In March 2000 Sycamore Networks was worth $45Bn. On Feb 1st in 2013 the company was worth $64 million. During the past 15 years a few milestones are worth noting:
- In 1998 the company’s reason to exist was to develop new-age gear to direct the growing volume of digital Internet traffic.
- In 1999 when it went public, it was valued at $14Bn with revenue of $11m. (at the same time Cisco was valued at $551Bn)
- Within 1 year the company was worth $45Bn
- Forecast growth in Internet traffic way too optimistic.
- May 2001 the company was now worth a tenth of the peak valuation at $4.5Bn
- Market recovered but telecom network operators shifted to different technologies
- Sycamore stuck to its initial product line, reluctant to invest in the next generation of technology
- Last year the optical-switching gear market had declined to $500m from $1.1Bn in 2008.
- Sycamore had built reasonable cash reserves but refused to acquire or innovate but instead distributed $750m in dividends.
- After selling off its remaining product line recently, shareholders voted to dissolve the company with a market worth of $64 million.
It is highly unlikely as an entrepreneur that you will find yourself running a $45Bn business. But the lessons from tragedy are still worth considering:
- Are you blind to change? Are you zooming out as well as zooming in to execute?
- Are you scaling or are you declining because you can’t be motionless?
- Innovation is not an event it’s a process.
- Change comes hard and fast.
- Can you leverage your success today to invest in long term controlled, safe growth?
- Are you communicating with your customers to allow you to understand what they need to be successful?
- Do you understand the business you are in? Are you too narrowly focused on product?
- Are you growing beyond your ability to execute?
Sycamore is an extreme example of wealth decline but remember as the owner/senior manager of a private company it’s not always possible to see that decline. It’s not possible to see your value decline over time until the day you try to sell out and you realize it’s not the asset you hoped you were selling!