In Search of the Perfect Startup

H. Michael Zadikian is searching for the perfect startup.

It's a journey that started six years ago, taking him across countries and industries, from Silicon Valley to Texas. At that time, he was a restless young marketing manager for Cisco Systems Inc., convinced that he could do more than simply push out someone else's products. Later, in 1999, his first attempt to colaunch a high-tech company, Monterey Networks, was sold to Cisco for $500 million -- but it didn't combine engineering genius, teamwork, and strategic mastery as well as Zadikian wanted.

During the height of the startup boom, he sold. Now in the depths of the bust, he wants to create the mother of all startups.

This time, Zadikian has retooled everything that he didn't like about his first attempt. He won't be a small niche player anymore -- at the mercy of giants that can make or break his business. He will spend more time knitting together teams that genuinely work well together, so that factions and feuding don't undermine his efforts. And if achieving his goal means starting a flurry of interrelated companies all at once, he's prepared to do it. And well, that's exactly the path he's chosen. Think of it as a startup times four.

His new venture is called the Iris Group, and it consists of four optical-networking companies carefully constructed to tackle adjoining business challenges. Step-by-step, Zadikian wants to help telecom carriers manage high-speed data and voice traffic across every aspect of their optical networks. That is a huge problem, attracting attention from hundreds of young companies as well as industry giants like Nortel Networks and Cisco. Iris is still in its infancy and is less than a year away from delivering its first product to customers. But Zadikian and some powerful venture-capital backers think that Iris's unusual four-in-one approach could pay off in a big way as the industry evolves.

"Our goal is to partner with organizations looking to change the way networks are built," says Todd Brooks, an optics specialist and a general partner at Mayfield, Iris's largest financial backer. "Making networks more efficient requires a bolder way of thinking about design. And that's what Iris has done. It's a nimble startup with the breadth of a big company." Three of the four Iris companies garnered between $24 million and $30 million in venture financing from an investing syndicate with strong credentials in the optical field.

Each company within the Iris Group tackles a discrete piece of the bandwidth challenge. For example, one company focuses on the immediate problems of local carriers overwhelmed by voice and data traffic. Another tackles the long-distance hurdle of sending data across thousands of miles without interruption or costly conversions.

Even in boom times, making all the pieces fit together would take a mighty effort. Market dynamics are changing so fast in telecom that what looks like an effective strategy one quarter can be out of step just six months later. And lately, the optical-network business has gone from frenzied growth to harsh retrenchment. Industry leaders like Lucent, Nortel Networks, and JDS Uniphase have announced layoffs and profit shortfalls in response to slowing demand. And Cisco essentially shut down its optical-switching division, the very business it acquired from Monterey Networks.

But Zadikian is hardly deterred. His companies create products for next year, not next quarter. Eventually demand will bounce back, he maintains, and an industry-wide slump for the next few quarters will actually make it easier for the well-funded Iris startups to refine their next-generation products behind closed doors -- to a degree that most other young companies can't.

Zadikian has already recruited dozens of top-notch hardware engineers and seasoned executives for each of the Iris companies. Product-planning teams from different companies meet regularly with the network management teams. For some prospective customers, all the Iris companies present their solutions together. Zadikian keeps the marketing messages consistent by staying involved with each of the companies' marketing efforts.

"We're not on a wild innovation kick, breaking the laws of physics," Zadikian explains. "We're trying to balance entrepreneurial methods with the value of big-company experience."

How to Reverse-Engineer a Big Company

It's 12:05 AM Thursday morning. Zadikian and his colleagues, sluggish from choice wine and steak at one of Dallas's best restaurants, climb into a Texas-sized Ford Excursion. But the workday isn't over. Zadikian needs to finish a conference call before 1 AM. Cruising along Highway 75, he picks up one of his three cell phones and begins a conference call about hiring with the CEO of Coree, the Iris core packet-switching systems company in New Jersey.