord to create networks between computers that are more distant from one another. So while we're pretty good at linking computers that are fairly close to each other, I went a way to extend that to beyond just the computers that are all within the

same room or same building. A group of Stanford computer scientists tackled this problem, actually pretty big group, and there were some that were contributing hardware. There were some who were creating software for this, and they were all working to try and make a thing possible. One of those people was Andy Bechtelsheim, who would later go on to found a little company called Sun micro Systems, and he developed the computer board that would sit inside this router.

William Yeager, who was a research engineer, wrote the software for the multi protocol router. He had previously found success in networking machines between the medical center computers and the computer science department, so this was sort of taking that approach and then making it more flexible to allow for even more types of local area works to communicate with one another. Now. I didn't find a full list of all the people who contributed to working on this multi

protocol router. I suspect more than a dozen people made some sort of contribution throughout the whole process, because this was not something that was, you know, a couple of weeks in the works. This was a project that lasted quite some time as people began to develop hardware and software for it, tested out, tweak it, make changes, make another addition, and it was definitely a collaborative effort. The result was what the computer scientists called the blue box.

The blue box, it's because the device was inside a blue case. Goren would later say that while he asked for an extension cord, what he actually got was more like a power outlet strip. It was much more versatile than a simple long distance connection between two different lands. It was a device that could allow for communication across lots of different networks and Yeager software, while being fairly unsophisticated.

According to one Stay and Ford employee who would later go on to work for Cisco, it was incredibly adaptable, so maybe not terribly you know, seamless or sophisticated, but easy to tweak so that you could incorporate different protocols. Bozak and a learner founded Cisco Systems in December four with the intent to market these routers for the burgeoning network industry, as well as networking cards for computers. They

didn't get started right away. Stanford officials decided in nineteen to undertake a comprehensive networking project to connect the various networks across campus together, and as part of that initiative, the officials wanted the project to rely solely upon the Internet Protocol as a communications protocol. So, in other words, simplify matters by settling on one standard for protocols and not allow anything else. This is it turns out, is foreshadowing,

but we'll get to that later. Bozak and an engineer named Kirk low Feed approached Yeager and asked him for his software. They said, can we get your software for multi protocol routers and they planned on modifying that for the new Stanford project whether solely Internet protocol as the communications protocol in question. So Yeager agreed, He handed over his software, and Bozak and lo Feed made changes to

that software. They stripped it of its ability to route other communication protocols because that was not part of the Stanford project, and they enhanced the Internet capabilities of the device, And in other words, they did make substantive changes to

the technology as part of the Stanford project. But apparently, according to Yeager, they did not reveal that they had also gone through the process of incorporating a new company and that Bozak had an outstanding request to Stanford to allow this new company to sell a version of this blue box router. Stanford is a non profit university, and as such they could not legally enter into the manufact

during business, but the router had undeniable utility. However, the university did not see eye to eye with Bozak and Learner, and they said no way san Jose. But that didn't stop Bozak and Learner from building routers and network cards out of their home in San Jose and selling them by late night or by some accounts, early What's more, other members of the staff of Stanford got all head up because of the couple and some of the stuff

they were doing. First, it seemed pretty clear that at least some of the development for Cisco's router product happened on Stanford's time when Bozak and law Feed and Learner were supposed to be working for the university. The Learner, by the way, would leave Stanford first before anyone else would second, and more to the point the Cisco router appeared to contain work that came from other members of

Stanford's computer science community, as did the network cards. Nick Vezad, who worked with Yeager, claimed that there was no real difference between the router Cisco sold and the ones that Stanford was using on their own systems, and that there might have been some theft if you're if you're being really you know, stickler for it. There were those who essentially were accusing Bozak and Learner of stealing intellectual property that belonged to other people without compensating them for it.

Bozak and Learner said that they had taken the technologies and they had made substantial changes to them, and also Stanford was not going to sell them. Stanford wasn't going to get into the manufacturing business. It couldn't as a nonprofit utility or university, I should say, so they did what they had to do in order to actually make it a working product. Meanwhile, Bozak was still working for

Stanford at that time. By early he was given the choice to either work for Stanford or just work for Cisco, but he could not do both of the same time, and he was also accused of operating Cisco during his hours of working at Stanford, and therefore Cisco's routers were being made at the university's expense. So this was a pretty tough accusation, and on July eleven, Len Bozak and Kirklawfeed both resigned from Stanford. Learner, as I had said,

had already left the university at that point. Cisco also hired on two other Stanford employees, Greg Satz, who joined Cisco as a programmer, and Richard Troyano, who would oversee sales. So this group of former Stanford employees start Cisco Systems. Now. Eventually, Stanford and Cisco would come to a settlement agreement to resolve the problem that Stanford technology was incorporated into Cisco's router. The university chose the settlement as the best option out

of a bunch of not totally awesome choices. So the other choices they essentially had was they could pursue a court case, which ultimately might have stopped sis sco, but it wouldn't accomplish much else, or or they could have done nothing at all and just allowed Cisco to operate

and not even objected. The settlement saw Cisco pay Stanford about twenty thousand dollars in cash, with another hundred fifty thousand dollars promised in royalty fees from Cisco sales, and also in agreement to sell routers to Stanford a discounted rate and to provide essentially free I T support less Earnest, who was Bozak's former supervisor, alleged that Bozak had also done business with Xerox using some of Stanford's technology in networking boards. That charge also didn't go so far as

a court case. Cisco would settle out of court for a seven thousand dollar cash settlement and two routers. Those routers each cost about four thousand dollars, So Cisco's origins were somewhat troubled. Now, when we come back, we'll take a closer look at the co founders and then talk a little bit more about what the company did in its early years. But first, let's take another quick break to thank our sponsors. Al Right, Well, here's a closer

look at the co founders of Cisco Systems. Leonard Bozak was born in nineteen fifty two in Pennsylvania and graduated from the University of Pennsylvania in nineteen seventy three, he became a hardware engineer at Digital Equipment Corporation, better known as d e C. D e C would later be acquired by Comback in nineteen ninety eight. By the way, in the late nineteen seventies, Bozak was accepted into Stanford

University and studied computer science. He met Sandy Lerner sometime around nineteen seventy seven while both were pursuing postgraduate studies and both of them were working on the mini computers in Stanford's labs, and he became a staff engineer at Stanford around nineteen eighty one. Sandy Lerner grew up in California. She was born in nineteen fifty five, and she was

mostly raised by two of her aunts. Her parents divorced when she was four years old, and she ended up living with her aunts mostly when she was growing up. She grew up partly on a cattle ranch and even started making money raising and selling cattle. She bought her first steer when she was just nine years old, and she sold it for a profit when she was eleven. In fact, her cattle business would end up funding her college tuition. She got an undergraduate degree in political science

at California State University. Then she pursued a master's degree in econometrics at Claremont College. She joined Stanford's program for Statistics and Computer Science, and that's where she met Bozak, and the two were married in nineteen eighty. They found success very early on in their business venture once they left Stanford and focused on Cisco. Within the first month of operating, they had landed more than two hundred thousand

dollars worth of contracts. Now, I should say that's a contract for two hundred thousand dollars or contracts worth two hundred thousand dollars. That didn't mean that they earned two hundred dollars in the first month. They still had to deliver upon the promise of that contract in order to

get that payment. Learner would later tell Forbes that quote we suspected that Procter and Gamble in Des Moines was going to want to talk to Proctor and Gamble in San Francisco end quote, meaning she could see a business case for the networking products right away. She said, these are going to be components that every large business and ultimately middle sized businesses and maybe even small businesses down the road. Will all need, but that would require the

business to scale up. They couldn't just work out of their living room. They were never going to be able to meet the demand and they would always be behind if they didn't scale up. That would require more capital than what they had at their disposal. Bozak and Learner had already maxed out their credit cards. They also took out another mortgage on their home, and they did this all to keep the business afloat while they tried to

deliver upon those contracts. Learner had also taken a job as a manager for the Research Computing Systems group over at Schlumburger Computer Aided Systems Laboratory, and it was clearly just not going to be enough. They started to look around for investors. Originally it didn't go so well. Bozak would later say, quote, we must have talked to eighty or ninety different venture firms. We got turned down by

just about every one end quote. In January, the co founders decided to hire on William Graves as president and chief executive officer. Graves it previously were for Bell Aerospace Textron where his job was I don't know, it says classified on LinkedIn. I don't have classification. Back in six Cisco's revenue was a hundred twenty nine thousand dollars, which sounds not bad. Nine thousand dollars now, that's revenue for the whole company, and the two were able to well,

really more than two. The five virginal employees were able to land contracts that were worth more than a hundred twenty nine dollars, but delivering upon those contracts was a challenge, and once you took the expenses for the company into account, they were essentially kind of breaking even, and the following

year saw some improvement. By the end of Cisco's fiscal year in nineteen eighty seven, by the way Cisco's fiscal years end in July, Cisco would achieve revenues of one and a half million dollars with a ten percent net income before taxes, which meant the company was able to make enough money to stay afloat while looking for an investor.

They didn't have to take out even more loans. Sequoia Capital and Investment Firm eventually stepped up to invest in the company, but Donald Valentine, who was the backer at Sequoia, he was ready to invest in late nineteen eight seven, but felt that Larner and Bozak lacked the experience to grow a company and lead it effectively, and apparently he felt that Graves just didn't cut it either, so he insisted in n on installing a new chief executive officer

to take the reins and lead the company. After ast installing an interim president. Valentine ultimately chose John Mortgaridge in October nine. Sequoia would also get a thirty two percent ownership of the company, and in return, Cisco would get two and a half million dollars in investment capital. Bozak and Learner would retain thirty percent ownership of the company,

which would vest over the course of four years. Mortgridge was an NBA graduate from Stanford, but he graduated in nineteen fifty seven, so he preceded Bozak and Learner's time at Stanford by a couple of decades. They did not cross over. He had worked for Honeywell Information Systems and then later on he was the chief operating officer of a company called Grid Systems. According to Learner, the first time she met Mortgadge, he had already been hired on

to be CEO of Cisco. So there was a little bit of acrimony between the co founders and John Mortgadge because they didn't really have any say and who was going to lead the company they had founded. But if they didn't go along with this, they wouldn't get the investment money they would need in order to scale up. At the end of the fiscal year Night, which was just a few months before Mortgage was officially installed as president and CEO, Cisco was on the upswing with five

and a half million dollars in sales. Mortgage would take the company even higher, and Valentine would end up becoming the chairman of the board of directors. This, however, did not mean everything was going smoothly at Cisco. So while Cisco continued to create network infrastructure hardware for clients, the co founders were clashing with their new management. In February, Cisco held its initial public offering or i p O. This is when a company goes from being a privately

held company to a publicly traded company. According to invest Opdia, a one thousand dollar investment would have netted you fifty five point five five shares of Cisco stock, which by my math means the stock price must have been somewhere around eighteen dollars per share. By the end of the first day of trading, the share price had risen twenty four percent and the company's valuation was was estimated to be two twenty four million dollars. The company found much

of his success early on in overseas markets. It was selling network infrastructure hardware to tons of clients. Things were going great, except that the co founders were still not really happy with the way the company was being led. In August, Sandy Lerner, co founder of Cisco, was fired from her job, and in a show of solidarity, Lynn Bozak resigned from the company as well. The co founders had left, and they sold off their shares in the

company for around a hundred seventy million dollars. Their marriage, unfortunately, had taken some hard bumps along the way. They had been working endlessly on the company, and they found that they were no longer really working well as a married couple, and so in the ninet nineties the two would divorce. Sandy Lerner would go on to fund several other ventures, including the Urban Decay cosmetics line that was her project.

She also headed some philanthropic efforts. Bozac would go on to found a company technology company called x k l l C. In Now. In the next episode, I'm going to cover more of Cisco's history, how it grew to be the most valuable company in the world, and how it lost more than three quarters of that value as a result of the dot com bubble burst, and then how it was able to recover after the wake of the bubble bursting. That will be in the next episode.

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