Weaving culture out of virtual threads

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Alexandra wharton should win a medal for accumulating the most business cards bearing her name -- without ever leaving her job.

Hired as an intern for Sausalito, Calif., Web shop Cybernautics in October 1997, Ms. Wharton has cards that say USWeb (USWeb bought Cybernautics in 1998); cards with the USWeb/CKS logo (USWeb merged with CKS Group later that year); and cards with the puzzling MarchFirst name (the result of the March 1 merger of consultancy Whittman-Hart with USWeb/CKS).

UNIQUE CHALLENGES

Is she glad she stuck it out? "Definitely," says Ms. Wharton, a public relations account exec for MarchFirst clients in San Francisco. But she adds a refrain common among dot-com staffers. "Of course if our stock were a little higher, I could say that with passion."

Her comment speaks volumes about what it's like to work for Internet professional service providers, roll-ups and Web consultants -- ventures such as MarchFirst, iXL and Luminant Worldwide Corp. that grew out of merger and acquisition. These companies now face dual challenges: Create their own unique culture while keeping the employees they've acquired happy amid increasing stock-market volatility.

A DANGEROUS STRATEGY

It used to be traditional ad agencies that struggled to win respect and qualified workers in the interactive realm while roll-ups had the advantage.

After all, roll-ups had size, broader Internet experience and skill sets on top of lucrative stock options. That's all changed. As the roll-up shops race to integrate their acquisitions, they must do so without losing valued employees and clients.

"I'm more and more convinced that the roll-up strategy is a dangerous one," says Preston Dodd, analyst with Jupiter Communications. "I don't care what [the roll-ups] say or what they do, those companies that have grown organically are going to have advantages in terms of culture, in terms of people, in terms of how they work together."

9,000 STAFFERS

Consider MarchFirst's effort to weave culture out of virtual threads. Since early May, top executives have traveled the world to deliver the corporate message in three-hour meetings with regional groups of the company's 9,000 staffers.

On a recent day in Chicago, MarchFirst's home base, six top executives presented details of a branding campaign launching in June, talked up a virtual training program providing employees access to more than 1,400 computer-based training courses and pitched the all-important organizational and business development plans. Then the executives took questions from employees.

One thing undoubtedly on employees' minds: the company's stock price. Since March 1, MarchFirst's stock has lost half of its value, closing at about $22 a share in mid June.

ROLL-UP STRUGGLES

The road show is "one of the mainstays of creating culture for a new company," says a MarchFirst spokeswoman. "Just knowing that executives are committed, that they're showing up, that they're taking hard questions face-to-face has been really positive."

They must be busy; MarchFirst couldn't produce a single senior executive to discuss the road show for this story.

Or consider the story of Luminant Worldwide Corp. The 900-person Dallas professional services company was created by the roll-up of eight interactive and technology businesses, which include the New York office of Young & Rubicam's Brand Dialogue, with a simultaneous roll-up and initial public offering last fall. Y&R is the biggest shareholder with a 26.2% stake. Now, Luminant may be a poster child for what went wrong with the Internet economy this spring. Its stock in mid-June was about 40% from its September IPO, and investors and analysts alike hold it up as an example of the money-first, business-plan-later strategy employed by many Web start-ups last year.

`TREMENDOUS CHALLENGE'

Luminant is "completely struggling" to understand what it is, says Jupiter's Mr. Dodd. Because the roll-up happened so quickly, the company faced the almost immediate pressure of being a public company the day it did its acquisitions.

"That's a tremendous challenge that they're still trying to figure out," Mr. Dodd says.

Luminant CEO Gil Marmol contends his company is doing just fine.

"We've gone through an aggressive and rapid process in bringing everyone together," he says. "Clearly [employees] are looking at the world through a different perspective" as a result of the market volatility, he acknowledges.

But Mr. Marmol insists "our firm is built on a very sound business model and has exhibited very rapid organic growth and is profitable from inception."

UNPROFITABLE FROM INCEPTION

Actually, Luminant has been losing money: It reported a net loss of $45.1 million on revenue of $52.1 million for 1999, and a net loss of $29.6 million on revenue of $33.6 million in the first quarter.

The market downturn has hit Agency.com and iXL hard as well. Both Web shops' stock in mid-June were down more than two-thirds from their 2000 peaks. That has some Internet companies that stayed private clapping their hands in glee.

"We've benefited from the mistakes roll-ups have made," says Kate Everett-Thorp, president-CEO of Lot21 Interactive Advertising, San Francisco. "I think the motivations that exist for companies to roll up don't [mesh] with keeping employees happy. Rolling up for an IPO is a financial motivation, not a benefit for employees."

Though Lot21 has been approached by numerous roll-ups, the company has chosen to grow from within rather than being acquired. Lot21, whose investors include Walden Group's WaldenVC, this month is expected to announce an expanded New York presence.

`BECOMING BRITTLE'

Others hope that if the roll-ups stumble, clients and prospective employees will look to smaller agencies.

"I feel like a lot of the interactive agencies are becoming brittle," says Eric Weaver, CEO of Kabel New Media US, the new U.S. arm of a German new-media shop. He left the Irvine, Calif., office of Brand Dialogue, where he was senior VP, shortly after Luminant acquired the company's New York operations.

While his departure was not directly because of the Luminant acquisition, he did say, "When you drop the head, the rest of the body kind of withers" after the sale of the New York Brand Dialogue office and its clients.

`TALENT BEGETS TALENT'

"We believe we know how to create an agency that can retain its talent and grow," Mr. Weaver says of Kabel. "Talent begets talent. Talent wants to work with other folks who they respect."

Talent is crucial to the real bottom line -- keeping clients happy. MasterCard International earlier this year awarded Luminant a major e-business strategy project after a review of top Internet consulting companies, says Nicholas Utton, MasterCard's chief marketing officer.

"If anything, the stock market turmoil has helped our relationship with Luminant because they are focusing even more on better serving our needs," Mr. Utton says. "We've got to get this right together."

CULTURE KEEPERS

In the short term, the roll-up that finds a way to keep the best employees from jumping ship has the best chance of success.

Luminant last month named a chief people officer with that goal in mind, following in the footsteps of Agency.com, where co-founder Kyle Shannon now has the same title.

"The thing that's going to allow a services company to do well is the people. That's something I'm personally very passionate about," Mr. Shannon says.

He remembers the day when keeping tabs on employees meant padding around the office with no shoes, talking to people as they worked.

That's impossible now that Agency.com has more than 1,400 staffers around the world.

"You have to be systemic," Mr. Shannon says. "A lot of what I've been doing in the last (several) months is discovering what's getting in the way" of Agency.com culture and fixing it.

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