CISCO CEO JOHN CHAMBERS OPENS UP - An Interview With One Of The Most Important People In Technology



I'm waiting for Cisco CEO John Chambers in Aspen, Colorado, on a gorgeous mountain-view deck. He's running late. He flew his private jet into Aspen a few hours ago to speak at Fortune's Brainstorm Conference and he'll be flying out before dinner. In between he's squeezed in a few quick meetings with customers, and me.

Chambers is friendly and likes to talk, particularly to customers, so I expected the delay.

I've been chatting with Cisco's head of PR, John Earnhardt. When my turn arrives, Chambers walks out to the deck to greet me and personally escort me to our meeting room. He's wearing dark blue jeans and a button-downed shirt.

I stand up to shake his hand. Then I reach for my giant backpack on the chair next to me. Chambers immediately reaches for it.


"What can I carry?" he asks. "I'm a Southern gentleman." (Chambers is from West Virginia.)

But I'm a tough Colorado chick used to carrying my own gear. I try to shake him off and, in the end, Earnhardt outreaches us both and grabs my backpack. Earnhardt lays his North Carolina accent on: "I'm a Southern gentleman as well."

Normally, having another person carry my stuff would make me uncomfortable, but Chambers is turning on the charm, saying just the right thing to a journalist ("Thank you for being fair in your coverage of us"). We're all smiling as we enter our conference room.

In five months Chambers will celebrate a major milestone at Cisco: 20 years as CEO. His on-screen persona is that of a smooth talker, simultaneously a visionary and a master of deflection. A Financial Times columnist, Lucy Kellaway, bestowed a dubious award on him last year: "Chief Obfuscation Champion."

But his employees, past and present, talk about him much differently. They openly admire him, say he's warm, open-minded, attentive.


That's the John Chambers who shows up for our interview.

In equal measures he tells me about Cisco's acquisition strategy, the pain of growing up with dyslexia, how he makes hard decisions like firing someone, what makes him cry, and his views of the obligations of being rich and powerful.

Business Insider: You seem very cheerful lately, as if the rough period Cisco had from 2010 to 2013 is well behind you. You feeling happier?

John Chambers: No. I've never - in almost 20 years of being CEO - I've never raised my voice in the office. That doesn't mean that people don't know when I'm displeased or when I think people have done a good job.

As a leader, you don't get too high on the highs or let the bumps balance down. Every leader over time has probably equal amount of good luck or bad luck - or, you could argue, has good opportunities or challenges.

BI: Still, you've had plenty of both in 20 years. Tell me about your process for making a personal decision. Say you have to fire someone. I assume after 20 years as a CEO you've had to fire someone.

JC: Sure.

BI: How do you decide? Do simply know in your gut that it's the right decision?

JC: Well, no. The hardest decision you do is to let someone go, especially someone that's a good person and is trying hard.

A well-run organization turns over 10% of their organizations, including senior leadership. I don't have the heart to do that. But we need to run at 3% to 5% in voluntary attrition. We need to do that a little better - we run at 3%.


When a leader doesn't do his or her job it isn't just a problem with the person. They take their whole organization down.

Often what I tell a new CEO asking for advice, or one of my own new leaders, is the two most important decisions that your team is going to watch is the first person you hire and the first person you promote - because you are saying that's the type of person I want. And the first person you fire.

BI: You say you "don't have the heart" to run at 10% turnover. Why not?

JC: I'm not a tough person. I cry at movies. I'm not a particularly proud of that, but I do. I follow every illness - of every employee, their spouse, children - that's life-threatening. This last week there was a number of them.

It's about getting a person who has breast cancer into the right doctors at Duke, or getting a secondary opinion, or helping someone who has lost a spouse unexpectedly, talking to the person to see what we can do.

That's who we are as a company. You can say we're too soft, but we are family and it's actually very powerful.


BI: Yes, I've heard that. I've asked people to "give me dirt" on you, but it's hard to find.

JC: [Laughing] My wife might able to do that.

BI: Cisco has done well over the years, but it's also had tough times, layoffs, a reorg, unwinding some acquisitions - Flip and Linksys. What advice do you have for entrepreneurs on when to stand firm and when to cut and run?

JC: You never know for sure. What you do is develop guidelines or principles for key decisions. We're pretty disciplined on where we're going strategy-wise. We build those strategies off of "market transitions" [disruptive new technologies].

Unless there's a market transition that plays to our strengths, like networking, we don't think we can enter a market that's already established and out-execute.

Our guidelines are a minimum target of 40% market share and "sustainable differentiation" with good industry-average margins. That sounds basic but "sustainable differentiation," that's the advice I'd give to startups. Do they really have something that's different? Or is it temporary, and then they'll have to do something else?

Also, is there a transition? Great startups that become great companies are catching that transition. You see that especially, interestingly enough, during economic slowdowns, because there aren't as many players going after [the new market].

If no transition is going on, thinking you can be the 20th person into the market become No. 1, 2, 3. It isn't going to occur. No. 20 isn't going to make it.

BI: Cisco buys a lot of companies. It acquires instead of spending on R&D. How do you decide which companies to buy?

JC: We kind of invented the concept of "built by partner for innovation" by acquisition. When we did our first acquisitions, as everyone knew, all failed. Most of them still do.

We said, if we're going to acquire, what are we going to do differently? We came up with six rules of thumb. They turned out to be pretty accurate. Whenever I've violated two of them, I usually get into trouble.

First, do you have the same vision of where industry is going as the target of your acquisition? If visions differ, you might get together economically for a while, but then you are going to have problems.

Second, understand what you are acquiring and protect it at all costs. In my industry, you are acquiring people and next-generation products. You are making an investment that together you can grow faster, make more profits, and take more market share.

If I can't hold the people, and our cultures aren't very similar, we don't do it.

BI: How do you know if the cultures are similar?

JC: You know at the beginning. You listen to them: if they mention customers, if they share the success of the company with their employees, or just a couple of people at the top make all the money.

Do they have a healthy paranoia? When riding high, do they know that they can get unseated fairly quickly? That's what Silicon Valley is about. We all know we can get unseated very quickly - as quickly as two years.

Third, is the acquisition really strategic? The failure rate is 90% for most acquisitions. If Cisco is world class, as many people say we are, with acquisitions, we're going to do well with two out of three. That means we're still going to miss on one out of three.

Fourth, geographic proximity is very important. Once you get out of the country, odds go down even more.

BI: For a while, weren't you were targeting non-U.S. acquisitions, mostly for tax reasons.

JC: Still am. But it makes it harder. You just go with your eyes wide open. You also don't go with a company that doesn't have "sustainable differentiation" or with a culture that's different.

We learn how to catch market transitions, enter them only where we have sustainable differentiation, and then [fifth] we listen to our customers. If you listen to them the right way, they'll tell you who to acquire, they'll tell you want you are doing right and wrong. They'll tell you what your challenges are in the future. What they're top issues are.


That's why I listen to every critical account every night and have for 20 years.

[Sixth]: Focus on solving a customer's problems.

As basic as that sounds, that's what Cisco does. What I do as CEO.

BI: Philanthropy is a big topic in the Valley these days. In your opinion, what's the obligation of the 1%?

JC: Both of my parents were doctors, and I firmly believe that those who have been successful in life owe an obligation to those who have not.

So almost all of the giving by Elaina and I is to education or healthcare that can really make a difference. As you follow all the employees who have breast cancer, or prostate cancer or lost a child, the ability to make a difference when it can, I believe it's an obligation.


That's especially true at a company like Cisco where you can also help with donations of technology to places like the people in Mississippi, with education, or in Sichuan Province, with the earthquake or the people in Palestine to build a middle class.

What people don't often know - it's just plain good for business. We're No. 1 in almost every area of social responsibility. And while we make mistakes, customers and others forgive us. They do in part because they trust us.

Nobody's perfect. Make no mistake, I am not - as my wife will tell you. But we try to be good people.

BI: Did you sign Bill Gates' "Giving Pledge," where the wealthiest vow to give large chunks of their fortune to charity?

JC: Do I need to sign a giving pledge to give? No.

I used to do it all anonymously because I felt where you give is your own business. But then I realized that several of the universities and schools, charitable organizations, Second Harvest Food Bank - one of the biggest ones I consistently give to - they said, "John, people need role models. They see you giving, they're more likely to give. One of the key reasons nobody gives is that no one they know or respect asks them and they don't think they can make a difference."

So I now talk about it publicly, even though it makes me a little uncomfortable.

BI: You're known as a spokesman for dyslexia. I've heard people say it can help a leader think outside the box. Is that true?

JC: It would surprise you how many government and business leaders there are with dyslexia. Some people view it as a weakness, and maybe it is. What dyslexia forces you to do - you don't go A, B, C, D, E to Z. I can go A, B, Z with speed.

Because of my weakness I've learned other ways to accomplish the same goal with faster speed. So in math, I can do equations faster by eliminating the wrong answers quicker than I can get the right answer.

It's easy for me to see how a business proposition is going to play out, or who our next-generation competitors are, from taking this data point from this customer and another data point from another customer, and jump to Z. So it's definitely an advantage.

It's one of the reasons I talk to young people with dyslexia pretty regularly. You have to have role models.

BI: When you were younger, did dyslexia affect your self-esteem?

JC: Oh, absolutely. In third and fourth grade, my teachers thought I may not go to college. I had two parents who were doctors, and my mom was valedictorian in multiple classes. My parents always told me, "you're smart," and that's nice from love, but that's not what you see.


If I hadn't had a teacher, Mrs. Sanderson, who helped me get through that period ... my parents found her. This was before dyslexia or learning disabilities were understood. I had no role models.

BI: What made you start talking about it publicly?

JC: I accidentally disclosed it one time, during "Taking Our Children" to work, and I realized how many people in the room were dyslexic, not just kids but parents too. That's why I became a spokesperson for it.

When one of your counterparts [another journalist] called me up and asked me to write an article about it, I at first said no, because even right now, when I talk about dyslexia, my hands sweat.

It makes uncomfortable because if you give me directions or I call the person the wrong name, or get their numbers mixed up - I can memorize numbers really well - but once I file it wrong, I'll make the same wrong turn every time.

Even there, I don't make fun of people. I call people by what thing they want to be called. What does your best friend call you? What does your spouse call you? It helps you emotionally connect to people.

It comes back to what we said earlier. You have equal amounts of good luck and bad luck. Nobody's perfect. I'm not either. But it's how you reach for the good opportunities and how you navigate the tough times.

BI: So after all these years, what's your favorite part about being rich and famous? Steve Ballmer said his was the ability to get a great tee time wherever he went.

JC: I have very little interest or desire to be rich and famous. That doesn't mean it isn't nice to have money. It is. It takes stress out of life. But fame and money has never been very important to me other than what our company can do to change the world. That is a tremendous excitement. If you can change a Palestine or an earthquake or a hurricane in U.S. or an industry or business.


We want to change the standard of living for everyone in this world. Change healthcare. Change every city, every business - and make money doing that. A lot of money for the company, shareholders, employees.

If your pupils don't dilate at that thought, something is wrong with you.