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

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]

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 . . .

[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]

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 . . .

[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.

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!

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: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.

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

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.

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"?

[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.

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

[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]

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 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

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.

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.

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.

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.

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.

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.