(back)

CM: What was the value you perceived that others perhaps did not?

Stringham: We did see value in these businesses where others did not. And I think that this came primarily in three components.

The first source of value was just that the Internet consulting business was not the buggy whip business. Even though the financial markets were treating it as if that business would disappear completely, you knew, by looking at the fundamentals, by looking at the adoption by consumers of being on-line, at broadband usage, at retail sales even. If you go back and actually look at those over time, those fundamentals continued to strengthen.

And penetration was still very low, so it wasn't a mature business. It was a financial cycle, and it was this kind of area of dot-com investment that was really the source of the craziness.

The second thing, I think, was that we recognized that we weren't buying businesses. I've told you the names of these companies that we bought, but we really didn't look at all as if we were buying businesses. We looked at it more from a client/customer acquisition standpoint and we knew that what we were really acquiring were teams of very capable people who had deep relationships with their clients. In fact, those relationships were so deep that they would go through significant contortions in their procurement processes to overcome contracting with firms that were clearly going to go out of business, that had no cash, that were losing money faster than they could bear and had fixed costs that they could never overcome.

So I think that by looking at this business and building it from the bottom up, by clients and client teams, that's where there's a source of value that a lot of people didn't see.

And then, I think, finally, using the SBI Razorfish brand, we -- you know, we looked at the brands that we purchased. With Razorfish, we went out and did some work and measured things. The level of awareness on that brand was phenomenal, and there were some negatives, and we found that attaching it with SBI gave us a chance to say that it's something a little bit different. But to actually create the level of awareness around that brand with our brand or with one of the other brands is incredibly costly. And so we saw kind of a source of value in the brand that I think we were able to exploit that maybe others weren't that had significant value to use.

And so I think, at the onset, that one of the big factors for success was recognizing that there was value there when others maybe didn't have a chance to step back and see it.

CM: You were buying companies and integrating them. But how did you achieve organic growth again?

Stringham: Yes. In general, a roll-up strategy, if that's what people want to kind of refer to it as, in a professional services environment, I think this can be a very questionable strategy, right? To begin with, because of all the cultural issues … and I can talk more about how we overcame those issues.

But a lot of it, I think, comes back to that point of growth. Most of these firms aren't able to stabilize the business and grow it, and we were able to do that organically, I think, by the way we went about the integration.

Secondly, I think it's because we went back to a lot of the fundamentals. We went out and recommunicated the message with analysts and other experts. We didn't spend $75 million on an ad campaign like MarchFirst did with their name, which led to disaster. But we did spend a lot of time and effort trying to build reputation and credibility as an expert, because I think, in services, that's what it really all comes back to. Brand equals reputation and reputation is about expertise and experience, and that kind of drove our brand-building.

I think -- I mean, I will insert that I think that the other element of success in the business was just this notion of leveraging scale. It's still a small business at 5 to 700 people, but we really had an opportunity to leverage scale in those businesses that had declined significantly, that had really three or four areas that were weak.

One thing we did was that we had a very efficient, centralized set of support services, for finance and accounting, HR, IT, contracting, general support, and that allowed us to leave behind, in every business we acquired, the entire back office. So, literally, we were only hiring the kind of client partner-level person, the team that worked with an account, and then, selectively, a couple of key executives. And, Day One, we did that in every acquisition, so I think that we leveraged those kinds of services.

One of the big challenges at that time (I think that maybe a lot of people here have experienced that) was the real estate commitments that were made. And people had drawn growth lines that kind of -- you know, here's the real line and then they'd done the whole forecast. We're going to have 40,000 people in four years and they'd contracted for real estate against that. So that really required several of these businesses having to go through bankruptcy to purge those real estate commitments. But we also bought Lante and Razorfish through public tenders, so we had to take all their real estate obligations -- and they had excess real estate.

What was interesting was that the people of the companies we had to take through bankruptcy were able to fill the offices where we took the real estate obligations. So in New York City , in San Francisco , in Chicago , in Dallas , those were all facilities of one of these firms, but then filled up with others. So we got great leverage on the real estate costs through that.

Then, finally, I think we were just able to eliminate the layers and layers of executives whose job was not client-facing. They weren't responsible for actually driving business, but for managing people. I think that in this business, there's very little room or space for that kind of executive and, in fact, I think that a lot of the integration challenges that happen in these businesses are due to people who are in that space trying to position themselves for a larger role … and they're not focused on the fundamentals of our business, which is serving clients and being client-facing and interacting with them. That creates a lot of power kinds of struggles, and we didn't have to do that because of the situation we were in. But we were really just acquiring these client relationships, and the kind of executives in those spaces, we could leave behind.

CM: You had established a newly energized business with SBI Razorfish. Why did you sell?

Stringham: Yes, and I think that's been a very difficult thing, because part of this is integration and this may be stepping back a little bit, but I think it's relevant. I spent a lot of time with people, and I think that we spent our money on integration not on building a new whiz-bang knowledge management system; well, we had one of those. Or in reconstituting and designing our compensation structures or something like that.

We spent a lot of time getting people together, and I personally went around with the top hundred people and had one-on-ones on our strategy and direction, and we had a healthy debate inside the company about direction and how narrow, how focused we should be … a lot of different views. So I spent a lot of personal time doing that. We did hundreds, literally hundreds of small groups with employees. And I think that this helped us with the integration tremendously.

It also meant that I feel very attached to the people in that business and I think that our grander vision of where we wanted to go required us to get bigger and to bring on new capabilities. We believed and I still believe that in order to be successful in the on-line channel, using that as a business channel, you have to have capabilities that span the entire customer life cycle of experiences for people. So you have to be able to help your clients attract customers … that means on-line media, that means understanding search. We didn't have those capabilities very deeply.

You have to be able to take them through the consideration phase, get them to try and to purchase product, get them to have loyalty and help them with service issues. And that entire set of capabilities needed to be built in order, ultimately, as a challenger, to win out against some of the larger ad agencies that will end up in that space naturally.

That drove us to believe that we needed to have either capital or a currency through an IPO to build those capabilities and scale, or we needed to combine the business with another strategic player that would bring those capabilities. That process really led us to consider an IPO, which we could have done and gotten in line with a lot of firms that were out there. I think that's a challenging place to be at a hundred million or two -- you know, $150 million in revenue on a combined basis. I think that it's very costly for businesses to be public now, and Sarbanes-Oxley is multiplying that cost substantially.

I felt that taking a business public was more of a financial strategy than it was a business strategy. And we looked at what -- a set of specific strategic buyers and alternatives for combination and found that this was a sensible direction and it was the right thing for our customers and for our kind of competitive position in the market. Ultimately, that means it's the right thing for the people. I think that it was -- it's been a kind of strange and difficult transition for me, but we also had investors and certainly that plays into how you make that decision.

If you look at what we ended up selling the business for, I think you'd also say, “Well, that's a pretty good value, considering what you've invested in the business, considering the kind of holding period that you've been in.” When somebody comes along and offers you $160 million in cash for about a $100 million business, I think it's a very persuasive offer. … So there was a clear premium paid for that business, because we had really consolidated and fully integrated a set of capabilities that really very few people had. We were the largest independent player in that space.

(back)