Sometimes it seems as if the Web has turned the world upside down. In the hype-ridden landscape called "dot-com," it's easy to assume that only the young, the new, the original idea conceived by two kids in their basement will survive. Out with the old.
How untrue that is. The two companies profiled here -- Plural in "The Metamorphosis" and Camera World in " When Something Clicks" -- are hardly start-ups. Their leaders have been running steady, profitable companies for years. They're taking those years of experience managing entrepreneurial brick-and-mortar companies and using every ounce of their knowledge to transform their businesses into winners in the online world. CEO Roy Wetterstrom, never a guy to fear change, is rebirthing his 11-year-old company to take great advantage of the new economy. And Camera World has built on its 22 years of experience fulfilling customers' expectations to transform itself into an E-commerce business.
BRAVE NEW COMPANIES
One morning Roy Wetterstrom awoke to find that his company had been transformed into an underdog. To get the buzz back, he's remaking his business from top to bottom
Roy Wetterstrom grew up on a 60-acre farm in Ham Lake, Minn. As legend has it, he sold eggs by the side of the road at the tender age of 11. At 14 he used his egg money to buy a chain saw and switched to selling firewood. Even then, apparently, he was willing to give up a good thing to hatch something new.
That long-ago gambit pales in comparison with what Wetterstrom has at stake these days. He's spending millions of dollars on the risky proposition that he can reshape Micro Modeling Associates -- his rock-solid $54-million client/server consulting business -- into a company at the leading edge of the dot-com revolution. "We're going to transform ourselves into a top-tier Internet services, strategy, and development company," states the 35-year-old CEO.
The agenda is bold, but then again so is the individual behind it -- a lanky, quietly intense man with dark hair and a slight midwestern accent. Eleven years ago he left a cushy job in Minneapolis, not far from where he grew up, to start a company. He moved his wife, Emily, and their West Highland terrier to a two-bedroom apartment in Manhattan's Battery Park City -- on Christmas Day, no less. In the cramped quarters of the second bedroom, Wetterstrom launched his new business. It grew so rapidly that in 1992 he snapped up a lease on lower Broadway in what eventually would become prime Silicon Alley rental space.
But all that -- in Wetterstrom's take-big-risks world -- is ancient history. Today he is remaking his business into an adviser to dot-coms and corporations moving online. To underscore its new mission, the company will even junk its old name. As of March 15, 2000, Micro Modeling will be known as Plural.
To get to this point, Wetterstrom has hired three image-building consultancies, is recruiting three new senior executives, and is on track to add 185 employees to his company of 375 by year's end. He has added a creative group and a management-consulting practice, reined in his sales force from selling the same old client/server stuff (the equivalent of ditching the egg business), dismissed his public-relations firm, and even started exploring potential acquisitions. And he's done all that while commuting weekly from Minneapolis. (He and his wife moved back in 1994, when they decided to have a family.) On Monday evenings, when he boards the flight to LaGuardia, he says good-bye not only to his wife and three-year-old son, David, but also to his baby daughter, Margaret, who was born in April 1999, in the middle of all the madness of turning Micro Modeling into something entirely new.
Brawny upstarts have been grabbing Internet work from Micro Modeling's longtime customers.
Wetterstrom's vision for transforming Micro Modeling into Plural boils down to this: First, the company is forgoing all new client/server work -- the work that made it a star -- in favor of all-Internet projects. Second, the company will risk being unprofitable for the first time in its history. To make matters trickier, the company will soon find itself under the microscope of the unforgiving public markets. "We're driving ultimately to an IPO, and that is bringing a lot of issues to the fore," Wetterstrom says.
For the CEO and his peers in the high-tech consulting world, the pressure to author a shrewd Internet strategy can be particularly brutal. Investors -- as well as employees and customers -- often push consulting companies' CEOs to build Web practices. Of course, although that process is stressful, the potential upside is enormous. The companies that the new Plural will compete with have been soaring in the public markets despite being relatively young and small. Old-line technology-consulting companies like Micro Modeling don't make waves on NASDAQ. Wetterstrom would like to grab a larger share of the Internet consulting business -- and he believes that a big shake-up is needed to do it. "We want to put a stake in the ground and say, 'This is who we are," he says.
It's also who they have to be. Brawny upstarts like USWeb/CKS, Razorfish, Proxicom, Viant, Sapient, Scient, and iXL have been grabbing Internet work all over the place, including from Micro Modeling's longtime customers. And there are signs that steady client/server work is starting to tail off. In contrast, the sheer volume of Internet consulting is increasing more rapidly than any other kind of tech consulting, says Wetterstrom. Other key trends: companies are moving funds once earmarked for Y2K problems over to Web development; the market for Web consulting is highly fragmented; and the financial-services industry -- Micro Modeling's turf -- is particularly bullish on the Web. "I saw after doing an analysis of the market and making a judgment on the market opportunity that this was a no-brainer," Wetterstrom says.
A no-brainer, indeed. "If Micro Modeling hadn't made the transition, growth would have been a challenge," observes Edward S. Caso Jr., a securities analyst following the IT-services industry and senior vice-president at First Union Securities, in Baltimore. "A service company has to offer what the client wants, and in IT what they want is constantly changing."
Roy Wetterstrom and a partner (who has since left the company) started Micro Modeling in 1989, with the intention of customizing Microsoft Excel for financial-services companies. Merrill Lynch was the business's first customer, and it went on to work with 23 of the 25 largest investment banks. Revenues grew at a brisk pace, landing it on the Inc. 500 in 1997 and 1998, with an astonishing five-year growth rate of 814% in 1998. Wetterstrom claims that Micro Modeling's annual operating profit has been about 15%. In late 1998, Wetterstrom raised $20 million in capital from TA Associates, a Boston concern that invests in late-stage private businesses, and $15 million in credit from Fleet Bank. He began staying up nights, thinking seriously about an initial public offering. He started schmoozing potential underwriters. He felt sure that he'd take Micro Modeling public within 12 to 18 months.
But a funny thing was happening on Wall Street. The gap between valuations for client/server consulting companies and Internet consulting companies suddenly widened. "Clearly, we began to see that there were haves and have-nots when it came to market value," Wetterstrom recalls. Regardless of profitability, he says, "traditional consulting companies were trading at around one times revenues, while Internet consulting companies were trading at 20 times revenues. The market was sending us a loud and clear message."
Micro Modeling already possessed some Internet expertise. One particular coup came in 1997, when the NASDAQ Stock Market engaged the company to create a password-protected extranet for listed companies. Not only has the (ongoing) project been lucrative, but Micro Modeling's employees loved the work. Given a taste of the hype-ridden Internet world, staff programmers wanted more. Wetterstrom provided training for his technologists in anticipation of Web-related work.
But it didn't come. Wetterstrom and his team hadn't sold their message -- We can handle your Web projects -- the way the upstart Internet consulting companies had. By early 1999 the CEO had come to believe that the Web was the future of his company, that client/server work was its past. The sooner the company moved wholeheartedly into the new space, the better.
On August 31 of last year, Wetterstrom attended a clubby one-day analyst conference hosted by First Union Securities' Ed Caso. The CEOs of nine public Internet consulting companies spoke, as did Wetterstrom and three private-company peers. "It was a pretty interesting and crystallizing event," he recalls. "Clearly, the capital markets were viewing us as being well positioned in this space." But he found his competitors' presentations even more interesting than the offhand comments of admiring investment bankers like Caso. As the other CEOs described their companies, he slipped into a reverie about Micro Modeling's future: "It just became so clear that (a) this was obviously the right space to be in, and (b) we were positioned to win this space. But I also realized that being positioned to win and winning were two different things."
Wetterstrom decided to beat the Scients and Viants of the world at their own game. That would mean making some brutal decisions. It would mean dumping Micro Modeling's solid PR company, despite an amicable relationship, and replacing it with not one but three hot image-building companies from Manhattan's chatty Internet clique. It would mean infusing the company with new talent -- some of it taken from the Internet creative world, a world that the client/server programmers had had little to do with. And it might mean letting some of the new folks run roughshod over Micro Modeling's 11-year-old culture. It might not be fun. But it might do the trick.
Micro Modeling's most obvious challenge was to lose its clunky name. "One thing that all of the public companies in this space have in common is an extremely strong brand," the CEO says. "I wanted to see a much, much bolder approach to raising brand awareness."
He'd already tried rebranding the company once. But he'd taken a halfhearted approach by changing "Micro Modeling Associates" into "MMA" -- attempting to keep old customers happy while moving toward the new. The $250,000 transformation failed. "We wanted to keep our options open," he says. "We had very strong brand recognition within certain circles -- good circles, like Wall Street and Microsoft. But I came to the conclusion that 'MMA' raised more questions than it answered."
The questions were as fundamental as "What is MMA?" and "What does it want to sell?" The business was suffering an adolescent identity crisis. Managers talked about providing creative and strategic consulting, but technology consulting was the company's only real strength. Most employees were "champing at the bit" to diversify into creative and strategic work, but there were still pockets of resisters, says Wetterstrom.
Customers, too, were recalcitrant. "Their natural tendency is to continue to call us for the same type of work. I've been trying to transition away from that for six months," he says.
Frustrated, the CEO devised a comprehensive plan to transform MMA into a full-service interactive strategy and development company. "We were only going to become a top-tier player by being much more aggressive," he recalls. "And we could only accomplish that by sending a really, really loud message to the world that we were something new and something different."
Wetterstrom looked hard at his management team. He realized that he needed more talent -- leaders who could re-create the company from the inside out.
He also needed to free himself up from the demands of the day to day. He hired a search company to recruit a president (he will remain CEO) and a chief marketing officer. But perhaps the most dramatic change would be the one his younger brother, Derek, would make. Derek had been with the company almost from its inception, and, as chief financial officer, had helped Roy grow the company at its remarkably steady pace. Now he would take over the top corporate-development role, so that the company could hire a CFO with IPO and public-market experience -- a new manager who could take the transformed company public.
The next step was to identify a leader who could take charge of the complicated brand-building project. Wetterstrom found William Luddy, a caustic showman who plied his trade at Agency.com, a respected Web-design and marketing shop.
Luddy would establish the revamped company's new creative capability -- Wetterstrom hired some 30 new employees just for that purpose -- and today serves as acting chief marketing officer. Though Luddy's brash style stands in stark contrast to Wetterstrom's midwestern reserve, the CEO embraces Luddy's New York sensibility. "Bill's quite a passionate person, which I think is good. If he went off into the corner, I don't think we'd be able to get where we need to go quickly enough," says the CEO.
What Plural needs to do is dazzle investment bankers on a visceral level.
A larger-than-life character, this one man -- this outsider -- will have a disproportionate impact on the rise or fall of the company. First off, he's been leading the charge to change its name. Last September he hired Lippincott & Margulies -- the Park Avenue corporate-image company that handles Coca-Cola and Amtrak -- to create a new identity. Over the course of the next three months, L&M vetted a series of names in foreign languages, with trademark lawyers, and in front of focus groups. Around Thanksgiving, Wetterstrom signed off on Plural. "I like it because it means working together with our customers and with our partners," he says. "And I was thrilled that we could get a six-letter Internet address in English."
As if renaming the company isn't enough, now Luddy has set his sights on adding a touch of dot-com chic to its entrenched techie culture, both to increase visibility and to help attract and retain the new employees the growing business needs. "Roy was primed for me to come in the door and say we needed to change things out of some prima donna prissiness that's perceived to be part of creative services. But I think I caught him flat-footed when I said we needed to change things for the sake of recruiting and retention," says Luddy.
"Bill is not shy at all about letting us know what types of cultural issues we need to be thinking through," Wetterstrom says. "For example, he's told us that we have to be sensitive to physical-work-space issues. The traditional corporate office -- a cube environment -- doesn't play well in the creative world, so we're looking into different furniture layouts and a more warehouse-like environment."
The new Plural culture will feature more than just exposed brick. The company is working with clientele it has never served before. To get the new dot-com customers he wants, Wetterstrom is offering them discounted rates and making up the difference by taking equity. His goal is to build a "mutual fund" of pre-IPO dot-coms and use that equity to retain current employees and to attract new talent. His new client roster includes an online grocer SimonDelivers.com as well as Web sites AtYourBusiness.com, Easyrebates.com, and TechnologyNet.com.
Of course, taking on the dot-coms means that Plural will expand its focus beyond financial-services companies -- its bread and butter since Merrill Lynch first signed on. But Wetterstrom foresees using the dot-com portfolio to sell Plural's new service offerings back to the financial-services companies whose business made him successful in the first place.
Amid all of that activity, the CEO's biggest concern is getting enough oomph out of the Plural name launch to ensure that good customers start knocking on his door. To that end, Luddy has devised a three-inch-thick project plan of marketing milestones. Nothing is being left to chance.
Helping Luddy execute his plan is the company's polished in-house publicist Connie Hughes, an elegant Manhattanite who is as meticulous in her choice of words as she is with her attire. In hopes of burnishing the Plural rebranding campaign, Hughes replaced MMA's Minneapolis-based PR company with Neale-May & Partners, which handles several top dot-coms, including E*Trade. She is also working with another firm, Farago + Partners, the creators of Barnes & Noble's advertising. "It helps if you have partners who are part of the momentum," says Hughes. "They're really psyched about this, and we feed on that."
At a mid-December holiday party, Wetterstrom unveiled the new name internally. This month, the company will hold "Plurums" -- meetings with customers and partners -- to explain its new positioning.
Still, despite the best-laid three-inch-thick plan, the rebranding effort remains challenging. "All sorts of questions come up," Hughes says. "There was an event in late February with a sponsoring opportunity. It would have been perfect for us, but it was too close to the name change. It's a balancing act. We want to capture mind share, but then if we do that as MMA, we'll have to reeducate the market later."
And what if the name doesn't work? "I'm still chewing on whether I like the name or not," says First Union's Caso. "It has an Internet feel without the obnoxious dot-com after it, but I think I would have liked Wetterstrom Inc. or something like that. But that's a personal, Ed Caso bias."
Doubts like those create anxiety, and they've taken a toll on the company. So has the latest financial wrinkle: though Wetterstrom publicly predicted that revenues would jump by 50% in 1999 -- on CNNfn no less -- they grew only by 14%. And profits dropped below 5% for the first time in years -- and may stay there. "The mode that we're in now, it's not realistic to be at or even near historic levels of profitability," he says. "Our goal is to remain profitable at much lower margins."
And there's still that small matter of Plural's IPO. Wetterstrom would like a late 2000 offering, capitalizing on the momentum of the new-name marketing campaign, which in turn would get a boost from an impending IPO. Whether all of this will play for the public markets is "the $64,000 question," says Caso. "Micro Modeling could have gone public two years ago, but the multiples are meaningfully higher for technology-service companies today in this new format -- with strategy, creative, and technology together."
Cut through the investment banker's jargon, and what the company really needs to do is dazzle the bankers on a visceral level. It needs to project that this is the deal they need to get in on, and quick. Ironically, the company that was in Silicon Alley before the Alley was a golden name among hungry VCs now has to act as if it belongs there. It needs to recapture the buzz it had back in its heyday, when customers were beating down its door, when revenues were growing exponentially.
To do that, it needs smart strategic thinking and managers who can lead split-second change. And it needs tough people who can stay one step ahead of burnout. Wetterstrom has found that level of enthusiasm in his new managers. But even they can't sustain that frenetic pace forever -- at least not without a break. Already Luddy says, "I'm going to be burned out, but that's life. That's part of the ride. That's what I signed up for." He jokes that he's going to Hawaii, posthaste. And Hughes has booked a day at a spa.
Only their CEO doesn't seem tired or anxious. His energy seems to come from some deep reservoir of entrepreneurial ambition. The same urge that compelled him to buy that chain saw to sell firewood is pushing him forward now. "Part of me is sad to see the Micro Modeling name retired," the CEO admits. He's quiet for a moment. "But a much bigger part of me is excited and energized by Plural."
Mike Hofman is a staff writer at Inc.
The New Math
As Roy Wetterstrom's company has evolved,Wall Street has changed the way it does its algebra:
| 2000** |
|Revenues||$47.4 million||$54 million||$81 million|
| Inc. 500
*Profits refers to operating margin, not net income
**2000 financials are projected
Wall Street Valuations: Ed Caso from First Union Securities gave us a formula for the Street's valuation of companies like Roy Wetterstrom's. We plugged in Wetterstrom's numbers:
- Micro modeling: 1998, $23.7 million to $94.8 million (0.5 to 2 times revenues)
- Plural: 2000, $405 million to $2.4 billion (5 to 30 times revenues)
If you're like Roy Wetterstrom and you're transforming your company, you have a lot to think about. Here are Wetterstrom's rules for revamping:
1. Make sure your employees are happy before you hire new ones. There's no surer way to piss off your employees (read: lose 'em) than to forget about them when you pass out those juicy stock options to new recruits. Wetterstrom started giving stock options to every employee two years ago. If you haven't been doing the same, you'll have to improvise a new plan that weds the equity needs of both new recruits and tenured employees.
2. Push responsibility down the chain of command to free up your time. To make a big strategic shift, you'll need to take a breather from the day-to-day stuff. Wetterstrom's solution is to make each of Plural's regional offices responsible for individual profit-and-loss reports. That way, local managers are more likely to come up with innovative, profitable ideas on their own -- leaving Wetterstrom to be the corporate visionary.
3. When you radically alter your product mix, keep a sharp eye on pricing. It's hard to know how best to price new products -- and it's equally difficult to know which of the new offerings will be the most profitable. Wetterstrom has hired a chief knowledge officer , Jon Powell , who will study how to price and sell different Internet consulting packages and thus maximize margins.
4. Finally, think about your next iteration. Wetterstrom decided specifically not to call the company Plural.com for fear that the ubiquitous suffix would pigeonhole it in years to come, the way Micro Modeling had done in the 1990s. "We see the market changing, and I'm not sure that 'dot-com' will have the same resonance in 2005 that it has now," says marketing guru Bill Luddy. "There might be a fin de siÃˆcle attention to dot-coms" that won't last, he adds.
Read about another Brave New Company in " When Something Clicks"