Startups - The " Inside" Stories

Do You Stay or Do You Go?

Once, when Larose and Allan were talking about the scheme that would later become Channelware, Larose's wife interrupted their conversation. "Mary-Anne said that if our idea took off, she hoped we'd get rich," recalls Larose. "And for a second, I wondered if we ought to leave Nortel and do it all ourselves."

Allan decided to keep his day job. Larose, 44, who, at the time, was working on Nortel's residential-broadband applications, knew that he lacked the experience to go solo. "Managing every part of a project this size wouldn't have fit in with the things that I'm good at," he says. He also realized that launching a startup at a big company like Nortel had many advantages.

First, there's the infrastructure. "You can concentrate on the business instead of focusing on where to get the best fax machine," says Dodge. "Most people think that every startup's worst nightmare is dealing with staffing and funding. Wrong. It's the limited number of hours in a day that can kill you. So you don't want to waste time at office-supply stores." Nortel also helped out with legal concerns, office-space leases, and public-relations issues. The result: Channelware was spared the Silicon Valley ritual of giving away thousands of stock options just to get the best real-estate agent to return phone calls.

It also helps that big companies tend to have more patience than venture capitalists do. "The objective is not to get rid of people, which is what venture capitalists do best," says Dodge, who visited many VCs last year when he needed to raise additional money to fund the spin-off of Channelware. "VCs aren't set up for hand-holding."

But Nortel's Business Ventures Group is committed to hearing ideas, even if they're only partially formed. "We let people refine their plans and pitch them to us again," says Horne, who was a founding member of the group's advisory board. "You don't get a second chance with VCs."

Above all, when you're just starting out and no one knows you, a large company's endorsement can mean everything. Being affiliated with a big-brand company can open many doors. "When was the last time you picked up your phone and didn't hear a dial tone?" asks Dodge, hinting at Nortel's industrial-strength reputation. "Our largest customer told us that if we weren't a Nortel Networks venture, it never would have done business with us."

So Larose and Dodge thought a bit about what it would be like to hoard the equity and to ditch Nortel. But they didn't consider that idea for very long. "We may not be rich," Larose says. "But, in hindsight, the whole process of incubating the business within Nortel still gave us a good shot at getting rich."

Who's on Your Team?

Joanne Hyland, 39, a Nortel VP, has led the Business Ventures Group since its inception three years ago. The group has received hundreds of proposals. She says that the worst-laid plans all have had one thing in common: "They all lack a compelling team. Too many people fail to ask themselves whether the team they've assembled is prepared to pull 200% of its weight."

As Larose began to develop Channelware within Nortel, he realized that he needed help with the programming. "Nortel is full of smart people, and finding them wasn't the problem," he says. "When people wandered the halls, they'd see one person testing a new phone switch and another tuning up a Unix machine. And there I was, playing Quake because I'd figured out how to rent the game over the Internet. People gravitated to the project because it seemed cool.

"I looked for people who had high energy and total commitment to the project," Larose continues. "And if you happened to have formed a browser company in a previous life, and it went bankrupt -- but boy, did you learn something about starting a business -- then you had a lock on a job."

Larose also had a clear-eyed understanding of his own strengths -- and his own limitations. From the beginning, he knew that he wanted only to run the technical side of the project. That meant that he needed a project leader.

"I have trouble behaving myself when I'm around a lot of executives," says Larose, "which is true of most technical people." Jeff Dodge, he says, is slightly more presentable. As Dodge himself says: "I'm housebroken. I can go into a room crowded with customers, translate engineering terms into English, and put those customers at ease."

As Larose spread the word within Nortel about Channelware, Dodge emerged as the go-to guy who could lead and sell the project. "People asked me why I didn't want to run the project myself," says Larose. "And my answer was 'I'm best at heading up the technical stuff. Jeff has strengths that complement mine, which is why we have a stronger team.' "