Co-owners sharing business rewards do not need to take on the same mix of responsibilities; instead, to create more value, all can focus just on those responsibilities they are best able to discharge. In this article, Felix Barber and Michael Goold discuss that by sharing business ownership, executives can expand the pie so much that everyone does well – and the company is poised for future success.
In 2000, Cisco Systems did something very strange. One of its leading engineers, Mario Mazzola, was tired of working for the networking giant and had decided to retire. So Cisco gave him an offer he couldn’t refuse: his own company to work on new networking technologies. Cisco put up nearly all of the funding, $184 million, but accepted only a minority share of the equity. All it asked for was the right to buy back the company when Mazzola was ready to sell, at a price to be determined. Mazzola would have autonomy and independence from Cisco, and the company didn’t even mind when Mazzola took many of his favourite engineers from Cisco with him.
Four years later, when the startup developed a practical product but before its commercialisation, Cisco paid an additional $750 million to acquire the “spin-in”. Mazzola and his colleagues made hundreds of millions that, in a normal company, would have stayed in the treasury. But Cisco was so pleased with the arrangement that two years later, in 2006, it encouraged Mazzola to try again. This time the company put up $70 million, and bought the startup for $678 million more only two years later.
These first two ventures focused on storage and server technologies, which were complementary to Cisco’s main product. The third spin-in, launched in 2010, focused on developments in software-defined networking that threatened Cisco’s core. Rather than develop this technology in-house, they gave Mazzola $135 million to do it for them. Not surprisingly, morale at Cisco R&D took a hit. But two years later, almost by clockwork, the company happily paid $863 million to Mazzola & Co. Rather than being embarrassed at the failure of its internal R&D, Cisco has publicised the approach and attributed billions in sales to it.