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TurboLinux Layoffs
Here's the original anonymous submission we'd received:
TurboLinux, who had just became noticed in the US as a Linux distro, laid off a huge number of their employees. The exact number isn't known, but it is at least 50% of most departments.
Some interesting numbers: Product marketing was trimmed to 2, IT from 12 to 4, large numbers out of marketing and sales. Their security developer was also let go, along with their only build engineer (won't it be interesting to see how long it takes them to release another distro?).
The leaving packages were all pretty much the same, as near as can be told: 4wks. pay if you accept the severance package and sign their NDA/IP contract (for those employees that hadn't earlier).
That last bit is actually important as TurboLinux had a rather draconian NDA/IP contract that some people refused to sign until it was reviewed. It was an affront, the employees felt, to the open source spirit that TurboLinux said it thought was important. Even if it was similar to the IP contract that most big companies have their employee's sign.
Overall, TurboLinux liked the idea of open source, but couldn't make it work well in the US. There are problems of getting the developers in Japan (the original TurboLinux distro is from here) and the US in sync. China had an easier time sync'ing with Japan, but that was still difficult.
It appears that TurboLinux's solution is to have Japan do the US distro, and let whats left over of the US development team work on "Enterprise" products. No word yet on what "Enterprise" might mean in this case, however.
The Japanese office is probably doing better. Open Source Linux is actually pretty popular and the customers are much more descriminating there. A japanese Debian would do very well there, for example. TurboLinux US gave the time, resources, or developers needed to ever make a first class product. One year ago, US development was one person out of 4. Yesterday, US dev consisted of about 25 people out of about 200 people total in the US. This is the opposite of the way most startups grow.
This afternoon, I spoke to Lonn Johnson, TurboLinux's VP of Marketing, and asked him the real deal on what happened today.
Emmett: Did you lay off people?
Lonn: We had some people laid off today, and also, some expenses were cut today.
Emmett: What percentage of your workforce did you lay off today?
Lonn: You're not going to like this answer, but as a privately held company, we just don't release numbers.
Emmett: What other cuts did you make?
Lonn: There was cuts in different parts. Marketing took some cuts, sales took some cuts, some of the international offices took some cuts, but we didn't close any. It's just a little belt-tightening.
Emmett: Is it a major reorganization? The stats we've received is that you've basically cut most of your departments in half.
Lonn: That would be inaccurate.
Emmett: How inaccurate is that?
Lonn: If the statement is that fifty percent of the staff got cut, that's pretty inaccurate. You can specifically talk about the development team. Almost no impact on our development team.
Emmett: We're told you lost someone who does builds, as well?
Lonn: There were only a couple of people in development affected worldwide. It could be one of the people who was a build person. I don't have a list here. That could be.
Emmett: What was the purpose of the cuts?
Lonn: The main reason we're doing it is just market realities. The market has changed. In the old days, not just Linux companies but lots of companies were going as quickly as possible to grab market share, build products, develop technologies, and do all kinds of stuff. The market said, 'That's cool, you can worry about profitability later.' You can certainly see in the last month, that that's no longer cool, and you need to have a pretty clear path to profitability. So, we took some steps today that did involve some layoffs, and some expense cuts to get our bottom line expenses in line with our revenue and profit growth.
Emmett: Do you plan on bringing the people back that you've laid off in time?
Lonn: It depends on what our staffing requirements are. There's no future layoffs planned. Depending on how we grow our business ... gosh, the people who were laid off today are fantastic people. There's no question about performance or capability, just simply minding our bottom line.
Emmett: If you go back into a hiring phase, will those people be given first chance at their old jobs?
Lonn: I don't think we have anything in writing that says that. The answer to that is 'I don't know.' We're not a big industrial company with rules about these things. We haven't gone through this process before. I don't think anybody gave a thought to that.
Emmett: I'm told that the people being laid off today were given four weeks of severance pay if they accepted the severance package and signed the NDA and intellectual property contract, which I'm told is pretty draconian. Is that true?
Lonn: I don't want to get into specifics about what the package is, but everybody received a severance package.
Emmett: I'm told that a lot of the employees felt that the NDA was a bit of an affront to the open source spirit that TurboLinux obviously feels is important. Do you feel that that is the case?
Lonn: No, I don't. It's a standard NDA in the Valley. It doesn't affect people working on open source projects. It's all open source, so intellectual property is immaterial. It's all under the GPL.
Emmett: Any last thoughts for this story? I mean, is there any particular way you'd like to spin this or have it be shown in the press other than what you've already said?
Lonn: The main thing is that there were some layoffs today, and some expenses cut. Little impact on our developer teams, and no future layoffs are planned. The basic gist of this is getting our bottom line in line with our expenses, and on target with our revenue and profit growth. We're fortunate that we're sitting on a large pile of cash, because we raised a record round for a Linux company in January.
Emmett: How much did you get?
Lonn: We raised 57 million dollars in January, and we're still sitting on most of that, so it was not something that was done out of necessity.
Emmett: So, these layoffs and cuts weren't a last-ditch effort to save the company.
Lonn: Oh, God, no. Far from that.
quoth emmett:
In the interest of 'keeping it real,' I immediately contacted TurboLinux and spoke to their VP of Marketing, Lonn Johnston, to get the story straight.
Of course! I know that when I want truth, I just go straight to someone who works in marketing!
deus does not exist but if he does
You're not reading what the guy said.
They aren't in danger of running out of money, but they are in danger of not becoming profitable in an acceptable time frame.
Just because you have enough money to keep all your employees does not mean it is financially sound to do so.
If they are spending $10,000,000 per *year* just on people -- and the figure is likely to be higher when you consider facilities, managerial/HR overhead, equipment, etc -- try to think of how much they have to make per year to be profitable.
Assuming that they only lost a quarter of their gross income to taxes, and they had 200 employees to start out with (I don't know how many employees they had, I'm just using your example) they'd need over $13M in gross revenues annually just to break even. Again, not counting anything but salaries.
Assuming a couple million for manufacturing/distribution, as much for marketing/sales operations (people wont buy what they don't know about) and say, a couple million for everything else I mentioned above, that's $16M per year in costs or more than $21M in gross revenues...
Now, cut $5M off the top if they cut half their staff... Now they only need about $14.7M in gross revenues... At $50 per sale, that would mean they have to *sell* 293,000 or so copies of TurboLinux EVERY YEAR.
These numbers are wildly off, I'm sure. But the same principle applies regardless of the numbers. Yes, cutting staff reduces their ability to do things like develop cool clustering and such. But if that cool clustering stuff isn't resulting in increased sales that meet or exceed the cost of the overhead of doing the development... Well, you do the math.
You need to remember something: Companies do not exist to give you, the employee a paycheck. Companies exist to make money. Employees are a resource used to that end. It's the simple realities of economics.
-JF
MrJoy.com -- Because coding is FUN!
Confusious say: No company make money by selling free product and paying many many 100K per year employees.
Confusious type "apt-get upgrade" and laughs at any company that bets the farm on making themselves rich selling that which is free...
Confusious glad he has no money to invest in silly stock market...
(+1 Funny) only if I laugh out loud.
Let me just say that I believe that Open Source companies will find development models and sales models that work. On the other hand...
This is two high-profile Linux companies with significant lay-offs in a short amount of time. With Redhat, Caldera and even (somewhat) VA Linux stock in the toilet right now, things don't look all that rosy for some open source camps. That's the bad news.
The good news is that I think realistic business models and business plans are, on the whole, good for everyone, including Open Source. Companies like Redhat and VA Linux were always more focused on product quality and value to customers (and delivering on a plan) than going public and making money quick on the NASDAQ (even though it turned out that way for those two). I think that as more organizations do some belt-tightening, the overall tone of the high-tech and open-source economy will improve.
Businesses with good products and services and a plan to deliver them to people who want them for reasonable prices deserve to survive. Other businesses don't. That's just the way it is.
The Japanese office is probably doing better. Open Source Linux is actually pretty popular and the customers are much more descriminating there.
It is interesting to note, however, that most of the TurboLinux distribution in Japan has been through freely giving away the product. Sales are actually pretty low if you look at the numbers. This fact has been commented on by a number of the other distributions as well. It will be interesting to see how the Japanese and Asian markets trend towards support and service. Linux is a natural for adoption in China and the like: If you were the Chinese government, would you want to use software (i.e. Windows) that can be embargo'd by the U.S.? Linux cannot be placed under embargo by the United States, as it is a combination of International efforts
Just food for thought.
Domenic R. Merenda
Director of Strategic Business Development
BeOpen.com
...And one more thing: I thought that TurboLinux had come under significant criticism for failing to GPL their clustering software (which was alleged to bear some resemblance to the Linux Virtual Server technology which RedHat started to package in 6.x and is open source).
The VP of Marketing here contends that "...it's all GPLed". Is he right?
And remember that the $80K salary that brings them up to the "poverty line" isn't the only expense that the company has. The company gets to pay:
- Payroll taxes of one sort or another
- Medical benefits, Dental Subsidies
- Company costs for 401(k)
- Whatever other "HR stuff" gets thrown in the mix
- Rent on the real estate that the individual occupies
- The cost of the PC at programmer's desk
- The costs of adding programmer to LAN (running cabling and such)
The latter items may not be big ticket items, but it all adds up. I would find it unshocking if, to the $90K required to attract the staff member, there would be another $90K per year of costs to "house and service" the employee.It's not obvious that nuking an employee will instantly save all of these costs, but I'd think it quite realistic that each employee costs well over $100K/annum in the California market...
If you're not part of the solution, you're part of the precipitate.
So, if they can let people go & still make their earnings & growth goals, why spend the extra cash?
In the interview, Lonn was bitching about not being profitable and just not having the revenue to maintain the current employee level. My response to that is, Maybe the whole "let's get TL into the market by giving it away FREE!" move wasn't such a hot idea. For every copy of TL that was sold at CompUSA (or wherever) for $20 that had a $20 rebate on it, TL took a bath. Instead of making money for each sale, they were spending money to cover the cost of the CD's, books, and boxes. Apparently, TLS and TCLS sales didn't quite pull in enough to make up that deficit, did they? Maybe whoever came up with that idea should have been laid off a few months ago.
Secondly... the idea that they're looking for more funding is laughable. TL has managed to pimp itself out to just about everybody, and they've got more than enough cash to keep running for a while now... they need revenue now more than they need money. Although I guess an "investment" in the form of a $10 mill purchase of product would be extremely helpful... maybe it's time to talk to Oracle and see if they'd be willing to change the terms of their buy-in.
The bottom line is that management dropped the ball when it made its marketing decisions, totally failed to provide the leadership needed to unify three different code bases (English, Japanese, and Chinese), and couldn't figure out exactly what company goals should be (other than "let's go make some money!")... so now other people are paying for it.
It does no good to forge ahead if you don't know where you're going.
Well at least the way the current Linux companies are going...
I believe in Linux, but I think that Microsoft has such a great "support channel" that it will be incredibly hard... Not that I think Microsoft is great, but as a MS developer, I have yet to find the "other" products supportive...
There's too much to name here, but I think any rational MS Developer knows the difference...
The slashdot user-based is HIGHLY technical, and so am I, but the OVERWHELMING majority of the world isn't.
Take a look at MSDN... It is an amazing resource... At least compared to what is out there... And FWIW, I am moving to Java, but Sun's horrible Java site is lame...
All the Java/Sun zealots claim that UNIX/Java/Linux is all about doing-it-yourself. While I agree (my roots are Amiga), I have realized that the mainstream world isn't like that.
We can bitch all we want, but until we satisfy the real-demand, Linux will just be a niche-developer environment.
Just the other day I was complaining to a gung-ho Java/Linux guy about how the Java tools suck wind. He retorted by saying "well when MS is broken up, the apps group won't be constrained to just the Windows environment".
That says a lot about Microsoft and their competition (Symantec/BEA, Borland/Inprise, Sun/Forte, etc.)... Competitors today can't build tools (namely IDEs) that don't suck...
Speaking out of almost complete ignorance, I'd think that open source software development should be cheaper than proprietary, since you have community contributions, effective debugging by the userbase, and can build upon other open source software.
Is this really true, or does cost of labor and initial research drown it all out?
If it is true, are Linux companies currently exploiting it well enough? (For instance, is TurboLinux's clustering software costing them too much by not being open enough early enough?)
All speculations welcome...
"You can't get something for nothing." - my grandfather, on the stock market and Reaganomics.