(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

The founders fight back

Philip Greenspun has never been one to hide his opinions. If he thinks that an idea is stupid, he will bluntly say so. Therefore, Philip had many things to say after April 2000.

Philip's harsh words displeased the other board members (Allen, Chip Hazard from Greylock, Peter Bloom from General Atlantic, and ArsDigita's COO, Ern Blackwelder) so much that they stopped having board meetings after December 2000. Instead, they had "investor meetings" where all the board members except Philip (the chairman) were invited. In March 2001, Peter Bloom sent Philip an email, threatening public humiliation if Philip didn't resign from the board. Philip went to visit his lawyer who reminded him of his rights as majority shareholder.

It was time to regain control of our mis-managed company before it became nothing but a shell. On April 5, Philip Greenspun and Jin Choi, together holding a substantial majority of ArsDigita's shares, had a shareholder vote that gave the founders majority control of the board. They demoted Allen from President and CEO to only President, elected Philip CEO (one spot on the board is reserved for the CEO), promoted Tracy Adams and me (both already Vice Presidents) to Executive Vice President and placed us on the board as well, removing both Allen Shaheen and Ern Blackwelder. The two venture capitalists retained their seats on the board. But we had control.

Yes, it had required drastic measures to ensure that our ideas would be heard, but we were willing to now work hand-in-hand with Allen and the VCs to return ArsDigita to a state of health. But we didn't get the chance. Six days later, on April 11, 2001 Allen Shaheen, Ern Blackwelder, General Atlantic, and Greylock filed a lawsuit against Philip, Tracy, and me:

Allen Shaheen, Ernest )	Civil Action No. 18821
Blackwelder, General Atlantic )
Partners 64, L.P., a Delaware )
limited partnership, Greylock )
X LIMITED PARTNERSHIP, a )
Delaware limited partnership and ARSDIGITA CORPORATION, a Delaware corporation, )
Plaintiffs, )
v. )
PHILIP GREENSPUN, Eve A. )
ANDERSSON AND TRACY E. ADAMS )
Defendants. )

Now, I'm not a lawyer, but I never understood how it could possibly be legal for ArsDigita Corporation to be listed as a plaintiff, since that would have (obviously) been against the wishes of ArsDigita's majority shareholders. And how could it be legal for General Atlantic Partners, Greylock, Allen Shaheen, and Ern Blackwelder take hundreds of thousands of dollars out of ArsDigita's bank account and use it to pay their lawyers to sue ArsDigita's majority shareholders?

The case came very close to going to court but, at the last possible moment, the plaintiffs came to a settlement agreement with Philip. Perhaps the plaintiffs were afraid they would lose the case because the judge had looked at their "evidence" and said that he was uninterested in approximately 90% of it. The plaintiffs' lawyers had wasted their time and, more importantly, ArsDigita's money, preparing a case about Philip Greenspun's personality instead of thinking about whether someone's personality gives one a right to try to illegally seize control of a company.

In the settlement, Philip received $7.6 million. In return, he gave up more than half of his stock, resigned from the board, promised not to attempt to execute any control over the company, and signed a non-disclosure agreement. Before the settlement, Philip owned more than half of ArsDigita's stock. Now that the VCs owned more than half the stock, they had no need to settle with any of the other defendants.

The VCs poured a few more $million into ArsDigita so that it could take a few more gphps of air before collapsing.

VCs push out the founders one by one

The marginalization of Philip Greenspun started taking place quickly as Allen Shaheen discovered that it was difficult to work with someone who wouldn't let him get away with incompetence and dishonesty. Over the course of 2000, more and more responsibility was taken away from Philip and given to so-called professional managers who didn't understand the Web or software development. Instead of firing Philip outright, he was banned from decision-making meetings and was put in charge of the less profitable parts of the company.

In March, 2001, Jin Choi, the company's 2nd-largest shareholder was fired. Jin didn't seem to mind so much because he has never had any tolerance for anyone he deems stupid.

Around the same time, the VCs pushed out Aurelius Prochazka. Aure had built up most of ArsDigita's west coast operations. Most of the clients were there because of Aure. He had trained most of the developers. He had personally built some of the most important modules of the ACS. He could construct an enterprise-quality site himself that would normally take a team of 4 or 5 developers to create.

Aure's crime was that he cared about the company. When he saw ArsDigita executives making poor decisions (or no decisions at all), he wouldn't just sit there and let it happen. He tried to explain to them why other paths may be better to take, and when they ignored him, he wrote to the VCs. Apparently, the VCs didn't care that Aure generated millions of dollars for the company; they were more concerned about not being questioned. They told him that there was "no place for him at ArsDigita" and fired him.

Around this time, I was a member of the product team, led by Richard Buck, an Oracle refugee, recruited by the VCs. Richard Buck's arrival gave everyone great hope (could he revive the software so poorly mismanaged by Michael Yoon that it was way behind schedule and didn't meet any of our clients' needs?). Unfortunately, Richard Buck had a detrimental effect on ArsDigita by:

1.	Letting all technical decisions be made by a group of programmers that had never managed a client project
2.	Failing to put his foot down and reject bad architectures that had been selected merely because the technologies were considered fashionable
3.	Not realizing that, without modules, ACS is a useless product
4.	Not being able to motivate the product team to work more than 40 hours/week
5.	Allowing the product team to release untested code that racked up many megabytes of memory leaks after only a few hundred page loads
6.	Encouraging gossip and rancor within the company (for example, when ArsDigita's marketing department foolishly decided to discontinue one of ArsDigita's free services without notice, Richard sent out an email to the product team speculating about whether Philip was at fault [Philip had nothing to do with it])

Naturally, the VCs and Allen adored Richard Buck.

In my typical, non-political way, I tried to make the best of the situation and worked hard to improve the software and the processes. Richard Buck was very impressed with my work and told multiple people that I could do as much work in one day as most people do in two weeks. Given what I've written about Richard Buck so far, one might be disinclined to lend much credence to his opinion of my work. But my performance reviews have concurred: dedicated, brilliant, super-efficient, "capable of doing anything she sets her mind to," extremely high standards, a "tough but fair" manager. So I was certainly no slacker by anyone's standards.

So why did ArsDigita decide to fire me? Could it have been my candid response during my deposition when I was asked what I thought of Allen Shaheen? (I had replied that the economic downturn couldn't possibly be responsible for all of ArsDigita's ills.) Or might it have been because I was dating Philip Greenspun?

On July 2, 2001, about a week and a half after the settlement was finalized, Allen and I had a little talk about my future at ArsDigita. He "suggested" that I take a leave of absence, after which he -- and he said this with the utmost sincerity -- would try his best to find a good place for me at ArsDigita. I said that was fine; I would spend three months traveling. Allen and I agreed to talk again on October 9 and explore my options together.

Did Allen truly intend to "find a place for me at ArsDigita"? There is evidence to the contrary. On July 16, two weeks later, a terminated employee was FedEx'd an "exit package" by the Human Resources department, as is the standard practice when people in remote offices are terminated. Along with the exit package was a list of Employees Selected For The Termination Program. One may assume that HR did not mean to include that list; somehow they had accidentally put it in the FedEx envelope with the other materials. I do not know the purpose of the list. All I know is that I'm right there on the list ("VP, Operations 27"), which means I had been selected for some termination program on or before July 16. And thus, Allen had no intention of brainstorming with me on October 9. Another case of ArsDigita lying to its employees.

On October 9, Allen was "unable" to meet with me. Same for October 10 and 11. On October 12, I met with Allen in his office. We had a pleasant chat about my vacation, and I saw that he had a copy of my recently-published book Early Adopter VoiceXML (Wrox Press, August 2001) on his shelf.

Allen then handed me a packet of papers, the first of which was a letter dated October 11, 2001:

As you are aware, ArsDigita has decided to realign the organization to better achieve our revised corporate strategy. As a result of this decision, a number of positions will be eliminated. The purpose of this letter is to notify you that your position is among those that will be eliminated and that your employment with ArsDigita will be terminated on October 15, 2001.

Given that I was qualified to do more than half of the jobs at ArsDigita, I know that I did not lose my job because of a re-org. The true reasons are obvious.

Now, What?

What has ArsDigita been doing over the past year?

Lying to the employees and to the press:

Tech startups aren't exactly on the front burner nowadays in the market for initial public offerings, but ArsDigita is steaming ahead anyway with plans to go public next year... The four-year-old Cambridge, Mass. Web software company is hoping to kick off its initial public offering some time in 2002... If it keeps growing and building its customer base, and the IPO market continues its gradual comeback, ArsDigita will be able to take itself public, Shaheen figures.
- Steve Gelsi, CBS.MarketWatch.com, May 24, 2001, a few weeks before Allen Shaheen admitted during his deposition that he didn't think ArsDigita would ever be able to go public

Firing people, spending money:

Beginning Thursday, ArsDigita Corporation has cut a confirmed 24 (from 165) employees and announced plans to close the Berkeley, CA, office. Rumor from several connected inside sources has the final tally climbing to 67 (or higher) over the next few weeks. Late last week the CEO was demoted by the VCs and replaced with Dan Keshian (http://www.greylock.com/team/DanKeshian.php), one of Greylock's partners, while they wasted another $10 million (reportedly) on the company, presumably to help it stumble along to a fire sale. Those not yet gone are those in engineering, upper management, or are working on billable projects. Those on billable projects will be terminated upon project completion. Standard severance is reportedly 1 month salary plus unused vacation.
- FuckedCompany, October 11, 2001

Building products that nobody wants to use:

When the VCs and Allen Shaheen seized control in April 2000 the company had revenue, profits, a customer list of AOL, HP, MIT, Oracle, Siemens, etc., a $160+ million valuation, $41 million in cash. In about 1.5 years the same company had a product that nobody wanted to use (though it was based on more fashionable tools), no profits, no cash, and few customers. Despite the infusion of more cash and a new CEO, a Greylock partner, in the fall of 2001, the company continued to spiral downward. Now they are dead and RedHat is buying some bones.
- FuckedCompany, February 7, 2002

And trying to make some money for themselves out of the scraps:

ArsDigita, a privately held software company in Cambridge, was shut down on Tuesday. At least some of the company's assets, primarily from its professional services division, will be sold to Red Hat Inc., an open-source Linux software company in Durham, NC, according to sources close to the company... Dan Keshian, a venture partner at Greylock, became ArsDigita's CEO in the second half of last year to lead the company to profitability. Keshian was not present when the shutdown and sale were announced to employees.
- Jeff Miller, Mass High Tech, February 7, 2002

Lessons learned

	Spent the profits that ArsDigita had saved
	Spent all the capital raised
	Destroyed an excellent software product
	Released a horrible product a year behind schedule
	Hired a slew of incompetent managers
	Fired the people who made ArsDigita profitable
	Repeatedly lied to customers
	Repeatedly lied to employees
	Repeatedly lied to the press
	Repeatedly lied to the outside developer community
	And given themselves big bonuses as a reward

Greylock and General Atlantic Partners have mis-managed ArsDigita into the ground.

What can we learn from this? Be clear about control. Don't assume that people with MBAs know a thing about business, let alone technology. Don't throw out your prime source of revenue before another one is in place. Fashionable programming languages don't equal useful software. Don't lie. And steer clear of General Atlantic Partners and Greylock.

© Eve Andersson

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