Advice for Open Source Startups: Remember LinuxCare

Dave Rosenberg, Principal Analyst, Open Source Development Labs, contributed this commentary piece: Despite all the open source software and services companies funded in 2005, the associated business models are still considered experimental and unproven. The new crop need only to look to the past avoid missteps. At the Open Source Business Conference in November, VCs and open source software company executives wondered aloud if what we’re seeing today is a “bubble” of open source start-ups being funded. One journalist’s recap of the event cited $144 million in open source start-ups receiving VC funding in 2005, double the venture capital flow for open source start-ups in 2004. Bubble or not, there is a company that every would-be open source start-up investor should learn a lesson from: LinuxCare.

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.

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Comments

That's not the only thing

[Red Flayer]

"The new crop need only to look to the past [to] avoid missteps"

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

[El Cubano]

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 (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.

Re:That's not the only thing

[Red Flayer]

Unfortunately, the scope of some business plans make self-funding impossible for those of us without a couple million sitting in the bank.

One of the mistakes a lot of startups make is to take the first VC offer they get. It's hard to get funding sometimes, even for the best of concepts, but startups should vet their investors as much as the investors vet them.

Re:That's not the only thing

[DogDude]

Unfortunately, the scope of some business plans make self-funding impossible for those of us without a couple million sitting in the bank.

You're right. Some business plans, generally those that involve manufacturing, will take a good bit of cash. Software companies have extremely low barriers to entry, and thus software companies should not need very much at all. I can't even begin to understand why VC's would think that a software company would need any more than $50K to start.

My retail business was started with a credit card a few years ago. And with that credit card, I had to pay rent, upfit the location, buy inventory, buy a point-of-sale system, etc.

Re:That's not the only thing

[fredNonesuch]

I've been involved in a startup for several years now that is in just that (unenviable) position. If you have multiple VC funders, you can play them off one another to some degree. However, this in itself is work that's way off topic.

If you have just one, they become your overlords in all but name. If you are very, very lucky, they have some real experience in your chosen field and allow you some latitude when it comes to decision making that costs additional money.

We aren't so lucky. Our sole VC keeps insisting on keeping costs way down while insisting we develop a product mature enough to meet the needs of fortune 500 companies within a six month to one year timetable. It is truely a mess.

I wholeheartedly agree on not taking any outside funding ever if at all possible. If what you really need is business expertise, get it yourself or hire it - never let it buy you.

VCs are mostly into short term, high risk investing. Their decision making is based on quick returns that are N-times their investment. That means their timespan on decision making is always a max of 2-3 years out. In many cases, this is NOT healthy for the company itself in the longterm.

Re:That's not the only thing

[Anonymous Coward]

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.

Mr. Matthews obviously isn't well versed in the areas of high finance, nor business/economics in general. The whole point of running a company is to MAXIMIZE shareholder value -- any actions taken outside of that context and you better start calling yourself a charity.

It's funny to see the slashdot crowd with their utopian views on the world, how their software developments will unite the population, level the playing field, etc. At the end of the day, you still need to eat...

What's even funnier is to see these numerous shoestring startups which are essentially trying to amalgamize socialism/communism (open source) with capitalism (money). You wonder why these "business models" fail.

You can't have the best of both worlds -- I sure as hell couldn't program anything aside from "hello world" if my life depended on it, so I don't take that road.

The only people who benefit from open sorce software are large corporations (who're getting free reasearch), possibly VC/founders who ultimately sell out, and people who take it up as a hobby.

Just my $0.02 (and dose of reality).

Re:That's not the only thing

[sgtrock]

Mr. Matthews obviously isn't well versed in the areas of high finance, nor business/economics in general. The whole point of running a company is to MAXIMIZE shareholder value -- any actions taken outside of that context and you better start calling yourself a charity.

Too bad you haven't taken a couple of econ courses yourself. When you have a partnership or sole proprietorship (e.g., most of the businesses in existence since the dawn of time) the only actions that you take are the ones that benefit you. The only true means of maintaining control of your company is to forego any and all outside investments. THAT's what the GP meant.

Re:That's not the only thing

[pkphilip]

I am running a company. This is my second shot at it. I walked away from the last time since I had some unresolved issues with my partners and I felt that it is better to start from scratch than to waste all that bile. The first one I started about 4 years ago, the one I am currently running I started about 2 years ago.

I have funded myself for the most part - and only twice - both were low value loans to tide over a temporary cash flow problem. Once I borrowed some money to pay off some salaries when two of my clients didn't pay on time.

My advice on funding is this - just take funding for what you need; that is do not take funds to shore up your reserves. That is, if you need 50,000 dollars to pay off salaries for a month, take just 50,000 dollars - do not take 2 million dollars (which is the kind of money VCs will be willing to offer, if at all). Having too much money in reserve is dangerous - someone in the company is going to come up with an idea for spending that money quickly. It could be some corporate motivational training that you absolutely can do without, it could be that new spruced up reception, it could be two new "contingency" servers. Reserve money can tempt you to overspend. If the reserve money is yours (that is, you didn't borrow it), then there is perhaps not too many problems with spending it. But if the money is not yours (your borrowed it), then it is going to cause big problems.

And always have a plan to pay back - quickly. It is also best to take money from those who are willing to give it you as a loan which you can repay in monthly/quarterly installments. Borrow from friends or family (this does come at a cost - that is, you MUST have a good plan to pay them back.. and that too quickly).

There are several reasons I suggest friends and family.
1) Getting money from VCs and Banks is a long drawn out process. Friends and Family don't require you to fill out an application form and present a business plan with cooked up figures.
2) It forces you to borrow only small amounts of money.
3) It allows you to reward the lender by giving them a good interest which they wouldn't get from just having the money lying around in a bank account.

Now the point 3) is important. Ensure that you always repay with interest added in and make this higher than savings bank interest. Even though the percentage may be slightly higher, it is still worth it because of the time and the energy you would have saved from getting the money from them instead of from the VCs/Banks.

Also, when the lender gets back the money with the percentage added in quickly, they will be far more willing to lend you money again later if you need it. It makes business sense to them to lend the money to you rather than wasting it in a bank account. Always ensure that it is well worth their while to lend money to you.

If there is noone in your circle that you can borrow money from, only then should you consider going to a Bank for money. Avoid going to VCs. Between VCs and Banks, Banks are the lesser evil. When you go to a bank ask for a loan, do not offer stake. It is better to get a low value loan with no transfer of stake than a high value loan with a transfer of stake (in most cases).

If you absolutely must go to a VC, only go when you already have something which is ready for sale (that is, something more than just an idea / patent). You must be in a strong position to negotiate and unless you reach that stage, do not attempt to get VC funding. It is more trouble than it is worth. If the VC holds all the horses when you go in to negotiate a loan, you will lose.

Re:That's not the only thing

[Lando]

There are at least two other groups that you neglect that I can think of off the top of my head.

      I myself am attracted to opensource as a geek because I like to read code and see how things are done, but make no mistake that is not the primary reason for using open source. The primary reason is to get other work done... A computer to me is just a lump of metal and plastic, what's important to me is what is done.

      On the other hand there are people that want/need to know what is going on in their system. Privacy and the ability to fix problems and not be forced into re-purchasing the software when the current version expires is for self interest not socialism/communism. If I remember correctly, Microsoft allows it's largest customers to view and modify the windows code and I really doubt it is a matter of socialism and communism.

      What other groups are out there?

I hate to be a dick, but . . .

[Seumas]

I really hate to be an asshole here, but you know what I am tired of? I'm tired of every two-bit geek thinking that he's going to come up with a revolutionary idea, be able to implement it and be the next billion-dollar sell-out to Fox News Corp or Yahoo!.

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. :P

Re:I hate to be a dick, but . . .

[Eightyford]

I don't see any reason why geeks can't come up with an idea for a start-up and become a millionaire though. It takes more than business skills to become a billionaire. It takes greed and a great deal of luck.

Re:I hate to be a dick, but . . .

[IAAP]

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.

I hear what you're saying. Our fellow geeks may want to think of other opportunities outside of OSS, if its that bad. I, for one, am doing that. And these days with IT being a must for a successful business (you can't do things with those old fashioned book ledgers by hand and expect to keep up with the competition.), it gives me some confidence in building some sort of organization - even if it's just me, myself, and I, I know I can create some IT solution to do a lot of the back office grunt work.

Re:I hate to be a dick, but . . .

[Luyseyal]

Agreed. It's better to find a nice, small niche and make some money there, though you can still own your own company doing that.

-l

Re:I hate to be a dick, but . . .

[fishybell]

Alright, where's that guy with the "geeks, start your own business" sig?

He'd obviously have some insight for this.

Re:I hate to be a dick, but . . .

[NaruVonWilkins]

How many millionaires do you know?

Re:I hate to be a dick, but . . .

[Eightyford]

A few. Obviously not everyone can be a millionaire, but unless you are born into wealth, it takes a certain determination to become that rich. Most people don't have that determination.

Re:I hate to be a dick, but . . .

[Anonymous Coward]

I really hate to be an asshole here, but...

It is really unfortunate that you hate being an asshole, because you seem really good at it. If only more people had the ambition to do something such as yourself, while also loving it, there would be alot more millionaires in the world.

Re:I hate to be a dick, but . . .

[Anonymous Coward]

No shit, there, about luck. Bill Gates, Sr. supports the estate tax cause it's a tax on being lucky enough to have lived in the good old US of A. If the Rich Man had been born into west Africa, it's not very likely he would've amassed the wealth he did.

So enjoy your AMT, upper middle-classians. It's just giving a tiny bit back to the country that put you where you are today.

Re:I hate to be a dick, but . . .

[NaruVonWilkins]

Luck, sir. It is luck. Determination on the part of the person has little to do with it - although sociopathy helps.

Re:I hate to be a dick, but . . .

[Eightyford]

Luck for a billionaire, not just luck a millionaire. Open up a tire dealer, or a landscaping business (anything but a restaurent). It's not impossible, but I agree that luck and sociopathy helps!

Re:I hate to be a dick, but . . .

[NaruVonWilkins]

Ah, well, I do agree that someone can collect that much money over time, perhaps toward retirement, or perhaps in total assets in their business - in cash, before the age of 35, what we think of when we think of a "millionaire", I'd say the percentage is incredibly small.

Re:I hate to be a dick, but . . .

[LordLucless]

There's a middle position between the "employee" thing and the "multi-billion sellout to Yahoo!" thing. It's called small business. I'm in Austrlia, and the business economy here might be a lot different to the US, I don't know. But just from my immediate aqaintances, I know a guy who runs his own graphic design business, a guy who does installation and setups of digital theatre systems (conference rooms, lecture halls, home theatres) and an electrician.

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.

Re:I hate to be a dick, but . . .

[Seumas]

No, I only said I hate being an asshole *here*. As in at this moment in this thread with regard to this topic.

In general, I quite happily am an asshole and reap the rewards of it. Ask any fellow asshole. It's a badge of honor.

Re:I hate to be a dick, but . . .

[Seumas]

Geeks rarely exhibit the behaviors and habits of successful business men. Hell, if you can't even be bothered to shower, how can you be expected to bother to show up to work and meetings and run your business? Further, geeks tend to push aside the important things and focus on what (to them) are the "fun" things. That doesn't help anyone succeed.

More importantly, as geeks are fond of saying "I'm an engineer - not a manager". They don't want to be bothered with business things. They want to sit in a dark room drinking soda and coding. If you just want to code and make stuff and let someone else do the important work (the marketing, management, payroll, loan negotiation, paying the bills, business plans, etc) then . . . well, work for a company like most of you probably already do.

The really successful people tend to be business oriented and let other people do the grunt work . . . because they have to make the decisions around the place.

Not to mention, most businesses fail. And by most, I mean almost EVERY business fails.

On the other hand, if someone wants the stress and ulcers and short life and agony that comes with being responsible for every aspect of a business that won't do much more than provide you with the income you already had when you worked for someone else, go for it I guess... But remember, you HAVE the salary you're making now. When you work for yourself, you will probalby not turn *any* profit for years. Much less make what you're already making.

Frankly, I just don't think geeks are cut out for business and running their own companies. What successful companies out there have an owner or CEO that still spends the majority of their time designing and writing their own software and such? I bet it's small or nonexistant.

Re:I hate to be a dick, but . . .

[Seumas]

Here's where I see the biggest problem, as an example:

Currently, I earn about six figures.

-Most startups fail.
-Any successful startup tends not to even turn one time of profit for two to five years.

So . . . how long is it going to take me and my earth-shatteringly brilliant idea to finally start turning six figures in PERSONAL PROFIT per year? And once you've accomplished that - what's the big deal? You've now invested FAR more energy, time, money and financial stability (loans) to get what you already had in the first place (six figures per year).

For the most part, I see people who dream of a startup in the same light I see gamblers in vegas.

Re:I hate to be a dick, but . . .

[djdavetrouble]

Yeah except gamblers in vegas don't get to burn through millions of VC money.

Get funded and the party has begun ! High class hookers,
mountains of cocaine, convertable vintage corvettes, company boat parties around manhattan or the bay.
  Succeed or fail its still a crazy wave to ride. I miss the good old days even though my stock options
were worth $-85,000 at the end of it all. Oh, and some computer stuff gets done in there somewhere.

I know what you are talking about though. There are people that seek not only money but power as well.
The Dot Com that I worked at was as much a cult of personality as it was a company, and I suspect the same
was true all over.

Re:I hate to be a dick, but . . .

[WhiplashII]

If it is luck, why are there basically no out-of-work millionaires (outside of sports) - even though you have heard of many people that lost it all. In fact, most commonly you hear about the people that worked up to millions, lost it all, and then worked up to millions again.

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 . . .

[Anonymous Coward]

In general, I quite happily am an asshole and reap the rewards of it.

The rewards? Better be careful. When you say something to the wrong person and one night weeks later you are walking out of a restaraunt and said person walks up behind you and puts a 9mm slug in your spine. Or maybe it won't be that bad. Maybe someone will just key your car. Assholism has its rewards. It also has its consequences.

Re:I hate to be a dick, but . . .

[Anonymous Coward]

I'm glad I read this reply before replying to your first one...

Look, there are other ways to make good money without being an employee. Howabout instead of gambling everything on a some dream idea, you start a company that delivers services that people need today, and while you're doing that, you develop the good idea.

My company offers several custom databases for niche markets, these databases have become cash cows, but we didn't open our business selling our ideas to the niche markets. We started as a consulting company, and we continue consulting, while we develop ideas that we believe are marketable. We might not ever be the next yahoo, but we're doing better than the majority of corporate bootlickers.

I just think people really should considering going into business for themselves. This may not be the 90s, but guess what, businesses were started in the 30s and the 70s that ended up succeeding. To get moving in business, you need to put your head in the clouds, to have faith that you can do it, but you also need to keep your feet on the ground at the same time. That way, you're not gambling in vegas, but building a business.

Re:I hate to be a dick, but . . .

[OsamaBinSlashDot]

Not everyone has to stick their head up someone's duff for 30-40 years til retirement to lead a good life... I recommend day trading.

Re:I hate to be a dick, but . . .

[MisterE]

Apparently you don't hate being a dick and/or asshole enough that it stops you from posting.
Therefore, I suspect you secretly LIKE taking those roles. That's not an unusual thing here at Slashdot by the way... don't feel like the Lone Ranger. I've done it myself a few times. Like, right now!

By the way:
MySpace.com.
(essentially) zero to $500,000,000 in about 18 months.
It's just too much of a lure for normal people to resist, despite the reality.

Re:I hate to be a dick, but . . .

[DianeOfTheMoon]

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.

Yes, please listen to this...the less people I have competing with me, the larger my share of the market is!

Seriously, not everyone out there will "make it big", but pulling in a 100-200k a year salary running a small business would be more than enough for me. I just find it sad that most people feel like if they can't shoot the moon and make it big, they shouldn't even try for something better than what they have.

Re:I hate to be a dick, but . . .

[homer_ca]

Your implied example of a "billion dollar sellout to Fox" contradicts your statement of "The 90s are over". If you're talking about Myspace, they started in its current incarnation in 2003.

Re:I hate to be a dick, but . . .

[Anonymous Coward]

4 out of 5 isn't 'almost all' and you know what, sure 80% of small businesses fail within the first year, but look at a more relevant statistic how many people bomb out of trying to come up with a business that will succeed? not anywhere near that high a percentage, i think I'd put it more around 15% sure in the 'extreme' cases we have people who don't come up with a solid business until they're 60, and at the other extreme we have 16 year olds who formed companies worth millions...

A lot of people do not realize how hard it is to suceed, they think it's luck, or whatever, but it really is a lot of hard work. and it's true, that i know myself well enough to know that i really couldn't put in the 100 hr weeks some people put into their businesses, and i don't have the determination to keep trying even if my ideas are tanking over and over...

some people make making money look easy, like donald trump, but you know what he has the people skills to find the people he needs to get the job done.

Re:I hate to be a dick, but . . .

[LordLucless]

Geeks rarely exhibit the behaviors and habits of successful business men. Hell, if you can't even be bothered to shower, how can you be expected to bother to show up to work and meetings and run your business? Further, geeks tend to push aside the important things and focus on what (to them) are the "fun" things. That doesn't help anyone succeed...Frankly, I just don't think geeks are cut out for business and running their own companies

It depends on how you define a geek, and also what type of business their in to. While the unshaven, unwashed poorly-dressed geek stereotype is amusing, there are many people who have interest and ability in technical areas that don't buy into that stereotype.

On the other hand, the small company I used to work for (boss + programmer(me) + graphic designer) was run by a guy who had no idea about anything technical. All the company's knowledge was held by the employees. When the company had a lean month, he struggled to pay all his bills. Eventually he didn't pay us for two weeks, we quit and the business folded. A small business, however, where the business owner is also the person with the practical skills, can survive a bit easier in those circumanstances. If you do most of the work yourself, you can sub-contract in extra people to do the non-critical stuff when needed, and not have to pay them when they're not needed. Having fewer employees means you have a lower fixed-cost overhead. Of course, as business gets to the point where one person can't do everything, you'll have to make a decision. You could either hire a tech guy, hire a manager, or sell the business.

I wouldn't expect to see a major company have a CEO that writes and designs their own software, but we're not talking about major companies here. We're talking about small business startups, and I'd imagine quite a few do.

Re:I hate to be a dick, but . . .

[Anonymous Coward]

www.internode.on.net's CEO, Simon Hackett writes his own software for his ISP.
And Internode isn't exactly a small ISP.

Re:I hate to be a dick, but . . .

[LordLucless]

Im with the node :)

Re:I hate to be a dick, but . . .

[pkphilip]

Running a business is not for everyone. In that I agree with you.

But it is worthwhile to give it a shot to see if it does really work out.

I will let you on a little secret - it is not a "revolutionary" idea which is going to make/break your company. Your success as a businessman/employee/sportsperson is defined by a three simple words - reliability, consistency and inexpensive. You can make it really big in anything if you are consistent, reliable and inexpensive.

The sad truth is very few businesses and indeed very few people are all three - consistent, reliable and inexpensive.

By inexpensive I don't mean cheap - I only mean that people do not think you are trying to rip them off. They consider you good value. There are highly successful businesses who offer very expensive services as well - but that is another story altogether; most of that is defined by yet another word "hype".

Re:I hate to be a dick, but . . .

[VStrider]

I'd argue that luck has very little to do with it. As a famous chess player once said,

"The winner is always lucky" - Capablanca

;-)

Re:I hate to be a dick, but . . .

[Anonymous Coward]

That's because once you have had millions, people in power know you and are more willing to accept you as a peer again.

OSS is not at its tipping point - yet.

[IAAP]

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.

They were just ahead of their time. Like Go computer was. Now, there's a market for handheld and tablet devices. OSS' time will come. When, if I knew that, I'd be investing/starting something myself!

IP?

[Anonymous Coward]

hard to figure out what that stands for in this context, because google and the rest of the world thinks it's internet protocol

Linuxcare ... beh

[TallMatthew]

I've worked with and for a handful of Linuxcare peeps and my impression of them is ... well ... unfavorable. Generally less-than-talented, albeit good intentioned.

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.

Re:Linuxcare ... beh

[OpenServe]

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.

I agree. Open Source is a production method (like the assembly line) not a business model. There are both successful and unsuccessful companies that use the assembly line, or Open Source, as one factor of implementing their business model. (And many who use Open Source successfully are not even software companies!) With any new means of production, it takes awhile to figure out how to use the it beneficially. When the assembly line concept first hit the mainstream at the beginning of the 19th century, there were many perceived drawbacks. Products were inferior to the quality of individually hand-crafted goods, workers were subjected to unpleasant and often dangerous conditions, and maintaining tight engineering tolerances was difficult (such that parts would fit together at the end!). Today, Open Source faces many of the same types of challenges -- proper code modularity for easy sharing and re-use, effective leadership structure within large projects, clear communication and equitable division of labor, license compatibility issues, etc.

I personally believe that we'll see Open Source truly take off once IT departments stop viewing it as a free lunch (where available) and start treating it as an efficient acquisition process. When you consider how much business software is still written in-house or via contract, it stands reason that there is far more wheel-reinventing going on than necessary.

BTW, regarding OSS success stories, don't forget Java.. If you go to any Java User Group or professional conference, you'll find almost everyone talking about using Open Source tools. It's not because they have a political agenda; they've just learned to harnessed a better/faster/easier way to do the same old job.

Re:Linuxcare ... beh

[symbolic]

Curious...with respect to LinuxCare, what were you expecting that you weren't seeing? (I have no affiliation, I'm just curious).

Everybody wins...

[tcopeland]

....in a case like EnterpriseDB. From the article:

Instead of charging an annual support service fee on a free product as many companies do, EnterpriseDB uses a "plain old software license," Astor said. The only difference with closed-source providers is that the EnterpriseDB database is based on PostgreSQL, an open-source product.

So, PostgreSQL gets more users, EnterpriseDB has programmers actively working on the code, and since PostgreSQL is BSD-licensed, EnterpriseDB can have a closed-source product while continuing to contribute code/docs/feedback to the project.

I've had similar happenings on PMD. JNetDirect's Convergence project embeds PMD as part of a code quality thingy, so they're happy because they get a good static analysis tool for free. I'm happy because it means more users for PMD, and especially because they're giving a copy of the PMD book to each customer. Again, everybody wins!

Incidentally, is anyone else running Bugzilla on PostgreSQL? I just set one up and it works fine... whine emails are sent, site is snappy, good times all around.

Re:Everybody wins...

[LordLucless]

So, PostgreSQL gets more users, EnterpriseDB has programmers actively working on the code, and since PostgreSQL is BSD-licensed, EnterpriseDB can have a closed-source product while continuing to contribute code/docs/feedback to the project.

As far as I understand the BSD license, the problem with the above is that EnterpriseDB has no obligation to contribute the code or documents it generates back to the PostgreSQL project.I wouldn't mind a license that allowed companies to close the source, but forced them to contribute changes back to the original codebase. Of course, the problem then becomes one of detection: how do you know if they've contributed all their changes when you can't see their code?

Re:Everybody wins...

[tcopeland]

> EnterpriseDB has no obligation

Yup, that's correct, there's no legal obligation. They are never forced to contribute a single line of code.

But at the very least they'll be a success story for the project and will spread awareness of it. And it's in their interest to have bugs in the core platform fixed, so they probably will contribute something occasionally, if only a bug report or two. At least, that's been my experience on other BSD projects; it all seems to work out fine...

Re:Everybody wins...

[Anonymous Coward]

I think it's OSS karma... EnterpriseDB contributes back to PostgreSQL so it's good karma. While legal, other companies suck the life out of a BSD-licensed project and give nothing back... I wonder how many of them last?

Re:Everybody wins...

[tcopeland]

> While legal, other companies suck the life out of a BSD-licensed project
> and give nothing back... I wonder how many of them last?

Right on!

There's far more to the LinuxCare story

[Anonymous Coward]

The VC's bringing in some key members of upper management is an interesting story. The colorful events included one exec with an interesting background of improper behavior that continued at LinuxCare. I don't want to be more explicit; since I've only heard about this second-hand from a long-term LinuxCare employee -- but if their anecdotes are true it's interesting how much harm one executive can do.

Re:There's far more to the LinuxCare story

[Anonymous Coward]

This previous slashdot article mentions some of the problems with their management team, including Sexual Indescression, and pathological liars amongst their execs.

Other not so memorable names ....

[LoP_XTC]

Hey lets not forgot the LinuxGruven fiasco also ... wonder if anyone else from there is still reading /.

Aaron

Re:Other not so memorable names ....

[Zphbeeblbrox]

I almost worked for those guys just before they tanked :-)

Re:Other not so memorable names ....

[radiotyler]

Dude, I'm fighting in a war and I still read /.
-tyler

Re:Other not so memorable names ....

[LoP_XTC]

Dude get your ass home :) lol ... your missed, although it was nice to see your wife a few months ago LOL ... dont take that comment the wrong way :)

Aaron

sick of it

[dzafez]

Anyone else sick of reading Businessadvice?

Slashdot - stuff that matters?

Are there any Geeks who care about it? Go read on the numberous businesspages about it.
This is This is fir Stef Murky not for me. Sorry, for the flamebait.

Re:sick of it

[Pneuma ROCKS]

You are so bringing down our synergy.

Intellectual Property? Does it exist?

[Wikipedia]

http://en.wikipedia.org/wiki/Intellectual_Property #Arguments_against_the_term

Seems to me...

[Otter]

From the VC's point of view, LinuxCare doesn't seem like a bad idea even in hindsight. If things had played out differently and Linux had a 25% desktop market share (which, for all anyone knew, was possible) LinuxCare would be sitting pretty today, even with their obvious managerial problems. It was a bet that had to be placed, even though it wound up coming up empty. VC's make their money on hitting enough lucrative longshots to make up for all their losses.

Re:Seems to me...

[Americano]

Anybody looking at the notion of Linux on a business *desktop* back in 1999 - 2000 (RH 6.0 days) with a shred of sense in their head would know that it was not a good investment at the time... the applications were not there for business or home use, and arguably, still have a ways to go. Any VC who made bets like that with my hard-earned money would not be given a second chance to gamble on my dime...

Mulligan had once been the richest and, consequently, the most denounced man in the country. He had never taken a loss on any investment he made; everything he touched turned into gold. "It's because I know what to touch," he said. Nobody could grasp the pattern of his investments: he rejected deals that were considered flawlessly safe, and he put enormous amounts into ventures that no other banker would handle. [ . . . ] When an economist referred to him once as an audacious gambler, Mulligan said, "The reason why you'll never get rich is because you think that what I do is gambling."

Ayn Rand, "Atlas Shrugged"

Been there...got killed

[PenguinBoyDave]

When I was laid-off some years ago I tried the same thing. It just wasn't the right time. Oh sure, I had a few good sales go through, and I made money. The problem was that kids and the wife like to eat regularly. I was scared of venture capital (shouldn't have been) and I didn't have enough of my own money. What I made went back into the business.

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.

Re:Been there...got killed

[vishbar]

However, when you say "Mr. Customer, I can do that for $10,000.00 plus $4,000.00 in services.

Wouldn't you WANT them to buy the proprietary software? More money for you...

I love the concept of Open Source business, but I have trouble envisioning them existing anywhere other than for enterprise-level services. That's not to say OSS won't be used on the desktop--that's already happening with products such as Firefox or OOo. It's just that I would imagine that, at the home-user level, nobody would pay for the service.

What exactly to they mean by "IP"?

[doom]

What exactly do they mean by IP? They don't seem to understand that RedHat releases all the code the write under the GPL, and most of the code in their distro doesn't belong to them in any sense at all. RedHat has a brand, it doesn't have "Intellectual Property".

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"?

[DraconPern]

IP means the knowledge required for future development of a product. For traditional companies (e.g. 'closed source'), it takes the form of patents, documentation, and trade secrets. For 'open source' companies (e.g. companies that hope the community knows more about their target market), IP takes the form of developers who knows the source code inside and out.

For RedHat, it doesn't matter if their source code is out in the open. What is valuable to them is their network of developers (e.g. mindshare) and the ability to affect the direction of projects. Think of them as the used car salesmen, they make someone else's ugly cars look good and sells it. Microsoft is like the new car salesmen in this example.

Re:What exactly to they mean by "IP"?

[doom]

IP, aka "Intellectual Property" has always been a pretty dubious term to apply to things like copyright and patent, but trying to stretch it to include things like the reputations of the people working for you is pretty crazy.

What you're saying is what I was saying: they have a brand. They have no "IP" to speak of.

Re:What exactly to they mean by "IP"?

[BorgiaPope]

> 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.

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"?

[SwellJoe]

a) squandering the funding on absurd levels of growth and infrastructure, b) failing to IPO in time, and (worst of all)

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 doing an "IPO in time"? Given that it all came down to gambling that you'd get out before the bubble burst back then, I can't help but think that the problem was that the failure was in not building a viable business...I'll certainly concede that it could have been VC bad apples causing the trouble, but I suspect it was their desire to "IPO in time" that led to their bad decisions. In other words, I bet the VC bad apples you mention probably were trying desperately to pull an IPO out of their hats (or wherever was convenient) as fast as possible. VCs come in the door with the words "exit strategy" first, last, and right smack dab in the middle of their minds (and there's nothing wrong with that, as long as you're aware of it). During the boom an IPO was the most viable exit strategy.

Anyway, maybe I'm wrong, but it seems like these A and B statements are at odds with each other, given the time and the economic state of the world in 2001. And C seems to be the most common story of 2001, and it probably comes back to the mindset of getting to IPO in time, rather than building a viable and self-sustaining business (if you're making money faster than you're spending it, the IPO can wait as long as you need it to or not happen at all and you don't have to give up all control of the company to VCs in order to keep running...interesting concept, I know, and one that was foreign to the era). Actually, I probably am wrong. I also had an Open Source business during the 1999-2001 years, and somehow I didn't come out a millionaire...I must have done something wrong. Maybe I didn't IPO fast enough.

So, to sum up, it seems pretty clear to me that Red Hat would still be around and making money even without the successful IPO, while most of the businesses that disappeared, LinuxCare included, would have failed even without the frenzy of the boom/bust to speed things along (or string them out). I wonder if there are any public studies on "making money before IPO or significant VC investment == still in business ten years later"? Seems like there'd be a mighty strong correlation there, and I don't think anything that happened during the boom would throw off that correlation to any significant degree. Sure, sometimes companies limp along for years after a hugely successful IPO (cough!VALinuxcough!) burning through the cash they made by getting to IPO fast enough, but they might be the exception that proves the rule.

Re:What exactly to they mean by "IP"?

[51mon]

What exactly do they mean by IP?

It is shorthand for I'm a clueless buzzword user. Just look at all the IP the successful companies that support Microsft systems own, urm right virtually all of it belongs to a handful of big players, most of whom don't deliver such support services themselves but supply the software market for such services. The reason they survive is because there is a large market for their services. Most of the big .com companies I worked for were a few years too early, and badly managed. Interestingly these managers were generally picked for having been successful (or more likely at successful companies) before and thus appealing to the investors. None of them had significant "IP" whatever that is, but their failures were almost all down to not getting customers onboard and paying early enough, and unrealistic expectations of marketshare (or market size) that could be achieved. In almost all cases I think the investors were foolish, but they (unlike the managers in most cases), brought with them the business contacts that could have made, or broken, the companies involved.

Open Source StartUp Bubble

[virtualthinker]

As a developer who has written a lot of code for a lot of people over the years, I find it incrediable how you can call open source a business model. Open source is not a business model, simply because the objective it free code, which in no way supports any ones business goals - other than some other business'es desire to have something for nothing. Lets face the facts: open source is a code pool used by independant developers to build solutions for a few (maybe more) of their clients. We have a pool of code which we can use to build some really neat stuff (when we can get it to actually work!) Now, I am in favor of open source, because it is good for software people - but software people are not necessarily business, and it does keep the pressure on m'soft, to build better systems. I seriously doubt that real geeks are behind any of this, because most of us know there is no open source business model. Unfortuantely there are the next level business types who want to cash in, but are generally clueless about the technology actually involved. As far as I can tell the open source model allows independant practioners to develop prototype solutions, demonstrating what can be done at a very low price, which business people take to their m'soft geek and say I want this! He eventually delivers something, making them happy. As these systems bubble up to m'soft's attention, they develope targeted packages, plugins, addin's whatever to hold onto said customers. Open source is a developer model; A business model it is not!

Re:Open Source StartUp Bubble

[maxcray]

> Open source is a developer model; A business model it is not!

True. Open source does not have enough information to be a business model, but open source can be a part of a business model. It can me part of a business strategy. Sun Microsystems, for example, is heavily adopting an open source strategy, even to the extent that they are open sourcing thier OS, and CPUs.

So when you see open source business model, think business model that includes an open source strategy. Most models then include some sort of addendum to make money, such as sell support, or to marginalize a competitor's strategic product, like thier cash cow.

Re:Open Source StartUp Bubble

[shmlco]

Especially since many in the OSS community seem to be allergic to paying for anything.

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 is) anyway.

Re:Open Source StartUp Bubble

[willzyba]

You can also add Apples OSX operating system, based entirely on Berkley Unix. From using this system I wouldn't now touch an operating system that was now open-source.

Now Apple sell their operating system, packaged with a bunch of other stuff, but the core underlying operating system can still be downloaded and free. The reality being that I've not the time to recompile an entire operating system - even if I did know how - so I've rather buy it done for me in a box. And this is very much part of their business model and it works..

Re:Open Source StartUp Bubble

[willzyba]

Yep.. Thats been our experience also. Take a look at CodeCogs. Over 10000 downloads in 4 months, great customer comments, yet only 1% pay for the software within a commercial environment, and few than 30 people have contributed back into the system. Ok, maybe this site is one big fuck up.. Fortunately our aim isn't to directly make money from this site, we're really just opening up our own internal library to attract critical feedback and thereby improve the quality of the softare. Plus its our little bit for the world. However, we do find it a little discouraging how the community talk at great lengths about sharing, open source etc, but invariable do nothing of the sort.

Re:Open Source StartUp Bubble

[WhiplashII]

No, it can be part of a coherent business model as well. For example, Sears needs an ecommerce site - so they need a stable, secure web server. The market does not really fill their needs - so they need to make a custom web server. They can either spend $X M dollars and build it themselves, or they can spend $X/Y dollars and start from an open source product. The key is that the shared development work on the web server is worth more than the stategic advantage of having a completely custom web server.

Two other points - 1) you must be very careful about what is a strategic advantage and what isn't, and 2) the people that know the difference typically do not know why open source is an advantage.

Re:open source business - oxymoron?

[ch-chuck]

Damnit, it's not "flamebait" - it's a LEGITIMATE QUESTION: How do you get IP and profits from a system dominated by THIS??

Re:open source business - oxymoron?

[Anonymous Coward]

I have 2 things to say about this...
1.) Dick Morrell...Him and the rest of the premadona asswipes...He worked for both that failed...Yes, this is kinda a personal attack.

2.) Dick Morrell..er, I guess I only had one thing to say.

Millionaires

[Anonymous Coward]

I'll be a millionare by the time I retire. As long as I don't lose my job. Its all worked out. I put a certain percentage of my paycheck away into my 401k, properly invested, and Roth IRA. My house will be paid off very shortly and I don't own an expensive house/boat/strippers. Yes, I have a wife. Yes, I have kids. Its not hard to make a million in a lifetime if you live a modest lifestlye and invest properly.

Re:Millionaires

[davidu]

What you are doing is easy. Unfortunately 1 million won't be enough when you and I retire (I'm 24).

Sending kids to college alone can be a 250,000 expense. A nice house in an urban area is at least 3/4 or 1 million.

If you don't want to ride the debt train forever your best bet is to take risks young and shoot for the moon a few times. If you hit it, you win it, if you don't, well you'll hopefully be smart enough to just get a job and eek out the debt lifestyle.

-david

Re:Millionaires

[WhiplashII]

In addition, the mere act of shooting for the moon will teach you things that will at least double your future earnings...

Re:open source business - oxymoron?

[Anonymous Coward]

Hi, this is Dave who wrote the article.

You can make profits from services and support, if not from the software directly. At least, thats the standard line you hear from most OSS companies. I don't think that the system is dominated by GNU.org, at least not in a negative way.

Many GPL'd products are doing just fine, MySQL as a major example.

The whole point of this piece was to show that investors-and many in the community are being naive in thinking that they can make money easily. It can be done, but it's not a guarantee. The companies highlighted are just a few who have the potential of being screwed because they don't own the code that they base their businesses on. Just like LinuxCare.

This is not to say it can't be done, but it seems oddly prevalent in open source.

I was almost a customer

[feenberg]

When LinuxCare started, I called them about getting support from them. There were several plans, including just paying $350 "per incident". I thought about that for a while and concluded, that $350 was OK if they gave me a workaround or patched the software, but I was leary that they would take my money and tell me what I wanted wasn't supported. Almost any Linux problem can be closed as "not supported", since there is no real spec. (That applies double to windows). I didn't have any way of knowing what their attitude would be, so I let the matter drop. I wonder - does anyone know if they offered a worthwhile service to those who subscribed?

Daniel Feenberg

Re:I was almost a customer

[maxcray]

Why not just ask what thier policy was if they were unable to solve your problem?

No, nice try though...

[Svartalf]

You make developers sound like chattle. Nice. "IP", as far as a VC is concerned, refers strictly to things you can Patent or Copyright (and they REALLY like Patents over Copyrights for some bizarre reason- never mind that you need a lot of money in most cases to enforce the things...); expertise to carry a product or someone else's IP forward is called "expertise" on the balance sheet and doesn't carry as much value to the VC's unless you're THE player in that game.

Red Hat didn't have IP for the most part. They were one of the only real "expertise" plays in the game at the time- and they had what it took. LinuxCare didn't have as much as Red Hat and had internal management problems, so it died. VA Linux bought it because they premised everything on being a Linux hardware play and then when the big boys twigged onto doing Linux support for their bigger iron, VA hadn't gotten large margins on their stuff and had overspent themselves on other things- AND couldn't fill the flippin' orders they had in hand towards the end.

Clearly Dave, you were not at Linuxcare back then,

[Anonymous Coward]

And I was.

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.

The article is rose tinted regarding Linuxcare

[Anonymous Coward]

Linuxcare failed because the management was greedy and arrogant. Plain and simple.

Am I the only one here that thinks this is just a piece to get VC funding in for Levanta ? Re-write the past ?

I had many dealings with LC from country manager level to VC back in the day and they all had one thing in common - "we are paper millionaires, why should we care !" attitude.

Now this may sound like some dumb nut having a bitch, but the truth of the matter is that I saw them take the money and blow it. Why, because they could.

I had the task of selling their services through the company I worked for and I tell you this, what a bunch of prima-donna they were.

They did however put out some great stuff. All those comments about no IP !!! The Linuxcare bootable disk was great. It had much more potential than they could ever have thought of - after all, it prompted at least two main stream companies to go into the embedded linux market. Ironic as it may now seem, Caldera was one of them and SuSE was the other ( though that story is much longer ).

Bottom line, had they spent wisely and not just blown it all, they could have weathered the bubble burst and ridden out the slower than expected growth curve of Linux - they didn't.

And yes I'm an anonymous coward - too many people know me in real life and though this is my first post in 6 years, the story is so superficial and ignorant of the real facts that I felt i *had* to.

Re:The article is rose tinted regarding Linuxcare

[daveofdoom]

Hi, Dave here. I finally logged in. FYI-I never worked for Levanta, nor do I know if they need funding. I think the LinuxCare story is an interesting business case, especially as it relates to open source companies that continue to get showered with cash. You are correct in your comments. The management pissed away alot of $$$. The whole point of this piece was to show that investors-and developers need to pay attention to the world around them and not get caught up in the B.S. LC could have survived, but they drank their own Kool-aid and thought they were invincible. Couple that with bad market conditions and the whole thing goes to hell.

Re:The article is rose tinted regarding Linuxcare

[symbolic]

Thanks : )

Re:Clearly Dave, you were not at Linuxcare back th

[Anonymous Coward]

You are correct, I was not there, but I did talk to a number of people who were.

I agree on the management botching the business, but the point was that at least one company (I used Levanta as the example) learned from the LinuxCare demise.

Re:open source business - oxymoron?

[sonikbeach]

Ever buy bottled water?

Er... where do *you* live?

[brunes69]

I can't even begin to understand why VC's would think that a software company would need any more than $50K to start.

You gotta assume that anything halfway decent is going to take at least two or three people at least two or three months. 50k would not even pay the rent aorund here for two people for 6 months, not to mention food, etc. Plus you have capital requirements like a server and some desktops, and an office. Hell the office alone would be 10k for six months.

Unless you plan on doing development out of your mom's basement. That doesn't generally go over well with propspective clients.

Guessing again?

[Trojan35]

Looks like you proved the article made unfounded guesses. Then you make some of your own. Just because some of what the author said was wrong doesn't invalidate the entire article. Service-only businesses are extremely volatile, and he was right when he said clients often like one-stop-shops to reduce costs.

Business Models

[Arandir]

Most business fail. I can't remember the statistics, but it was miniscule amount that manage to survive past five years. I'm not talking Linux support businesses, I'm talking ALL businesses (in the US). The holy grail of "Viable Business Model of Open Source" is a myth, because we still haven't found one for any other industry.

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.

Re:Business Models

[willzyba]

Hi, I'm not sure thats entirely correct. The stats behind business success, depend very much on how the original company is structured. A new company with one director has a 25% chance of success. A company started by 2 people, suddenly had a 65-70% chance of success. 3 people raise this to about 80-90%, again I forget the exact numbers of last year in the UK, but I'm sure you'll get the picture.
If you have a distributed management style you can also raise your chances; its all about that fact that one person is unlikely always to be right.
Equally most companies don't fail because the idea was flawed or because they didn't work hard enough. In reality its because they predicted impossible rates of growth and don't have a strong cash flow..
As for your final point about selling stuff. Your absolutely right and so few people new to business seem to ever realise this. Doesn't matter how sexy or how great your idea, if nobody uses it, its as good a worthless. I'm reminded by friends who tell me that their 5 year old digital CD-player is worth $1000 (the price they paid) - no I quietly remind them, its worth about $10, since you'll never find anyone willing to pay you more for it.
Incidentally, when when we started CodeCogs, the website behind our business, the income from the site was never part of the budget plan (aside from development costs). In actual fact are stated aim is to recycle all revenue from the site into paying others to expand the websites contents. Now we not white knights or anything, we have to make a living, but our own income is based around Consultancy, which goes well. CodeCogs (as an opensource library of C/C++ code), is just another great resource from which we can pluck code to use in our work. We could have kept it internal, but we felt it would also be useful to all developers and we hoped the software on it would be more critically tested and analyzed. Further more its also another spoke in our advertising machine. All the best and Happy Christmas Will Director of Zyba Ltd.

Re:Business Models

[Arandir]

new company with one director has a 25% chance of success. A company started by 2 people, suddenly had a 65-70% chance of success. 3 people raise this to about 80-90%, again I forget the exact numbers of last year in the UK, but I'm sure you'll get the picture.

So you're saying if I walk into a bank with two other partners, the bank will think, "Wow, 80-90% chance of success! Give them the loan now!"

Sorry, but I have to dispute your claim that nearly all UK startups with 3 directors are successful. That's an absurd statistic, which leads me to believe that you misread/misinterpreted them. Also, you're confusing correlation with cause, as the statistic does not indicate that the number of directors actually causes the succees. For an example of this, consider the statistic that people who throw up are 80-90% more likely to have the stomach flu than people who don't throw up. Does this mean that throwing up causes the flu?

Re:Business Models

[willzyba]

You don't have to take my word for it.. Talk to you local New Business Adversers. However think about this: You try finding 3 people, all willing to invest and give up their day jobs for some new idea. Collectively they'd be very critical of the business aims etc, and as a result it'll have a much higher chance of success. Secondly, Banks don't give out unsecured loans on businesses, esp new ones.. Thats why small companies look for angels to get VC etc + look for funding from various Government trusts etc. However I know from experience that banks use the number of directors (along with educational background, cash being injected into the business, type, experience etc) as a measure of how much their going to help you etc. As for your last point - not sure where your going with that. Of course having 3 directors doesn't mean you can sit back and relax. However if you have 3 people with a shared interest, it makes the hard times easier and each director can live a much more normal life. For example, when one is ill, visiting a client or on holiday, there are 2 others to keep things going, etc. Running a company as 1 director is 10x harder. And thats ignoring the fact that 3 people can come up with better solutions than 1. I think you have a very pessimistic view of new businesses. ok few will be millionaires, but the vast majority of UK companies are small companies, with no other aim other than to support their immediate families. The majority have under 10 people working within them and collectively they represent the majority of the UK economy and shouldn't be scoffed at.

Re: OSS was not originally created to make money

[Anonymous Coward]

Just in case we are short of history here, OSS was not created to make money, just like the Internet was not created to do commerce. I am an entrepreneur and it is up to us to make it work financially. OSS is what it is, just that, nothing more nothing less. If you can't make it work financially then move on. But OSS is still going to be here, regardless, use by millions of techies worldwide.

I personally don't really care. If I can't make money in OSS then I go do something else. I'll start other kinds of business. I'll use oss concepts or foundation to build other apps, devices, toys, whatever. Google in my opinion is the most successful oss company, in the sense that they use oss to build their search engine. Perhaps people should use oss to build something useful or fun and make money selling that.

Linuxcare had some really sharp guys

[DavidNWelton]

I'm not sure where you worked or for who, but let's see, just off the top of my head:

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 Rubini, Paolo Molaro (now doing some really good stuff with Mono), and a bunch of other talented guys. The group in Canada also had some very good hackers. In short, there were a lot of smart people there - I doubt I'll ever see anything like it again.

The problems were twofold:

1) The upper management. In particular: http://www.advogato.org/proj/DougNassaurWatch/

2) Not really coordinating all that talent. That was bound to be hard, especially given the times, when all the companies were fighting over bright people, but there wasn't really a focal point like Redhat had with their distribution.

Not that I buy the point of the article - Linux services are big business and are only going to get bigger. And...guess what? No one person owns Linux. Covalent does services for Apache Software Foundation software without owning it. It's open source, so it's not really a problem if your business model doesn't conflict (as in the Mysql case).

In any case, I got a good deal out of it - I came over to Italy to work with that group, where I still live with my Italian wife (as of this summer:-).

Re:Clearly Dave, you were not at Linuxcare back th

[Anonymous Coward]

Well you got your facts completely incorrect. Linus never worked for or consulted with LC. The problem was not RedHat or IP. Further more Levanta is not a new company but in fact Linuxcare after a rename. How did you miss that? Linuxcare is still around, just has a new name and on yet another set of executives. I still have stock, though it's worth about a roll of TP, maybe not that much and worse it will never be worth anything.

So I'm not sure what the value of your point is since all of your facts are incorrect. Perhaps you need to go do more research?

Not sure who you were talking with but they were either mis-informed or part of the folks hired by KP, the folks that were the problem. Mismanagement to the point of criminal activity was the sole problem.

First Advice: Use valid HTML

[Anonymous Coward]

Heh. My first advice to a technology firm would be to use valid HTML. The HTML source of this article's title is "Advice for Open Source Startups: Remember LinuxCare". First, the non-breaking space does not get replaced in RSS feeds, and second, the colon is not allowed as a bare character. It should be represented as an HTML entity.

IP?

[ninjaz]

I guess this is a good example about why RMS suggests avoiding the term IP. As for the companies mentioned, I think the real reason they didn't go anywhere was because they were trying to serve a market that didn't exist.

Since most of the shops who adopted Linux ended up coming from Unix, they didn't need these companies to hold their hands through every command issued at the prompt, and since Linux runs on commodity hardware, the value add of "Linux-compatible hardware at exhorbitant prices" wasn't really much of a selling point.

If you look at the open source businesses which are still around, like Red Hat, Mandriva, and Sleepycat, they aren't doing it through "IP", they're doing it by selling services around something they, themselves produce. I think that's what it boils down to.

I suppose there is a loose relationship to their success with trademark and branding, but I think the most significant factor is that they are selling services as the suppliers, rather than as third parties. The emphasis both being in the position to really deliver something useful, and with having the right credentials as being the ones creating what they're servicing!

I just don't see that much of a market for generic "Linux support", "Linux hardware", "Linux consulting" as such. The "Linux" part is the easy part, after all, no matter what we deluded ourselves into thinking in 1999. I think business generally are looking at either getting a particular task done or just doing what they've always done, but adding Linux to the mix.

So rather than a Linux cabal guiding companies through the forbidden realms of Linux and Open Source, the money is to be had more in specialized areas which also happen to involve Linux, or more generalized areas, where Linux is just one of a list of services offered. I think it's pretty clear that businesses are more likely to use their own in-house talent, or their outsourced IT (eg., IBM) for base Operating System support, and standard whiteboxes rather than paying a premium for "wow, the vendor has Linux in its name!" stuff.

Having worked in large heterogenous environments, I can attest to the fact that the processes used to run Linux and the processes used to run Solaris aren't really that much different. Yeah, you run rpm instead of patchadd, and call your on-site whitebox support instead of the on-site Sun support when a component fails, but it doesn't require a multibillion dollar triumvirate to bridge that gap.

You might say that those companies failed because of IP - funded because they had "Linux" in their names, and spending millions of dollars to create huge branded behemoths. But given the era, I think it would be more accurate to say that they failed because of IPO. :)

I think a better way to phrase Mr. Rosenberg's message is: Don't try to sell a commodity as though you're the only one in the market who can provide it.

Ironically, the companies the article is warning are using the Red Hat/Mandriva supplier-based services model, while it brings up LinuxCare as a bad example. Sure, these companies might end up producing something simple enough that no one needs their services, is better done elsewhere, or simply addresses non-existent markets.. but at least they're walking a path more like that of Red Hat than that of Linuxcare.

No Wikipedia article on Nassaur

[Paul Crowley]

I just searched Wikipedia for an article on this guy, and couldn't find one. Maybe you could start one off?

Anatomy of a start-up

[DogDude]

Actually, I live in an expensive college town.

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.

Re:Anatomy of a start-up

[Directrix1]

This is probably the single best piece of advice I've seen on slashdot. Mod this WAY up!

Re:Anatomy of a start-up

[Red Flayer]

This works for some concepts, and you've made some good points.

One of the problems with having such a lean period, though, is that it is VERY tempting to accept any VC offer in the first round of funding -- this is where some startups lose control of the product.

Basically, though, what you're saying is that for software startups, you've got to have a product (even if not complete) before you should try to get funding. No surprises there, and I was working off the assumption in my previous posts that you'd have some kind of product ready for demo and further dev.

Re:Anatomy of a start-up

[micheas]

One minor thing you missed:

It's a BUSINESS. You have to know who you are going to be selling to, and what margin it is.

I worked as stockbroker in the 90's and you would not believe the number of prospectuses that said something along the lines of: We have never sold our product/service and we have no reasonable basis in fact to believe that anyone will ever purchase our goods or services

You can guess how many of those businesses still exist.

Missing the point...

[duffbeer703]

The author missed the biggest problem with LinuxCare: it was a terrible idea!

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:Missing the point...

[C_Kode]

May be I just missed your point, but why would IBM, HP, Dell, Sun, etc out source their professional support services if they could do them in-house (per se) cutting the middle man (and all that extra money) out? Today, companies out source to other countries because they can pay pennies on the dollar. With LinuxCare that wasn't a choice. LinuxCare was based in California.

Re:open source business - oxymoron?

[Anonymous Coward]

...it seems oddly prevalent in open source.

Anecdotes are cheap. Do you have any figures to back up the assertion that open source startups are more likely to implode than other types of startups? Handwaving fluff pieces about F/OSS seem oddly prevalent among faddish journalists who can't be bothered to plumb the depths.

I hope you are right though. I know very few F/OSS programmers who are in it for the money. Instead, they are motivated by passion, and the complex structures they create are possible because software is a unique commodity. It is made up of little pieces of code that can be shared with people around the world at light speed. The greedy VC boys and their kissing cousins on Wall Street really don't get it. There's money to be had, but they're looking in all the wrong places because they keep thinking in the same old patterns. The money will be made by the people who use free software, not by the people who make it. The people who use free software will make sure that the people who produce it are taken care of, don't worry. (Hint: they're often one and the same). The only thing really happening is that folks are unshackling themselves from endless, needless, and costly upgrades and ponzi schemes promoted by megalomaniacal shrink wrap pushers.

The only possible impediment to the continued evolution of free software will come from anxious legislators who keep having bad dreams about the dystopian visions promulgated by the copyright and patent cartels. I hope they can figure out that the world won't collapse just because software programmers can't be rock stars anymore. Quite frankly, I think the time has come when even rock stars shouldn't be rock stars anymore. I'd be shocked if anyone who's seen MTV recently thinks that would bad.

Re:Clearly Dave, you were not at Linuxcare back th

[cerberusss]

If you're Dave, please make an account so we can see who you are, befriend you (i.e. notice comments made by you) et cetera. As of now, any AC idiot can reply.

Better reasons for Linuxcare's failure

[Anonymous Coward]

I used to work for Linuxcare and I'll be frank, so I post as A.C.
I was a techie and not a manager so I don't know
all the business details; but I was told that the business model was to
provide services for Linux & O.S. Since Linux and O.S. are free as in
beer, it did not and does not make sense to try capitalize on the goods.
Rosenberg's position that you cannot grow a business on someone else's
so-called "Intellectual Property" is disproved every day: from GPS
satellites through Google Maps to SAP and Oracle. In contrast, "I.P." in
IT is mostly parasitic (software patents!) so has zero added value - not a
good basis for a business model in the long term.
I think there are more important reasons why Linuxcare did not succeed:
1) More expenses than income: we had some actual products but the market
was too small.
2) Organizational chaos: growing too fast. For example, stuff kept coming
out of the faxes but no-one was really taking care of it so they just piled
on the tables.
3) Too many hackers who did not let themselves be managed, but mostly
exercised their hobbies instead of generate revenue. And management overall was incompetent. Also I have been
disappointed about the possibilities to grow with the start-up company and help give
direction: I felt a clear distinction between techies who did the grunt
work and talked geek, and overpaid managers who aired mostly buzzwords and
put up a facade.
4) A CIO who bought expensive but useless data centers and probably got a
nice kick-back for that.
5) A CEO who was a big spender and was not ashamed to hire his toyboy at
the companies' expense as a personal assistant.

Re:Clearly Dave, you were not at Linuxcare back th

[deeny]

Dang, I wish I wrote this. There was a lot of brilliance at Linuxcare. In many ways, it was like working in an academic environment with some brilliant people. But yeah, those downsides were a killer, as was the million-to-one reverse stock split.