eveander.com/arsdigita-history -> www.eveandersson.com/arsdigita-history
Eve Andersson, February 2002 This is a story about a company. A company that built products that were useful to many other companies. A company that had ethics, that treated the breadwinners (programmers) with respect, a company that could afford to help people and give away software and training, while still having enough left over to grow and save a few $million in the bank. That is, until the venture capitalists arrived on the scene. Greed replaced philanthropy as each of the company's unique programs was dropped. But, this is a company, and the goal is to make money -- any positive impact on the world is secondary, right? The technical and managerial incompetence of the VCs and those they hired drove the company into the ground. All but 10 of the 240 employees were fired, laid off, or quit. All of the $40+ million in venture capital was squandered. The monthly operating profit turned to loss as more talentless executives were hired who threw out the company's old, useful products and put their blind faith in engineers who spent millions building complicated software that solved no business problems. This is a story that will teach you something about building a software product, about profitably running a company, and about what can happen if unqualified organizations obtain control. The Birth of ArsDigita Since the early days of the Web, I had been building web sites for big-name clients in California with my friend Aurelius Prochazka. Meanwhile, Philip Greenspun and two of his friends, Jin Choi and Tracy Adams, were doing similar work out in Massachusetts. When I moved to Massachusetts in 1998, we joined forces and were quickly able to quickly attract high profile clients, such as Levi Strauss, Environmental Defense, and MIT Press. Our band of programmers, called ArsDigita ("Digital Arts"), was profitable from the beginning. But we did have a few thousand dollars' worth of computer equipment and our five motivated selves. The Birth of the ACS It didn't take long for us to realize that we were solving some of the same problems over and over again for each of our sites. It doesn't matter if a site sells custom-made slacks, lets people share their photography knowledge with other enthusiasts, helps people fight environmental battles against companies polluting their groundwater, facilitates the trading of financial instruments, or helps people find the best combination of red, white, and sparkling wines for their next soire. We distributed the ACS free and open-source, not merely to be altruistic, but because it made sound business sense. If you are doing professional services, the best way to get your name out, have more clients find you (yes, free marketing), and improve the code base is to share it with the open-source world. The ACS began as a small core of functionality, but more opportunities for code reuse quickly arose. Polls and portals and intranets and calendars and address books were repeatedly requested. It would have been foolish to build this functionality one-off for each client. It would have been a wasted opportunity to build this only for ourselves and not let our work reap the benefits of an open-source release. Hence we began the release of ACS modules that could run on top of the core. Dozens of useful modules were created, and that is what led to the adoption of the ACS by programmers and companies world-wide. At first it was difficult to hire people because developers don't feel safe working for a company with no office or regularly-scheduled payroll. It didn't cost us much to rent a lovely old house in Harvard Square (complete with showers and kitchen, both which were well-appreciated after nights of obsessive coding). In January, we began a payroll system so that people's paychecks would no longer be tied to when our clients paid the invoices. Even if people were earning a bit less than before the structure was imposed, they were happy with the change. By January 1, 2000, we were up to 57, almost all of whom were developers. Around this time, we started looking in earnest for venture capital in order to accelerate growth and to allow ourselves the luxury of taking developers off of paying client projects so they could work full-time on our core product, the ArsDigita Community System (ACS). By the end of March 2000, we had 110 employees (almost double what we had 3 months previously), 7 offices, healthy profits, plenty of cash in the bank, and $20 million in annual revenue, with the revenue figures still on an upward trend. Company culture The amazing thing is that greed and ruthlessness were clearly not necessary for us to rake in the cash. ArsDigita managed to make a large profit giving away free software and training. During the growth, we never gave up on our fundamental priciples. These principles that we lived by made the company a fun place to work where the opportunities for learning were enormous. It's easy to sleep at night when you know you are doing good things for your clients and for the world. And when the good things you're doing are also contributing the bottom line, directly or indirectly, you know you've got a winning company. This builds stronger client relationships in the long-run. We were completely open on our web site about our strengths, weaknesses, capabilities, our product features. We gave away all our knowledge about building collaborative web sites in Philip & Alex's Guide to Web Publishing. Even the company structure and salary structure were online. If companies think you can deliver something that you can't, either you're wasting everyone's time in the sales cycle or, if you get the contract, you're likely to disappoint the customer. One category of respect is the shallow "don't say anything negative about anyone else's ideas" type, which has been utilized above all else at the post-VC ArsDigita. But there's also a much deeper type of respect, where people's contributions are recognized and rewarded and there are no obstacles to advancement for capable and motivated people, regardless of their background. The latter type of respect was one of ArsDigita's foundations. We packaged up all of our reusable, non-client-specific software and distributed the source code and documentation free of charge. The business benefits of open source are numerous enough to fill a large essay, but in brief, open source attracts and motivates employees (most good developers get a thrill out of having other developers use their code world-wide), makes sales easier (it's less risky for a potential client to base their business on your software), results in higher-quality code, enables contributions from the community, and establishes your software as a kind of world-wide standard. We also TA'd boot camps, 1-3 week intensive training courses for developers who wanted to be able to extend our software, and could teach at the pioneering ArsDigita University, a one-year program that taught brilliant non-computer-scientists all the computer science course material in a typical MIT or Stanford computer science undergraduate education. Employees were encouraged to submit articles to the ArsDigita Systems Journal as well. Besides being an educational and satisfying experience for ArsDigita employees, it also benefits the core business by introducing ArsDigita's software to thousands of developers and helping the company identify potential employees. Our programs included the highly-successful ArsDigita University, the annual ArsDigita Prize which gave awards of $1,000 - $10,000 to deserving and talented young people who built useful web sites, and ArfDigita, a site where animal shelters around the country could upload information about their available pets and then users could search for and adopt the perfect pet. Non-profit work is an excellent marketing technique and it can be useful for motivating and training employees. Venture capital and new management In late March 2000, ArsDigita received $38 million in financing, primarily from General Atlantic Partners and Greylock, with a bit thrown in by Bain and Trident Capital as well. In early April, Allen Shaheen, recommended by Greylock, took Philip's ...
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