A HISTORY OF COMPUTER COMMUNICATIONS: 1968 -1988
About James Pelkey
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I am not one of those individuals who knew at an early age exactly what I wanted to do in life. Rather, as I reflect trying to make sense of where I have been and what I have done, I see that I was more swept forward by the tides of change, one person among thousands who in total gave shape to what is seen as history. Maybe it was because I did not have a set goal for my life against which I can measure my success that I strive to find meaning by writing about some of the events that shaped my times. I know for certain that the good fortune that led me to San Francisco from the Northeast of my youth could never have been seen in advance for the great wonder of Silicon Valley emerged just before I arrived in that land of quicksilver magic in 1970.
Be warned: I am a great admirer of entrepreneurs and of those who help them achieve their dreams. For starting a company requires the investment of immense human capital - of time, energy, the risk of foregoing salary income for the potential of capital gains and the knowing that failure could foreshorten the possibility of ever having a successful career. Yet even with the formidable odds stacked against them, men and women become possessed with an idea of how doing something better could make a great difference and commit themselves to its pursuit. To experience the magical energy that becomes unleashed and the unbounded camaraderie that emerges when virtual strangers launch a new firm, always inspires me to believe that any goal can be accomplished given the right vision, leadership and resources. The first two decades of the history of computer communications is filled with countless, interrelated stories of entrepreneurs and the engineers needed to produce the innovations promised to pry venture capital from skeptical investors. I know for I had the great fortune to be a peripheral participant, one who wants to preserve their stories so that the future will never forget their struggles and monumental contributions.
A baby boomer lucky to have an aptitude for math and science, I received my engineering degree in the tumultuous year of 1968. Against the War in Vietnam, and desirous of not risking my life, I did what so many engineering graduates did in those days and went to business school. Feeling out-of-sync with the whole experience and at loss for what to do, I put my life on hold and then taught for a year. That too left me uninspired. So I moved to San Francisco and was fortunate to find a job, any job given the employment market, working for a financial institution. One day I invited three contract computer programmers to lunch and asked them why they did not take jobs I knew they had been offered. To my surprise, they said because they were working for their own company, mind you a company of three. Now I had read about entrepreneurs in business school, but had never meet some in the flesh and blood. I left lunch still slightly baffled, but in the weeks ahead I thought I had the whiff of a new business opportunity and, needing computer experts to pull it off, again invited the three to lunch. When I shared my idea of matching the needs of buyers and sellers of used equipment using a computer, they thought the idea novel and we each chipped in $50 dollars, found a one-room office to rent and launched a company we named Synin. My job, among other things, was to raise some desperately needed venture capital. To my great surprise, venture capitalists were not willing to risk investing $250,000 in four young, inexperienced dreamers and an unproven idea.
Proving the maxim that hard work sows the seeds of good luck, in the course of pitching Synin, I met a man who was about to leave venture capital and become Chief Financial Officer of a Chicago company that had just gone public. Soon afterwards, I received a call from Martin Zimmerman, the founder and President of Telco Marketing Services, who offered me the job to be his assistant. I accepted subject to my being given the opportunity to start a company. Eighteen months later, I gained a new understanding of the importance of macroeconomics when the unheard of double-digit prime rates forced management to scale back their growth plans. Given a choice, I returned to the Bay Area to seek a job I knew I needed to master if I was going to become a successful entrepreneur, the financial officer of hopefully a fast-growing company. After weeks of knocking on doors and arguing why the lack of experience should not be held against me, Bob Leppo, a friend, introduced me to some associates who both needed a financial director and seemed to have a company with a great future. Fortune prevailed and I joined Sunset Designs, a consumer product company of just sixty employees. Thanks to two exceptional executives and Board members, I learned more than I would have ever imagined as we grew into the dominant firm in our niche. In 1979, an English firm committed to growth acquired us and I assumed the responsibilities for taking our products international. After nearly two years of building operations in Canada, England and France, I resigned to find a company I could finally lead. That company, Digital Sound, was a small technology company in Santa Barbara needing both money and marketing/sales. By the end of 1981, I failed to close the sales I had projected and, lacking willing investors, we returned the company to the founders. I lost everything I had earned and saved. I was broke.
Fortunately, I had made friends and learned a lot about technology. I began consulting to companies with the goal to focus on communications, software and graphics. Soon I had lots of interesting clients and two others working for me when one of my clients, Sorcim, a personal computer software company, recruited me to be President. I could not refuse. It was a great decision as was the one eighteen months later to sell the company: the competition with Microsoft and Lotus was beyond our reach. After a few months of personal down time, I began the process of exploring ideas around which to start a company when a friend, James McGill, the President of Digital Sound, introduced me to Thom Weisel, the managing partner of Montgomery Securities. Thom needed someone to take over the partnership’s struggling venture capital operations and, as anyone who knows Thom can testify, he is not one to be denied. It was another great decision. In the fall of 1984 I began learning what it meant to be a venture capitalist, albeit one who invested in later stage private financings, not raw start-ups. By 1988, convinced that an investment bank was not the right home for venture capital, I began making plans to leave Montgomery Securities with the goal of starting my own investment firm.
For those who lived and sought to make sense of the times, the mid-1980’s were thought to represent a transition from an industrial to an information economy. Routinely making presentations to institutional investors in hopes of raising evermore money to invest, sounding perceptive about such trends and how to capitalize on them with investment ideas separated those who succeeded from those who disappeared. What was I to say? How should I think about new investments? What were the new and best companies? Frustrated with what I could find to read, I made the daring leap to write about an industry I knew was in transition, an industry that held immense promise and one in which I had contacts and friends: computer communications. My idea was to write a history book of what had already happened and not to predict the future. My sense was to write about how ideas become companies that become industries and that in turn give rise to economic growth. Thus the question: How does technological innovation become economic growth? If there existed general principals of how information-based companies emerge, evolve and compete, then maybe there are ways to understand how to make the process more effective, even efficient. Being neither an academic nor a professional writer, I decided to interview a large number of those who had founded the companies that had succeeded and trusted that how to organize a book would become obvious. I quickly learned that to make sense of the history from 1968 to 1988 required interviewing many more people than I had thought, including individuals from the government, failed ventures and even non-government organizations. The journey proved a treasure. One I now finally share.
My appreciation for the pivotal future for computer communications began in late 1981 with two of my first consulting clients. The first, ComDesign, was a small, struggling statistical multiplexer manufacturer. My job was to run the company while the founder, Bob Dolan, could focus on some of the pressing financial issues. During my three months, I learned about the importance of statistical multiplexers, the market dominance of Micom and impact of semiconductors on the whole industry. The second client, Communications Machinery Corporation (CMC), was a small engineering shop headed by Larry Green. They believed one of their projects could lead to real products. I had a hard time understanding why or how. The project was an emulator for a new Ethernet semiconductor chip named LANCE. It took nearly a year of Saturdays for me to finally grasp its importance and, really, the importance of computer networking. I quickly turned to a friend and raised the needed seed money and became a Board member. My education then took a backseat to earning a living until I joined Montgomery Securities (MS). The venture funds I assumed responsibility for already had an investment in CMC as well as an investment in Interlan - another Ethernet company - that would soon be acquired by Micom. (The investment team I headed would eventually include Harold Shattuck, Rick Kimball, Syed Shariq and Bill Bunting.) In addition to my investment responsibilities, I also helped support the Corporate Finance department and was asked to make a call on a company called Packet Technologies. I was soon helping management make presentations to most of the leading Data Communication companies, including Network Equipment Technologies, one of our first investments at MS. An introduction to Codex led to its investment in a spin-off of Packet Technologies called Stratacom. I would later advise Codex on some of their acquisition plans. Other investments our team made were Telebit, Retix, Proteon, Doelz and Metapath. We also evaluated potential investments in Concord Data Systems, Equinox, Excelan and Network Switching Systems. I also participated on a team that did a secondary financing for 3Com. These experiences informed my understanding of the importance of computer communications and gave me the initial contacts that guided me as to whom to interview. Once I began the process, one interview led to the next until I felt I had a representative sampling of those who had influenced the emerging history. I then began the long process of trying to make sense of what I had learned and how to present such a rich history to a reader.
To organize the data collected required some form of reconstruction schema that made the selection of what to include and what could be excluded more than random decisions. The schema I was interested in exploring was how did ideas become transformed into products, companies, industries and economic growth. Economic growth, however, was slightly at variance with the prevailing economic theories that focused on equilibrium. Then I discovered the work being done on economic theory at the Santa Fe Institute. For the next ten years I had the great joy of becoming involved as a Trustee, even serving for a few years as Chairman of the Board of Trustees, and mostly attending workshops and engaging in discussions with the scientists from many disciplines. Scientists such as David Lane, Walter Fontana, and John Padgett influenced my thinking as I learned about complex adaptive systems and the notions of emergence, self-organization, punctuated equilibriums, etc. The introduction to the book briefly explains the resulting schema used to filter the data and organize the book. The choice of the hypertext format, however, can be more fully explored on this website. I hope you enjoy both and choose to participate.
Private Investor, Maui, HI (1989 - present)
Montgomery Securities, General Partner, San Francisco, CA (1984 – 1988)
Sorcim Corporation, President, San Jose, CA (1983 – 1984)
Consultant/ Private Investor, Santa Barbara, CA (1981 – 1983)
Digital Sound Corporation, President, Santa Barbara, CA (1981)
Sunset Designs, Vice-President, San Ramon, CA (1974 - 1980)
Telco Marketing Services, Chicago, IL, (1973 – 1974)
U. S. Leasing, San Francisco, CA (1971 – 1973)
Blue Sky Research, San Jose, CA
Communication Machinery Corporation, Santa Barbara, CA
Digital Sound Corporation, Santa Barbara, CA
Global Business Networks, Emeryville, CA
Metapath, Redwood City, CA
Prediction Company, Santa Fe, NM
Retix, Santa Monica, CA
Sorcim, San Jose, CA
Telebit, Cupertino, CA
Santa Fe Institute, Santa Fe, NM
MBA Harvard (1970)
BSME Rensselaer Polytechnic Institute (1968)
Entrepreneurial Capitalism & Innovation:
A History of Computer Communications
1968 - 1988
By James Pelkey
An overview of the book schema is presented in the Introduction. It is organized by these three dominant
co-evolving market sectors and standards making.
One can explore any market sectors from vision to adaptation - below.