Razorfish Refines Its Edge

While bigger, older companies like IBM, EDS and Accenture were stealing the spotlight back from their smaller competitors, the New York-based Web-services company spent much of 2001 in the background, plugging away quietly on its plan to rebuild.

"No one was bored. It was a very full year," says president and CEO Jean-Philippe Maheu, while sitting inside a small office recently in the corner of Razorfish's space in Manhattan's SoHo section, mulling over the company's low-key performance during the past 12 months. "Last year was all about moving from Razorfish 1.0 to Razorfish 2.0."

Maheu believes the company reached that milestone in February, when it announced a profitable fourth quarter for 2001 with $11.1 million in revenue and $600,000 in net income, up from a loss of $600,000 the quarter before. Although the income is relatively small compared with only one year ago (not to mention that it's based on the controversial pro-forma method of tallying earnings), Maheu says the "announcement of a profitable Q4 marks the start of Razorfish 2.0."

Small Company, Big Strategy

Clearly, Razorfish is a different company today. The organization that once employed more than 2,000 people and had plans to dominate e-services markets in virtually every corner of the world now stands at roughly 270 employees in a handful of U.S. offices, all but 60 of them billable consultants. "It's definitely smaller, but still big compared with some [others," Maheu says.

The downsizing process included keeping most of what was good about the younger, brasher company and scrapping all of the bad. For Maheu, the good parts included the quality of people working at Razorfish, and the spirit of innovation and creativity it employed when shaping solutions. The not-so-good? A lack of focus on clients. "We were more focused on innovation than on our clients' needs, so we had to put client satisfaction as the No. 1 objective," he says.

While it took a full six months to change its model, the end result was that a good number of the company's early clients, including Charles Schwab, Ford Motor and Cisco Systems have stayed on as loyal customers. Razorfish also implemented a new executive-sponsor program, designed to keep the company close to its clients, allowing their feedback and insights to influence Razorfish's strategies. "And the good news is that since January 2001, I haven't received a single phone call from an unhappy client," Maheu says.

Along with the downsizing came the decision to narrowly focus the number of solution areas, in most cases eliminating skills that were no longer deemed core to Razorfish's future. That's a significant change for a company that once positioned itself as an end-to-end e-services firm that could rival the capabilities of larger global integrators and consultants.

The obvious benefit of having a smaller, more focused firm, Maheu says, is that the average caliber of billable consultants is much higher than it was two years ago. Not to mention that the company is a lot easier to manage.

The bulk of that responsibility now falls on the shoulders of Robert Lord, Razorfish's recently promoted COO. Lord, who joined the company a year before being named to that post, was formerly COO of health-care professional services firm Prism Rehab Systems. He oversaw that company's operations as it expanded from a $48 million private company into a $480 million public firm with 12,000 employees. So he also knows a thing or two about growing a business.

Lord says the good news right now is that a major chunk of the new business he sees

is coming from referrals from existing clients, a clear sign that the company's focus on client relationships is working. "That's what ultimately sells our work,the client references," he says.

That said, Lord would still like to see the company

continue to increase the amount of recurring revenue it brings in, noting that in the past Razorfish relied too heavily on project-based work without taking full advantage of the potential relationships it was building. "I feel a lot better now about our future than I ever have," Lord says. "We have a good pipeline of work. What keeps me up right now is whether we are closing those deals. We [currently are, so that gives me a lot of hope."

With profitability back and a good pipeline of work for the near term, one of the big issues on Lord's mind right now is when to start hiring again. Lord's strategy is to let the company close at least two consecutive quarters of 10 percent to 15 percent profit margins before even thinking about a recruitment drive. "It's a dilemma," he says. "Obviously, we don't want to do it too early, before we're sure this is permanent."

Selling Efficiency

The key sales message Razorfish delivers to clients nowadays is that it can help them leverage existing technology and create synergies to make them more productive. It's no longer just about selling new technology. "For the next two years, it's going to be all about leveraging investments to deliver more value, whether it's things like CRM, intranets or business-to-enterprise," Lord says.

For example, one of Razorfish's most loyal customers is networking giant Cisco, which recently looked to the Web-services firm to redesign the www.cisco.com site so it could add a deeper layer of intelligence and interaction to its existing capabilities. "It has always been a purely product-focused site, and [Cisco wanted to make it more about how customers can manage problems," Maheu says.

The fact that Razorfish is working so closely with a company known throughout the industry for its emphasis on customer satisfaction isn't lost on Maheu. "They're a very smart client," he says, somewhat philosophically. "We're learning a lot from them."

Maheu, who's been at Razorfish since 1997 and has held the roles of executive vice president and COO during the now-infamous boom years, is more than willing to acknowledge his role in the company's fast rise and even faster fall. But there's clearly a limit.

"I'm very conscious of the mistakes that were made. I was here and made some of them myself," Maheu says. But I never liked the bad reputation this entire sector got. Two years ago, everything was new. Things like Vignette and StorServer 3.1 were being implemented for the first time in the world, and we were finding bugs. I mean, even Vignette didn't know how it was supposed to be done."

Focus On Web Services

Looking forward, the company is banking on the emerging Web-services market as its stronghold, with a strategy to design every solution it sells so it can be integrated into a Web-services framework, even if companies aren't quite at the stage where they can take full advantage of it. The idea is that as clients start spending again, they'll recognize the need to have their IT infrastructures ready to take advantage of the Web-services capabilities.

"Razorfish has a clear role to play in the definition of Web services," Maheu says. "There's room for the smaller players that are more niche-focused. Clients still want an alternative to the big guys, so you can have a very successful business as long as you can deliver good solutions."

To help with the delivery of those solutions, Razorfish developed a close relationship with Microsoft during the past year, based around the vendor's XML-based .NET strategy. While Razorfish executives acknowledge that Microsoft had a tough time early on trying to move its .NET strategy beyond a vision, they think it made tremendous strides late last year in helping its partners create real solutions.

"The way they are approaching the market right now is very aggressive," Lord says. "They are putting a lot of money into it, and we are encouraged by that."

In fact, the Redmond, Wash.-based software giant recently invested seed money in Razorfish to open a lab in Waltham, Mass., for the training, deployment and testing of .NET solutions. The company has already developed and deployed a handful of .NET solutions for clients in the financial-services sector. And it's aggressively pushing solutions based on Microsoft's Content Management Server (CMS) 2001 offering to clients. One of Razorfish's biggest wins to date is Ford, which recently chose CMS 2001.

Aside from keeping Razorfish on the forefront of XML-based Web services, the .NET facility helps the company retain its most talented consultants by letting them work on cutting-edge solutions, Lord says.

While Maheu believes that Razorfish's best years are still ahead, he's looking more at the long-term picture, aware that the days of 20 percent year-over-year growth were an anomaly,and an unhealthy one at that.

"The essence of a company is still growth; it's the lifeblood," he says. "But, first, let's stabilize revenue and make money on that. Then when the economy picks up, we can grow." n