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As can be seen from the chart above, while our growth rate remained impressive, it slowed as we grew. While we tried to sell the merits and value of Open Source software, skeptics and potential customers challenged our model with respect to:

Why would a customer pay for a competitor's advantage?
How can a service-based business scale?
Will Cygnus be around when customers need it?
How can open-source software be profitable?
How can open-source software be managed to deliver quality consistently?
How can a company with no software IP ever attract investors?
Can you imagine trying to sell a $10,000 support contract to a manager of five embedded systems programmers, and getting hung up on whether or not Cygnus can go public based on its business model? For all that Open Source was a great way to open doors into the best and most innovative software development groups, it proved to be a major roadblock when selling to the mainstream market. We were about to learn first-hand what Geoffrey Moore meant in his book Crossing the Chasm.

This challenge became absolutely clear when I visited a group of developers who were building wireless communications systems at a Fortune 100 company. As part of their quality process, they not only evaluated their own quality, but the quality of their vendors according to a number of metrics. Of all the different vendors with whom they did business, most ranked ``Very Good to Excellent'' in most or all of the metrics. Their supplier of embedded tools, however, placed dead last with ``Poor or Unacceptable'' in all categories for each of the three years this quality monitoring process had been in place. Yet they would not buy our tools because despite our testimonials (from their customers, no less!), superior technical features, and lower price, management did not want to go with an unknown solution. I left wondering why they even bothered to collect data if they'd never use it to act, but that was the wrong question. I should have instead realized that this was typical mainstream behavior, and that the way to fix the problem was not to fault the customer, but to improve our marketing and messaging.

Our problems were not solely external, however. Many customers did not believe that we could hire enough people to scale our support business much beyond whatever we told them was our current state. They were both quite wrong and quite right. When it came to hiring engineers, they were quite wrong. Cygnus was founded by engineers, and our culture, Open Source business model, and the opportunity to join the preeminent Open Source engineering team in the world has always made Cygnus attractive to the developers we've wanted to hire. Turnover, compared to the national average (and especially compared to the average in Silicon Valley) is something like a quarter to a tenth what other companies experience.

But when it came to hiring managers, it was another story altogether. Sharing many of the same concerns and prejudices that our mainstream customers expressed, most managers we contacted had no interest in working for Cygnus. Those that did were not attracted to it. Those who were attracted to it were often attracted to it for the wrong reasons. By the time we had two managers in our engineering department, we had over 50 engineers. Communication, process, management controls, and employee satisfaction all declined as managers struggled, often unsuccessfully, to come to grips with what it meant to be and manage an Open Source company.

Ironically enough, we also disqualified managers who could not accept creating a closed-source component to our business. Open Source was a business strategy, not a philosophy, and we did not want to hire managers who were not flexible enough to manage either open or closed source products to meet overall company objectives.

We have come to accept the fact that you cannot expect to hire managers who understand all the implications of open-source software right away. You have to expect them to make mistakes (which means you have to budget for the costs of those mistakes), and they have to be able to learn from those mistakes. Most managers who bring experience with them try to change things to fit that experience -- a recipe for failure at Cygnus. It was very hard to find managers who could both manage from, and quickly learn from, experience. And we needed them by the dozens.

The Open Source model, for all its challenges, proved to be remarkably resilient. Though we did occasionally lose customers through poorly set expectations or poor execution, our annual renewal rate has remained roughly 90% by dollar value since 1993, and the number one reason we lose customers is ``retirement'': the conclusion of the customer's project. Two factors helped us survive where other companies would have failed: (1) every person, regardless of title or seniority, recognized the importance of meeting customer commitments (nobody was ``above'' doing customer support), and (2) when all else failed, the customer was empowered to help themselves (because all customers had source code). Thus, despite amazing amounts of turmoil inside Cygnus in those days, very few customers were ever left holding the bag because the software failed to deliver, a stunning contrast to stories we heard about our proprietary competition as well as people who used unsupported open-source software.

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Last updated: 1999-08-06