David Heard

In an era in which short-term payback often is the yardstick to measure a CEO's lifespan, David Heard is an anomaly.

As president and CEO of Santera Systems, he knows his product's sales cycle is a minimum of six months, and more likely nine. Moreover, Santera, which develops Class 5 replacement switches, didn't follow the typical start-up model of last year by going after the low-hanging fruit of competitive carriers and greenfield network environments. Even with the recent pummeling that market has taken, Heard says Santera always has been set up to chase the large incumbents.

“As an entry strategy, using CLECs is a bad strategy,” says Heard. “The switching business is a $45 billion business. If you're going to build a switch company, CLECs better not be your only target, because 80% of the spending is from ILECs and big IXCs.”

Breaking into those markets is no easy task, he admits, but Santera has a few things going for it. First is WuFu Chen, the company's co-founder and chairman. The presence of Chen, who also founded Cascade Communications and Ardent Communications, has helped the company raise $75 million in an ultratight market. Ascend Communications and Cisco Systems acquired Chen's last two companies, respectively, but Heard doesn't necessarily see that scenario playing out, nor does he see a need to rush to an IPO for cash.

“Our goal was always to fund ourselves to cash-flow positive so we didn't have to go IPO,” he says. “For us the market right now is very Darwinian. We're not focused on jumping out to an IPO.”

In fact, with a number of start-ups now struggling, Santera could be an acquirer. That will only happen, though, if the acquisition target fits neatly into Santera's replacement platform.

“In the short term, we're delivering what our customers ask for,” says Heard. “In the future, as we achieve our goals, acquisitions are something we will look at. Any kind of non-organic growth will only be to continue our philosophy. I can't take a rusted ‘72 Volkswagen, put it next to a Ferrari, tape them together and make them go 200 miles per hour.”

Timing, not speed, is critical to the company's future. Santera is counting on a market developing for Class 5 replacements before its cash and its ability to raise more runs out. Creating that market takes time, given the depreciation schedules of traditional switches, according to Scott Weidenfeller, vice president of product management and marketing. “When you make an investment in a switch, it's an annuity to some extent,” he says.

Though it has yet to name any customers, Heard forecasts Santera to have five to six revenue customers and several others in various stages of testing by the end of 2001. “2002 is going to be more commercial rollouts, and 2003 is the beginning of the replacement era,” he says.

That schedule might be a little aggressive, according to John Kuzma, senior analyst of new voice infrastructure for RHK. “For widespread Class 5 replacements, we're talking 10 years. There's going to be two or three permutations of the technology between now and then.”

While acknowledging the time frame might be long, Heard is counting on Santera being there throughout the process, acting as a disruptor to what has been a traditionally cozy market among a handful of vendors.

“Carriers like to take baby steps in this type of thing,” he says. “Think about what Juniper did to Cisco. We want to do the same thing to Lucent and Nortel. The guy who's at the top of the last curve usually isn't at the top of the next one.”