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BizReport : Internet : April 24, 2001


Exclusive Interview with Mike Knowlton, CEO of Nascent State

In mid-1999, Internet consulting firms were proliferating like weeds in a well-watered garden. New firms were each hiring hundreds of young, Web-savvy experts to help clamoring clients everywhere develop Web strategies. Companies spent millions on Web consulting. What a difference a year makes: Now, the same big Web consultancies have laid off thousands of workers. The deflation of the dot-com bubble continues. What was everybody thinking? Mike Knowlton isn't sure. As CEO of Nascent State, a small Web consultancy in New York City, he resisted the urge to join the hypergrowth bandwagon.

by Michael Grebb, Special Correspondent

"We've built our company on project revenues, which has forced us to be conservative and be careful," he says. "We've always had to live within our means." Knowlton has largely escaped the turmoil besetting most of his larger competitors. He took a few minutes to tell BizReport just how Nascent State managed to keep cool in admittedly crazy times and why Web consulting is starting to emerge from the doldrums.

MG: It's ugly out there. Many of your bigger competitors have laid off thousands. What's your assessment of the Internet consulting market?

MK: It slowed tremendously around the beginning of the year. But we noticed over the last four to six weeks that our volume of new business activity has picked up to where it was. But it's a little bit longer of a sales cycle. People aren't as scared. They're actually making better decisions and they're more considered.

MG: So the anxiety that drove companies to spend millions on consultants over the last couple of years is giving way to a more reasoned approach?

MK: Exactly. They used to say, "I'm dead if I don't get this Web site launched." Now they realize, "I'm actually dead if I launch a bad Web site." It's more of a considered decision so it's taking a bit longer. Our focus from the beginning has been to work with the key clients over the long term. By developing these longer term relationships, you can work with a client and figure out what's working and what's not working.

MG: But wasn't it hard to have that long-term focus a year ago when it looked like all of your competitors were going to squash you? How did you stay disciplined in that Gold-Rush environment?

MK: Well, the co-founder and myself worked at a couple of interactive agencies in Silicon Alley before we started Nascent State. So we were participants in the rapid growth of a company-the kind of upward spiral, sky's-the-limit mentality. We saw some of the negative things that can happen internally in an organization such as lowering end-product execution, cultural dilution, and things like that. A year ago, we realized there was a lot of opportunity out there, and we might be missing something because we're not a hundred people. But we wanted to build this based on a conservative, common-sense approach.

MG: I assume you're now glad you resisted temptation.

MK: Very much so. We haven't had to lay any people off or really rapidly scale back operations. It's interesting that companies that were ten times the size of us are now only twice as big as us. We didn't have to go through that. And once you do go through something like that, your organization radically changes. It's hard to keep a core focus.

MG: Not to mention employee morale.

MK: Well, all Internet consultants remain nervous in this environment. But it really has helped our morale to know that we have been very careful… that we haven't taken on a lot of debt… that we're independent and profitable and haven't overexpanded.

MG: What advantages if any do you think Nascent State has as a smaller firm?

MK: Obviously, we're able to be much more nimble. Our approach is based on small teams unlike some of the larger Internet development firms. And because of the press coverage that the Razorfishes of the world have received, a large number of potential clients have a negative attitude about working with large organizations full of cocky, young twenty-somethings. They think they know everything. Everybody got turned off by the press coverage of that stuff. With the small-firm approach, you really get to know everyone on your team. It's funny. We found that the whole get-big-fast mentality was really get-slow-fast. The larger these organizations got, the longer it took to get projects out the door. The bigger the bureaucracy got.

MG: Still, companies aren't as willing to throw money at consultancies as they once were. How has that affected business?

MK: It's a much more of a price-competitive marketplace. We've become much more price-conscious. I think that's just part of the natural evolution. As the market matures, a lot of our clients are much more confident about their strategy. They know what they want, and they know what the organization is good and bad at. Before, it was, "What is this thing called the Internet, and I need you to put it together." They were looking for the end-to-end thing, and that's how some of these large firms were able to rope in large contracts. We've focused on user-interface design as one sliver of the development pie. So our clients are coming to us with more experience and expertise. They're looking for us to fill a specific role.

MG: But as clients get more educated, are you confident that Web consultants will always be needed?

MK: There's always a need for people in technology with specialized and developed expertise. The long-term viability of that is pretty positive.

MG: Well, there are certainly plenty of out-of-work Web consultants looking for jobs. You hiring?

MK: I can't tell you how many MarchFirst resumes I've gotten. But we've really more or less frozen our hiring over the last couple of months. I see that changing over the next couple of months. We'll be looking for incremental staff additions. But we've never gone on big hiring blitzes. We've always kind of hired the right people when they come. So it's not as if we're going to be able to scoop up all of these people. Some of them have been scarred by the experience, so I'd want to be careful about that. They may have the knowledge, but it's more of a personality and cultural thing at that point.

MG: So should people worry or not?

MK: In the next six months, things will get back to a more stable workflow. This natural shakeout will radically change a large number of organizations, and the cream will rise to the top.






Tags: Nascent State








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