Slashdot Log In
Advice for Open Source Startups: Remember LinuxCare
from the venture-capital-is-like-fatty-foods-for-startups dept.
LinuxCare
was born in 1999 -- venture-backed by top tier VC firms like Kleiner
Perkins, with total
funding in the ballpark of $70 million.
Those were the frontier days for Linux. There was
a ton of industry interest and activity despite the fact that the jury
was
still out with respect to end user adoption. Nobody really
knew exactly
how Linux was going to be used – would it be for the desktop,
servers,
etc.? The company used the vast venture coffers to promote
the brand and
staff star-power (even Linus Torvalds consulted for them
briefly)– and
LinuxCare quickly became the recognized name for Linux services and
support,
doing work for big systems vendors like Dell and IBM in addition to
developing
device drivers and offering education services.
Red Hat had the Linux OS and
software, VA Linux had the
hardware – and LinuxCare had the services. It was a
theoretically perfect
enterprise Linux ecosystem triumvirate.
But it wasn't meant to be.
The demise of LinuxCare can be attributed to many
factors. The first was that enterprises were slow to adopt
Linux
– in the early ‘00s, IT spending came to a grinding
halt
with the dot-com and stock market crash. But the key factor
to
LinuxCare’s spectacular death spiral was the fact that they
were going up
against Red Hat, the very company they were basing their business on.
Red Hat
not only developed their own distribution of Linux, but also started
offering
support for it. Red Hat offered a one-stop shop for Linux software and
services
regardless of hardware. Enterprise
customers decided it was easier to buy from one vendor. This same
sentiment is
what drives sales of Microsoft software in enterprises today.
LinuxCare suffered a painful public death over months
of executive departures and layoffs, VA Linux abandoned hardware for
software,
and RedHat, with the cash to weather the tech spending downturn,
expanded its
revenue streams and became the de-facto enterprise Linux distribution.
It's easy to dismiss LinuxCare as "ahead of their
time", which is definitely true. But the fundamental and fatal flaw was
that they based their products on someone else's IP, with no IP of
their own.
When the market tanked abruptly, LinuxCare didn't have the money to
weather the
storm and didn't have consistent alternative revenue streams to combat
the lack
of services income.
Some of the executives from LinuxCare went on to start a new company called Levanta, which focuses on Linux systems management. They have since developed IP in software and hardware that can sustain the business beyond the services revenue.Their LinuxCare experience taught them how to build a sustainable technology business model on top of open source software. No longer do they rely on IP that walks out the door every night in their employees' heads.
In the end, it all comes down to
IP. Building a
business on top of something you don't own is extremely risky.
Companies need
to develop their own IP to be innovative and have competitive
differentiation.
And if they don't develop it themselves, they need to acquire or
license the
relevant code to protect themselves and ensure they aren't caught
without
alternatives.
An Open Source Danger
Zone?
In my eyes, the bubble associated with open source is less related to the millions of VC dollars and more related to the reliance on software and components that are not part of a company's internal IP. When Oracle acquired InnoDB, it had a less than positive effect on MySQL, but MySQL is a smart enough company to not bet the farm on something it doesn't own. It owns enough IP to sustain its products-and it's business from the risk associated with relying on someone else's code.
IT Groundwork has built a business
on top of an open
source network monitoring project called Nagios. They don't own the
copyrights
and they don't employ the creator. Kleiner-backed SpikeSource offers
"certified stacks" of open source software components, but they don't
actually create the open source components themselves.
And in SpikeSource's case, Red Hat announced that
they too would offer "certified
stacks." Who do think is going to win that battle? Red Hat, the
one-stop
shop that offers the OS and the apps, or the company that offers merely
a
portion of the total package. Does SpikeSource have the IP or
alternative
revenue sources to withstand Red Hat? Let's wish them
luckand hope they
know the LinuxCare tale.
If there is a bubble, it will burst when the open
source projects these new company's products and services depend on go
private,
fork, or get acquired. The market for open source is so new we haven't
seen
much of this yet. Only time will tell if the recently funded open
source
companies can build sustainable businesses, or if this grand experiment
will
result in a few 800 pound gorillas and many tiny monkeys.
Have something important to say to the Slashdot community? Email roblimo at slashdot period org with the complete article or an article proposal.
That's not the only thing (Score:2)
I wish business were that easy. It's not just about avoiding the mistakes of your predecessors, though that's probably a necessity.
Re:That's not the only thing (Score:5, Insightful)
I wish business were that easy. It's not just about avoiding the mistakes of your predecessors, though that's probably a necessity.
Right. It's also about doing the same things right. I saw a presentation by Bill Matthews of Hurricane Labs [hurricanelabs.com] (no affiliation). He was presenting on building a company on open source. He said that number one thing is to not take venture capital. He said that the investors will likely force your company in a direction in which you do not want go, if it means they think they will get a higher return.
Basically, he said to start small and self-fund as much as possible. That is what he did and he claims that he and his partners were able to make Hurrican Labs profitable in two years. When I start out on my own, I plan to at least give self-funding a shot before seeking venture capital.
Anatomy of a start-up (Score:5, Interesting)
I managed to turn a $25K credit card into a $1mil+/year business in 3 years. Now, granted, that's very, very unusual, but the same principles apply.
The way I'd do a software start-up:
- Keep current job. Unless you're wealthy, you still need income. Don't expect a dime of income for 6 months-year. Work 8 hours a day, and program on nights and the weekends. If you expect ANY free tiem for the first few years, you'll be sorely disappointed. Imagine a newborn baby, but maybe twins.
- No office. They're a complete waste of money. Work at home and meet clients at your local coffee shop. An office is a luxury that you can get any time.
- For a server, grab a used PC for $100. Unless you're doing intensive graphics, or biological number crunching a "server" is a waste.
- Payroll: None. Either do it yourself, or bring in partners. But to expect to be paid at the beginning is unrealistic to the extreme. Remember, you don't even know if your idea is going to generate a nickel at the beginning.
- Food: Ramen Noodles and peanut butter.
I'm completely serious about this. This is how most successful start-ups work. Why? Because with lots of cash at the beginning (like $100K), you don't need to worry about costs, and that's a great way to start a terrible habit. Learn how cheaply you can run your business and still get by early on. Bust your ass, and *make* it work. There's no incentive to make it work if you've got tons of other people's money. Most companies also don't get any kind of financing right out of the gate. We're 3 years old, and just now looking for our first outside investors, and that's considred premature for most new businesses. We can do it beause we've had very strong growth, and most importantly: PROFIT.
What I'm describing is incredibly difficult, but it's the usual way successful companies are formed. Most of those dot-bombs with millions and millions blew threw it at an obscene rate, and still never generated a single dime of income.
I hate to be a dick, but . . . (Score:5, Insightful)
The 90s are over. I hate to break it to my fellow geeks, but being successful in a startup was always a risky proposition even in the heyday. Your best bet, now, is to learn how to properly brown-nose and pick up lots of business and office-politics skills and make yourself satisfied with the "employee" thing. Working for other people kind of sucks, but it's better than suffering grand delusions of greatness.
Then again, it's christmas time and I like being a grinch. So go suck a glass ornament.
Re:I hate to be a dick, but . . . (Score:2)
Re:I hate to be a dick, but . . . (Score:5, Insightful)
Re:I hate to be a dick, but . . . (Score:4, Insightful)
It isn't luck - that's what people say who do not have the dedication or risk accepting attitude. You can always use whatever luck you have - there is always some option.
That said, there is a lot of luck involved - but it determines the level of success, not who is successful.
Re:I hate to be a dick, but . . . (Score:2)
-l
Re:I hate to be a dick, but . . . (Score:4, Interesting)
These people generally spent a few years working for someone else, got a knowledge of the business, then setup for themselves. In the case of the designer, when he quit, he came away with a ready-made group of clients who followed him from his last job. None of them make millions, but they each make enough to support themselves fairly well.
If you want to work for yourself, work for someone else long enough to learn the ropes. Do a quick management course to help you pickup at least the basics (book-keeping, tax, information privay laws, industry-specific legislation, etc). Save up enough money to keep your head above water for your first year should it prove to be a lean one and give it a shot.
And the really good thing is, I don't have to be worried about all the stupid industrial reforms the government just passed.
OSS is not at its tipping point - yet. (Score:2, Insightful)
They were just ahead of their time. Like Go
Linuxcare ... beh (Score:4, Insightful)
Using Linuxcare or VALinux or even Redhat to judge the financial viability of open source companies doesn't paint a complete picture. The number of companies deploying open source technologies in their production infrastructures, embedding Linux in their hardware and porting their software in order to save their customers' hardware budget, these are a better barometer of the movement's success than the attempts of the aforementioned companies to make money off of something which is intrinsically free.
Linuxcare had some really sharp guys (Score:3, Informative)
Andrew Tridgell (Samba, Rsync)
Paul Mackerraas (Linux on PPC)
Rusty Russel (iptables and lots of other kernel stuff)
Rasmus Lerdorf (PHP)
in Italy, we had Alessandro Rubin
Seems to me... (Score:3, Insightful)
Been there...got killed (Score:4, Interesting)
I think that Open Source businesses are yet to hit their prime, and when they do, it will be big. If I were to do it again, I would offer both open source and proprietary, and sell the benefits to Open Source. Some companies are not ready to try open source yet. However, when you say "Mr. Customer, I can do that for $10,000.00 plus $4,000.00 in services. OR...I can use this open source utility which will give you every thing you want, and it will only cost you the services..."
I think that would have made it better. Just a guess, but it was fun trying.
What exactly to they mean by "IP"? (Score:5, Insightful)
They know absolutely nothing about what happened to LinuxCare, except that it tanked. My impression is that it's a good example of a geek-founded company taking on Professional Management to keep the VCs happy and getting royally fucked over by the Professional Management with the Impressive Credentials.
Suits never want to take the rap when suits screw-up. You can bet that if the geeks had tried to maintain control and tanked the company, the business press would never stop yammering on about how they obviously needed Professional Management.
Re:What exactly to they mean by "IP"? (Score:3, Insightful)
No, nice try though... (Score:3, Informative)
Re:What exactly to they mean by "IP"? (Score:5, Informative)
> geek-founded company taking on Professional Management
> to keep the VCs happy and getting royally fucked over
> by the Professional Management with the Impressive Credentials.
Bingo. I joined Linuxcare in early 1999 as employee #27, and stayed until January 2001. For a while it was paradise. I mean, who wouldn't like having Rasmus Lerdorf and Andrew Tridgell working a few cubes away? The level of talent there was really rather spectacular.
But then . . . . a couple of very bad VC-installed apples at the very top of the company destroyed the place by a) squandering the funding on absurd levels of growth and infrastructure, b) failing to IPO in time, and (worst of all) c) creating a geeks-vs-suits culture that came to consume everybody in petty office politics. In a reversal of stereotype, it was the original founders who had the most sanity. They held the tech talent in place as long as they could.
Sure, Linxucare's open-source services model was a little ahead of its time but the company, leaned down, could have hung on through the bursting of the bubble and eventually come to thrive. Its confidence that Linux had a future in the enterprise has been more than vindicated. Now, it's IBM Global Services and similar scooping up all the Linux services income. Sigh, what could have been . . . .
Re:What exactly to they mean by "IP"? (Score:3, Interesting)
Seems to me that A is pretty much the standard prelude to B in VC-backed explode-o-pop companies. How else did you want them to go about
Open Source StartUp Bubble (Score:5, Insightful)
Re:Open Source StartUp Bubble (Score:3, Insightful)
Personally, if I were an investor I'd remove the words Open Source from the business plan. Then see if you'd invest in yet another consulting business (or whatever it i
Clearly Dave, you were not at Linuxcare back then, (Score:5, Interesting)
While your story is nice it's not factual. Your article while interesting is based upon some assumptions that were prevalent outside the company. The real inside story was much different.
The key factor as you put it "But the key factor to LinuxCare's spectacular death spiral was the fact that they were going up against Red Hat" was not even a factor. The primary factor was bad management brought in by Kleiner Perkins. The original team had a good idea, but the VC's thought they knew better then the guys who understood Linux and the time and place.
KP forced a bad management team, the team made/forced some incredibly bad choices, to the point of criminal activity. Money was spent like water down a drain. Without the help of the bad KP choices LC would still be a going concern, in fact it would be what OSDL is now, it was headed there, just was destroyed by bad management.
There were no executives from that time that went on to become part of Levanta, there was a single executive that was hired after the demise of the KP team, he was a bean counter with no leadership experience.
The real Linuxcare people had IP ideas that could have been developed, but they were not allowed to develop it. The current product that Levanta is currently touting is 4th or 5th generation of one of those ideas that was started on the sly by folks on tiger teams who tried to save the company after the KP management team was forced out. Too little too late.
Linuxcare was ahead of it's time but they had the cash to stay the time, they had the team to make it work, they were forced to take bad management at many senior levels.
Business Models (Score:4, Insightful)
It's like dieting. No matter what the diet fads are, the only way to lose weight is to eat less and exercise. Similarly, no matter what the Open Source pundits tell you, the only way to keep a business running is to sell a product or service other people are will to pay for.
The Open Source fairy going to come along and give you a magical business plan. So start eating less, exercising more, and selling a product people want.
Missing the point... (Score:3, Insightful)
I'm sure the VC people made it sound great... "10 billion eyeballs looking at thousands of Red Hat Linux servers... someone needs to support the servers!"
The problem is that they were a third party in a commodity business. If I buy a server from IBM, HP or Dell, I'll get hardware support. Linux support is and was available from Suse,Red Hat, etc.
So where was the growth? If Linux failed, Linuxcare would be out of business. If Linux took off, IBM, HP, Dell, Sun, etc will offer support themselves, with established professional services groups to make it easier.
Re:The article is rose tinted regarding Linuxcare (Score:3, Informative)