ArsDigita Founder Responds to Closing 304
An anonymous reader sent in: "Net celebrity and ArsDigita founder Eve Andersson has written a brief history of the firm, documenting its downfall from her point of view. Fascinating reading, and yet another example of how a good thing can go so wrong."
Pinch of salt? (Score:0, Interesting)
Now she's blaming it all on the managment that kicked her out.
Is she bitter? Or is she correct?
So it's the VCs who sank the ship (Score:1, Interesting)
Interesting time line (Score:4, Interesting)
"In late March 2001, ArsDigita received $38 million in financing... In early April, Allen Shaheen... took Philip's place as CEO.
'ArsDigita University was one of the primary reasons I decided to join ArsDigita Corporation.'
- Allen Shaheen, early April 2000"
end quote
What the heck is that? Shaheen commenting on the company a year before he joined? All the quotes in the "Venture capital and new management" section are screwy like that. Is Eve trying to pull a fast one, or is it a mistake?
Comment removed (Score:5, Interesting)
I know about VCs... (Score:2, Interesting)
When they started they had over 20 customers in such diverse areas of POS maintenance, GPOS maintenance and HVAC. After 6 months they had net profit of over $60,000 a month.
Within two years the VC had let the HVAC guys run off with all of their equipment and customers for nothing. The gasoline guys left because they could not tolerate the VC.
Three years later my Dad and his friend bought the POS part of the business for pennies on the dollar from the bankruptcy(sp) sale.
For the new company they never even THOUGHT of getting any type of VC...
Five years later my Dad sold his share for a cool $250,000.
BWP
Hammerhead Software (Score:3, Interesting)
Sounds like MDK (Score:2, Interesting)
one except that Mandrake's founders succeeded in
firing the VC CEO at the right time.
What seems clear is that the professional
manager are useless if they don't know what's
going on.
Re:Not to suprizing. (Score:2, Interesting)
Sort of like trying to translate these into german: "airborne" and "sophisticated"
BTW: "Schadenfreunde" is the german name for the fun one has seeing others fail or expieriencing any smaller or larger amount of misfortune.
The larger the misfortune is, the more Schadenfreude is considered imoral. Of course.
hmm (Score:3, Interesting)
I think the market for online auctions -- basically people selling stuff, could be estimated as on the same order of magnitude as classified ads -- pretty big. How many organizations will develop these community message boards and be willing to pay for a service contract with aD?
Also, you have two "first on the market" players. Ebay has an advantage (just like slashdot) because it organizes people, so it snowballs (scales) better. People sell stuff there because its the biggest and so people buy stuff there, etc. This amplifies the advantage of being the first on the scene. The advantage of being the first on the scene with aD is a prestige factor. This doesn't scale as well as soon as, say, IBM or RedHat started offering support as well (the code is GPL'ed). So it's harder to scale and a smaller market in total.
VC's try to avoid risk like the plague. But for them the biggest risk is getting left behind by other Venture firms. So they act like lemmings, out of fear that deviating from the norm will get them in trouble
True, but this is just a finer distinction. They act like lemmings because of the risk. Just like gamblers develop strict rules of when to take an additional card. Everyone knows the rules and, apart from small personal tweaks, the rules are followed obediently because of the great risks involved.
This is not to argue with your other points, and the fact that often VC's make horrible managers and don't understand the market well. My point was that some of these decisions (getting rid of GPL software, etc.) make sense if you're willing to take any risk to for a shot at exponential profit growth. The others are just bad management.
Re:Not to suprizing. (Score:3, Interesting)
Schadenfreude is the English equivalent - it's been adopted into the language (at least according to my dictionary).
Re:The canard of growth (Score:4, Interesting)
Most decent business schools teach the parameters of sustainable growth. A _good_ MBA or CPA (who stayed awake in class and doesn't have a personal agenda or divided loyalties) can make these clear. Any startup or small company needs to trim its sails - review its business plan - at least quarterly if not monthly, and reviewing the sustainability of its growth curve must be one of the principal objectives, because this simply boils down to its continuing viability as a going concern.
A small company seeking capital has to find "angel" investors - people who will inject money, have the patience to watch the company grow, and eventually take out a somewhat higher profit than they could get in the big bond and equity markets. You will often have to give such "angel" investors some equity in the company, but your negotiation objective should be to give them as little equity as they will accept, and meanwhile you must retain control. The "angel" investors know this game, but if they like you and your company business plan, they will agree to let you keep control. After all, they're investors - if they wanted to run a company, they'd do that with their money instead.
But if you get VCs (Vulture Capitalists) involved before you're on the brink of explosive growth, well... get ready to lose your company. The VCs won't invest small sums - that would lead them into too many investments - and they like to closely control their favored few. The VCs will seek out piggish equity stakes and executive control. They want an Initial Public Offering (IPO) and a quick turnover of their big stock holdings for astronomical profits. They need your company to grow 200-300% with no limit in sight in order to unload their stock on the mass of investors. They're always looking for the next Apple, although they'll kill ten small companies for every one that hits the bigtime. That's the moral here, folks. Beware of the VCs. They'll kill you.
Eve's capacity for self-delusion continues to stun (Score:5, Interesting)
I have tremendous respect for a lot of people at ArsDigita. Her story is absolutely insulting to the people who have worked so hard to ship something, and it has certainly caused any remaining goodwill I have towards her (because I do think she IS a nice person) evaporate. Her indictment of Richard Buck and Michael Yoon is completely unfounded and complete bullshit. One stunning example is that Richard Buck is a poor manager because he was not able to "motivate the product team to work more than 40 hours/week." I find this to be disgusting and utter nonsense. One, just because you don't drive your employees like slaves doesn't mean you suck. Two, Eve was never at the office, so how could she know how long we worked? She was too busy working on her VoiceXML book that she told no one about!
Re:What really went wrong. (Score:5, Interesting)
This rant, though I'm sure it's full of truth, does manage to excuse the founders of responsibility.
It sounds like their company was doing well enough to fund its own growth, albeit at a slower pace.
They could get richer faster, just not as richer as faster as they'd like.
Of course, they might now still be around as the economy recovers. Might still be in a position to make big scores that are available in the wake of all the companies that joined them in the merry rush to VC money and are not longer around to compete.
But no.
Sounds like Sour Grapes to me (Score:2, Interesting)
1. Several quotes from "www.fuckedcompany.com"
Yeah, there's a good reputable news source.
2. I't all the VC's fault.
If ArsDigita was as sucessful and profitable as claimed, why did they need VC's? Why? Because like all the other dot-commers who went bust, they wanted to get richer faster. All her talk about ethics and honesty is just so much hot air. Yes, VC's are evil crooks. But so are you if you get in bed with them.
3. "By the end of March 2000, we had 110 employees, 7 offices
Why does a company whose business is done solely over the Internet need 7 offices? Typical dot-com mentality. Too many people, too many offices. Appearance is more important than good business practices. It's much more pretigious and gratifying to the ego to be CEO of a 110 person/7 office company rather than a 10 person/1 office compnay. Even if the VC's hadn't killed ArsDigital, when the economy slowed down they would have collapsed under their own bloated weight, just like all the other failed dot-coms.
4. "Philip was quite happy to let a 'professional manager' step in and take over"
Sure, why not. Why not let somebody else run the compnay. As long as a big fat paycheck is still rolling in, who cares. If Richard Greenspun really cared about ArsDigita as much as he claims, he never would have done this. Just another example of the greedy "I want to get paid to do nothing" attitude that kills many businesses.
In conclusion, it's quite obvious that the founders of AD screwed up and are now trying to pin the blame on someone else. They're like a guy who blows his entire paycheck on lottery tickets and when he doesn't win anything, wants to blame the people running the lottery. The truth is, they gambled and lost. They got in bed with crooks and agreed to play their crooked game. They turned over control of the company to someone else because they thought it would make them richer, faster while doing less work.
Re:The canard of growth (Score:4, Interesting)
Actually there are lots of professional services companies with the same approach. A lot of legal, accounting and engineering practices have a 'no growth' or 'slow growth' policy.
The reason is that professional services companies do not become more profitable as they become larger. A PSO company sells the professional skills of its employees. In a typical PSO company there is a pyramid of expertise. For each senior partner there might be two junior partners, four associates and the same number of support staff. That ratio does not change much if there are a hundred senior partners or one.
The problem for the PSO company is that a senior partner has to be paid pretty well or else they will go off and start their own outfit. At the bottom of the tree an associate might be paid $400 a day and be charged out at $1,600 - a markup of 400%. But at the top of the tree a senior partner is likely to be paid more than their charge out rate, their real job being to bring work into the practice. A senior partner might charge out 100 days a year (i.e ahlf the normal rate) at $5,000 a day, but they can keep busy 4 associates at a profit of $6,400 a day and 2 juniors at a profit of $3,600 a day, so they actually contribute to the practice an average of $12,500 a day and take out maybe $6,000.
The reason PSO firms have to grow is that as the people at the base of the pyramid get more experience the only way of maintaining profitability is to either increase recruitment at the base or to restrict the number of promotions. That is why a lot of accounting companies have 'up or out' policies. If you don't make the next step in the ladder by a certain date you are told to look for work elsewhere.
All in all VC should never be funding pure PSO companies. Most PSO companies are organized as partnerships for good reason - the company itself actually has very little value, the value is all in the knowledge of the employees. And those employees can and will walk out the door with it unless they feel they are rewarded for it.
PSO can add a lot to a growth company's bottom line, but only as a supplement to product, not as a replacement. In general the markets tend to be sniffy about companies that make more than 20-25% of their revenues from PSO. An Oracle or an IBM can make a lot of money from PSO, even run a pure PSO division. But that works because the customers (and consultants) know that they are buying more than just the consultant's time.
The other problem with PSO is that it is economically a pretty risky proposition. A typical PSO company operates on a margin or 20%. If there is a downturn they don't have much scope to cut costs without layoffs.
The problem with VC's (Score:3, Interesting)
PBS did a great Documentary on VCs in the tech industry back in the 90's. I still remember the the VC who funded Cisco bluntly talking about how It's the VC's responcibility to push the founders out the company.
The dot-com VC rush pretty much matches up with the silicon valley tech rush back in the early 80's. And the success rate between the two is actually pretty similar.
I think the problem bringing in a VC is the same as brining in any new management team. If you bring in a new team you've basically saying we have to change everything. This can work well if things are truely broken. But in this case the comapny wasn't broken. What it needed was someone to stay the course and manage the expansion.
Managing expansion is a very tricky business. Expand too far, leverage too much, you leave yourself open for failure. All of a sudden a small bump in the market looks like a tidal wave. A one point raise in interest rates could make you default you loans. Very few business manage this well, let alone greedy VC's.
It's a gamble. So when looking at all the money waved in front of your face read "Cryptonomic" and ask yourself "Ever danced with the devil in the shaddow of the moonlight?"
Re:Grain of salt (Score:2, Interesting)
I can see why people working under him might perhaps hold a less than rosy view.
(And Philip is the guy who makes snotty, racist sideswipes at Germans and Arabs because he believes they're universally anti-Semitic. Sheesh).