TurboLinux Layoffs

TurboLinux, a company best-known for its eponymous international-centered Linux distribution, laid off people across the board today in an effort to do some belt-tightening. We received an anonymous submission about the reasoning and details behind these layoffs. 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. The original submission we received, as well as my conversation with Lonn, is below.

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.

Comments

Re:$57 million

[jfrisby]

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