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Why $2 billion startup GitHub is apparently in crisis, again

GitHub CEO Chris Wanstrath Matt Weinberger/Business Insider

GitHub's internal culture seems to bemelting down.

A struggle between factions is taking place, according to a report by The Information, which matches what severalsources have told Business Insider.

On the one side are top executives who want togrow the company's revenues by landingbig enterprise contracts, with all the suit-and-tie salesforce culture that typically requires.

On the other are the employees who preferGitHub's roots as a meritocracy with an informal management structureand a lot less red tape.

Nine executiveshave jumped shipin recentmonths including, as we previously reported,VP of Engineering Susan Lally, who had been with the company 18 months.

The enterprise golden goose

GitHub is a hugely popular service that lets programmers store their software projects, share their projects publicly, and get others to collaborate with them on it. It's also increasingly the place where programmers show off their skills to prospective employers.

It's become so important to its 13 million users that if GitHub goes down, the software development world practically stops. In fact, on Wednesday, GitHub posted a lengthy and public apology to explain what happened during a well-publicized two-hour outage of the site two weeks ago.

GitHub has raised $350 million, and was valued at about$2 billion with the$250 million investment is landed last year. It had previously raised$100 million in 2012 fromAndreessen Horowitz, a record-breaking investment from that powerhouse VC at the time.

GitHub employees Owen Thomas, Business Insider

As popular asGitHub is, many of its developers can use it for free, or pay a small monthly fee. They are not the real golden goose for the company. The big money comes from enterprise contracts.

The company has reportedly always been cash-flow positive, andis expected to bring in more than $25 million this quarter, which puts it on track for more than $100 million annual revenue.

However, togrow into the multi-billion company its VCs dream of, it's been increasingly pursuing enterprise customers.

It sells a service thatallows corporateteams of software developers to privately work on theirprojects together, without sharing that code with the rest of the world.

Thishas apparently become the battle ground.

Enterprise sales are a completely different beast than consumer freebie sales.

Big enterprise software contracts can take months or longer to secure and often require hand-holding, which is where hiring a sales force comes in. Enterprises often want assurances of uptime that carry legal or financial penalties,they need certain features for security and for accountability, and they often want the abilitytheir suppliers to have met certain audits and standards for security, operations and so on.

Even huge companies like Amazon and Google have struggled with this as they sell their cloud services to enterprises. So havecompanies like Dropbox and Evernote.

The development community has recently noticed that GitHub had changed its focus.A bunch of active and influential users sent it an open letter in January called "Dear GitHub," in which they asked GitHub to work on its product for them, and add a bunch of features.

GitHub promised to take notice and work on those features.

Corporate clash

GitHub employees Owen Thomas, Business Insider

But, internally, employees' feelings were also getting ruffled, some told the Information.

As the company has grown to nearly 500 employees,it has tried to change cultures and impose an old-fashioned hierarchy. One employee told The Information"This person who used to be your peer is now your manager."

That didn't go over well, this person said.

This isn't the first issue GitHub has had with its corporate culture.Co-founder Chris Wanstrath took over as CEO in 2014 after accusations of harassment by a female employee in the workplace led Tom Preston-Werner to resign.

GitHub later said an internal investigation did not find evidence of sexual harassment but of other missteps by Preston-Werner. Preston-Werner's wife later posted a public apology for making employees of GitHub feel pressured to help her with her nonprofit startup.

Growing competition

Mike Cannon-Brookes, co-founder and CEO of Atlassian Software Systems, and Scott Farquhar, co-founder and CEO of Atlassian Software Systems, smile during their IPO. Thomson Reuters

In the meantime, GitHub's rivals are taking advantage of its growing pains. It'sbiggest rival, Atlassian, hasgrown into a profitable company with over $300 million in revenues and 1,400 employees worldwide. All of this without ever going down GitHub's path and hiring an enterprise sales force. And it recently had a very successful IPO.

Themarket is also attracting little upstarts like GitLab who are trying to cash in on GitHubs missteps, and having some success with that, too.

GitHub declined comment for this article.

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