Books Quarterly: All in a Day’s Work at Virtual i/O

Backstabbing, Burn Rates, and Darth Vadar Voice Boxes. Inside the start-up that flamed out.

Virtual i/O, the now-defunct manufacturer of head-mounted displays, is one of five high-tech start-ups chronicled in The Visionary Position, a book by Seattle Weekly managing editor Fred Moody, to be published by Times Books later this month. Moody previously provided an inside look at Microsoft in I Sing the Body Electronic. In this new work, he offers a behind-the-scenes description of the last days of Virtual i/O, as its president, Linden Rhoads, frantically works the PR beat, her husband and company CEO, Greg Amadon, struggles for company funding and his own survival, and a disgruntled collective chorus known as Deep Bile keeps dishing dirt to the author.

While Rhoads kept breezily assuring me that Virtual i/O was thriving, there were clear indications that it was floundering. The HIT lab’s engineers, who seemed constantly to have one eye on job postings in Seattle newspapers, noticed a definite pattern to the listings: Every three months or so, Virtual i/O would be advertising for the same engineering posts it had advertised and filled three months before. Rumors kept surfacing that whole shifts of contract laborers hired to assemble headsets were being laid off, and each time I visited company headquarters, I could see that more and more space had been vacated. At its height, Virtual i/O employed 120 and had two shifts of contractors assembling headsets; now, it seemed, all the contractors had been laid off, and it looked to me as if the full-time workforce was down to 50 or fewer.

At the same time, the voice of Deep Bile grew louder and louder as the chorus of ex-employees grew in size. The more dire company sales and balance sheets looked, the more panicked company management grew. “The panic was there from day one,” Deep Bile said. “It’s one thing to be in a panic at the tail end of the company, where it’s like, ‘Holy shit, we have to bring in two million bucks or the door’s gonna close!’ But this constant panic . . . they seemed to live on it, to like it whenever a project was behind schedule. People are working long hours, there’s that adrenaline rush, ‘I’m getting as much as I can out of my employees, look how hard they’re working, it’s two o’clock in the morning and they’re still here!'”

The panic manifested itself not only in the constant demands made on employees to work longer and harder, but in the constant indecision and changes in strategic direction. As soon as sales of a given product fell below projections—and they always did, as the projections were based on how much money the company needed rather than on how much it could be expected to make, given a realistic assessment of the market—Rhoads and Amadon would abandon it and lead their employees in a different direction. “If you believe in the product,” said Deep Bile, “you need to stick with it for a while, because it’s a new market and a new concept. But every month there would be a new product that would attempt to be introduced. And so you would have people rush at a breakneck pace, put in tons of hours to come up with a new product that was not feasible or was flawed. And it would be the same thing on the sales path. One month we’d be going to go retail, retail, retail. It can take close to six months to get good relationships with retailers. But it would be one month into that effort and they’d say, ‘Close down all the retail, we’re going to go direct sales, set up a bunch of phone lines, 800-numbers. . . . ‘ And that wouldn’t work because you have to submit your 800-number ads to magazines three months in advance, so a month later they’d be screaming, ‘Nobody’s calling the phones—we’re going to go back to retail!’ That went on forever, every month.”

It seemed that no decision at Virtual i/O came easily, and every layer of complication brought with it layer upon layer of added expense. “They wanted to meet with some distributors in Singapore once,” one Deep Bile story went. It was cited as a typical example of how company decisions were made. “But they changed their minds at the last minute, decided they weren’t going to go. But then an hour later, they decided they were going to go. Now instead of calling up the guy in Singapore and saying, ‘We’re going to be a day late because we have to rebook our flights because we missed them,’ they flew from here to Vancouver to Chicago to New York to England to Cairo to Hong Kong to Singapore to get there. That was more enjoyable to them because that was the big panic rush, ‘We have to get it done!’ It was a buzz that they would get, always running around in a big panic. They were addicted to the panic, the rush, that adrenaline of people running around. They kept trying to walk that line between being really aggressive and trying to get things done, and being fucking wacko.”

With sales at a standstill and product development spinning its wheels, Rhoads and Amadon decided that the key to turning Virtual i/O’s fortunes around was to get their employees to work harder. One e-mail memo defined the Virtual i/O workday as running from 8am to 6pm at a minimum, and the workweek as being six or seven days long. Rhoads and Amadon insisted that people work on holidays in return for added vacation days that somehow never materialized. Engineers and product leads would get calls from a panicked Amadon at 2 or 3 in the morning, demanding answers to questions.

Rhoads and Amadon tried compensating their employees for this treatment in odd, short-lived ways. They would print T-shirts with motivational slogans, the slogans directed at particular projects or departments (“Operations—Summer ’96: QSC—Meet the Goal!”). “There was the Employee of the Month program,” Deep Bile recalled, “which was literally the Employee of the Month. It was never repeated. There were a lot of things like that. One time there was a bounty—if you got somebody hired you would get a bounty—but that only lasted for a month. Friday-night beer parties would come and go. One month, it would be, ‘We’re going to have a Friday-night beer thing at the office.’ That would start at 4, and everybody would go home by 4:30. They just didn’t want to be there. So that would happen once every two or three months. And there was the bagels-with-the-president initiative. If you wanted to meet with Linden in an informal way but not have to make an appointment, every Monday morning she would have bagels, and we could go in her office and eat bagels and talk. That happened twice.”

Bagels, for some reason, emerged as a kind of precious currency at Virtual i/O. In an attempt to get employees to put in ever-longer hours, Rhoads and Amadon instituted a “free bagels” policy for anyone who would arrive for work at 7am This actually worked for a while—until company managers started telephoning ahead to “reserve” a bagel rather than coming in on time to claim one. Before long, employees would arrive at 7, ask for one of the bagels they could see sitting under watchful guard on the table in the company lunchroom, only to be told that the remaining bagels were all reserved for managers who would be coming in later.

The mood among the Virtual i/O workforce during the latter part of 1996 was a complicated mix of fear, unrealistic optimism, anger at Rhoads and Amadon, eagerness to believe Rhoads and Amadon, and denial of the painfully obvious. Although Rhoads and Amadon kept sales figures secret from as many of their employees as possible, it was obvious to everyone that the headsets weren’t selling—particularly when the marketing department shrank to a single VP to whom no one reported. Moreover, angry suppliers occasionally would show up in the Virtual i/O lobby demanding money, and the number of employees who ran afoul of the company’s president or CEO and got themselves fired was growing ever larger.

Two things kept a number of important engineers at the company working well past the time when Virtual i/O’s hopelessness and the worsening abuse at the hands of Rhoads and Amadon should have driven them out the door. One was a passionate belief in their technology; the other was the hope that Virtual i/O would go public, taking advantage of the markets’ thrall to technology companies. The fatal allure of stock options kept people in and around the Seattle technology start-up culture believing in wildly fantastic business plans and possibilities, and Virtual i/O proved a classic case study in the epidemic of digital gold rush fever. “That’s what you’re putting in a lot of those hours for, is that hope of the options,” said Deep Bile. “And so people would put up with it, because the work environment isn’t too much different from Microsoft—you work long hours and you’re told that you suck. So people were holding out for a while, thinking they could cash in their options and not have to work for two or three years.” This hope that their options might magically have a moment of worth kept some of Virtual i/O’s critical talent hanging on until autumn, when finally it became clear even to the most inveterate optimists that the company could never launch an IPO. Once that news sunk in, there was a mass exodus of engineering talent.

By this time, my sole official contact with Virtual i/O—conversations with Linden Rhoads, who had barred anyone else at the company from talking with me—had ceased. Rhoads either would cancel at the last minute an appointment I had with her or would not show up for it. Finally, she simply stopped returning my calls. I now depended solely upon Deep Bile for information, and was to grow more and more astonished during the fall months of 1996 at the amount of e-mailed news that circulated through the Deep Bile network for former Virtual i/O employees, at the presence of one or more Deep Bile moles inside the company, and, most of all, at the boundless anger that kept bubbling furiously to the surface whenever members of the group exchanged information among themselves.

One message that crossed my screen included an attempt at explaining the group’s collective obsession with the misfortunes of Rhoads and Amadon: “By way of explanation of our apparent fixation,” it began, “everyone needs some source of drama in their life. And VIO has it all, sex . . . office politics, backstabbing, power struggles, conflict between good and evil, money, set in a hitech world. ‘Dallas’ with Circuit Boards.”

That didn’t account, though, for the tone of eager and gleeful vengeance that kept coming through in other messages that circulated through the group. These were some of the most bitter human beings I had ever encountered. For them, the end of 1996 turned into a countdown toward the most eagerly anticipated event of the millennium—the firing of Rhoads and Amadon. News of virtually every potentially significant company event in this regard spread instantly. Mid-December saw a message circulate that read, “It looks as if the holiday bonus this year at Virtual i/O will be layoffs,” followed a week later by mail listing the laid-off and their total salaries. Then came a coded message to the group from inside Virtual i/O:

Princess Leia has escaped the Death Star and is heading back to Alderaan, but the Rebel Alliance has taken serious hits. I, Wedge Antilles, remain as one of the last of the rebel spies not to be found out by the Emperor. Today Darth Vader remains surveying the Emperor’s battle plan. Yesterday he enlisted Grand Moff Tarkin to monitor all communications from the sector in search of escaping rebel spies. Thus, this will be the newest secure transmission source until the Empire finds out.

An escape plan for one of the few remaining spies has been attached to this communication. Please review and pass along to all those who can help. I will keep the Alliance up to date on the progress of the Empire. Over and out.

By the time this message was copied to me, it included a translation for the uninitiated:

Darth Vader is Linden (and sometimes Greg). One of her weirder management phases was a Star Wars theme. She wanted to intimidate us all and felt the reason we didn’t respect her was not because she was an idiot, but because she was a woman. So she decked out her office with Star Wars crap, including a device that would play the “Darth Vader” theme whenever you opened her door and microphone/mask that would make her voice sound like Darth’s.

Grand Moff Tarkin is the sys admin, who has changed the email privileges so that they can read any email going into and out of VIO. While this has been upheld as legal, it doesn’t exactly improve morale. And don’t even get me started on the possibility of the place being “bugged.”

They’ve done this email thing in the past, but with 100 employees sending 10-20 emails it was impractical. Needless to say, we used the fact that they were listening/reading our email to our advantage by placing information we wanted them to know. Now with fewer employees and a smaller number of “suspects” it is possible to monitor email for “evidence” or “subversive conduct.” Just like Burma.

So our source is using an outside email account, which cannot be monitored internally. Do they think we’re stupid?

The “escape plan” was a copy of someone’s resume.

The year ended for Deep Bile on a note of almost unbearably high expectation. Rhoads, they all believed, was to be fired any day, with Amadon not far behind. By Christmas 1996, it was clear that the two were being forced out. Group members spent the holiday regaling themselves with a copy of an e-mail message that was said to be Amadon’s plea for mercy. “G&L are apparently in deep doodoo with the board members,” the missive began, “and have been asked to go away ASAP. This is their counteroffer.” There followed a message addressed “to: tci” listing financial terms of an Amadon agreement to surrender much of his authority as CEO.

Deep Bile was unmoved. “This is NOT a joke or a parody,” read the rest of the Deep Bile message. “This is what they really sent. Read it and try really hard not to laugh. Remember they have burned through 30 million on gross sales of maybe 5 million. Also keep in mind, they were asked to get the hell out of Dodge and this is their counteroffer. Not a very firm grasp on reality.” As for how Deep Bile came to be in possession of the plea: “Let’s just say that if you print out a memo where you are asking for a raise while all the managers are in a meeting picking people to lay off because you’ve managed to plow 30+ million into the ground, employee loyalty isn’t very big.”

From the book The Visionary Position; The Inside Story of the Digital Dreamers Who Are Making Virtual Reality a Reality. Copyright 1999 by Fred Moody. Published by Times Books, a division of Random House, Inc.

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