RESEARCH TRIANGLE PARK — Pete Savage has been an entrepreneur before, growing a company all the way through an IPO, further acquisitions then selling out.
So why go through all this again — now as chief executive officer at Hatteras Networks?
Taking on another company building exercise was not his intention, Savage says with a laugh. He started working for a friend — Hatteras CEO Thomas McPherson — on a part-time basis two years ago. Then he accepted a full-time job as vice president of business development, a post he held for two years.
Last week, he moved up as McPherson stepped aside, citing a desire to better balance his personal and professional commitments, the company said.
“I don’t know if Tom was cleverly trolling out there or not,” Savage said, referring to his Hatteras start, “but I really liked the people Tom had recruited, there is just an absolutely exceptional management team that to me is one of the defining characteristics for building a successful company, and I like the space.
“When we came up with the financing, Tom talked me into coming onboard full time.”
The space Hatteras is targeting is last-mile Ethernet, the plan being to develop equipment that enables telephone and network providers to extend broadband services in a more effective, lest costly means and use the resulting additional services to drive more revenue. The financing was a $28 million second round in 2001.
Hatteras closed on a $45 million third round last year.
Savage and McPherson had grown to know each other over the years since both were involved in networking and telecommunications.
“There are only 300 people involved in telecom in the United States,” Savage said with a chuckle. “We just keep running in to each other.”
In fact, at one time, when Savage was CEO at ADA Networks — the company he took to IPO then sold in 1999 — tried to recruit McPherson for a job in California. One of the ADA investors knew McPherson and recommended him to Savage, but Savage said the time was not right for McPherson to move west.
Once Savagehad sold ADA, he began doing consulting and part-time executive work. And that’s when he ran into McPherson, who this time played recruiter.
“We ran into each other at a VC event,” Savage recalled. “I had sold ADA in 1999. I had been there nine years, we had gone from 26 people to mover 300. We had done two VC rounds, an IPO that was oversubscribed, we then did three more acquisitions, and then we sold the company.”
When Savage ran into McPherson again, he said the last thing he wanted was a full-time job.
“Quite frankly, I was tired,” he explained. “I took some time off and looked at the industry. I was so immersed in network performance (from ADA), that I wanted to see what else was going on.”
Savage initially started on a part-time basis, working one or two days a week. Hatteras was re-gearing itself to focus on Ethernet. Finally, McPherson convinced Savage to come onboard full time.
“I have developed an affection for the golf courses,” he said, citing one of the fringe benefits of the move East.
Extensive track record
Savage brings a long track record to Hatteras. Before taking over ADA, he spent 11 years at Bell Labs on emerging technologies. He left to take over a small startup and quickly became a turn-around artist.
“I was recruited by the first small company that was in significant disarray from an engineering and technical perspective,” he said. “I was recruited to four companies as vice president of engineering to fix issues.”
All had some shared problems, he added.
“Each company I found had a significant set of common challenges and common failures. If they stayed on the path they were on, they would be out of businesses. At one, the focus was on telex switches for central offices. There’s not much telex left. At another. The focus was on 14(dot)4 modems when they cost $14,000 each.”
But in addition to product problems, Savage said the failing companies also had internal snafus.
“There were rivalries and conflicts and cultural issues,” he said. “Twice, I was promoted to CEO.
“They were not situations where if by Tuesday we didn’t do something the sheriff was coming to lock the doors, but if we did not change, within a year we would be out of business.”
Savage said he didn’t see those problems at Hatteras, which is one of the reasons he decided to take a VP position after having been his own boss for so long.
“We are entering telecom nuclear winter,” he said, referring to the dismal state of the telecommunications industry. “You have to access the health of telecom in a couple of ways. What are the telecom companies buying, It’s true, if you are a traditional supplier like Lucent, Nortel and the like, your revenues are way down and the industry has been hit hard.
“On the other hand, you have to evaluate the health and potential of an organization. The potential is where you are as a startup, and you have to look where the telecom companies are planting seeds today, what fields are they plowing,
“Broadband Ethernet is one area in North America and Europe where there is a lot of plowing and cultivating and seeding going on right now. There is going to be a significant opportunity in the not too distant future.”
Savage said Hatteras and its products, which are being tested in telecom labs right now, as seeds that will bear fruit.
“The analogy I like to use is the airline industry. If American or Southwest would sell two more seats on flights where they have already covered their costs, that’s pure profit,” he said. “In telecom, if they cover their costs and they achieve 1 percent over, that represents a huge shift.”
He said Ethernet can deliver incremental revenue, drive up profits and produce a quick return on investment, thus convincing telecoms to make capital expenditures.
“”Business demand for broadband has grown 18 to 25 percent a year over the last 10 years and continues to grow through the recession — or depression — we are in right now,” Savage said. “Phone companies know that, and they know what the opportunity is.”
Now, he said, the challenge for Hatteras is to demonstrate that its hardware can deliver on that broadband promise.
Hatteras Networks: www.hatterasnetworks.com