(Ken Schultz)

(Jim Hjartarson)

(Peter Scovell)

(Larry Tarof)

(Solomon Wong)

(Carolyn Raab)

(Peter Allen)

(Rajkumar Nagarajan)

(Moris Simson)

(Richard DeBoer)

(Don Smith)

(Pierre Kahhale)

(Dave House)

(Bill Joll)

(Paul Finke)

Nortel in the rear-view mirror

Rod MacIvor, The Ottawa Citizen / Dave Cuddy, co-founder of Network Edge Solutions, discovered the joys of running a company the hard way. Nortel fired him and his 30-plus underlings early this year during the first of what would prove to be several waves of layoffs. Cuddy took a few weeks to find his bearings, then combined with Ottawa entrepreneur Brian Campagnola (second from right) early this year to start Network Edge. They have since hired some of Cuddy's former colleagues.

Dave Cuddy knew something big was up. Only days after returning from Christmas holidays early this year, the Nortel manager received an e-mail instructing him and his 30-plus employees to show up for a group meeting.

At the appointed hour, the team assembled in a conference room in the northwest quadrant of Nortel's sprawling R&D campus in west Nepean. The Internet specialists listened quietly as an outside Nortel manager explained the company would be laying off 800 workers worldwide -- and that Cuddy's group would be among the casualties.

Cuddy was stunned. This was before layoffs had become a routine event at Nortel. In fact, company chief executive John Roth was still telling shareholders he expected sales this year would jump 30 per cent. Only recently, Cuddy had received Nortel's coveted President's Award for innovation. The prize was all the sweeter because it took place at Mont Tremblant where the musical entertainment was provided by Blue Rodeo -- lead singer Jim Cuddy is Dave's second cousin.

As he tried to absorb the news of his layoff, Dave Cuddy thought about its implications. The Toronto native had spent more than 20 years at Nortel and there was considerable overlap in his personal and professional lives. He had been working closely with most of his current group of employees for six years. Now, the cornerstone of his career had been cut away.

Over the next few weeks, Cuddy experienced a gamut of emotions -- shock, grief, anger and, gradually, acceptance. He began to talk to former colleagues who had earlier left Nortel. Soon he began to consider something that a year earlier would have seemed quite radical -- the possibility of launching a startup.

Cuddy had been a director of Nortel's local Internet business unit, an R&D group charged with developing switching devices known as access gateways. He linked up with Ottawa entrepreneur Brian Campagnola and developed business plans for new products and began to pitch the ideas to other companies and venture capitalists in the Ottawa area.

"There was lots of interest in what we had to offer," he says. "We had no trouble finding initial financing."

Cuddy and Campagnola recently formed Network Edge Solutions and hired half-a-dozen of his former Nortel team members. He's naturally reluctant to divulge details about precisely what line of business he's targeting. It's too early for that. In fact, he's still trying to absorb the radical turn his life has taken.

"In the past three months I've gone from being a senior corporate R&D manager to running a startup," he says. "I still have regrets about not being at Nortel, but I'm enjoying this."

Cuddy may have been forced into his new career path, but he is far from alone in making it. In the past two years, more than 30 former Nortel executives and engineers have either co-founded companies locally or taken over one as chief executive. That may not sound like much against Nortel's Ottawa-area workforce of roughly 12,000, but it's just the leading edge.

Every entrepreneur leaving Nortel carries a Palm Pilot full of personal contacts. The result is that hundreds of engineers, programmers and other specialists have also left to join the startup artists. While many continue to leave voluntarily, the transfer of talent is sure to accelerate in the wake of Nortel's third wave of layoffs, announced last month.

The ex-Nortelites are turning entrepreneurial for a wide variety of reasons. Some have spent a lifetime within the confines of a multinational and simply want a change. Others have grown rich on stock options granted years ago and now have the financial security to give it a shot. The less fortunate, who have only recently been accumulating options, have seen the value of these options plummet to zero and so have little to lose by leaving. There are also those who, like Cuddy, have been forced to consider new paths. Finally, the deep cuts in Nortel employment levels, combined with the company's rapid-fire acquisition of outside firms, has prompted much soul-searching within a corporation where jobs used to be for life.

The leave-taking at the most senior levels is especially notable. Peter Scovell, the former managing director of Nortel's optoelectronics group and now chief executive of Ottawa-based Zenastra Photonics, estimates Nortel has lost more than 200 senior managers in the past couple of years out of a global total of 600 to 700. "It's healthy to have a sensible level of attrition," he says, "but I do get concerned about the sheer numbers who have left."

It's not the first time Nortelites have taken flight. Terence Matthews, the founder of Mitel, Newbridge and a host of other firms, left in the early 1970s. Jozef Straus, the chief executive of JDS Uniphase, was part of group of optical engineers who bolted a decade later.

But the latest exodus of would-be titans is different in both scale and scope -- it's a steady stream that could eventually have a very big impact on the city's economy.

Consider first what's taking place inside Nortel's labs. "There's been a huge cultural shift," says Carolyn Raab, one of five cofounders of Quake Technologies, a chip design firm established a year ago. "It used to be considered risky to leave Nortel but now it seems riskier to stay."

As recently as 1998, it was rare for Nortel engineers to even think about kick-starting a firm of their own. "You were at Nortel for life," says Michel Ranger, a former Nortel employee who earlier this year co-founded Ottawa-based Galazar Networks, an optical networking company. "It was seen as treason to leave."

For most, there was no reason to look elsewhere. Nortel is by far the largest high-tech firm in Canada and offers superior training, a wide range of technologies to work on and a rich assortment of global offices for those with wanderlust. A Nortel career was as close as you could get to nailing down a comfortable lifelong assignment in high tech.

All that began changing in mid-June 1998, when Nortel offered $9.1 billion U.S. to buy California-based Bay Networks, a data networking company. Bay may have been a second-rank technology power but it was steeped in the culture of California's Silicon Valley and its emphasis on the Internet, stock options and market value. As Nortel and Bay employees collaborated on projects, the Canadians began to experience the lure of the Valley's ways.

Some of Nortel's more ambitious employees were already ahead of the game. Jim Hjartarson, a 16-year Nortel veteran, convinced a team of colleagues in 1997 to open up Ottawa-based Cadence Design Centre, a chip design firm. Hjartarson travelled many times on business to California where VCs offered him millions on the spot if he would set up his own company. Eventually, he succumbed. In 1999, Hjartarson and four of his fellow co-founders unveiled Catena Networks, which specializes in local-access technologies such as high-speed copper. Catena has already raised more than $100 million U.S. and employs about 250.

Hjartarson and a few others like Ken Schultz, the co-founder of Sibercore, were still very much the exceptions at Nortel. It wasn't until the Brampton-based corporation shelled out $300 million U.S. for Kanata-based Cambrian Systems in late 1998, that Nortel's engineers finally began to appreciate their industry's enormous potential for generating wealth.

Cambrian, a specialist in short-haul optical technologies, had been created only a year earlier by Terence Matthews, who personally assembled its original management team. Nortel had been working on its own version of the technology but these engineers were transferred to the Cambrian operation.

For some Nortel designers, this was hard to take. The Cambrian employees were no brighter than their new Nortel colleagues. Cambrian's big edge was its entrepreneurial experience -- its top managers, most notably CEO Don Smith -- had all done the startup thing before.

Smith stayed with Nortel for a couple of years as part of the Cambrian deal, but last month re-united with Matthews. Smith is now running Mitel Networks, a communications networking company re-configured by Matthews in February.

The Cambrian deal was also notable for the impact it had on Solomon Wong, one of Cambrian's senior executives. Ironically enough, Wong had earlier left Nortel to join Cambrian because he wanted some entrepreneurial experience. When Nortel again reclaimed him, Wong struck out very quickly and helped to set up Kanata-based Sedona Networks.

Still not satisfied he was working for the kind of company he felt comfortable with, Wong decided to build another from scratch. He raised $17 million U.S. with surprising ease a year ago en route to launching Akara. The Kanata-based company promises to help carriers cope intelligently with the flood of optical data coursing through their networks -- and is close to unveiling its next round of financing.

Akara wasn't the only startup to benefit from its association with Ottawa as one of the globe's top centres of fibre-optic technology. In the late 1990s, it became clear Nortel had stolen the optical crown from Lucent. The result was U.S. venture capitalists and entrepreneurs began spending more time in Canada's national capital.

"Before the optical boom, VCs wouldn't invest in a firm if it was more than an hour's flight away," says Rajkumar Nagarajan, a co-founder of Solinet Systems and former Nortel designer. "But they had to come to Ottawa and Montreal to find the skills they needed."

One of the first Nortel engineers to appreciate the new hunger for Ottawa talent was Larry Tarof, a 15-year Nortel veteran and designer of opto-electronic devices. Tarof was introduced in 1999 to Rajvir Singh, the founder of a pair of California stars -- Cerent and Siara -- which had been sold for more than $11 billion U.S. Singh liked Tarof's brand of optical experience and made him an offer he couldn't refuse. They created Optovation, a maker of optical components, in late 1999. "Nortel is a fabulous company to work for," says Tarof, "but this was an opportunity that dropped into my lap. If I didn't take it, I'd regret it."

The true extent of the opportunities available in the industry soon became evident. The same month Tarof co-founded Optovation, Nortel paid $3.25 billion U.S. for Qtera, a Florida-based firm with no revenues. Qtera's big claim to fame was that it had figured out how to push optical pulses further without having to be re-generated by expensive equipment. Nortel's engineers had been working to solve this problem but Roth figured Qtera would get there first. Speed was everything.

The purchase of Qtera sent Nortel staff the clear message that no job was safe. The corollary was, startups can sometimes get the work done faster.

"Nortel is a fascinating, solid company," says Zenastra's Peter Scovell, "but it's a huge machine and it's difficult to get decisions made quickly."

Frustration with Nortel's bureaucratic ways prompted Scovell to leave the multinational in 1999 for a one-year stint at a wireless company. When he was approached last year by Ottawa entrepreneur Pat Shea to run Zenastra, Scovell didn't think twice. "The one thing I hadn't done in my career was a startup," he says.

Similar motivations were behind Peter Allen's decision last year to help found Innovance Networks, an optical systems company that stunned the local VC community by landing more than $100 million in a single round of financing.

"I wanted to do something fresh," says Allen, a 44-year-old native of London, "I considered joining an early-stage company but decided in the end to launch one."

Allen's timing was fortunate. He signed up with Nortel's then-fledgling optical components group in the early 1980s, eventually overseeing its transformation into a global powerhouse with 5,000 employees. Allen earned a small fortune through the exercise of stock options and other investments. "I did nicely," he says, "and that gave me some freedom." Equally important, his Nortel job put him in regular touch with with Kevin Kalkhoven, the co-founder of JDS Uniphase, an important Nortel supplier. Kalkhoven provided some seed money for Innovance and instant credibility.

It's still not clear whether the recent string of startups by ex-Nortelites will actually succeed. A history with Nortel helps a lot when it comes to raising money, hiring workers or gaining access to customers for early product trials. But it only goes so far. Like Nortel itself, the newcomers have to convince carriers and other major customers to buy their latest-generation gear, semiconductors and software.

This is where previous entrepreneurial experience helps. Don Smith, the new chief executive of Mitel Networks, obviously has loads of it. Akara's Solomon Wong has done it before. So has Richard DeBoer, the chief executive of Galazar Networks. The former Nortel engineer co-founded Sybarus, which he sold in 1999 to New Jersey-based Lucent Technologies.

One of the more intriguing ex-Nortel managers is Moris Simson, a multilingual native of Turkey who was educated in France. Simson, an 18-year Nortel veteran, was the founder of that company's network applications unit, which he developed into a major-league business on the strength of sales of speech-recognition technology.

Simson moved in 1999 to Mitel where he helped to formulate strategy. Last summer, Simson and company CEO Kirk Mandy concluded that Mitel should spin off its optical components business as a separate company called Optenia. Simson offered to run it. "We felt it would be easier to attract scientific talent and raise money," says Simson, Optenia's chief executive. "It would also allow us to move more quickly."

Mitel managed the Optenia spinoff surprisingly quickly -- certainly in contrast with the experience at Nortel, which has not proved itself to be a very accomplished spinoff artist. Entrust Technologies and Elastic Networks are two former Nortel units that have gone public but are trading well below their initial public offering price. (Entrust is now run by former Nortel executive Bill Conner while former Entrust CEO John Ryan recently established ARM Technologies, a consulting group.)

Nortel occasionally identifies promising spinoff possibilities. But these are clearly secondary to Nortel's main business of building heavy-duty communications networks for global concerns. Certainly that was the message received early this year by the 127 Nortel employees at Extreme Voice. This stand-alone unit was developing voice-over-Internet applications for consumers.

David Cork, the chief operating officer of Extreme, said his unit was already on track towards a spinoff when Nortel suddenly pulled the plug early in January. Since Extreme had already built a national network for live customers, Nortel agreed to wind down the unit gradually.

By the end of March, Cork and Mark Murray -- Extreme's chief financial officer -- began introducing themselves to VCs with the idea of joining a company as a team of experts. "But most of the VCs told us we should start something of our own,'" says Cork.

They listened to the advice. Last month, they put together a firm, still in ''stealth mode,'' called Natural Convergence. "We always felt we were unique because we had built a company within Nortel," says Cork. "When we left, we found others who had done the same thing."

Now Cork, Cuddy and their former colleagues are establishing a network of startups on the outside.

The consequences now can only be guessed at but they are proving a solid counterpoint to the gloom inspired by Nortel's stream of layoffs.

Senior Nortel staff are calling shots at startups in Canada...

Ken Schultz left Nortel in 1998 to launch Sibercore. Two Nortel colleagues, Randall Gibson and Farhad Shafai came along for the ride. The three engineers started out designing chips in Gibson's basement. Schultz, a native of Winnipeg, joined Nortel in 1989 and helped to design the first company chip that held more than 10 million transistors. Sibercore, which makes data processing chips, scored some early financing from Antoine Paquin and has since raised nearly $50 million.

Jim Hjartarson is the co-founder and chairman of Catena Technologies, in the business of turning copper wires into high-speed conduits. Hjartarson and his co-founders worked long stretches in Nortel's access technologies group before bolting in 1997 to Cadence. They launched Catena in Dec. 1998 and have since raised $105 million U.S. Hjartarson's fellow co-founders include: Andrew Deczky, Andy Weirich, Jonathan Boocock, Mark Feeley and Gary Bolton.

Peter Scovell joined Zenastra Photonics about a year ago as CEO. The British-born engineer began his career at U.K.-based STC Technology, which was acquired by Nortel. Scovell went on to play a variety of key roles at Nortel. He ran the firm's chip facility and, later, its Optoelectronics group. Scovell shifted to Zenastra in part because he had never run a startup. He's now trying to finalize a second round of financing for the two-year-old firm.

Larry Tarof was a contented Nortel designer when he was introduced to California enterpreneur Rajvir Singh in 1999. Singh, a founder of Cerent and Siara, wanted someone with expertise in optical components. Tarof was a 15-year Nortel veteran with all kinds of experience designing opto-electronics devices. Singh offered to help fund Tarof in a startup. The result is Optovation, a components specialist launched in Dec. 1999.

Solomon Wong, a native of Saskatchewan, has been involved in several startups since he left Nortel in the late 1990s. His latest venture is Akara, an optical networking specialist he helped to launch in April, 2000. Akara raised $17 million U.S. a year ago and is very close to closing a second deal for considerably more money. Other ex-Nortelites at Akara: Stephen Adolph and Mark Wacyk.

Carolyn Raab is one of five co-founders of Quake Technologies -- a one-year- old chipmaker. The Queen's University engineering grad is also one of three co-founders with a long history at Nortel. Raab worked at Nortel's chip plant at Corkstown Road before leaving for the "immediacy" of a startup. Other ex-Nortellites at Quake: Petre Popescu and Sorin Voinigescu.

Peter Allen co-founded Innovance Networks last year because he wanted to do something fresh. The British-born jack-of-all-trades had been running Nortel's optoelectronics group, which he had helped to build into a 5,000 strong organization from 150 or so in the early 1980s. Innovance, an optical systems firm, has already raised $145 million. Other ex-Nortelites who co-founded Innovance: James Frodsham and Alan Solheim.

Rajkumar Nagarajan is one of four ex-Nortelites who left Nortel's optics group last year to form Solinet Systems, an optical networking specialist. With the help of a $15 million U.S. seed financing, the company has grown to 135 employees and recently snagged Scott Marshall, a former Cisco Systems manager, as chief executive. Other ex-Nortelites among Solinet's co-founders: Madhu Krishnaswamy, Hanan Anis, and Avid Lemus.

Moris Simson worked at Nortel for 18 years in a variety of senior roles before a bad back pushed him to consider roles involving less travel. He signed on with Mitel as senior v.p. in May, 1999. Earlier this year, Mitel spun out a photonics unit, Optenia, which is being run by the multilingual Simson. His back has recovered and Simson is scoping out some ambitious plans for making Optenia an industry force. One advantage: its ongoing link with Mitel.

Richard DeBoer has re-united with a couple of former Nortel engineers, Michel Ranger and Nizar Rida to create Galazar Networks, an optical networking firm based in Bells Corners. The group met at Carleton University, worked together at Nortel but then went their separate ways. DeBoer and Rida re-connected in a venture called Sybarus, which was acquired by Lucent. They stayed on for two years. Now all three are busy whipping Galazar into shape.

Don Smith took over as chief executive of the remade Mitel Networks last month. This move followed a stint of more than two years at Nortel where the British-born entrepreneur was president of the Optical Internet Solutions unit. The move re-establishes a bond between Smith and Terence Matthews who worked together at Mitel in the 1970s.

David Cork early this year was the chief operating officer of Nortel's Extreme Voice unit -- a 127 employee group charged with developing Internet applications. Like the rest of his workers, he was stunned when Nortel closed the unit in early Jan. Cork was retained for a couple of months to wind down the business. In April he and Mark Murray launched Natural Convergence and are lining up financial partners.

Dave Cuddy, co-founder of Network Edge Solutions, discovered the joys of running a company the hard way. Nortel fired him and his 30-plus underlings early this year during the first of what would prove to be several waves of layoffs. Cuddy took a few weeks to find his bearings, then combined with Ottawa entrepreneur Brian Campagnola (second from right) early this year to start Network Edge. They have since hired some of Cuddy's former colleagues.

...While others are making their mark outside country

Allan Fox is chairman of Polatis, an optical networks company in England. He retired recently as managing director of Nortel's UK labs.

Nanying Yin co-founded Photonex, an optical networks firm in Massachusetts.

Chris Lilly founded Ilotron, an optical networking company in England. Ilotron was spun out of the University of Essex.

Pierre Kahhale is chief executive at Latus Lightworks, a long-haul optical firm in Texas. Kahhale worked 20 years at Nortel.

Dave House is chief executive at Allegro Networks, a broadband access firm in California.

Bill Joll, an 18-year Nortel veteran, is CEO at Maple Optical, an optical systems firm in California.

Paul Finke is chief executive of Yafo Networks, an optical subsystems firm in Maryland.

Rich Corley and Sean Licata co-founded Pirus Networks, a storage specialist based in Massachusetts. Corley was a former director of Advanced Technology at Nortel.

Brian Jervis is CEO at Kestrel Solutions, an optical transport firm in California. Jervis made his way to Kestrel via Newbridge which he joined in 1999 from Nortel.