UBNT - Terrific article on CEO Pera

This public article from Business Week was dated April 2013.


I’ve cut it down a lot, and eliminated most of the basketball stuff.


"Robert Pera …paces the basketball court across the parking lot from the San Jose offices of Ubiquiti Networks, the wireless hardware company he founded and runs. Pera is in jeans, a brown polo shirt, and black mid-top Kobe Bryant Nikes. He stands 6-foot-3 with thick, freckled arms, a spiked, strawberry blond crew cut, and the beginnings of a mustache. Pera bought the Memphis Grizzlies last fall after the initial public offering of Ubiquiti made him, briefly, a billionaire.

Pera is one of the most successful entrepreneurs in Silicon Valley. Since starting Ubiquiti eight years ago in a makeshift lab in his San Jose apartment, he has upended the wireless Internet industry. He and the company’s few dozen engineers have found ways to relay signals faster, farther, and cheaper, enabling tens of thousands of small Internet service providers to do business in corners of the globe where cables and wires haven’t reached. “It’s really kind of an insurrection,” says Matthew Robison, an analyst who tracks Ubiquiti for Wunderlich Securities. “Not only the company but the customers that they’re empowering. They’re a new force in the marketplace.”

In a glass-walled office that looks out on teams of engineers and developers, Pera, 35, tells the story of his rise as if it were a series of case studies. There’s the Apple employee just out of engineering school and feeling stymied by a slow-moving corporate culture; the one-man-band scrambling to fill his first order; the breakout success nearly ruined by a counterfeiter; the finance rookie rushed into a private equity deal and an IPO; and the young chief executive officer learning to give investors a story to go with their stock.

In May 2012, the company’s shares tumbled when the financial press picked up a rumor that Pera had enlisted Chinese mafia to squash competing manufacturers. The story, Ubiquiti now says, had been planted by the alleged ringleader of a counterfeiting operation dumping tens of thousands of knockoff products into the market. By the time Ubiquiti filed a lawsuit against the counterfeiters, its stock had lost almost half its value, falling from a May 1 price of $35 to less than $19 on May 21. By mid-August, despite Ubiquiti having won a preliminary injunction against the alleged counterfeiters and announcing a $100 million share repurchase, it was below $8.

“Looking back, we weren’t ready for an IPO,” says Pera. “If you’re not built like a fortress and you cannot control your own narrative, you shouldn’t be a public company.” He takes much of the blame. “I was an inexperienced CEO for public markets,” he says. “I didn’t necessarily know about the power of creating your narrative, marketing the story.”
Pera has a weekly pickup basketball game with friends, and he trains with former San Jose State player Terry Cannon. “He can really jump,” says Grizzlies CEO Levien. “He can make shots. He’s technically very proficient.”

Pera grew up in Redwood City, halfway between San Francisco and San Jose. His father worked as a consultant and is now CEO at Armanino Foods, an Italian frozen food maker. His mother works in public relations. As a kid, he loved video games and would seek out Japanese versions because they came out a year earlier than they did in the U.S. He played basketball in high school, though a heart infection kept him home for a year; the condition is now stable.

In 1997 he went to the University of California, San Diego, where he double-majored in electrical engineering and Japanese, and stayed to complete a master’s in engineering. During his junior year, he went to Tokyo and noticed that mobile phones were way ahead of the U.S. market. He decided he wanted to work in cellular networks.

After graduation in 2002, he got a job at Apple. “I wanted to build products,” he says. “I idolized Steve Jobs.” He was assigned to test the company’s Wi-Fi routers to make sure they met FCC standards for electromagnetic emissions. The work was dull, but Pera showed up early, stayed late, and did his best to impress. He wanted to be assigned to a design group, and he shared this ambition with anyone who would listen. At his first annual review, his manager, who had been at the company for decades, told him to slow down. He got a 2-out-of-5 performance rating, and his pay stayed at $65,000 a year.

During his testing work, Pera noticed an easy way to improve Apple’s routers. The power sources they used to throw signals were far below FCC limits. Boosting would help increase their range. When his bosses at Apple ignored his idea, Pera decided he could build his own Wi-Fi module. Searching online, he found that people in remote areas were already rigging Wi-Fi routers with external amplifiers to send signals over dozens of miles. It was a cheap way to get Internet access where telephone and cable companies didn’t reach. “This was a big market that was just starting, but nobody knew about it,” he says.

For the next year, Pera did the bare minimum at work and spent his nights and weekends in his apartment testing prototypes. By early 2005 he was ready to start his own business. Just before leaving Apple, he got a raise and a 4-out-of-5 rating at his annual review. “You’re finally finding your stride,” his boss told him.? ? ?

Ubiquiti took its first orders in the summer of 2005, selling 4,000 high-powered radio cards to a handful of U.S. wireless Internet service providers. Using a Taiwanese contract manufacturer, Ubiquiti could make a card for $30 and sell it for $80. But it wouldn’t last, and Pera knew it. Once word got around, he would be copied and undercut.

Unsure of his next step, Pera looked to the model of his former employer. Instead of making a hardware component that the providers used in their systems, he would build the whole system. After a flubbed first attempt in 2007, Ubiquiti came out with the Nano Station in early 2008, an all-in-one unit that providers could install at customers’ homes to get them online. It was an instant hit.

Ubiquiti sold hundreds of thousands to distributors for $60 each. The company grossed $50 million that year. “We were flying,” says Pera, “but I was super scared.” Now he would also attract bigger competitors such as Cisco and Motorola Mobility. He still needed a way to make Ubiquiti irreplaceable.

That year the Institute of Electrical & Electronics Engineers (IEEE) was updating its Wi-Fi protocol, the rules of the road for routers. The new protocol was built to work over short distances indoors. Pera and his engineers figured out a way to make it work over long distances. They stretched the signals by focusing them in narrow bands and wrote their own protocol so the signals would take turns arriving at antenna towers. Using the same cheap hardware that usually gets the Internet from the closet to the living room, Ubiquiti could send a signal for miles. And with the proprietary scheduling software, their equipment was not interchangeable. “Once people build out using our equipment,” says Pera, “they’re locked to our stuff.”

The new system, dubbed AirMAX and released in August 2009, was fast, reliable, and cheap enough to be attractive even in well-served U.S. cities.

By 2011, Ubiquiti was bringing in hundreds of millions a year in revenue with operating profit margins of more than 30 percent. It had about 50 employees and tens of thousands of small Internet providers locked into its products. Pera had already dodged a pair of existential threats to his business. He didn’t see the next one coming.

In March of that year, a Chinese distributor told Ubiquiti about a factory making counterfeit versions of its products. An employee at one of Ubiquiti’s contract manufacturers in Shenzhen, had walked out of the factory with assembly designs, plans, and software and delivered them to a nearby plant run by a company called Hoky Technology. Hoky, the suit alleges, began churning out identical antennas and accessories, right down to the packaging and user guides, and shipping them as Ubiquiti product.
Pera couldn’t believe it. “I was like, wow, somebody is crazy, right?” he says. “They somehow managed to get all our source work. And they recruited production engineers from the factory, we found out, to work on their lines.” The ringleader, Ubiquiti alleges, was a former distributor in Miami named William Hsu Wu.

Hsu had been a licensed Ubiquiti distributor in South America until 2009, when Ubiquiti ended their agreement. Ubiquiti alleges that he then decided to create a Ubiquiti clone. Hsu obtained a trademark for Ubiquiti in Argentina, arranged to steal product designs and deliver them to Hoky, and—knowing the sales channels—began selling the counterfeits.

When the Shenzhen Public Security Bureau raided the Hoky factory in November 2011, according to the Ubiquiti suit, they found more than 1,200 counterfeit products and shut it down. A month later, however, they released the factory’s operator from prison when he produced Hsu’s Argentinian trademark registration. In early 2012, the suit alleges, Hoky started making Ubiquiti knockoffs again.

On April 26, 2012, Hsu, according to the suit, posted a message in Ubiquiti’s online users’ forum under the heading, “Public listed Ubiquiti Networks CEO Robert Pera under investigation by China authorities for using mafia ties to stop its competitors in China?” He e-mailed the same message to Ubiquiti’s distributors and a couple of days later, the story showed up on the popular Chinese Web forum Tianya.cn. On May 2, Yahoo Finance picked it up. Ubiquiti’s stock began to slide, losing $800 million in market value in three days.

At the same time that he learned about the counterfeiting ring, Pera was taking Ubiquiti public. In October 2011, the company raised $105.6 million in its IPO. The sale valued the company at $1.45 billion and Pera’s stake at nearly $1 billion. It was the Silicon Valley equivalent of a knighthood, but Pera speaks ruefully of it now. He says he was rushed into it by Summit Partners, a private equity group.

Ubiquiti stock rose steadily until May, when the same lean infrastructure that had made the company profitable made it vulnerable. Pera lacked the legal staff to handle the trademark piracy in South America. The online forum that Ubiquiti uses instead of a sales team to communicate with its customers became a platform for slander.

By that point, Pera was preparing a bid for the Memphis Grizzlies. “The timing was terrible,” says Craig Foster, who was lead banker for UBS (UBS) on the Ubiquiti IPO and is now Ubiquiti’s chief financial officer.
In July 2012 Ubiquiti won a preliminary injunction to halt Kozumi’s sales of Ubiquiti-branded products. Hoky’s owner, the company says, is once again in custody in China. Ubiquiti has added encryption firmware that makes its products harder to duplicate. After a sharp drop in the first quarter of 2013, due partly to uncertainty among distributors about what they were buying, sales began to recover in the second, (and kept improving every quarter).

Pera’s project, he says, is to turn Ubiquiti’s entry into the public markets into a positive. Before the company was public, he focused exclusively on “serving customers, killing competitors, and making money.” Now he plans to sell investors on Ubiquiti as a misunderstood company with a big future. He sounds like a typical CEO talking about opportunities in emerging markets, the promise of new products like wireless hubs for office buildings and Web-enabled surveillance systems, and a $1 billion revenue target. But he also sounds like a teenager boasting about his next dunk. “You can be the first to call it,” he says. “I’m going to do it this year.”