How Bob Metcalfe Built a Billion-Dollar Company with Ethernet Innovation

In the realm of tech innovation, few inventions have had as profound an impact as Ethernet—the ubiquitous networking technology that powers our digital lives. Behind this revolutionary development is Bob Metcalfe, a visionary engineer and entrepreneur who, in 1973, transformed how the world communicates. But the road to success was far from straightforward, involving navigating corporate giants, scaling a startup, and learning the ropes of sales and marketing.

Metcalfe’s journey offers valuable lessons for aspiring entrepreneurs—ranging from the importance of perseverance and sales acumen to the nuances of leadership and decision-making in the world of startups.

The Birth of Ethernet

Bob Metcalfe’s story begins in Silicon Valley at the legendary Xerox PARC (Palo Alto Research Center), where he invented Ethernet on May 22, 1973. This breakthrough allowed computers to communicate with each other, forming the foundation for modern networking. Despite this incredible invention, Metcalfe didn't make his fortune by creating Ethernet alone. As he explained in an interview, “I made most of my money by selling Ethernet, not by inventing it.”

The distinction between inventing and selling became one of the key themes in Metcalfe’s success. The real challenge wasn’t just developing the technology but turning it into a product people wanted to buy and commercializing it on a global scale.

Leaving Xerox and Starting 3Com

In 1979, after two stints at Xerox, Metcalfe made a pivotal decision to leave the company and start his own venture. He founded 3Com in 1979, a company dedicated to commercializing Ethernet technology. At the time, most computer manufacturers had their own proprietary networking systems that were incompatible with others. 3Com sought to change that by networking diverse computers together using a universal standard—Ethernet.

In Silicon Valley, Metcalfe was surrounded by other entrepreneurs and venture capitalists, which made the leap to starting his own company more feasible. Among his mentors was Steve Jobs, co-founder of Apple. Although Metcalfe turned down a job offer from Jobs early in his entrepreneurial journey, Jobs supported him through advice and guidance for years afterward. One crucial lesson from Jobs was the concept of “adult supervision”—recognizing the importance of hiring experienced leaders to manage and scale a business. This advice would prove critical for Metcalfe as he built his company.

Overcoming Corporate Giants

Building a startup in the highly competitive tech industry wasn’t without its challenges. Metcalfe recalls how 3Com had to "kill two monopolies"—AT&T and IBM—in order to build the internet. At the time, IBM had its own networking technology, which competed directly with Ethernet. Metcalfe made several attempts to sell Ethernet to IBM, but failed twice to convince them, which eventually led IBM to develop its own alternative. This rivalry added tension to 3Com’s early days, but Metcalfe’s persistence and strategy eventually paid off.

The story of 3Com and its growth is one of resilience and determination. Metcalfe’s company was the first to ship TCP/IP, the core protocol of the internet, and also pioneered the adoption of UNIX and MS-DOS operating systems in networking. The company went from selling hundreds of Ethernet cards a month to generating millions in revenue, eventually becoming a multi-billion-dollar enterprise.

The Role of Sales in Entrepreneurial Success

One of the most valuable insights Metcalfe shares is the importance of sales. While many inventors and engineers focus on building great products, few appreciate the complexity and necessity of selling those products. Metcalfe admits that he didn’t understand the value of sales early in his career, but it was a skill he had to develop in order to save his company.

In 1982, 3Com was running out of cash, and Metcalfe was replaced as CEO and appointed head of sales and marketing—a role he had little experience in. Despite this, he managed to grow 3Com’s revenue from zero to a million dollars a month in just two years. This experience taught him the crucial difference between sales and marketing, and how vital it is to master both to build a successful business.

For entrepreneurs, the lesson is clear: it's not enough to have a great product. You need to know how to sell it and market it effectively.

Navigating Leadership Transitions

Metcalfe’s ability to recognize his strengths and weaknesses played a critical role in his success. Twice in his career at 3Com, the board of directors chose someone else to be CEO—first, Bill Krause, and later, Eric Benhamou. Both times, Metcalfe acknowledges that the board made the right decision. This humility and self-awareness are rare qualities among founders, who often struggle to relinquish control of the companies they built.

Metcalfe’s willingness to step aside and allow others to take the reins ensured that 3Com would continue to grow and thrive. His recruitment of Krause as CEO was directly influenced by the advice of Steve Jobs, who understood the value of bringing in experienced leaders to scale a business.

Life After 3Com

After leaving 3Com, Metcalfe’s career took several interesting turns. He became a journalist, writing a column for over a million readers, and then transitioned into venture capitalism, where he spent a decade investing in startups. Following that, he became a professor at the University of Texas at Austin, a role he held for 11 years.

Throughout his post-3Com career, Metcalfe has remained passionate about supporting innovation and entrepreneurship. He has endowed multiple professorships at MIT and continues to be involved in various research projects.

The Importance of Humility and Self-Awareness

One of the recurring themes in Metcalfe’s story is the importance of humility and the need to manage ego, particularly after achieving significant success. Metcalfe recalls watching how even modest amounts of money—sometimes as little as $100,000—could ruin the lives of engineers who suddenly came into wealth. To guard against the corrupting influence of money, he developed personal tests to keep his ego in check, such as ensuring he still introduced himself in conversations, rather than assuming people knew who he was.

Key Takeaways for Entrepreneurs

1. Invention Is Just the Beginning: Inventing a groundbreaking technology is impressive, but turning it into a commercial success requires sales, marketing, and business acumen.

2. Sales Matter More Than You Think: Knowing how to sell your product is as important, if not more important, than developing it. Entrepreneurs need to develop strong sales skills to grow their businesses.

3. Surround Yourself with Talent: Take Steve Jobs’ advice—bring in experienced leaders to help you scale your company. No one can build a successful business alone.

4. Know When to Step Aside: Self-awareness is crucial in leadership. Recognizing when you’re no longer the right person to lead your company can be the key to its long-term success.

5. Humility and Ego Management: Success can go to your head. It’s important to stay grounded and maintain perspective, especially as your wealth and influence grow.

Conclusion

Bob Metcalfe’s journey from inventor to billionaire offers a roadmap for aspiring entrepreneurs. His story underscores the importance of resilience, learning, and humility in building a successful business. From creating Ethernet to scaling 3Com, Metcalfe’s ability to navigate challenges, embrace sales, and bring in the right leadership were critical to his success. For those looking to follow in his footsteps, his lessons provide invaluable insights into what it takes to build and sustain a thriving business in a competitive landscape.