Starting Up Silicon Valley

How ROLM Became a Cultural Icon and Fortune 500 Company

Katherine Maxfield

• Publisher: Emerald Book Company
• Year: 2014
• ISBN:
  9781937110635
• Topic: Negocios y empresa
• Subtopic: Historia empresarial

Before Facebook’s takeover, before the rise of Google, before anything, there was ROLM. Founded in a prune shed in 1969 by four Rice University grads, ROLM was a company that would come to shape everything we expect out of a Silicon Valley startup: the workplace perks, the multimillion-dollar buyouts, the global pressure to succeed, and the internal drama of the industry. In an era when angel investors were unheard of, ROLM was the little company that could, and did. In the end, it set the benchmark for success as a tech startup.  After developing the first minicomputer rugged enough for military use, ROLM set off to innovate in the telecommunications field—an industry completely dominated by AT&T. By deftly splitting its pursuits into two sectors, military and public telecommunications, ROLM steadily grew from its humble roots to become the second-greatest competitor in the telecom industry.In this, the inside story of ROLM, readers will find:•    A rare look at the entire lifecycle of a startup: birth to merger to Fortune 500 to purchase by IBM
•    The stories of each founder: why ROLM’s success was met so differently by each
•    How ROLM began the trend of startups giving out lavish perks and became known as the “Great Place to Work”
•    The struggles of a smaller company against behemoths, and the tactics large corporations use to stifle innovation
•    Firsthand wisdom from some of the Silicon Valley’s first generation of visionaries and leadersEven today, ROLM’s legacy telecom installations help run some of the largest corporations’ internal networks. ROLM’s incredible story and lasting effect on the industry reveal it as the preeminent startup.

CHAPTER 1

THE ROADS TO ROLM

On a drizzly California day on the San Francisco peninsula, a Navy Thunderjet on approach to Moffett Field exploded just blocks away from where Burt McMurtry, age twenty-two, was interviewing over lunch for a job with defense contractor Sylvania. The scattered debris destroyed homes and narrowly missed an elementary school. The cause was not disclosed.³ The Cold War was at its chilliest that spring of 1957. Almost all technology work in the Bay Area supported the American military. Government grants funded most university research, and government purchases drove the revenues of the area’s major firms: Sylvania, Lockheed, Philco, Varian, Hiller, Ampex.

McMurtry’s interview proceeded undisturbed by the plane crash. In fact, he was surprised to read about it in the newspaper the next morning. In any case, McMurtry was not the sort of young man to be thrown off course. He was about to graduate near the top of his electrical engineering class from Rice University in Houston, Texas, his hometown. He had grown up working summers as an oil field laborer and had worked in electronics only once, during his last summer in college, for General Electric. But the opportunity to work in early microwave research—with Sylvania’s new Microwave Tube Division, focused on radar applications—was quite appealing to him.

The real clincher, though, was Sylvania’s work–study arrangement with Stanford University. Rice University’s engineering degree was a five-year program, granting a BA in four years and a BS the fifth year. Having achieved his bachelor’s degrees, McMurtry was well prepared for further study at Stanford. He would be allowed time off from work to attend classes alongside regular Stanford students working toward a master’s degree and then a doctorate—with fully paid tuition while bringing in a full salary. Stanford charged companies double tuition for the privilege. The school’s annual tuition then was $1,000 (equivalent to $8,300 in 2013). The surcharge was worth it, enabling companies to attract vital engineering talent like Burt McMurtry, who accepted Sylvania’s offer. He and his wife (Deedee Meck, Rice ’56) packed up and moved to Mountain View. McMurtry, of course, had no idea that his personal job choice would have ramifications far beyond his own career … that within his first decade in California, he would have helped build the foundation for Silicon Valley … and that he would spend decades afterward nourishing the Valley in multiple ways. And it all began with a lunch during which a jet crash wreaked such destruction.

Setting Roots in the Future Silicon Valley

Burt McMurtry returned to Rice each fall to recruit engineers for Sylvania. In the fall of 1958, McMurtry talked with Walter Loewenstern (Rice ’59 BSEE), another Houstonian. Loewenstern had been accepted to both Rice and MIT for his undergraduate schooling, but only Rice was tuition-free. Going to MIT would have placed a financial burden on his family, and he wasn’t the kind of guy who would put them through that. Instead Loewenstern lived at home during college and joined Rice’s ROTC (Reserved Officer Training Corps) to cover books and expenses. In exchange, he explained to McMurtry during the interview, he owed the U.S. Navy two years of active duty following graduation. McMurtry told him to call when he was clear of his obligation.

In 1961, after two pleasant years with the Navy in Japan, Loewenstern stepped off the ship in San Diego and dropped coins into a pay phone. McMurtry immediately set him up with interviews in Sunnyvale. Loewenstern drove north, accepted an offer, and then went home to visit his folks for a few days before moving to Sunnyvale to work in Sylvania’s Electronic Defense Lab.

In the fall of 1962, at the end of a recruiting day at Rice, McMurtry cross-checked his impressions with Professor Paul Pfeiffer, who asked, “Did you talk to Ken Oshman?”

No, McMurtry replied, he hadn’t.

“Too bad,” the professor said. “We’ve never been able to challenge him sufficiently.” Oshman, who was top in his class, happened by at that moment. Pfeiffer stopped the slight young man, who wore black-rimmed glasses that seemed to cover half his face. The student seemed reluctant to stop for a chat, but he forced a smile and gave a quick handshake.

McMurtry asked Oshman, “What will you do when you graduate?”

“Get an MBA at Harvard” came the answer. Oshman had already applied and apparently felt confident of acceptance.

“What will you do then?”

Oshman inched away. “Start a company.”

“What kind?”

“I don’t know. Might be a shoe factory,” Oshman said, making something up as he backed off, trying to make his getaway.

McMurtry called after him, “Give some thought to coming to California and Stanford.”

“What kind of company will you start?” asked Burt McMurtry. “I don’t know. Might be a shoe factory,” replied Ken Oshman.

Even after a few months of phone conversations, Oshman was still set on heading to Harvard. On a flight home from Europe in March 1963, McMurtry penned a six-page letter to him on onionskin paper. He emphasized the young man’s interest in both management and engineering, a combination seldom encountered. He cited some of the exciting things going on in Sylvania’s laser research and development laboratory and spelled out the Stanford work–study program. The opportunity to earn a salary and get a Stanford degree at the same time sold Oshman at last. He accepted Sylvania’s offer to work in laser R&D. He and his wife (Barbara Daily, University of Texas ’62), both from small towns near Houston, moved to Sunnyvale.

Gene Richeson, who came from a small oil town in northeast Texas, was in the same graduating class as Oshman. He too went to work for Sylvania, in the same military defense division as Walter Loewenstern. Richeson and Oshman were among the one-third of Rice’s thirty-two electrical engineering graduates of 1963 who went to Sylvania. Thanks to McMurtry’s annual fall pilgrimages, those were “pretty typical results” from 1958 to 1968. The legacy is a lasting one: Rice engineering graduates, continually rated among the best in the nation, remain naturally attracted to the Stanford Graduate School of Business and to the spirit of entrepreneurship and technical excellence that thrives in Silicon Valley. The so-called Rice Mafia in Silicon Valley now numbers about 2,000 graduates, the largest collection of Rice alums outside of Texas.

Bob Maxfield, another Texan, was the top engineering graduate of 1964. Maxfield was being heavily recruited to work for IBM in Kentucky and remained noncommittal when he talked with McMurtry about Sylvania during McMurtry’s fall 1963 pilgrimage to Rice. So McMurtry put Ken Oshman on the task of recruiting him. When Maxfield visited the Bay Area for a job interview with Sylvania, Oshman and his wife wined and dined him in San Francisco. “It was the first time I drank wine that didn’t have a screw-top,” Maxfield recalled decades later. The dinner seeded a lifelong friendship.

Maxfield wanted to be on the front lines of computer technology, and IBM promised he could “play with computers” in Lexington. But he found Stanford’s work–study opportunity appealing and told IBM he would rather do computer work in San Jose. IBM agreed. Maxfield married Melinda “Mo” Harrison (Texas Tech ’62) a few days after graduation, and they headed for San Jose. McMurtry called it his biggest recruiting loss ever but later said, “It turned out to be a good thing. He was going to need that computer experience.”

Maxfield’s class of electrical engineers, among the last to enjoy a tuition-free education at Rice, were still studying electrical generators, transformers, and vacuum tubes. The slide rule was the engineer’s most important tool—always near at hand, offering quick answers to multiplication, division, square roots, logarithms, and trigonometry, though the answers could be reliably discerned to no more than two decimal points. All this would soon change. The new world of computers and semiconductors had sprung up in the late 1950s, largely because of work done by IBM, Texas Instruments, and Fairchild Semiconductor. The impact of this nascent technological revolution was being felt in all facets of industry and was trickling into education. Rice had two digital computers, each occupying its own large room: the IBM 1620 scientific computer and a research computer built by Professor Martin Graham for graduate students to run calculations. Walter Loewenstern had helped build a small part of that computer—his first experience in making a piece of electronic equipment.

The Stanford work–study program enabled all these young men to earn a master’s degree in electrical engineering: McMurtry in 1959, Loewenstern in 1963, Richeson and Oshman in 1965, and Maxfield in 1966. All but Richeson went on to get PhDs, finishing in three years instead of the typical six. McMurtry completed his in 1962. Loewenstern’s PhD, earned in 1966, was from the Engineering Economic Systems department. His dissertation was on the economics of using microwaves for the transmission of large amounts of power. Oshman’s doctorate, in 1968, was in laser physics, with a dissertation titled “Studies of Optical Frequency Parametric Oscillation” that is still cited in the field today—eleven times in 2011, forty years after its publication. Maxfield earned his PhD in 1969; his dissertation, “Computing Optimal Controls for Linear Systems with Inequality Constraints,” could be applied to such problems as how to get a space rover to Saturn on minimal fuel.

Stanford’s work–study program was a key factor in the foundation of Silicon Valley and part of the answer to the question pondered by many: What makes the Valley so persistently different from other industrial areas? Why there? Why then? Four of these men who took advantage of the program would go on to found one of the first start-up tech companies in that region—and one of the greatest contributors to that persistently different work culture.

It’s in the Cards

Even as a teenager, Walter Loewenstern knew he wanted to start a company. His father had a business and was “always my inspiration,” said Walter. Loewenstern Senior had left Germany in 1929 because Jews weren’t allowed to work as engineers. He had settled in Houston and opened his own company in electrical work, though it “wasn’t particularly successful.” Walter had always kept his eye out for the right business opportunity.

He spotted it in mid-1968 when he was working in a small Sylvania group chartered to come up with product proposals that used military technology in civilian applications. Loewenstern had thoroughly researched and proposed a police vehicle tracking system that he thought had great potential, but Sylvania (by then acquired by GTE) declined to consider it. He privately pursued the idea on weekends until he decided he’d better let his boss know what he was up to. He was told, “We don’t want to do the project, and we don’t want you to do it. Either you quit pursuing this, or you quit Sylvania.”

Loewenstern wasn’t about to stop pursuing the idea. “I quit,” he replied.

“You’re fired” came forth his boss’s simultaneous reaction.

Loewenstern’s boss then sent him a letter that said, basically, You may not compete with any product GTE makes. If you form a company, GTE will buy it—and fire you. At the time, GTE made “just about every electronic product known to man.” Still, Loewenstern said later, “The threat didn’t frighten me—I had no assets to lose, and there were abundant job openings for engineers.” He took a consulting job and continued pursuing the idea.

Loewenstern was part of a Monday night poker game that brought the Texans and a few Californians to the table, with penny antes and maximum pots of $5 because no one had any money to speak of. The after-game conversation invariably swung toward one topic: “What are you going to do when you grow up?” The summer of 1968 was winding down when Loewenstern rocked the table one night by reporting that he’d just quit Sylvania to work on a business project.

Ken Oshman wasted no time in calling him after that night’s game. Oshman was working for McMurtry at Sylvania, developing nonlinear optical techniques involving how light behaves in high-intensity laser situations. “So you’re thinking of starting a company,” he said to Loewenstern. “How about we do something together?” Looking back, Loewenstern said, “That was the best phone call I ever got.”

Kenneth Oshman had been raised by adoptive parents in a tight-knit Jewish community in Rosenberg, Texas. His father was a dentist, but the rest of the family ran small businesses. His mother had a dress shop; cousins had dry goods stores. Other family members were ranchers, cattlemen, and cotton traders. His cousin Milton was all three, “a larger-than-life genuine Texan Jewish cowboy,” who was like a second father to him. Oshman worked on his cousin’s ranch from the time he was twelve years old, doing anything he was asked—chopping down huisache trees and rounding up and branding cattle. When he was fifteen and sweeping floors in the ranch office, Milton gave him a checkbook and told him to go buy cotton—a very technical skill. Decades later, Oshman marveled at his cousin’s “audacity to say, ‘Here, go try it.’”⁴

Oshman turned out to be better than many of the old-timers at judging the quality of the fibers by examining a plug cut from a bale, and then making a profit selling the bale at the Houston Cotton Exchange. That experience surely played a key role in building the confidence that Oshman carried with him always. In the future, he would often repeat the scenario—saying, “Here, go do this,” when that person had no idea he or she could. That casual confidence expressed in handing over even major responsibilities made Oshman’s cohorts and employees want to live up to his expectations.

Oshman and Loewenstern mulled over a number of ideas besides vehicle location—some involving defense systems. Oshman suggested they bring in Gene Richeson, saying, “Gene’s full of ideas. And he’s dealt with the military.”

Eugene Richeson, born in Paris, Texas, had grown up in the tiny town of Talco, a couple of hours east of Dallas. His mother taught school, and his father worked for an oil company. His business experience began at age eleven, when he bought a hundred baby chicks. He raised them, sold fifty, and kept fifty hens to sell eggs door to door. He grew the business to 600 hens and “signed up half the town for egg delivery in the morning before school started.” He bought a motor scooter with the profit. That trend continued into adulthood, with Richeson “buying bigger and bigger motorized vehicles” with his earnings.

When Oshman called Richeson in 1968, he was working at ESL—Electromagnetic Systems Laboratory, the military contracts spin-out from Sylvania run by Bill Perry, later secretary of the U.S. Department of Defense. Before that Richeson had been assigned to classified military projects at Sylvania for five years. He’d authored several classified papers on electronic reconnaissance and countermeasures. His career was going great. But Richeson held Oshman’s intelligence and confidence in high regard, and he jumped at the chance to work with him.

Loewenstern, Oshman, and Richeson continued to toss around ideas, most of them involving using computers in electronic systems. But there was a catch: They knew nothing about computers. Finally Oshman suggested calling Bob Maxfield.

Robert Maxfield grew up in Wichita Falls, Texas, where his father was an orthopedic surgeon. A career in medicine never interested him, and he saw no examples of entrepreneurship in his family. But he was by nature very competitive, in the sense of being “the best I could be” when something grabbed his interest. He progressed from Cub Scout to Eagle Scout. He swam competitively from an early age and joined the high school swim team despite being smaller than everyone else. By his senior year, he was settin...