Originally Published: Monday, 2 October 2000 Author: Stan Shivell
Published to: learn_articles_support/Articles Page: 1/1 - [Std View]

The Future of Linuxcare - The Dave Sifry Interview

Linux.com author Stan Shivell got a chance to talk to Linuxcare CTO and Co-Founder, Dave Sifry. The past few months have been tumultuous for Linuxcare, but there may be a light on the horizon. Read on!

The past few months has been extremely difficult for Linuxcare. The San Francisco-based support service company which began servicing the Linux community a little over a year ago has been recovering from what can only be described as a frightening bombardment of bad press.

It all started when Linuxcare announced their IPO. With the surge of press and the skyrocketing tech stocks, everyone thought that this would be the next big tech IPO. But due to timing and degrading tech stock conditions, Linuxcare was forced to postpone their IPO. Like many companies, they were spending money and depending on the IPO to back them up. With their burn rate high, and hiring rate as equally hot, this lack of future funding caused them to make cutbacks and even layoffs.

It's been a few months since Linuxcare had to lay off employees and postpone their IPO. I managed to reach Linuxcare's CTO Dave Sifry for comment on how the company has been doing and his thoughts on what had happened.

Linux.com: Linuxcare, for all intents and purposes, is the pinnacle of Linux and Open Source software support. You would be hard pressed to find a company with a bigger name in this arena. With all the recent bad press, layoffs, withdrawal of your IPO, and the firings of both your CEO and CIO, how do you think this has affected plans to convert over to the Linux/Open Source Phenomena. One of the biggest factors for a big company to switch over to a new product would be the amount of support they can get for that product. Because of the nature of Linux and the Open Source community, the developers rarely offer support for their products. Companies will need to rely on organizations such as yours to get the level of expertise they require. With the recent bad mojo that has been surrounding your company, do you think that big business will take the whole phenomena less seriously?

SIFRY: The short answer is that it hasn't significantly affected our business, nor has it significantly affected the market acceptance or perception of Linux as a OS ready for the enterprise. The longer answer is that many companies go through growth spurts, and have to deal with the stock market quirks. The key focus of a successful business should be on focusing on customers. That's what Linuxcare has been doing.

Going to our customers. Our main customer areas include OEM's, ISVs. That's IBM, Dell, HP, Motorola, Sun, Oracle, etc... The big Internet infrastructure companies, including the xSP markets, the ISPs, ASPs, folks that are building out the Internet infrastructure tend to be using quite a bit of Linux. We are still focusing on our business.

The rate of expansion has slowed down a bit, primarily because of the stock market. The market wasn't receptive to a new IPO at that point. What we decided to do was to deal with some of the fast growth issues. And when you're doing an IPO, it's not an end-all, be-all event. It is a financing event in the life of a company. It still means you have to have a business and a strong revenue stream. If anything happens because of the public reporting requirements, post IPO things get even more stringent.

To be a public business you even have to be more transparent to your investors, so on and so forth. And what we did was say, 'Wait a minute.' We hired on all these people pre-IPO expecting a pretty significant amount of money to come in from this financing event level. And you also do a lot of hiring in anticipation of your post IPO stock price being higher than your pre IPO stock price. You want to lock people in, get the best people you possible can while they still get pre-IPO options.

So we hired a tremendous amount of people in the first three months of this year. We went from a 150 people to about 270 people. We were leaning into the wind anticipating that post IPO we'd have a lot more money in the hopper, the business would continue to expand, etc...

All of these things have happened, the business has been expanding, all our customers are happy and the business is going well. But when you postpone the IPO, all of a sudden that money you expected isn't in your hopper anymore. We had to do is lay off a bunch of the people that we had hired right before the IPO.

Linux.com: How has this affected the original goals of the company?. Has it affected your customer base and how has the employee morale at Linuxcare been affected?

SIFRY: I'm not going to say it was a pleasant couple of months but it didn't change our plans or the fundamental business model. We have not deviated from that for a minute. Linuxcare is a pure services company. Our customer focus hasn't shifted, we aren't becoming a distribution company, we aren't becoming a hardware seller. We aren't doing any of those things. Our fundamental business model is still proving itself. We are meeting all our revenue targets. Short term, we had to obviously make some changes to bring our burn rate to a reasonable level. The nice thing about being a services company is that you have to work really hard in order to lose money. Now we are focusing on providing a level of service to our clients that requires a level of investment. It means using technology and the Internet to be able to automate our services as much as possible and that means you have to invest. You're spending more than you're taking in. But since we are still fundamentally a services company, we have been able to readjust our plans and focus.

We have this investment, we have our services much more automated than anyone else, Linuxcare has really focused on providing the best services to our customers. If we choose to, we could say that we could turn around and be profitable by 2001, as a result of all the investment we have been doing in the past 6 months. We are much more efficient as a company. The announcements you have been seeing over the past 2 months have been about deals we have been doing with Sun, HP, Compaq, etc. Our E-test system which is doing an automated certification process, is a precursor to a self-certification process. The Linuxcare knowledge base has been tremendously improved, so that our response times have dropped significantly.

Linux.com: You just recently acquired about $30 million in funding, primarily Lehman Brothers. When you first obtained your initial investment from Kleiner Perkins, you stated you went with them was because they understood the Open Source phenomena. You felt that your company could keep its original idea and still get funding. Since you have had to cut back on spending due to the withdrawal of your IPO have you had to adjust your views of money sources when you accepted the new funding from Lehman Brothers. Do they also have the same vision of Open Source that Lehman did?

SIFRY: No. Not at all. There are 3 main reasons we went to Kleiner as opposed to the other venture capitalists at the time. The first was, that Kleiner got the Linux vision, they understood open source. Kleiner is a company that understands paradigm shifts. These are the guys who funded Netscape. When you start looking at the caliber of people and the understanding of disruptive technologies that the combined minds have over at Kleiner Perkins, that is a tremendous asset that we want to take advantage of. Secondly Kleiner is a long term investor. That's unusual to find for a venture capitalist. They are not looking for quick bucks. They are looking for a company to help change the industry.

I think Linux and Open Source Software are doing that. Linuxcare is playing a significant role in the acceptance of Linux and Open Source software throughout the industry. That means there is a good chance for Kleiner to make long term money out of it. But they aren't looking to us to make money in the next 6 months or 9 months or in the next year. That focus on investing and building for the long term is the reason we went to kleiner and the third is the brand value that they bring. It doesn't hurt to go to a major customer and let them know that Kleiner Perkins is one of your major investors. It brings a sense of security to those customers.

Linux.com: In this latest round of funding how much do you expect Linuxcare to grow world wide, any new services, or plans in the oven?

SIFRY: We are doing a lot of work, but nothing radically different from what we were doing a year ago in the sense that the fundamental vision of the company. Our vision is to see OSS everywhere. That vision hasn't changed. The focus on services being the main revenue driver hasn't changed, and the ability to use automation as much as possible through out our customer service offerings is a focus we follow religiously. The idea is to use silicon instead of carbon. Use automation and computers as much as possible to satisfy the customer instead of carbon meaning bodies. All of these things are the bedrock of the company, ones you can expect to see in the coming months. There will be more announcements of new services and new partnerships and customers that really emphasize those main points.

Linux.com: Also, Linuxcare has been interviewing a lot of possible candidates for your CEO position. How long until you find a replacement and who is being considered for the job?

SIFRY: We have been interviewing some tremendous candidates. There are some very energetic dynamic people who also get Open Source. We have a 'short-list,' but we haven't made any final decisions. The business is running itself. That's why we are closing these deals: the t3 driver for Sun, certifications, partnerships with HP. We were able to make these announcements at Linuxworld even though we didn't have a CEO. The business is fine. We will take our time and get the right CEO, not necessarily the first one in line. We want someone who understands Open Source, is true to the Open Source community and won't sell that out. And at the same time that person must understand business and the opportunity. It's going really well.

Author's Note: One can't deny the fact that Linuxcare has taken a lot of heat from the press the past few months. If it were anything other than a professionally-run business, it most likely would have crumbled. Linuxcare has proven that it is able to keep its head above the water even when waves are foaming high. They have not only proven themselves as a business, but a role model for other companies to look up to in the Linux business. It is still too early to tell where they will be in the next five years or so, but if they make good use of the second life they have been given, they'll be on their way to success.


Stan Shivell is a student at the University of Pittsburgh. He enjoys the way the three rivers converge in the middle of the town, and he's a big fan of Heinz ketchup. He also loves to write for his favorite website, Linux.com.