November 3, 1997, Joe Costello
Hitting the books
By Dawn Yoshitake
Staff Writer, CNET NEWS.COM
Joe Costello is a live wire.
He talks at break-neck speed, his hands mere props by which to make his
point. His laugh comes quick, like machine-gun fire, from his tall, lanky
frame.
Joe Costello is a live wire.
He talks at break-neck speed, his hands mere props by which to make his
point. His laugh comes quick, like machine-gun fire, from his tall, lanky
frame.
With all that energy, it's hard to imagine this guy can sit still, let
alone serve as president and chief executive for nearly 11 years at Cadence Design Systems, a software tools
designer and services company.
But he has. At least until now.
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Costello, in an announcement that stunned Cadence employees and the
high-tech community, last month announced his decision to leave to join a
relatively young educational software company, Knowledge Universe. There he
will serve as vice chairman of the privately held company, which is funded
by investors such as notorious former junk bond king Michael Milken and Oracle chairman and chief executive Larry
Ellison.
Costello leaves behind a company where he grew revenues from $429.1 million
in 1994 to $741.5 million in revenues last year. Costello also served as
Cadence's driving force in what has become one of high tech's largest
trade-secret criminal cases, with six executives from competitor Avant being charged with
trade-secret theft by the Santa Clara County, California, district
attorney's office. A federal appeals court last month issued a
preliminary injunction against Avant, forbidding the company from selling
some of its older-version software that allegedly carries code stolen from
Cadence.
Costello leaves behind a company that garnered him a reputation for being a
hotshot CEO. Chief Executive magazine handed him the No. 1 spot on
its performance-based index measuring the effectiveness of CEOs, and
Costello also recently landed on the list of Heidrick & Struggles
headhunter John Thompson, who was hired by Apple Computer to find a new CEO for the
beleaguered company. When approached for the job, Costello opted to hold
tight at Cadence rather than take a slice at Apple.
When did you decide it
was time to leave Cadence, and what thoughts were going through your mind?
Costello: It's something that I have actually been thinking about for a few
years, and more seriously in the last couple of years. And the question was:
"Do I want to take Cadence onto the next leg?"
There are these stages that companies goes through, and we were coming
through the end of one stage and about ready to launch into another stage.
And [these stages] usually go in three- to five-year pieces at a
time. And so we were at this moment where I had to either sign-up for the
next three to five years and really go for this next piece, or not. It's
not fair to start it and then say: "OK, I'm out of here!" And so it was a
perfect time, from that point of view, to [leave] .
I had been thinking about doing other things and trying to compare staying
with Cadence over doing something else. And over time, it had been gnawing
away at me. There was something inside me that said, "I want to do something
different." There was a yearning for something different, a different
marketplace, a different impact level, a different space to play in.
NEXT: Working for the king
| Age: 43 Claim to fame: Driving force behind one of high tech's most noted trade-secret theft cases Verbatim: "A knowledge-based economy and society hits the heart of this world's biggest trend." Education: bachelor of science degree in math and physics from Harvey Mudd College, and a master's degree in physics from Yale University |
November 3, 1997, Joe Costello
Working for the king Once you decided to leave
Cadence, how did you go about figuring out what you
wanted to do?
That general feeling of moving on to something else evolved over the last
couple of years. Some people do the classic thing and become a venture
capitalist. That didn't seem right because I really liked being hands-on
and doing things. I thought about doing something really different,
like going into something like politics and trying to make a difference in
government somehow. And I also thought about a smaller company in a new market space,
because there was something about a different market, a new marketplace,
that felt good.
For years I also have thought about the education marketplace, and I had
felt for years there were huge problems in that space and that the
fundamental problems were sourced from the fact that education
has never been treated like a business. There were just some
fundamental business principles that were never applied in
education that could improve things dramatically.
I also felt that [education] was an area that was going to have
increasing focus and needed to have increasing focus because we're moving
into a knowledge-based society. Economy and education are going to be more
and more a premium, and it's going to separate the haves from the have-nots.
How did you hook up with
Knowledge Universe?
I read an article a little over a year ago in Fortune magazine where
Michael Milken was talking about big new marketplaces and trends, and he had
talked about education in just the way I had been thinking. I remember I
ripped it out and stuffed it into a file. And it was a couple or three
months later when he called me up and said he wanted to chat. And I don't
just go chat with anybody, but this guy sounded interesting because I had
read this article and I wanted to hear what he was up to.
What do you envision doing at Knowledge Universe? What are your goals?
In the big-picture vision, no one has taken on the education marketplace,
where there has been a series of fiefdoms--little tiny niche marketplaces.
We want to take a much more integrated solutions approach to it over time.
But the real end goal is to make a quantum-leap impact on the education process
and marketplace technology to make it much more accessible to lots of
different people. So better education--more accessible to more people so
that you can accelerate this knowledge-based economy and society--that's
the key goal.
How is the company positioned financially?
The original financing of the company was about a year or so ago. Over
$500 million has been put into it so far. The way to get the company off to
a fast start so you could make a real attack on these marketplaces is
growth through acquisition, as well as the internal growth of the things
that you buy. But at the end of this year, we'll be doing something like
$700 million a year on an annualized-run rate basis from the companies that
we have acquired. At this point we don't think we'll do any more seed
capital financing in the near-term future. We think that the half a billion
plus is probably enough for at least the near term.
NEXT: The famous suit | |
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November 3, 1997, Joe Costello
The famous suit
As you embark on this new chapter, do you expect you'll still stop by your
old stomping grounds frequently?
When I thought about leaving, I made a decision that was very, very tough
for me. What I decided was to say I can't do that because it'll be unfair
to Jack Harding, the new CEO, and the management team for me to go back that
way because you know what it does is it actually gets people thinking about
the past. And what these guys need to do is move forward. I think I could
be nothing but a disruptive influence to the company at this time. There
may be a day some time in the future, but I think now it would be the worst
possible thing I could do.
What has been the loss of sales Cadence incurred from the Avant
trade-secret case that you spearheaded?
Cadence has products that are the leading edge in this space. And obviously
we believe and contend that Avant's product was based on our technology. So
every sale that they make in this space from our point of view is a sale
that should be a Cadence sale. They are the only "other guy" that has the
same kind of features, the same kind of technology. And that's because they
took it from us.
Have any customers you had that defected to Avant come back since all this
court stuff has happened?
It's way over 50 percent who have not stopped using Cadence's
products. So the group that has stopped is probably in the 20 percent to 30
percent range, something like that. And the momentum is moving in the right
direction. Now customers are starting to say, "Yeah, I think this is right.
I think I really ought to change." And the courts are saying, "You're going
to have to change." So the momentum is moving. What's surprised me is how long it took to get to
that state. I would say about a third of our customers who left have come
back.
Outside of the attention you have received from the Avant case, what have
you thought of the attention you've received from being named on a list for
the Apple CEO slot?
I've talked to [John Thompson] a lot because he's a recruiter for
Cadence! As you know, it was published that I was on a short list. There
isn't a short list of candidates for the Apple job. They hadn't even
started interviewing candidates for the Apple job. I was on a list that
John presented to the board of directors about a month ago, when he was
saying, "Well, these are the kinds of people we think would be appropriate
for the job of Apple CEO."
I think it was a compliment that I was put on the list. I think the story
with Apple is everybody wants to see Apple succeed--really. People in the
high-tech community, in general, want to see it succeed. I feel that way
about it. It was one of those great things that happened in high technology
and in Silicon Valley in the last couple of decades. Do I know much about
it? No. We're not in that space. Do I have two cents that I could give
Steve Jobs and the board about what needs to happen? Sure, I'm just like
everybody else. But someone actually is going to have to take the job and
take it seriously. I'm not even considering that.
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