Redback & Blue Coat Turnarounds
Back from the dead – valuable lessons for entrepreneurs
Shailesh Shukla (Chem+EEE, 82-87)
VP of Marketing & Partnerships, Juniper Networks
ex-VP of Strategy, Bus Dev and Marketing, Redback Networks
Alagu Periyannan (EEE, 85-89)
CTO, Blue Coat Systems
September 29th 2006
BITS Pilani Alumni Association (www.bitsaa.org)

Overview
Introductions
& R P S D Q \\ 2 Y H U Y LH Z
Blue Coat Systems + LJ K V D Q G / R Z V
1 D UU D WLR Q R I 7 X UQ D UR X Q G
Redback Networks / H V V R Q V IR U ( Q WUH S UH Q H X UV
Q&A
BITS Pilani Alumni Association (www.bitsaa.org)

Introductions
Alagu
– BITS, NCSU
– Apple (ATG, QuickTime)
– Entera, CacheFlow/Blue Coat
Shailesh
– BITS, Univ of Kansas, MIT Sloan
– Sprint, Booz-Allen, Mercer
– Redback, Juniper
BITS Pilani Alumni Association (www.bitsaa.org)

Disclaimer
Blue Coat Systems and Redback Networks are
both public companies
– We are not representing company viewpoints
– Forward looking statements are personal opinions
BITS Pilani Alumni Association (www.bitsaa.org)

Blue Coat Overview
Founded ‘96, headquartered in Sunnyvale, CA
– Originally CacheFlow, IPO ’99 (CFLO), became Blue Coat (BCSI) in ’02
– 6 acquisitions: 5 integrated into the core platform; 1 killed
Leader in proxy appliances
– Over 25,000 proxy appliances shipped worldwide to over 4,000 customers
– #1 market share in proxy appliances at 37% (IDC, Dec ’05), now 65-70% market share
with acquisition of NetCache
– 500+ employees; approx. $150M annual revenue run rate
Focus on medium to large organizations worldwide
– Every U.S. Air Force base worldwide has standardized on Blue Coat
– In Saudi Arabia, Internet access for the entire country is monitored and controlled by
Blue Coat proxy appliances
– Most major financial institutions worldwide use Blue Coat
Recently entered the WAN Optimization market
BITS Pilani Alumni Association (www.bitsaa.org)

Blue Coat Highs & Lows
Highs in 1999-2000
– Quarterly Revenue: $32M (with $20M loss)
– Stock Price: $140 (Market Cap: $6B)
– Employees: 600+
– Cash: approx. $120M (cash burn of $25M per quarter)
Lows in 2002-2003
– Quarterly Revenue: $10M (with $4M loss)
– Stock Price: 45 cents (Market Cap: $30M)
– Employees: 190
– Cash: approx. $20M (cash burn of $2-3M per quarter)
BITS Pilani Alumni Association (www.bitsaa.org)

Blue Coat Turnaround
Market dynamics
– Telco bubble bursts: 70-80% of revenue dries up over 3 quarters in 2001
– Enterprise Content Delivery (CDN) market stalls – lots of evals, no buying
– Scramble towards focus on enterprise Proxy market
– Name change – “CacheFlow” too good a name
Product strategy
– Initial strategy to “power through with product differentiation” becomes costly
– Killing of Service Providers & CDN product plans
– Abandoning a massive next-gen H/W & S/W platform transition
– Revitalizing a pre-existing side-project towards advanced proxy/security
– Focusing on advanced URL filtering & policy controls for medium/large ent.
BITS Pilani Alumni Association (www.bitsaa.org)

Blue Coat Turnaround
Sales execution
– Service provide to enterprise sales transition
– Increased use of distribution and reseller channel
Finances
– Burn rate in 2001 reflected boom-time legacy
– Stock in free fall starting late 2000 – reverse-split or de-list
– Expense control and more expense control
– Cash went down to $20M before starting to build (IPO raised $110M)
People
– Multiple RIFs: Reduction from 600+ to 190 (R&D 220+ to 66!)
– Core team left behind forms a bond and willing to be jack-of-all trades
– Assimilating acquisitions – no room for multiple cultures
– Attitudes are as important, if not more important than talent
BITS Pilani Alumni Association (www.bitsaa.org)

Lessons Learned
1. Maintain focus: product development & sales
2. Assimilate acquisitions, create one culture
3. Conserve money, but invest on chosen bets
4. Core close-knit management team is essential
5. Get over it - the late nineties were an anomaly
6. Don’t believe the naysayers
BITS Pilani Alumni Association (www.bitsaa.org)

Redback Overview
Founded ‘96, headquartered in Sunnyvale, CA
– Funded by Top Tier VCs: Sequoia, Accel
– IPO in May 1999: one of the Top 5 IPOs at that time
– Acquired Siara Systems (Kleiner company) that is the basis of current products
– Develops Network Equipment: specialized IP Routers with subscriber intelligence
Focused exclusively on the service provider market segment
– 500+ Customers including 15 of Top 20 service providers in the world
– 40% of the world’s broadband DSL lines terminate in a Redback platform
– Customers include Verizon, AT&T, France Telecom, British Telecom, KT
Seen as a Broadband and IP Pioneer
– Created a completely new market category: Subscriber Management Systems
– #2 player in broadband market; #3 player in the broader IP Edge market
– 500+ employees; approx. ~$275M annual revenue run rate
Dramatic resurgence after exit from bankruptcy in 2004
– Current market value about $1 Billion
BITS Pilani Alumni Association (www.bitsaa.org)

Redback Highs & Lows
Highs in 1999-2000
– Quarterly Revenue: $60M (approx breakeven)
– Stock Price: $200 (Market Cap: $25B) – split twice
– Employees: 1200+
– Cash: approx. $500M (cash burn of $50-60M per quarter)
Lows in 2002-2003
– Quarterly Revenue: $35M (with ~$50M loss)
– Stock Price: 20 cents (Market Cap: $36M)
– Employees: 400
– Cash: approx. $20M (cash burn of $25M per quarter)
BITS Pilani Alumni Association (www.bitsaa.org)

Redback Turnaround
Market dynamics
– Telecom bubble bursts: service providers stop spending – “Nuclear Winter”
– More value destroyed in the telecom implosion than Internet 1.0
– Sectors of the market continued to grow: e.g. broadband explosion
Product strategy
– Multi-service market – the “God Box” did not fly
– Transport market dynamics almost killed the company
– Standalone IP routing entry was hard
– Refocus on core strengths: subscriber management
– Beach-head strategy against Cisco
– Product Transition: from 2nd generation to 3rd generation while in bankruptcy!
BITS Pilani Alumni Association (www.bitsaa.org)

Redback Turnaround
Sales execution
– Good to have the CEO as a sales guy
– Did not lose a single customer, grew revenue through bankruptcy
Finances
– $500M in cash gone: invested in $400M of R&D!
– Trajectory to bankruptcy obvious in 2003: proactive deal with bondholders
– But shareholders can be a bit short-sighted
– Had to enter Chapter 11 because of lack of shareholder quoroum
– Largest reverse split (73:1) in telecom history
– Eliminated all the debt! “Like being Born Again”
People
– Downward spiral: reduction from 1200+ to 400
– Culture took a hit; only those who believed stayed
– Close knit management team that stuck together
– Employee incentives: accelerated vesting etc. a key enabler
Three things that mattered: Execution, Teamwork, Attitude
BITS Pilani Alumni Association (www.bitsaa.org)

Lessons Learned
1. Capitalism is a Beautiful Thing
Hard to get rid of fixed costs
Run lean and mean – ALWAYS
2. Product Transitions are hard – plan this!
3. Customers are your best friends: seek their assistance
Everyone else does not have your interests, especially VCs (;-)
4. Acquisition integration is crucial
5. Never Give Up
If you are convinced you are on to the right thing
Don’t think small
BITS Pilani Alumni Association (www.bitsaa.org)

Q&A
BITS Pilani Alumni Association (www.bitsaa.org)