The dot-com bust not only hurt Internet start ups—it pummeled telecom companies, many of which went bankrupt or were forced into mergers. Ciena CEO Gary Smith, the company’s CEO since 2001, describes how his company survived, regrouped, and resumed its growth.

How was Ciena doing when you became its CEO?

SMITH: I’d joined in 1997, around the time it went public, and became CEO in 2001. The company was doing very well. I remember driving to work one day, listening to NPR. They were talking about technology stocks, and they singled out Ciena. They pointed out that we were a very young company, but our market value was $45 billion—more than the entire U.S. automobile industry. I remember listening to that and thinking: “We’re a great company with a great future, but this doesn’t make any sense.”

At that point we were a single technology company. We’d developed a technology that allowed companies to dramatically expand the capacity of existing fiber optic cable, so you could put more data through a network without digging up miles of fiber. Our primary customers were Sprint, MCI, and Qwest, so we had very high customer concentration. We intended to broaden the company out and develop new products over time, but then the dot-com bust came. It hit us at a strategic point where we didn’t have a lot of options.

What did you do?

As a new CEO, I was spending a lot of my time figuring out what was going on. The industry was in such a state of denial. People believed this was just a temporary speed bump. In 2002, we had an offsite strategy session, and we had some consultants come in. They presented various scenarios, including the worst-case for our company. By way of context, in 2001 we delivered $1.6 billion in revenue, and before the bust we’d  projected that by 2004, we’d be at $5 billion. In 2002, the worst-case models showed we’d still have over $1 billion in revenue. In reality, we finished the year at $296 million. We never imagined it could get as bad as it did or last as long as it did.

So what do you do? Do you sell the company? That’s not an attractive option, since everybody in our industry who could have acquired us was in the same situation—or in some cases, worse situations—than we were. Do you cut the size of the company to match the minimal revenues and just tough it out? That was what some competitors did, and it’s what Wall Street favored—match your expenses to short-term revenues. Or do you play for the long-term, and invest during the downturn? We gathered data, examined the options, and in the end decided that the least scary option was to invest.

How did you execute on that strategy?

We outsourced nearly all of our manufacturing, cutting about 1,500 of our 4,000 employees. At the same time, we hired a lot of engineering talent and invested in the development of the organic talent we already had on board. We also turned our business into more of a relationship model, where we became strategic partners with the larger carriers like AT&T and Verizon. We’re still a specialty player, comparable to Juniper Networks, and that’s turned out to be a good strategy—in our industry, broader players like Alcatel, Lucent, Nokia, and Siemens all had a tough time, because it’s hard to be all things to all people. We also made a number of strategic acquisitions, including a large deal to buy assets of Nortel after it went bankrupt. There was a lot of good talent and technology out there with no place to go, so we placed some bets – even at the dismay of our investors.

Our strategy worked well, partly because the communications piece of the Internet became increasingly important with the advent of cloud computing and other bandwidth-intensive applications. Today traffic isn’t just people using their iPhones to look up sports scores—it’s enterprise computing, it’s video. We put intelligence on networks so that companies get the right capacity at the right time. We now have over 1,000 customers worldwide, and 80% of the major carriers are our customers.

How did the Great Recession affect your turnaround?

It was scary, but we had a lot more confidence—we were smarter this time around. We had a broader customer base. And we felt that it was more of a macroeconomic issue (driven by financial crisis) than a telecom-specific issue.

What lessons have you learned over the last dozen years as CEO?

You have to have the strength of your own convictions. You need to understand the industry. Get good people around you, and listen to customers.

This blog first appeared on Harvard Business Review on 1/15/2014.

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