Robert Madge on the fall of his namesake networking company

Does the name Robert Madge mean anything to you? It probably rings a bell, if a distant one. Madge was the founder of Madge Networks, which in the late ‘90s was the market leader in Token Ring networking technology. The once high-flying company has since met the same fate as that of Token Ring itself: near oblivion.

The story of the collapse of Madge Networks is a remarkable one,  especially when you hear it directly from Madge himself. That's what happened over breakfast earlier this week when I met up with Madge at the 16^th World Congress on Information Technology in Kuala Lumpur, Malaysia. Madge, who since leaving his namesake company in 2001 has won acclaim in the field of RFID and tracking technology, was completely open with me about the downfall. Here's his tale, in the form of a Q&A:

DT: You left Madge Networks in 2001. Why?

RM: By 2001, the company had not succeeded in the attempts I had made to diversify. We had this very strong focus on Token Ring local networking, which was a very successful strategy so long as people bought Token Ring. We made some attempts to diversify. One was where we purchased a company, Lannet, that put us more into Ethernet and other local-area networking.

Also, we invested heavily in ATM technology. Those were completely different directions. Token Ring was going with a technology that was already pretty well established and had existing players, and ATM was a new technology. And neither effort succeeded, for different reasons. It wasn't the right strategy for us to broaden our range when we didn't have the same scale as many other players in the arena. Also, the truth is the trend was moving away from any issues about which was the underlying protocol, to a focus on just Internet Protocol. So customers were choosing solutions based on it just being an IP strategy. The issue of the underlying strategy of Token Ring or Ethernet or anything else was starting to become much less relevant. And at that point in time Cisco was very clearly becoming the dominant IP supplier. We didn't have a router range, so we weren't a player in that game. And it was too late to diversify into a technology that was already established.

DT: That explains the problems you were facing, but not why you left.

RM: Well, I oversaw the decline of the company, and I guess I was out of ideas. Token Ring was still playing pretty strong, but by the late ‘90s the writing was on the wall, and had been on the wall for a while. And then sales started to decline.

DT: Two years later, in 2003, the company filed for bankruptcy protection. Any insights on that?

RM: I moved out completely, so I don't have any association with the management of the company. I had been running that company for 15 years, and I had taken it up, but unfortunately I had taken it down as well. I needed a clean break.

I haven't followed the company. I decided not to. There's an emotional aspect to it. With time, it's become dulled. But when I was no longer in control of the company, to watch what the company was doing and, perhaps, being emotionally affected by it but having no influence on it, wouldn't have done any good.

DT: The company was restructured as Madge Inc., and in 2006 was acquired by Network Technology in the U.K. and merged into that company's Ringdale arm under the Madge name. Was there any concern on your part about them keeping that name?

RM: There are good and bad issues about naming a company after yourself. It made me that much more committed. It had my name on it, so of course I would be judged by the company. And that's what happened, even when I wasn't with the company. So obviously, if I was going to be completely detached, I'd rather it didn't carry my name. But that was not my option. The name was the property of the company.

DT: In hindsight, was there anything you could have done differently that would have saved the company from the downslide?

RM: By definition, of course. With hindsight, I could always speculate, but I couldn't prove anything. But I'm sure I should have found ways for the company to do better than it did. The fundamental issue was that we had success by focusing on one area of technology, and as that area of technology turned out to have a limited lifetime with no natural progression path, it was up to me and the other members of the management team to find a future path. We clearly spent money in areas that didn't produce a return.

DT: If you had stuck with a Token Ring-only strategy, do you think that would have prolonged the life of the company?

RM: No. We could, perhaps, have just dispersed cash to shareholders, but I don't think as a company survival strategy just sticking with Token Ring was a viable option.

DT: Why has the popularity of Token Ring declined so much?

RM: Ethernet started with very small-scale local-area networks, whereas Token Ring went into companies that were traditionally buying mainframes that wanted a highly reliable solution. Because IBM was pushing it, it was considered to be suitable for mission-critical networks. So large companies tended to buy Token Ring, and small companies tended to buy Ethernet. Over time, Ethernet evolved, and large companies started to buy Ethernet as well, and IBM's position in the market weakened significantly.

Token Ring could also have evolved, but the most critical element was the decision by IBM not to participate as a player in an industry group called the Open Token Foundation. We had about 25 vendors of Token Ring products. IBM attended a couple of meetings, and then made the decision that they wouldn't sign up. That sent a strong signal to the market that it was not going to be an open standard, because IBM as the principal vendor wouldn't join in with other companies in promoting it.

The other element was that Token Ring was more complex than Ethernet, but that complexity wasn't a benefit. Ethernet [equipment] could be produced in very large volumes, so the cost differential increased between Ethernet and Token Ring. There was much less Token Ring volume in the market, so the whole infrastructure of support and cable installations turned towards Ethernet.

DT: You eventually sold Lannet off to Lucent. Why didn't your acquisition of Lannet work out?

RM: Lannet was a large company comparable to ourselves with nearly as many people. After about six months it became clear that our sales were not reacting well as a joint company. We had a lot of problems in putting the company together. We couldn't get a clear, focused strategy that everybody bought into. Most acquisitions fail. If you can't get positive momentum fairly soon, you're much more likely to fail, especially when the two companies are fairly similar in size. Because we couldn't get positive market momentum, all the differences in opinion broke out, and it became that much harder to make it work together.

DT: A class-action lawsuit that was filed in 1996 was finally dismissed in 2002. How much damage did that do to the company?

RM: I don't think the class-action lawsuit had any impact on the company. We had two class-action lawsuits, actually. We had one filed soon after going public in August 1993. There was some misunderstanding in the press release that caused our share price to drop quickly, and we had a class-action lawsuit within a few weeks. I think that one was dismissed some months afterwards.

I made it a policy not to concern myself with the lawsuits. I had no reason to believe there was any guilt, so I just turned it over to the legal officer. I don't remember anybody telling me what was going on other than when I had to be informed from a due diligence point of view as a director. Other than that, I didn't get involved.

DT: Here's an excerpt from the entry on Madge Networks in Wikipedia: "The choice was made to concentrate the company's activities in the similar England-Israel times zones, and the company's U.S. offices were scaled back. This was after turning down the generous Cisco $880 million offer in 1997." The entry goes on to suggest that there were financial irregularities in the company which could have caused problems with a Cisco audit. What's that all about?

RM: I have absolutely no idea. I didn't realize that was in Wikipedia. We live in a world where people can make all sorts of statements publicly. That's incredible.

Firstly, I had no offer from Cisco, although there were a couple people [in management] who asked, "Do you think Cisco would be interested in buying us? Do you think we should?" We had a couple of [internal] discussions about whether that was something we should be trying to open the door to. Nobody at Cisco ever spoke to me about any purchase of the company.

DT: Was there any reason to believe the Cisco mergers and acquisitions team did an audit of some sort?

RM: No, they can't do an audit in that situation. If they had done an audit, there wouldn't have been anything [that was problematic].

We entered a partnership agreement with Cisco, so they were reselling our products. And we had various discussions about the technology they'd be buying. I remember a couple of people on my management team thinking that perhaps Cisco would be interested in buying us. But no person from Cisco ever called me up and said, "Let's talk about this. Can you see any other closer business relationship?" Those conversations never took place.

DT: So this reference to an $880 million offer means nothing to you.

RM: No, absolutely nothing. When our sales were going down, we were a public company and all of these people were coming in as investors, and the world exploded in all of these forums. I had to have a thick skin because all these people were coming in and claiming people in the company like myself were taking billions and sticking it away in private bank accounts and who knows what, all sorts of insulting things. Although I grew up in a country where you could use laws of libel, I just assumed there was nothing you could do about this. This is an open world, people are going to say whatever they like, and the best thing to do is just ignore it. I would surely lose a lot more by trying to stop them than by just ignoring it.

DT: What lesson did you learn from the experience with Madge Networks that might be applicable to IT professionals?

RM: I try to be objective. Although I don't necessarily believe it emotionally, if you step back and look at it, a logical move for a company whose technology is going into decline but has a customer base, and hasn't been able to find a way to evolve the company, would be to merge with or be sold to another company. In hindsight, it would have been the logical course.

DT: Did you make any attempt to do that?

RM: No. To me, the company was very personal. I put my name on it, and I came from a culture where companies were for life. So I'm sure that emotionally, I wasn't in a good position to consider objectively whether it should be sold or not.

People's weaknesses and strengths are normally the same things. It all depends on the context whether they turn out to be strengths or weaknesses. The reason why I didn't see the writing on the wall when the best thing to do was to sell the company is probably the same reason why I built the company in the first place.

I did some crazy things in the early days. In 1989 I fought a Token Ring patent battle against a guy called [Olof] Soderblom who claimed he had a patent on Token Ring. This was in the early days before we went public, and our sales in the U.S. stopped entirely for a period of about nine months, because he came right out in the press and said, "I'm going to make this company go bust." IBM, NCR, all the major Token Ring vendors were paying him royalties. But I, being in a way kind of an inexperienced person, said, "This patent doesn't apply to Token Ring. Why should I pay?" And so I refused to pay. I eventually beat him in court in the U.K., and the case was dropped in the U.S. And eventually all the other companies stopped paying him royalties, too.

It took up a lot of management time, and it completely stopped our sales. And I think people stopped paying us for what they already had at the time. But we held our ground, and that gave us huge credibility in the business afterwards. We were the moral leader in the sector, which had an impact on all aspects of our business. People knew we stood for principles. But was it a logical business decision to take? We came through very well. But strengths and weaknesses can be the same.

People came and joined me, and knew I was there for the long term. We were sharing the future together, and we had a very strong culture inside the company. Of course, once you start merging and sales go wrong, most of these things you can only carry on for a limited period of time without having visible signs of success. Because everybody has to consider his own personal future as well.

DT: When you left in 2001, what did you do?

RM: I went and dug the garden. I didn't really start any new activity for a couple of years.

DT: How did you make out financially?

RM: Net loss from Madge Networks. If you look at in purely cash terms, I put quite a lot more money into Madge Networks than I ever got out. But that's partly because at some point in time I took some money out and invested it elsewhere and made more money. And the more money I made, I basically plowed it all back into Madge, at a time when Madge was going bad.

DT: Were you financially secure when you left in 2001?

RM: Certainly not in the way I might have hoped.