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ArsDigita Founder Responds to Closing
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."
From the account ... Or might it have been because I was dating Philip Greenspun
... you can easily have 2 accounts of the same event that read very differently depending on which details are left out and which are emphasised ... just that this is unlikely to be the authoritive account.
so the fact that Greenspun and she have similar recollections is hardly surprising.
I didn't say she was lying
Another classic example of the group project that falls apart because no one can fall apart.
The company was doomed the minute they brought in the "VC's" because their vision of the company's future was drasically different then the people who started the company.
Just like getting into bed with someone who has different views on sex is a bad idea, so is going into buisness with people who have different views on buisness.
It may work for a little while, but eventually everyone is going to get disillisioned and go do their own thing.
My company is committed to not growing, and it's amazing that I found so few other companies with the same princples, given the obvious success of the idea. ArsDigita is just one of any number of companies that went through the same trajectory.
My partners in Hammerhead Productions all worked at the same company, Pacific Data Images, before they closed their LA facility. I started with PDI when it was quite small, and was terribly fortunate that the management of PDI was committed to open books -- that is, they allowed the employees [at least the early employees, more on that, later] to see exactly what the revenues and expenses were. PDI was committed to growth, as most companies are.
The thing is that the company as the company went from 8 people to 100 people, the profits went down. They went down on a per-capita basis, but they even went down on an overall basis -- more people are much more expensive, as you add layers of overhead and spend much of your time on internal communication. Personally, I found the company less and less interesting -- as people you hired for their creative talents ended up supervising others instead, so you lost the spark that made the work interesting. I would point out over and over again, at meetings, that growth was killing us. I'd try to correct the historic graphs for inflation, to show that the numbers were even worse than they appeared at first glance. This made me quite unpopular at these meetings.
When we started our new company, we decided that we'd never grow. We've stabilized at about 10 people over the last five years, and it's worked out marvelously. The people we have are talented, creative, and are allowed to exercise their talents and creativity. The company is reasonably profitable, and shows every indication of staying that way. We are small enough that our overhead is low, so we can pick projects that interest us, instead of being forced to 'feed the machine', as larger facilities have to do.
The author of this article, Eve Andersson, says 'to make a substantial impact on the world, you gotta grow.' This is a well accepted fact, that just happens to be untrue. Even in the world of film visual effects, dominated in many ways by ILM (1500 people) and other big companies, Hammerhead holds its own. For the last two years, we've been in the Academy's Visual Effects Bake-off, showing that we can compete with those big companies.
When contracting with a company to do work, often it is more important to the person paying for the work to get a few key people working on it, rather than a slaveship of hundreds of drones.
I've gone on long enough. Just think, when you have to decide whether to grow or not, that there are substantial good reasons for staying small. Don't ignore the numbers, if the numbers are telling you that growth is killing you.
Thad Beier
Hammerhead Productions
ps. Ok, ok, PDI went on to make 'Shrek', which needed 300 people. I still stand by my thesis.
I love Mondays. On a Monday, anything is possible.
VC's are gamblers. They're not intersted in funding the expansion of Jim's Donut Shop, even if Jim makes a good profit every month.
Their business model is that a very small fraction of their businesses hit the jackpot while the rest fail trying to get there. The real world business model is that most successful businesses are like Jim's. No jackpot. Now, what happens if, for some reason, Jim manages to get a lot of VC cash. Well, you'll see Jim opening up dozens of franchises, building donut-baking warehouses, buying trucks, etc. Odds, are, Jim will fail.
Now in the Internet Bubble there were a lot of good, sound businesses that were really more like Jim's and less like eBay. Duh. In fact, I think the internet is more suited for small profitable outfits -- it doesn't scale very well. With an office, some good coders, a few routers and you can reach the world. But you don't see enormous revenues, and getting 10x as many good coders as when you started is impossible. It's very hard to scale up on the net. But the surreal economy fooled a lot of people into shooting too high. It's hard to imagine ArsDigita -- basically some support for a community database/website -- taking over the world. So the VC's drove it into the ground.
When in doubt, have a man come through a door with a gun in his hand.
This account is accurate, according to more folks than just herself and Greenspun. Many of the original pre-VC employees have said much the same thing, i.e., the VCs were complete incompetents both at the business and the technology that made the business. The ArsDigita fun 'n games is old news to those in the field.
Not-so-surprisingly, I've heard *many* accounts along these lines from people in various companies that were ruined by VCs. Formerly profitable endeavors saw an opportunity to expand so long as they relinquished control to MBAs, were grateful to do so (thinking the MBAs would relieve them of the chores of management, accounting, and payroll), and then found to their dismay that the new folks were complete morons interested only in padding their own bank and expense accounts. It sounds somewhat naive in hindsight, but the programmers who built the companies found the business side of it to be a tedious pain in the ass and wanted to do what they loved best, program; turning over these non-programming aspects to a 'professional' seemed logical.
Only the thing is, the 'professionals' in business are often incredibly stupid and even more greedy. My own experiences with executive management in various corporations is one of disbelief combined with wonder: disbelief that someone so stupid could hold such a position of power, and wonder over how they got that position in the first place. Clearly, the world of management *isn't* Darwinian, else all of these fools would've been weeded out of the corporate gene pool a long time ago. Instead, they run the show.
Never underestimate the potential incompetence of an MBA, especially a VC MBA. Years of experience have taught me that the most likely person to stick their fingers in the pie and screw things up are just these kinds of folks. Especially the ones (which seem to constitute the majority) who never progressed beyond the kindergarten level of maturity and are constantly whipping out their peckers to measure them against everyone else they encounter.
Max
My god carries a hammer. Your god died nailed to a tree. Any questions?
I've just finished reading Ms. Andersson's account, and most of the comments currently posted here at the time I write this.
I don't know Ms. Andersson, nor have I had any connection with her company, so I can't say whether her account is correct or not.
I have noticed a lot of negative statements about her, though, in these comments. And I find it interesting that the vast majority making those negative comments have chosen to be wimps hiding behind the name "Anonymous Coward" (a very appropriate name).
Even if Ms. Andersson is wrong, at least she has guts enough to put her name on her comments.
I want a new quote. One that won't spill. One that don't cost too much. Or come in a pill.
A small group of developers earning lots of money, making clients happy, and developing and releasing a useful software product is wonderful, but ... to make a substantial impact on the world, you
gotta grow.
This is where it all began. ArsDigita had earnings, had satisfied clients and had a useful software product. What they didn't have was an impact on the world. What I'm saying may not be popular, but it seems to me that after an initial success, egoism got the better of them. It isn't enough that they are a big fish in a little pond, they gotta be a big fish in a big pond.
There is nothing wrong with growing, but Greenspun and cohorts should have realized that as ArsDigita grew, it will change its character: It will need funds, it will need expert managers, it will need a longer list of clients.
Funds: Conservative companies don't go to venture capitalists for funds. They go to financial institutions for that. VC's ask too much control in return for their cash. FI's only ask that you present them a viable business plan and a reliable payment schedule. Perhaps ArsDigita never went to the large FI's because it couldn't present a viable business plan? Or because their ego told them that bricks and mortar FI's are not the way to growth in the internet-age?
Clients: So they got three or four big clients initially. Considering that ArsDigita had no office, no letterhead and had only 5 employees, that's a big deal. But if they grew to a hundred full time employees and an office, even 10 big clients won't be enough. Did they have a plan to increase their client list or at least knew where those clients will be coming from?
Expert Management: The most important rule for entrepreneurs: This company is your baby, you gotta take care of it, nurture it, and help it grow, because no one else will. When the company grows, the owner's expertise must grow with it. ArsDigita was forced to grow so fast that the owners never had a change to gain the expertise to manage the enterprise. ArsDigita had to hire outside ``experts'' whose only probable interest is how to bail out with a golden parachute.
If ArsDigita didn't try to match the company's size with the owners inflated ego, it would be probably still be profitable today. Compare ArsDigita with John Carmack's Id Software and you'll understand everything I just said.
Just my half cents worth. ;-)
No where in her write up does she note that it
was the original management of Ars Digita who
went out and raised the VC money. They chose
the firms they sold part of their company to,
they chose to put those people on their board.
They chose to have them as their business partners.
Check references? Do due diligence? What did that
turn up? I'd like to see that in the story.
If you go into business with someone and don't
set expectations ahead of time, in writing, and
check that those agreements will be honored -
well then, that's just a bit naive.