One of Cisco's star engineers defends the unusual way Cisco paid him
After agreeing to move out of an operational role and become an advisor to the company, Mazzola instead publicly quit, and was joined by his top team of two other star engineers, Luca Cafiero, Prem Jain, and their top marketing exec, Soni Jiandani, who also quit Cisco in solidarity.
Jiandani quit even after agreeing to a big promotion. She was set to take over the Insieme team that employs over 1,000 people and works on the company's flagship products.
A source close to Cisco tells us that Robbins has a lot admiration for the team but respects their decision. In his send off email, Robbins thanked them for "the countless contributions they have made to Cisco."
Insieme was the fourth and final child of the unusual "spin-in" marriage between Cisco and this team of four, internally known as MPLS (a play on their first names and inside joke. MPLS is also a networking technology invented at Cisco).
A "spin-in" is when Cisco was the sole investor in the team's startup, and, once the product was built, Cisco "bought" the startup for a healthy pre-arranged price.
One source told Business Insider that each of these top engineers personally made up to $40 million on a spin-in. It was Chambers' method of keeping them from leaving to do startups outside of Cisco.
Many people told us this spin-in model caused a lot of resentment inside Cisco among the engineers who were not chosen for the spin-in teams, and not eligible for huge bonuses for building their products.
Defending the Spin-In
In his parting email to the troops, Mazzola defended the spin-in model. (The email was published in full by Cisco blogger, Brad Reese.)
Here's a few snippets from that email (emphasis ours):
"Reflecting back on the impact of the spin-in model, I see it as highly successful. To date, $10's of billions of revenue over the years has resulted from a relatively modest investment in acquisition costs for the combined Andiamo, Nuova and Insieme spin-ins."
"Unlike many acquisitions, they explicitly tied the earn-out to specific revenue and margin targets. After the new product families proved they were making a sustained impact on Cisco revenue and increased Cisco's footprint along with relevance in the adjacent DC marketplace, the teams involved were then compensated directly related to the revenues and margins generated."
Mazzola explains that with the first spin-in, the MPLS team remained on Cisco's payroll, implying they didn't get paid as much for that one:
"The first spin-in, Andiamo, was entirely funded by Cisco. The executive team of Prem, Luca, Soni and I remained in our Cisco roles and were not included in this new compensation model. Only the engineering teams lead by Buck Gee, Tom Edsall, Tazio De Nicolo and Umesh Mahajan participated directly in the Andiamo spin-in."
The second-time was different
The change to their compensation came with the second company, Nuova, which brought Cisco into a new market, computer servers. Mazzola says the MPLS team bootstrapped that company to start.
"Nuova started not as a directed spin-in, but initially as an independent company with myself along with Prem, Luca, and Soni as some of the primary investors in the summer of 2005. ... Roughly a year after we had started Nuova, in summer of 2006, John Chambers approached the team and asked if Cisco could act as the primary and exclusive source of additional funding for the project."
However, sources who worked on that Nuova team told us that Chambers approved of this startup and the new product from the get-go.)
Mazzola also explained that the team personally invested in the last spin-in Insieme.
"Insieme, similar to Nuova, started with seed funding from the founding team including myself, Prem and Luca. Once the project showed merit, Cisco asked to act as the primary and exclusive source of additional funding."
Robbins, who took over when Chambers retired to become executive chairman a year ago, has said he doesn't plan on doing more spin-ins to develop new products.
Interestingly, while Mazzola thanks John Chambers in his letter, and offers his Cisco coworkers his "sincere best wishes to all of you," there is one person he never mentions by name. His CEO of the past year, Chuck Robbins.
Read into that what you will.