Interview Of The Week: John Chambers

John Chambers, the former Executive Chairman and CEO of Cisco, is now focused on helping disruptive startups from around the world build and scale as the founder and CEO of JC2 Ventures, which also promotes the broader development of “startup nations” and a “startup world” because he believes startups will drive job creation, GDP growth, inclusion and innovation in the future. He also serves as an advisor to several heads of state, including France’s Emmanuel Macron and India’s Narendra Modi.

During his 25+ year tenure at Cisco, Chambers helped grow the company from $70 million when he joined in 1991, to $1.2 billion when he became CEO in 1995, to $47 billion when he stepped down as CEO in 2015. As Executive Chairman, a position Chambers held until December 2017, he led the Board of Directors and provided counsel to the CEO and leadership team on strategy, digital transformation and strategic partnerships. He also spearheaded the creation and development of Cisco’s country digitization program.

Chambers recently spoke to the The Innovator about digital transformation, what he is doing now and the best way for big corporations to partner with startups.

Q: You once predicted that 40% of today’s businesses will fail in the next ten years; 70% will attempt to transform themselves digitally, but only 30% will succeed. Why do you think so many digital transformation attempts fail?

JC: The classic mistake that large companies or governments make is they keep doing the right thing too long. Just consider the definition of insanity — it is inherently defined by someone who keeps doing the same thing and expects a different result. It seems simple, and yet that’s what so many businesses and governments are doing. They just lightly tweak the agenda but expect vastly different results. The second mistake I see companies make is related to that — they either grow or they die; you can only go sideways so long.

The third mistake I see all too often is that every organization must become a digital organization, but many continue to struggle with transforming digitally every day. When I said that every company will become a digital company almost ten years ago, everybody told me, ‘That’s not going happen.’ Now, every enterprise and every service provider — and even every government in the world — understands they’ve got to have a digital-first mindset. The problem is, they don’t know how to get there — and there are very few role models to follow.

Let’s now take a moment to define digitalization: It includes the Internet of Things, enabled by cloud computing, with cloud access moving to the edge, where data will be processed and implemented closer to the original source, in combination with artificial intelligence, which is creating huge productivity gains and a job creation change that is probably both for good and for bad.

The mistake businesses and governments make is they think they can use these new technologies without making changes to their underlying business processes. They try to do one-offs, or they try to do what somebody else has done, even though they can see that they tried it many times and failed to achieve success. I thought businesses would be the ones that got digitization ‘right’ first and the governments would be the ones to more slowly digitize — but the truth is that governments got it first, which was, frankly, a surprise to me.

Q: Can you give us some examples?

JC: Yes, just look at both France and India. The leaders of both of these countries are facing opportunities and challenges, but they have the courage to change and adapt.

In India, where I’ve been working for over five years with Prime Minister Modi, there is a comprehensive digital agenda at the government-level — something not even the U.S. has in place right now. It’s a bold agenda that encompasses many elements: How do you grow GDP 3% to 4% faster than you would be able to do otherwise? How do you create 1.2 million jobs a month and how do you do it across 29 states and seven territories? How do you take advantage of new technologies like the Internet of Things and artificial intelligence to completely transform manufacturing and perhaps end China’s decades-long dominance in the sector to make India a manufacturing powerhouse? How do you become a Startup Nation, which is so easy to say, so hard to do? How do you transform education? How do you create smart cities and put your faith in healthy competition for the sake of job creation and citizen happiness? How do you take risks that others would not, such as demonetizing your currency in a single weekend and changing your corporate tax system in only six months?

In France, on the other hand, President Emmanuel Macron has made the country a model for the rest of Europe by prioritizing inclusive digitization. His focus on cutting down the red tape for not only entrepreneurs but also foreign investors, through initiatives like the ‘Fast Track Tech Visa,’ has resulted in the country seeing a huge surge in startups. In fact, not only is Paris home to the world’s largest startup campus, Station F, France went from only 130 companies being funded by VC in high tech per year to a record of 721 deals at the end of 2018 — and this will only continue to grow in the future.

Meaningful change always starts with a leader who has a vision enabled by technology — and then it takes getting your constituencies, whether they’re your shareholders, your employees or your citizens, to understand that vision and help you determine how to effectively ride the new waves of innovation.

Q: Isn’t there a risk that even more businesses will fail due to the challenges added by the coronavirus?

JC: The impact of COVID-19 on citizens, society, and global economies has been terrible. I’ve managed through five other healthcare crises during my career, as well as five financial downturns and three supply chain issues. The Coronavirus pandemic is the most challenging situation we’ve seen in modern history. There are a multitude of different factors coming together at once because of how connected our world is thanks to the Internet of Things, AI, etc. Today’s business leaders have never had to lead through a crisis like this before. Perhaps some were in leadership positions during the Great Recession of 2008 but the speed and complexity of the challenges with COVID-19 are unprecedented.

You are right to say that businesses are at risk. Unfortunately, I believe that the COVID-19 pandemic will be a near-death experience for many large multinationals and startups alike. I think we will be surprised to see the number of Fortune 500 companies that do not make it. In fact, I’m predicting it could be as many as 50% of large companies will not exist in 10 years in part as a direct result of COVID-19. On the other hand, small businesses have been hit especially hard by this crisis. I am concerned about what will happen if we do not insulate the startup ecosystem at this time. Not only do startups generate jobs and GDP growth, small companies also have the ability to innovate quickly and bring creative problem-solving solutions to help curb the negative impact of this virus and help our economies reset and prepare for the new normal.

Consider Uniphore, one of the JC2 Ventures portfolio startups. With the massive shift to remote work, Uniphore is helping companies adapt to the “new normal” by digitizing their call centers using AI and automation. As the demand for call centers is increasing exponentially, the company is gaining market share aggressively and preparing for the post-crisis economic upswing.

My mentor Jack Welch once said that companies can become great only after they go through a near-death experience. This is a leadership moment in our history. CEOs must recognize that now is the time to reinvent themselves or get left behind. In order to survive, companies need to adapt to the new reality and digitize their operations quickly. This process requires assessing the situation carefully, making necessary changes in one swift action, and regularly communicating the North Star to all stakeholders. Those that follow this playbook closely have the opportunity to survive this crisis and break away from their competitors once an upturn does happen.

Q: What do you see as the opportunities?

JC: There are opportunities to disrupt and grow and create jobs based upon business model transitions combined with new technologies. These opportunities are occurring at a pace that I’ve never seen in my lifetime — in fact, I would say they are happening at probably three to five times faster than they did with the Internet, just 20 years ago. The end result is going to be that, unfortunately, there will be winners and there will be losers. This is true at the country level, as well as the business level.

For enterprises specifically, the most likely challengers of the large multinationals will not be their traditional competitors. There will be those who are exploring different models, like an Amazon or a Netflix, or a startup coming at them with a speed of innovation like they could have never anticipated. The players who can have the courage to be bold and constantly disrupt themselves will change the rules of the game for everyone.

Q: Beyond new types of competition what are some of the challenges that business leaders must overcome?

JC: Big companies can’t attract the same level of talent from the Ivy League schools, the MITs, and the Stanfords of the world that they could just a decade or two ago. That talent is now going to the startups. Secondly, the market is also overly short-term focused.

If a leader starts to invest in innovations three to five years out, it’s very likely that the shareholder activists will come in and say, ‘This isn’t a good return, I’m going to challenge your board.’ This is happening for a few reasons — for example, by the time they get talent in the door who can handle new innovations, their competitors will already be ahead of them. If a leader is spending money and is not getting a quick enough return on it, even if he or she could attract the proper talent to see good ROI a few years later, the current view from shareholders is not set up for long-term innovation.

As a result, we are going to begin to see startups become the innovation engine for larger companies because they are the ones who will be able to innovate quickly — plus, the talent they need to do this are already sold on startups as the ideal places to work. The two will need to learn how to work together because even though startups can innovate with speed, it will continue to be the multinationals who can scale effectively. Large companies know they can’t innovate at the speed they need to in order to remain competitive, so they’re going to have to find a way to partner with other players.

Q: Many collaborations between corporations and startups are not successful. What is the best way for these partnerships to work?

JC: My advice for larger businesses is to view potential relationships with startups as a chance to reinvent their company. Companies need to bring in startups as partners, knowing some will fail and others will succeed. If you do this enough, you can eventually replicate the process of working with startups until you can do it faster and see innovative results more quickly than you may have ever imagined.

Many people don’t realize that during my time at Cisco, we used startups and spin-ins to change our company culture and introduce innovation at tremendous speed. In fact, when I was leading Cisco, we did 180 acquisitions and two-thirds of them were successful because we created a replicable process. I could get a call on a Thursday night about a company that was about to be bought and be asked ‘why aren’t you engaging with this company?’ I would then arrange a meeting with the company on Friday morning, do a $3 billion acquisition handshake at noon, and have the board of directors of both companies and the markets informed by Monday morning.

Being a CEO and managing acquisitions is not a job for the faint of heart — but this is what excites me about startups and emerging technology. If done right — with the help of startups and technology — every country and every company can begin to have a startup mentality, which is what is needed if we want to succeed in the Digital Age.

Q: What gets you excited these days?

JC: Everything! I am a dreamer, but I also work hard to make dreams come true for others, especially in my role as a venture capitalist.

I’m excited to help big companies partner with startups, which is why I hold meetings with the top telecommunications companies in my office in Silicon Valley to talk about how they are reinventing themselves and how they can potentially look to a few of the JC2 portfolio companies to do things they have not done before.

I have also seen tech giants like HPE [Hewlett Packard Enterprise] reinvent themselves by strategically announcing an alignment with Pensando Systems [a cloud startup I invest in through JC2 Ventures that can help companies run their servers more efficiently]. In fact, HPE committed across the board to a strategic partnership of $250 million with Pensando, which was sponsored by the CEO of HPE — Antonio Neri. He was the one who said ‘here is our new innovation agenda and here is how we are going to change as the cloud moves to the edge — we are going to partner with a small company that HPE would never have thought about partnering with before and we are going to put a lot of top talent and money into Pensando.’ What’s more, Oracle has signed up as a customer of Pensando’s, as have Equinix, Goldman Sachs and NetApp. We’re seeing major service providers and enterprise companies partnering strategically with this startup to gain competitive advantage, which is simply unheard of. By the way, the founders of Pensando are a few of my top people out of Cisco who helped us build new businesses that usually obtained 40–70% market share, which is something established companies can simply no longer do today if they don’t forge unique partnerships with startups.

This really speaks to how rapidly the market is changing and how large companies must partner with startups to innovate. You are now seeing most innovative companies, whether it be Walmart, or Goldman Sachs, or Boeing, partnering with startups in a way they would have never considered before. And they’re using the startups for innovation, as well as role models for change.

Leaders must constantly reinvent themselves, and that mindset has to be owned by the CEOs. Leaders have to be fearless, know that they’ll be knocked down in their journey to success, and understand that it’s either grow or die, disrupt or be disrupted.

It’s an exciting time because there is no company, big or small, that isn’t going to be impacted by digitization. It means everything is up for grabs. And, for me, it’s the gift of a lifetime to watch and participate in this new digital-first era.