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Linuxcare Business Shuffle (UPDATED)
We've heard rumors that Linuxcare's upcoming IPO has been shelved for now, and that Linuxcare's CEO and CIO have been removed. This comes right after the roadshow was delayed, which now appears to be cancelled. At this time, I haven't heard back from Linuxcare, so haven't heard their side of the story. However, several reliable sources have said that there've been "irregularities" in revenue recognition, something that the linked article also touches on.Update: 04/07 11:22 by H :I've talked with Art Tyde, Founder of LinuxCare. He confirms that the IPO has been delayed - but that they believe an IPO is in their future. He also did confirm that the CEO, Ferdinand Sarrat, has parted ways with Linuxcare, but that the CIO has remained onboard, and that the management team remains committed to the values of the community and what the company was founded on.
And I assure you that someone is being called on what happened at InternetWorld. It was poor showing for us. I could give you reasons and such, but I'm not going to talk about internal things here.
That said, obviously I can't ocmmment on the stock stuff, just to say I don't think that a valid effort has been done on the part of wall street to understand linux really, and for that matter linux companies should be doing a -much- better job of educating our finance folks in New York and elsewheree on why it's a better choice and is a good buy on the market.
I've said this before, although not here, if Linux companies want to succeed they have to be realy really really good at what they do. VA , for the most part, is really good at what we do, but we make mistakes and right now, we've not made a huge amount of them, but we are addressing it, I assure you.
Chris DiBona
VA Linux Systems
chris@valinux.com
--
Grant Chair, Linux Int.
Pres, SVLUG
Co-Editor, Open Sources
Open Source Program Manager, Google, Inc.
Not neccessarily for Linux-based companies, for for a butt-load of tech companies shooting for IPOs. Take a look at what's happening, people. Everyone's lost sight of what *business* is all about. What the hell are companies like pets.com, E-Machines, LinuxCare, ad nauseum going public for? What so different about a business simply because it's got a ".com" name to it? Apparently, we're finding out it's "not a whole lot." The IPO now seems to be what everyone gives a shit about and it's payback time, baby. You thought a lot of companies were getting hit now in the stock market, keep your eyes open.
LinuxCare is yet another joke of an example. Shady accounting practices (duh). No real business plan (duh). And really shows no potential of being a formidable business.....EVER. Same goes for the companies mentioned above. You can drop in almost any name, btw. Look what happened to Eprise (EPRS) and E-Machines. They went public 2 weeks ago, and their charts look like divebombs. WHERE'S THE MONEY?? WHERE ARE THE REAL REVENUES? WHERE IS THE REAL GROWTH GOING TO COME FROM?
Every one of you should get your hands on a copy of FORTUNE Magazine from 3 weeks ago. It goes very deep into the schemes dot.com companies are pulling just to get funding, boost their IPO...only to base it all on ficticious/not-very-solid business. It's really sad, but greed is going to let out a lot of the hot air out of the dot.com bubble. And this garbage with LinuxCare is your typical reason. Good riddance.
Sorry for the rant....
He [DN, the CIO] did build one giant infrastructure-perhaps that investment will pay off when the company scales.
Please do yourself a favor and take corporate finance. Until you do, here's the rule of thumb you learn on the first day of class: What kills a business in the short term is cash flow, what kills a business in the long term is capital budgeting (i.e. long-term assets).
Any investment needs to return, in cold hard cash, the amount invested plus the cost of capital (which, in this case, includes the expected return on investment for the venture capitalists, which is NOT SMALL). In other words, the $5M they've pissed away on Sorcerer (I've heard it's more than that, but I'll be charitable) is something where if they don't actually make, over less than two years, $25M from it, they will be making a losing investment.
If it won't pay off until the company scales, re-evaluate the project when the company scales. Invest the money now in something that will have a quicker return if possible. Linuxcare has an immense staff for it not to have "scaled."
Another point of any investment is that it reduces one's choices of other investments. In other words, given the revenues they had, they'd probably have been much, much, much better spending the money in acquiring more sales staff or increasing the efficiency of the sales staff they have.
The CEO was a sharp mind, but extremely poor manager and brought all the old bad IBM stuff with him. He brought in the CIO sight unseen because of his paper credentials.
Actually, that's not true (about the sight unseen). As far as the management goes, he was brought in by the board, who had a long, hard look at his past. Evidently, they felt he was an appropriate match.
The ex-CEO got nailed before for revenue recognition issues and as a result Linuxcare has been crawling with auditors since day one.
Everyone who files for an IPO is crawling with auditors. The prior history of Fernand was common knowledge when he was hired. Yet, the management hired him anyway to legitimize their IPO. That's how it was spindoctored when he was hired. So amusing to see it go the other way later. "Oh, we didn't know." Yeah right.
So, should talking to an auditor be a firing offense? Because one of Linuxcare's IT staff was fired for apparently that. Which brings up the interesting question of what she could possibly have said that might have made that much of a difference...unless it involved things like, oh, employee emails being sniffed by the IT staff, or things that might actually get a company in a great deal of legal hot water. Or perhaps she was talking about the numerous reports of racist, sexist and (in San Francisco!) homophobic remarks from current IT management, leading the auditors to believe that the employee relations were, um, weak.
I am told that the internal morale situation is on a real upswing.
That's the beauty of scapegoating -- you can temporarily improve morale by getting rid of one person and spindoctoring it so that people who don't know better believe it. And geeks, being generally naive about people, unfortunately tend to.
Over the years, the LC founders have shown that when things get in the shit, they'll do whatever it takes to fix the situation.
You mean over ONE year, don't you? The company hasn't been around more than a year. Its formal introduction to the world was 13 months ago at Linuxworld. As for the sentiment, there was a time when I believed that and got burned by my faith.
I think Linuxcare has a chance, but not given the course they've apparently chosen to take. The next round of scapegoating will likely be the last.
PS - "fix the situation" in this case means "get the investors their money back as quickly as possible" - quite possibly to the detriment of other stockholders, such as the Linux geeks that are the pillars of the organization.
_Deirdre
The people in the market are mostly sheep, even the market makers. The market makers go where the action is. If there's a lot happening at one station on the floor, that's where they'll be. They make their money on the spread, so they care a lot about volume. And they have to be really aggressive.
So, while the education campaign would probably help, it's still a business where a large chunk of the movers and shakers have VERY short attention spans and try and cover or close their positions within the day where possible, within the week if not. Institutional investors tend to have longer attention spans. Individual investors are the group most subject to panic. Unfortunately, a lot of the Linux investors have likely been individuals. A lot of people were buying Linux because Microsoft's future looked bleak. But not bleak enough apparently.
_Deirdre
When I was fired, after some panic from upper management, I was given three options: Come back and work under the CIO; Resign; or Remain fired.
I pointed out that I couldn't, in good conscience, work under the CIO (I had offered to work under another group, such as the one Art Tyde had headed at the time). The CIO had a plan and none of us who were there were a part of that plan. Resigning had negative financial consequences (I wasn't going to pay money to leave, especially since I would have preferred to stay working there) and I considered it an after-the-fact misrepresentation of what happened. So I accepted being fired.
But working at Linuxcare before that was so different: there were problems, but not venomous politics OR inhuman working conditions.
There were people using Windows (and MacOS), but most people used Linux. People used what they had to to get the job done. A lot of people, for reasons that should be obvious, needed compatibility with documents like Office 2000 in order to get contracts hashed out, etc. Office 2000 document compatibility isn't really available on Linux yet (last I checked).
I needed a good drawing program and the best one for my purposes ran on MacOS X Server (Glyphix rocks!). So one day, Linus Torvalds walks by my desk and peers at the screen. I felt about 6 inches tall at the time.
But as far as your characterization of what it was like under the CIO, I couldn't put it in better words myself. I know people working there who were just ducking their heads down, marking time until the IPO. That's not the kind of attitude that makes a company a good place to work.
Linux, after all, is the ultimate skunkworks project. Management that respects and fosters the skunkworks model would clearly be an advantage at a Linux firm.
_Deirdre
Very much agreed. When he first showed up, I thought, "this guy's been at IBM for 20 years. He's never gonna fit in." At one of the first company meetings, he fired someone with a nerf gun for running on too long. At that point, I realized that it might work after all. And I think he really did take a bunch of geeks and form a real organization.
Since the announcement's been made about the Office of the CEO replacing the position of CEO, I will say that I think Pat Lambs is awesome. I remember her from the brown-bag luncheons.
I left about a month before Nasuer started. But Linuxcares IT infrastructure when I was there, had all the physical pieces in my opinion. It just needed a good orchestrator.
Linuxcare's IT infrastructure at that time consisted of a handful of people and not a whole lot of equipment. I think with a good overall manager who was somewhat budget-conscious, they would have done very very well with about double the staff. As I'm sure you know, they needed more desktop support and some direction.
On the other hand starting with a certain VP of engineering, linuxcare had a habit of screwing good people. (don't read into this to much, I was not one of them.)
I knew you weren't Roger. :) But yes, the prior IT manager was a nightmare. Two for two.
Btw, glad to see you're doing well. We hadn't heard a peep from you after you left. And yes, I did figure out who you are. :)
_Deirdre
You bring up FUD in the same breath that you drag out those favorite Slashdot bogeymen, Microsoft (wow, that "M$" spelling sure is original) and the mainstream press. The Linux companies need to get their own acts together, and the Linux community needs to recognize its own flaws before whining about other entities.
Just as an example, I was at the Spring Internet World this week. VA Linux was there, but somehow they didn't manage to make it into the convention's regular program, but rather some flimsy black and white "Addendum" that few people probably read. I stopped by their exhibit, and it was a medium-sized one, meaning that they actually did spring more cash for it than a lot of the smaller booths. However, it seemed totally devoid of any purpose. They had a cool-looking rackmount system, but it didn't look like it was doing anything but performing as eye candy, and the 4 or 5 VA Linux guys there were just standing around smiling with their hands in their pockets. It was definitely the least interactive of any similarly-sized booths at the show.
Was this due to poor and late planning on VA Linux's part? (I only went on the first day, so if they ever improved their booth, I didn't see it.) Anyone have the answer? Anyone here bother to call VA Linux out for this shoddy display? Apparently not -- I guess it's just easier to trot out the old bogeymen.
As I'm posting this, Andover.net is down a full point, Caldera is down more than half a point, Corel is unchanged, VA Linux is down 3.75, and RedHat is down more than 3 points. (The lone bright spot I see is Cobalt, up 6.) This is all while NASDAQ as a whole is up over 124 points. Is it any wonder why a Linux-related company would be hesitant to try a Linux-related IPO? Is the mainstream press not supposed to report on the obscene levels at which the Linux stocks are tanking? It sure doesn't sound like you're looking for objective reporting.
Cheers,
ZicoKnows@hotmail.com
1) Red Hat isn't a good company because they comply with the GPL. If they didn't comply with the GPL, their company would be sacked, and their employees burnt at the stake. Not to mention, their company would be sitting beneath 6 miles of lawsuits from the x-number of thousands of people who give them a product to sell. Myself included. I may not have any mission critical code in Red Hat's distrib, but my contribution to the distribution itself is fairly large -- 11 MB.
2) Slashdot was doing fine (some would argue, better) without support from Andover, or VA. They arent necessary to Slashdot's existance, and never were.
3) Before VA got smart and decided to purchase Andover, they were planning on building a Freshmeat clone, to compete with it for community mindshare, and ultimately push Patrick and his project out of existance by sheer force. Rather than allow or encourage Freshmeat to prosper, they wanted it to destroy it and replace it with something they had direct control over. Don't believe me? Read this press release from August '99. Don't be surprised if its gone by the time you read this. By August '99, Freshmeat was already the established watering hole for new software in the Linux community. What reason, other than greed, would VA want to reproduce what already existed?
ColdStorage never saw the light of day. Think about it---why pay your employees to build a site from scratch and spend alot of time and effort trying to compete when you can just buy your competition outright? Sound familliar?
4) Making money in the Linux community does make you evil, if you have to answer to anyone but the community. VA answers to a board of directors, now. Not the community. Same story with Red Hat. Their job is to turn a profit however they can--and thats their only job. Thats the only thing they need to care about, and consequently, that is the only thing they care about.
It is a fundemental betrayl of the very principles which made Linux even possible in the first place. Cooperation, mutual respect, and community effort. Not competition, hidden motivations, and monopolization of utilities. When one company owns what you read, what you download, and what you use, its time to ask questions. If you dont, you are doing a grave disservice to yourself. If VA truly is a good-natured company, they will stand the test of time.
I don't see that as being the case, here.
Bowie J. Poag
Project Founder, PROPAGANDA For Linux (http://metalab.unc.edu/propaganda)
Bowie J. Poag
There's one good thing about all this..Theres a growing awareness among the real Linux community that we are in the middle of a pool of sharks--People who care less about the people involved than they do about turning a goddamn profit. Now you're seeing what happens to these people. They begin to fail, because their intentions are anything but pure and innocent.
We didn't need them before to be happy and successful, and we sure as hell don't need them now. Companies like Red Hat, VA, and LinuxCare have only made the game more interesting..The total sum of what they've done for us is negative, not positive. Whatever they have "provided" for us, was not made by them. It was was made by us. For free, without hidden motivations.
We don't need them.
Bowie J. Poag
Project Founder, PROPAGANDA For Linux (http://metalab.unc.edu/propaganda)
Bowie J. Poag
I spent a 5 week period at Linuxcare this year.
What I saw there was pretty ill. It was a rats
nest of clueless managers slinging NT laptops
spending money as fast they could. The CIO was
a greyman drone who created a police state
atmosphere where people were afraid to point
out the insane path the company was on. I am
very happy to have cut my losses and got out
quick. There were many smart people in SF but
nothing could make up for the inhuman working
conditions and venomous politics. I am happy
to be out.
-ezmo
As it stands, I don't think this has been the case with most Linux startups. (Quick, name me the last time you saw a Linux commercial?) - Now it sounds like this CIO and CEO may have blown the finances in other ways, so that may have an impact on THIS company. I'm not prepared to give up yet on the Linux business model just because every CDNow, Amazon and 2000 other .com's are losing money. They were spending their dollars in the wrong place, that's all.
For a great article, read the latest column on Abcnews.com's Silicon Insider - http://abcnews.go.com/sections/business/siliconins ider/siliconinsider.html - (if this doesn't reference Silicon valley and IPO's, run a search on SOMA - that'll bring it up.) Very informative and shatters many of the illusions around the Valley at this time.
Unless the Linux start-up companies are following business models like these, they should be able to maintain some level of profitability
----------
ah honey, we're all resplendent - Bill Mallonee
Linuxcare have a great brand name but don't use free software themselves. I applied for a sales role with them and got this set of headers on their correspondence:
[snip]
X-Mailer: Microsoft Outlook Express 5.00.2014.211
X-MimeOLE: Produced By Microsoft MimeOLE V5.00.2014.211
[snip]
Patrick,
I regret I will be out for most of the week at CeBit and will have to
postpone...call me at end of week.
Best Regards
--
Barry Cochrane, General Manager
Linuxcare Ltd.
+44 (0) 1189 880289 ext 773 tel, +44 (0) 1189 880389 fax
1000s Warcraft Gold while you sleep
And they'll keep dropping (Redhat, VA Res^H^H^HLinux, etc.).
.com company which has turned a profit? I'm sure there are a couple, but I can't think of any.
I wouldn't say these companies are doing badly, yeah they're still bleading money, but remember it takes most startups 5,10, even 15 years to start turning a profit. Can you name a
It's not that the Linux IPO's were of bad companies. They were just the subject of rampant hype and speculation, fueled by a public which knows Linux is the next thing but without any companies to invest in. I would expect these companies share prices to bottom out below $20 a share (which is still probably overvalued), and then slowly rise as they expand.
How can there be irregularities in revenue reporting? Everyone knows that Linux companies don't have any revenue.
Maybe that was the irregularity - he was actually reporting some revenue?
Score -1: Not funny.
--
E_NOSIG
With the whole Microsoft thing upsetting the stock market, especially tech stocks, I really don't think that now is the best time for an IPO anyway. If the rumor is true, and they are shelving the IPO, I don't think that it is necessarily a very bad thing.
_______________________________________________
All circuits busy.
Rumor no more .
Bikeworld.com/weathertools.com/gpstools.com did over $4M in sales last year ($1M in December alone) and we've never had an unprofitable year.
How do we do it? The formula is quite simple:
1) Don't piss away money. We don't have fancy-shmancy offices with pinball machines and conference rooms full of $900 Herman Miller chairs. Nope, we build most of our own office furniture.
We don't waste tons of cash on super-duper high availability server solutions. We don't have fibre-channel disk arrays and loads of CPU power? Why not? Because we don't need them. You don't need a highly dynamic, CPU intensive e-commerce application to sell a lot of product. We use static HTML for the most part, which helps us save on equipment costs.
We don't hire five people to do one person's job. You see this all-too-often at internet startups. When you hire tons of people, they tend to get *less* work done. They spend most of their day in meetings argueing about trivial things.
2) Pick a business model that actually has a chance of selling something.
If your business model relies on advertising for revenue, give up now.
That blowthedotoutyourass.com thing had it right on the dot (no pun intended). "ButIdontwantmytoothpastedelivered.com". The only things that people will buy on the Web are things that are not readily available in their local market. Amazon does so well because comprehensive book and music stores are still somewhat of a rarity. We do well because most local bicycle shops have very small inventories and ridiculously high prices.
3) Never forget that you make money one sale at a time. Every sale and every customer counts. Unless you deliver customer service that is ABOVE AND BEYOND the ordinary, your customers will shop elsewhere.
4) Be weary of outside investment. It's a lot easier to piss away someone else's money than your own.
I was an early employee of Linuxcare, fired by Nassaur last November. I think others can now see why I consider this a peculiar sort of honor.
:)
I hadn't suspected that the CEO was on the way out, but I knew that the CIO was likely to be. His very expensive infrastructure was completely inappropriate (and unnecessary) for a Linux services firm, and all the geeks knew it at that time. Instead of focusing on Linux, he focused on expensive, proprietary software and ridiculous hardware implementations. It was the geek equivalent of buying a Lamborghini when you really needed a Honda.
This is the main part where the article erred -- Sorcerer wasn't the "heart" of the business at all. Nassaur *wanted* it to be. Of course, he would go into a company, spend a bajillion dollars and be out in a year (read the S1/A for his history if you don't think so...). What did he care? He had his equity and his high salary and was out of there.
What Linuxcare desperately needs, if it is to survive, is a CEO & CIO who care about the Linux space AND about actually building a Linux services firm that serves its customers, not a few people at the top. My resume is in the mail.
I'm sure, given appropriate people, that Linuxcare can be a much better company after this. My heart goes out to all my friends there after this shocking blow.
Breathe deep folks,
_Deirdre