This is the third article in a four part series that tells of the rise and fall of Virtudyne, one of the largest privately-financed ($200M) disasters in our industry. Though all names have been changed to protect the guilty, I've worked very closely with Rob Graves (the submitter) to ensure that this presentation is as close to how it happened as possible. The second article is Virtudyne: The Gathering.

Virtudyne's first three years are best summed up with a single word: disastrous. Nearly $90M had been spent developing a product that was barley functional and completely unsalable. Most would call that "miserable failure" and encourage all involved to salvage what they could, abandon ship, scuttle the remains, and never look back. But one person saw it as the golden opportunity; he was known as The Savior

The Savior was a self-made billionaire who struck it rich doing the type of business that makes unregulated industries regulated. He heard about Virtudyne's struggles and wanted to help out. He contacted the powers that be and offered some very reasonable terms. In exchange for investing $100M, he would take over operations and sit as chairman on the board of directors. It seemed to be a a win-win for everyone.

Even the Virtudyne employees were excited. They welcomed their new overlord with open arms and truly believed that The Savior would turn the company around with his "new management team of highly-qualified executives with a proven track record." Such statements tend to be very convincing when accompanied with a hundred million dollar investment.

Unfortunately, employee confidence wore off almost immediately. It wasn't so much that the fact that the superstar executives consisted primarily of The Savior's immediate family, but more the fact that they managed to set the bar of incompetence even higher. I suspect that, given yesterday's article, this might seem impossible, so I'll share my favorite three people that The Savior brought in.

First and foremost, there was the new chief of operations, heralded as a "brilliant innovator" and "technological wizard." He was also The Savior's eldest son. Junior's grasp on technology is best illustrated with this simple anecdote: one day, Junior was walking past Rob Graves' office and saw a graph actively moving around on the screen. He got incredibly exited and wanted to know how he could get the cool looking monitoring software Rob was using to watch their World Wide Server. Rob just didn't have the heart to tell him it was the "Bars and Waves" visulization from Windows Media Player.

One of Junior's first acts as operations chief was to partner up with a major hardware vendor peddling another completely unsalable product. It was a massively-parallel server that featured a proprietary operating system with an integrated database. The sales rep told them that "reliability, not speed, is our primary concern" and they meant it. The $350,000 development server had the same processing power as a 600MHz Pentium II that even a charity organization would refuse as a donation.

Perhaps Junior's logic was that anyone stupid enough to buy the hardware would be stupid enough to buy their Microsoft Office Killer. Unfortunately, Virtudyne seemed to hold a monopoly on the world's supply of stupidity. The expensive hardware and vast amount of effort to port the software resulted in only a single sale, and it was a sale for the hardware vendo to Virtudyner.

The next person on the list was known as The VP of Nothing. I don't that's a very fair title because he actually did two things. First and foremost, despite having no direct reports or job responsibilities, he collected a six-figure paycheck. And secondly, he was allowed to bypass the proxy filter to surf the web; it was no secret why. A curious network administrator looked in the logs and discovered that The VP of Nothing spent a lot of time looking at pictures of large Amazonian women wrestling with little men. Seriously.

My personal favorite that The Savior brought in was The Janitor. Now it may seem odd that the chairman of the board would insist upon changing cleaning companies, but it's even stranger what the new "cleaning company" consisted of: The Savior's youngest son. The Janitor was a trust-fund baby and wealthier than most of us will ever be. It became pretty apparent why he couldn't keep a job anywhere else: after a few months of his cleaning service, ants and cockroaches were everywhere, the VB team had a gnat infestation, and the restrooms became so dirty that most managers allowed their employees to go home if they needed to use the facilities.

Amazingly, this new team was able to find a paying customer. It was The City. Virtudyne's office suite was to be installed at all libraries and made available for download by city residents. All it took was some lobbying at city council, a few calls to the local media, and a sizable march on city hall with "unemployed" protestors demanding the city provide free office software. Although the majority of the protesters were Virtudyne employees, the city finally agreed and signed an $8,500,000 three-year contract, collectable upon timely delivery of the software specified in the contract.

The main problem (well, aside from the fact that Virtudyne's Office Killer was a joke compared to any office suite) was that the contract called for a product that would replace Microsoft Access. In fact, it was a major selling point: the sales VP gave a demo of a product that didn't exist.

It fell on Rob Graves and a handful of other developers to create an application in two weeks that would "allow users with no database and minimal computer knowledge to: build applications; add users and groups to access the application; set security at the form-, record-, and field- level;" and so on. Rob is embarrassed to report that they actually managed to deliver a completely useless application that met every word in the ambiguous requirements to technically fulfill the contract.

None of tha mattered, though. Employee morale was at an all time high and things were finally starting to look good. It only took three and half years and nearly $150M dollars, but they finally made eight and half million dollars. Unfortunately, the sale also brought something else to the Virtudyne: paranoia.

Junior held a company-wide meeting to discuss a very serious issue: Microsoft was onto them. They were shaking in their boots and saw Virtudyne as a major threat. They would stop at nothing to get their grubby hands on the product and might even try to steal the source code. Of course, at that point, about half the people at Virtudyne realized that all one would have to do to "get their grubby hands" on their  Microsoft Office Killer was to go into any of The City's public libraries and ask for an installation disk. Obviously, Junior wasn't in that half.

Within days, Junior ordered cameras to cover every square inch of the Virtudyne facility. Fingerprint scanners were installed at every door, both inside and out, and full-time security guards were placed at key locations throughout the building. All exterior windows were covered with a translucent film to prevent Microsoft from peeping in and, just to be safe, computer monitors could no longer face outside windows. Key employees were issued with special pagers that allowed them to discretely press a button to alert the private investigator if they found themselves being followed by Microsoft's white vans.

The draconian security measures didn't help the recent boost in employee morale. In fact, over the next year, employee morale sunk to an all-time low, leading to a mass exodus from the company. Key employees were dropping like flies and all Junior would do to maintain headcount was to hire more employees.

Eventually, Junior struck a good balance between tight security and employee indifference and managed to stabilize the loss. Unfortunately, that didn't help business much. Almost two years had passed since the single sale to The City and Virtudyne couldn't even give away their product. It's hard to say whether it was the terrible product itself or the fact that the Virtydune's contract with The City sparked a state-wide scandal with accusations of impropriety going all around.

What Virtudyne needed was a new market. A market that hadn't heard of Virtudyne before. And preferably, one that wouldn't do any research before spending millions to license their product.

Next Article: Virtudyne: The Digital Donkey, the final attempt to sell their Microsoft Office Killer

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