Online Extra: Carl Russo Talks About Act II

The chief of up-and-coming network company Calix discusses his new venture, the Net's next leap, and his drive to beat Paul Newman

Carl Russo is well-known in networking circles, not just for his blockbuster sale of Cerent to Cisco Systems (CSCO ) for $7 billion in 1999, but for his high-energy, laugh-a-minute personality. Russo quit Cisco in 2002 to enjoy his financial success, but he took the helm of struggling networking startup Calix in 2003. That company, which makes gear that phone companies use to deliver video and other bandwidth-hogging services over plain old copper phone lines, is now growing rapidly.

Russo, who commutes from his beachfront Santa Barbara (Calif.) home -- in his Cessna Citation X, no less -- to spend the work week at Calix' headquarters in Petaluma, Calif., recently sat down with BusinessWeek's Peter Burrows. Edited excerpts of their conversation follow:

Q: So is it true that no company has paid more for a privately held company than Cisco paid for Cerent?


Not for any private company? There are some very big ones out there. But for a private tech company? I think it'll be long damn time before that record is broken.

Q: So let's cut to the chase: How much are you worth?


I don't know. That's sad, but true.

Q: Calix is often mentioned as an IPO candidate or as an acquisition target. What are your plans?


Our goal is to build a business -- not to be private, go public, or get acquired. People have lost sight of what running a business is all about. And frankly, we've got a lot to do.

Q: You've been on record saying that you'd actually prefer to remain private. That may be O.K. for you, given the money you made on the Cerent deal. But isn't it important for your employees to know they may have their shot at IPO riches?


The only thing that would cause me to go public is if we wanted to go do an acquisition. I don't know why else I'd do it -- except to solve Kevin's liquidity crisis [he laughs, then takes a few dollars from his wallet and hands it across the table to Calix Marketing Vice-President Kevin Walsh, who's sitting in on the interview]. There, that's solved.

Seriously, our job is go build a good company, that offers good services that solve its customers' needs. With all the talk of IPOs and acquisitions, it seems people lose sight of that sometimes.

Q: But that's what every entrepreneur says. In fact, you were saying the same thing before you sold Cerent to Cisco -- that you weren't looking to be acquired.


Hey, people would always ask me if we wanted to be bought, and I'd truthfully answer "no." We weren't trying to be acquired. I genuinely believed we were going to go public. We were filing our S-1, and it never dawned on me that anyone would make a bid [before the IPO -- Cisco approached Cerent after it filed its S-1].

Q: You had the good fortune to take part in what may be the biggest boom ever for the communications-equipment industry. Why is now a good time to be back in the business?


The other night I watched the piece on Google (GOOG ) on 60 Minutes. Now, people don't normally think of Google and the telecommunications network as being related, but from my perspective they're dramatically related, because what Google does will enable you to go out and find from this morass [of information] out there whatever you're looking for.

What the telecom infrastructure has to do is move what you're looking for -- a Web page, a movie, a huge file -- to wherever you are. [During the 60 Minutes segment, the Google guys] talked about the possibility of being able to search video clips. Once you have that facility, the whole notion of watching a broadcast -- at least anything outside of a live show -- is only a few years away from being antediluvian. And the telecom infrastructure is going to have to change dramatically to make this possible.

There will be lots of debates about technology and how to regulate this new industry. But at the end of the day, the economic forces of a consumer wanting to see something [when they want to see it] can be impeded but not stopped.

Q: Calix makes equipment that connects homes and buildings to the Internet, historically a very competitive, low-margin part of the networking world. Why did you focus on this part of the market? And how did you manage to raise $290 million for a business that has been something of a backwater?


Let's be honest. It wasn't too hard to raise money for anything in 1999. But everyone was investing in the [market for superfast "core" routers], on the assumption that the Internet was doubling every month or every day or every minute. It wasn't true.

Still, there are huge pipes in the core and huge demand building at the edge -- but there are these tiny straws in between. Something had to happen [to find a way to deliver more powerful services over the thin copper phone lines that connect most homes to the network].

Q: If every phone company installed gear similar to Calix, how would life be different?


An iPod has the ability to store 10,000 songs [but it's hard to move them between various kinds of devices, such as the home stereo or your PC at work or your cell phone]. The network doesn't have pipes that are large enough or intelligent enough to do that -- yet -- but it's going to.

At the end of the day, this is all about peer-to-peer file transfers, where the files could be a song or a video or a voice call or a Web page. The only difference between them is the size of the file and how much delay is acceptable [and the network needs to be smart enough to understand which bytes require which kinds of treatment]. For example, there can be a two-second delay on a live concert -- so long as once it starts it's not interrupted. But remote robotic surgery would be a bad place to have a delay.

Q: You obviously enjoy a good laugh, and humor seems to be a part of your management style. True?


So the question is "why humor?" First of all, I don't know if I could control myself. But also, when you're building a company where people will spend the plurality or even the majority of their time, you better make it a place where people feel comfortable.

Q: Your race-car team, RuSPORT, competes with a team co-owned by actor Paul Newman.


Yes, that's whose ass we're going to go kick.

Q: What do you like about owning a race team?


For me, it's the competition. It's the puzzle. It's how do you put the right pieces together in the right order, with the right culture.... I love to compete. It must be some deep-seated insecurity from not being picked for the sixth-grade softball team.

Edited by Patricia O'Connell

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