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Hitting the books

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.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
8 min read
CNET News.com Newsmakers
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.

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 The question was, do I want to take Cadence on the next leg? 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

CNET News.com Newsmakers
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, We're moving into a knowledge-based society... 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

CNET News.com Newsmakers
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 When another person cheats that's ok. We're still going to beat them. 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.