I just started reading Entrepreneur America in which Rob Ryan, founder of Ascent, a succesful company founded in 1989 and sold in 1999 to Lucent for $25 bilion.
Rob, who currently runs boot-cams for entrepreneurs, tells us how to create a succesful business. The book looks very promising. In the first chapter I found this:
One extreme example of a Technoid team I recently saw comprised over twenty “rocket scientists.” They had created incredible Web sites to build community and encourage collaboration - the users were interacting with the sites so much that they were basically generating the great content.
They were a freeware company, which meant that the software was given away. Revenue came from charging clients who wanted the company’s expertise on using the software. For that, clients paid $1 million to $2 million a year. Obviously the company didn’t need many customers to be a successful revenue-generating company. So far so good on the business model.
The problem was that the company had, at that stage, no administrative team, no sales or marketing people. It had engineers, and lots of them. In fact, when I met them they were hiring an accountant, but the accountant had to be able to code. Not all Technoids are this hard-core about the engineering thing. But given the strong bias of this particular founder, I was sure that even the receptionist answering the phones was probably going to be an engineer.
The company was a loose confederation guided by the founder and his co-founder. When I looked at their business model I realised three things. It was good, but they didn’t have the business people to handle the management issues.
He had promised the rest of the engineers that they would be able to cash in their stock at some time in the future. But he didn’t know how to do this while also keeping thight management control over his company.
After I met with him briefly, I pointed out a few key things. There were several potential companies that could spin out of his technology and, with some hard work and a little luck, eventually go public. But it would take time and several milestones before that blessed event. First, we needed a predictable revenue model. Second, we needed a management team with a track record of working together at that company.
I ended up drifting away from this team. I believe it could have been fun, but only if the founder were a little less Technoid.
This sounds like a description of the fallen ArsDigita. So here we have another theory why ArsDigita failed: Philip Greenspun was too much of a Technoid.