(Last month AssureConsulting.com had published ArsDigita: From Start-up to Bust-up by Philip Greenspun, former CEO of the company. This month we bring the employee perspective on what went wrong at ArsDigita. Eve Andersson was VP Operations when she was fired from her job. The views expressed here are those of the author. AssureConsulting.com takes no responsibility for them. The article was first published in http://eveander.com/arsdigita-history)

ArsDigita: Diary of a Start-Up

his is a story about a company. A company that was profitable from Day 1. 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. Lying to customers and employees became commonplace. 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 real question is: how much money did they make?

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. We had no office, no marketing staff, no letterhead. 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 soirée.

Every site we built needed:

1. To talk to a relational database management system (RDBMS) to facilitate the collection of content from its users.
2. A means for registering users and recognizing them upon their return to the site.
3. A permission system to enable administration of the entire site, a section of the site, or an individual content item.
4. A mechanism for grouping users so that they can be served content or given permissions appropriately.

Instead of reproducing this for each client, we wrote a general data model, a few web pages, and some shared procedures, and called this collection of code the ArsDigita Community System (ACS).

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. Many of our clients wanted discussion forums. Quite a few needed ecommerce. 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.


A small group of developers earning lots of money, making clients happy, and developing and releasing a useful software product is wonderful, but ... to make a substantial impact on the world, you gotta grow.

And grow we did. 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. So, in the fall of 1998, we moved into an office. 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. We were still earning a large profit each month. And now it was easy to hire people.

On January 1, 1999, ArsDigita had 5 employees. By January 1, 2000, we were up to 57, almost all of whom were developers. We had very little overhead and profits were rising. 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. The revenue came from services and support.

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.

Some of our principles:

Honesty. ArsDigita had a strict "no lying to customers" rule. This builds stronger client relationships in the long-run.
Openness. 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. We had no desire or need to fool anybody. 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.
Respect. Respect can have two meanings. 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.
Open Source. 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.
Teaching. ArsDigita employees had the opportunity to teach students at MIT, Caltech, Berkeley, and other universities that adopted the web applications course pioneered at MIT (6.916). 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.
Non-profit work. 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 place as CEO. Philip was quite happy to let a "professional manager" step in and take over some of his day-to-day management duties, leaving him more time to concentrate on company vision, teaching, engineering, and evangelism.

"ArsDigita University was one of the primary reasons I decided to join ArsDigita Corporation."
- Allen Shaheen, early April 2000, less than a year before deciding to shut down the program

Our level of confidence [in ArsDigita] is high. We're pretty fundamental believers that, 10 years from now, a lot of corporations will look at closed software as a way of the past.
- Chip Hazard, Greylock partner and ArsDigita board member, as quoted in digitalMass, October 23, 2000

ArsDigita is clearly positioning itself to generate annual revenues in the hundreds of millions of dollars very quickly.
- Cameron Laird, SW Expert, December 2000

The future looked incredibly promising.

Life post-capital

Revenue continued to rise to about $25 million in 2000. Is this due to the VCs' genius and vision, or merely a result of the momentum built up before their arrival? Was the subsequent downfall, starting in mid-2000, due solely to the effects of the weaker economy in the United States?

It became increasingly clear to the employees, the customers, and the outside developer community that the VCs and those they had put into management had no idea what they were doing. They discarded the practices that had made ArsDigita a profitable company, destroyed the company culture, and showed their complete technical incompetence by throwing out the ACS, which had been repeately used to solve real business problems, and replacing it with new, partially closed-source software package that was hard to use, had serious performance problems, and met only a small fraction of the business needs that the ACS did.

By the middle of 2000, it was clear that the new management did not understand the mission in front of them. New engineers at our company were routinely complaining about the level of competence and experience we were provided by aD. Communications with the new CEO were unreasonable and frustrating. Contacts at aD went from programmers to project managers to sales VPs. All these people were trying hard, and in some cases doing pretty well - but aD had lost the things that made it unique and successful.
- Josh Stella, former ArsDigita client, April 26, 2001

One of the reasons I joined ArsDigita is its inspiring mission statement, which states that we do not ever lie to customers. The mission statement goes on to say that companies who lie to their customers need to spend time training their employees in the official lies before they can talk to customers, thereby making lying unprofitable.... This week, we were not honest with our customers about the severity of the security holes we discovered in the ACS. We employees even had to sit through a training session so that we would know how to discuss the security holes with our clients. This is a serious contradiction of our mission statement.
- Walt Mankowski, former ArsDigita employee, July 14, 2000

It was sad to see the company slowly being destroyed. It was as if all the life was being sucked out of the company and we had no idea why. Everything that made ArsDigita what it was slowly disappeared until all that was left was just another buzzword-spewing faceless corporation. ACS users moved on, joining in support for projects like OpenACS that still had the spirit of the former ArsDigita... Meanwhile, aD corporate slowly began to shut down programs, including the one that got me to be an ACS user in the first place: ArsDigita Prize. One day a small message appeared that said simply "The prize has been cancelled for 2001."
- Aaron Swartz, past ArsDigita Prize winner, April 24, 2001

It is easy to locate marketing copy on ArsDigita.com. However, it is difficult to get to the information that is actually interesting to anyone building or running an online community, or deciding whether to hire ArsDigita's services.
- anonymous user of arsdigita.com, September 4, 2000

ArsDigita was the company I dreamed of working for when I graduated... In 2000 everything began shifting. ACS 4 seemed an excellent thing, and everybody was excited, but it was never finished and then everything just turned to Java. Nothing against Java, but even I know that you can't sell a product that's not here yet. What happenned to the culture? None of the names and faces we knew posted to the bboards anymore. A few aD faces posted regularly, but mostly we saw a bunch of people only posting questions about the products they should be familiar with, and sporadically. Allan Shaheen only addressed developers twice, in what seemed to be posts typed by his secretary. ArsDigita's website turned to being a brochure more than anything else, which is not bad if you don't forget other things.
- Roberto Mello, computer science student, April 24, 2001

For months now, I've been trying to figure out how aD's management can just ignore the ACS community (and the ACSish market) they way they have. Barely speaking to us; releasing incomplete, unscalable, untested software to us; and finally just abandoning the whole thing midstream. And the only thing I can think of is that they are trying to clear out the community, get rid of the community memory, for when they rollout their closed source, java solution.
- Jerry Asher, developer, April 25, 2001

I heartily agree with you about the unfinished condition of ACS 4.x. We (furfly) have lost at least one prospective client because of it, perhaps more, and the project we're working on now is waaaay behind schedule, much of which is due to our stumbling over ACS 4.x issues. This is not to say that it is unusable, or unfixable, but only that it is unfinished - I don't want to disrespect the hard work that went into it, only the decision to release it before it was ready.
- Janine Sisk, Furfly co-founder, April 25, 2001

ArsDigita, an e-commerce company in the midst of layoffs and a major product overhaul, is bucking the trend of comrades selling open-source software... The change will allow the company to reach profitability by the first quarter of 2002... The company laid off 29 employees in the last week.
- CNET, April 5, 2001.

© Eve Andersson



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