BarCamp Toronto - Nov 2005

The local product design economy

Update: I changed the verb acquiring to joining. A lot of the chatter has been about how this is not an acquisition. And I agree. It is not. As the post states at the top, TeehanLax is shutting down. It is reminiscent of the Smart Design closing (see Dan Safer’s post) and some of the reasoning behind the Adaptive Path acquisition by Capital One. It sucks. But I’m not planning on leaving Toronto, and I’m celebrating my friends like a wake and trying to understand the implications. 

TeehanLax is shutting down. This is getting a lot of coverage:

Why so much coverage? Well it is because TeehanLax was one of the best design firms around, if not the best in Canada. They designed 2 of my favourite apps: Prismatic and Medium. You could see the tension between the services side of their business and the desire/pull of being a product company.

BarCamp Toronto

I first met Jon and Geoff back in 2004. It was after the release of their PVR report comparing the user experiences of the Bell and Rogers PVRs to TiVO. They had an interesting approach, doing interesting work, just trying to build a different kind of company. That was evident when Jon agreed to host BarCamp Toronto in November 2005. It was a different approach than Sapient, ModemMedia, Scient, Viant, Razorfish or other agencies in Toronto were taking. It wasn’t a client development strategy, it wasn’t a recruiting strategy, it was an offer to participate in the conversation.

Photo by John Lam

Photo by John Lam

The shutting down of a company that I described last week as a “building big, impactful [indie] company” is interesting. Jon, Geoff, David (Jeremy, Peter, Tamera and the entire team over the years) you built a company that I respected. And I am very happy that you’ve made the best decision for you and your families. It’s your company, you get to make the decisions, so don’t listen to the naysayers.

Photo by Tom Purves

Photo by Tom Purves

Here are a couple of observations about one of my favourite design firms shutting down in Toronto.

  1. Short term: design talent availability
    There is a bunch of design and development talent that is available for other Toronto companies to hire. These people have been trained in one of the best design cultures in Canada.  They produced an environment that produced some of the best products in the world.  If anyone from the TeehanLax team needs connections to interesting companies please drop me a note and I will do my best to connect you.
  2. Short term: More people evaluating Toronto companies for acquisition
    This is the third Toronto design and development company acquired in the past 24 months. JetCooper acquired by Shopify. Xtreme Labs acquired by Pivotal. Now TeehanLax shutting down and joining Facebook. This is important. Toronto is a great place to acquire talent. Hopefully there is an equal respect for the design and development work being done here. (This excludes the amazing talent like Mike Beltzner, Mike Shaver, Scott Boms, Sam Ladner and others).
  3. Longer term: The loss of a gravity centre for design talent
    There are other places that are gravity centres. Pivotal Labs is a great place for engineers and designers to learn the power and efficiency of paired environment. Farhan and team are doing wonders to explore and implement a very powerful cultural tool. TeehanLax built a culture that produced great digital products and experiences.

    “We were happiest when the products we were creating reached our standards. We were happiest when we spent time thinking about how to create the conditions and circumstances for this to happen. We were happiest when we were working with our team members.”

    It will be interesting to see if the T+L diaspora can have an impact on the ecosystem like the Trilogy diaspora in Austin or IDEO diaspora in Palo Alto.

  4. Services firms are not destined to be huge companies
    The back of the napkin math I use to calculate a services business is approximately $200k in revenue per employee. Sold at under 5x EBITDA (given a 20-30% margin and averaged revenue of past 2 years plus forecast using error correction of previous forecast, lets say 1x revenue). There is great business, it’s just a hard business to scale nonlinearly. And when “someone slides a number across the table big enough that you just can’t say no”  a product company that is scaling like crazy is likely to be able to slide a bigger number than a services company. It feels like we’re seeing that ceiling being hit by XtremeLabs (sold to Pivotal), TeehanLax (joining Facebook), JetCooper (sold to Shopify), maybe BNotions (AK has departed for Gallop Labs).
  5. Opportunity in the product/design/user experience space
    TeehanLax was a design firm. It was a design firm that respected technology. There are other firms in Toronto that are a mix of product, design and technology including Normative, SayYeah, BoltMade, Nascent, TailoredUX among others (including those with a more technology focus VennPivotal LabsOK Grow!Isle of CodeThe Working GroupBNOTIONSEndLoop StudiosUnspaceRangle.ioPeople & CodeDigiflareFunctional ImperativeMetaware Labs).  TeehanLax showed that it was possible to build a world-class design shop in Toronto. I’m hoping someone realizes this is the combination of the caliber of the output, the process to build the culture and the requirement of building the business/revenue streams.

Interesting times in Toronto. Congratulations to Jon, Geoff and David. Thank you for being amazing. And the best of luck on your journey.

12 thoughts on “The local product design economy”

  1. Odd that you call it an “acquisition” a few times (and in your tweet promoting this post).

    This doesn’t look like an acquisition at all. Facebook isn’t acquiring Teehan+Lax; they’ve simply hired Jon and Geoff.

    This is an HR move, not a Corp Dev move.

    1. You are correct sir.

      It is a shut down and hiring. A talent acquisition but not a corporate one. I need a better way to represent it in my head. Or if it was a partnership not a corporation then maybe it is just the partners agreeing to be acquired for a fixed price. They got jobs and an earn out.

      1. Acqui-hire? I hate the term, but it’s the closest in this case. Anyway, whatever we call it, I’m happy for their exit, and wish them success in the next journey.

  2. We’re quibbling over definitions, but if FB is hiring the partners and few or none of the other talent, it’s not an acquisition in any material way. If they’ve legally acquired the company, it’s just for tax reasons or some other legal technicality.

    This is as simple as the founders saying, “Let’s do something else with our lives.”

  3. Most people quit a job for a better job. That all this is. It is not an acquisition in any sense of the word.

    There is nothing wrong with quitting a job for a better job in most cases. This is one of those cases where it is not wrong. I believe it was wrong in the way it was executed. Externally, the confusing post read like a thought exercise. With a footnote that (intentional or not) obfuscated the fact that the entire team were laid off.

    Internally, the shock and confusion is still resonating and is slowly sinking in. It will take some time. Yes that means great, well trained talent is freed up to help improve other companies, but that is diverting attention from the real issue.

    Instead of publically saying peace out team, we’re off to the promised land, hope you land somewhere nice. There is a responsibility to the team you employ. The company could have been sold because as an acqui-hire. Failing that (and it may have been the case), then go quietly. Say it’s time to move on and close the business. Then make the move without great fan fare. We know the guys aren’t, but the way this is perceived inside and out is that it was a selfish dick move. That is what has fueled the justified critism.

    David your post builds this into a celebratory day. I believe it is a sad day for our community and its a wound that will take some time to heal.

    1. Mark,

      It is celebratory like a wake is celebratory.

      They satisficed given they wanted to do something else. Humans struggle to optimize. And we should not vilify them for their own personal choices.

      One of the potential differences with an acquisition is that equity is owned by more players. Also that there are jobs for some if not all of the employees. My understanding is that employees were offered the opportunity to interview with Fb and many were offered jobs. These employees also made their own choices.

      Is there a gap left in the ecosystem, yes. Is it something that requires healing, seriously? It sucks people lost their employment. It happens. Man don’t be a hater.

  4. This illustrates my point about interpretation (of text posted on the Internet or otherwise) and how it can impact the perspective of the audience, and how perspective impacts perception.

    1) I didn’t get the wake like tone to your post. From posts and tweets, I’m not alone. Your edits make that perspective explicitly clear. Re-reading with that perspective in mind, I connect better with the intent, and I’m sure that goes for other readers.

    2) My intent was not to be a hater but raise the valid criticism of the way the information was presented has lead to much confusion inside and outside of the company. An announcement of this magnitude needs to be clear it what is saying, and not saying. The latter is what was not clear. My perception of the paragraph about the decision and impact on the team – plus the footnote – is that it was intended to make that clear. It missed and has been the fuel for the actual haters you’ve been tweeting with.

    3) Everything is a tradeoff. Some information can’t be shared publicly, or even with the team. I believe trying to craft a message with those tradeoffs lead a message that raised more questions than it answered. I raised some options, tried to be clear that they may have been considered, and that I’m not privy to that information. If Geoff wants to go for one last “the best whiskey sour ever” and share some of that private info with me I’d like to learn from their experience.

    4) I know first hand how hard it is to say no to an opportunity to have an impact on that scale. I hope I was clear that I don’t fault their decision to make the move. I wish them all the best at FB, and to the team and what ever path they take next. We can all use this as a lesson to learn how often perception matters more than the facts.

    I’ve gone on long enough. David, this would the a conversation best continued over cocktails.

    In the mean time I’ll pour one out for the loss of an institution that did great work and trained many that have gone on to do great work. Then raise a glass to the great work to come in the next chapter.

    1. Mark,

      Bourbon cocktails in the near future. Required.

      I’m not arguing with you. I think after I realized it wasn’t an acquisition: which brought up a few questions. And given that I’ve known Geoff, Jon and David for a long time I think I just downplayed the implications because of our long standing friendship. I wanted to explore not the implications of they would do this, but what it meant for those of us left standing. A long time ago I made a decision to not move to SF. I plan on being in tech in Toronto for a very long time. And honestly, I didn’t care why Jon and Geoff hadn’t been clearer. I didn’t want to vilify them. I wanted to celebrate. But the celebration was a little bitter sweet.

  5. Thanks for a really insightful post, David.

    I totally agree with what Mark is saying in that the thing which leaves a sour taste is simply that the announcement was so celebratory to the point of making it seem like it was a full acqui-hire of the whole team. Priorities change when you’ve spent 12+ years running a firm, no doubt. Sometimes you’re just ready for the next challenge. But it seemed a little strange to me that anyone would be quite so celebratory at their own wake when so few people seem to have made the jump over to Facebook. Best of luck to the guys who moved, anyway.

    I wrote a much longer follow-up blog of my own, referencing you in it. I think the little bullet point of yours here about service firms not being destined to be huge companies is a really important one. For anyone who’s trying to invest in one and make a good return, I think that’s also totally fine, and in some ways, an approach that a lot more service firms should follow. It’d certainly help some of them grow the quality of their work if they were less focused on hitting massive scale.

    Thanks again for the putting the time into covering this whole situation!

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