Scient's Near-Death Experience

Scient soared among the highest. Founded in late 1997, it had thrived on an intriguing tension. At the top, its executives were buttoned-down consulting veterans who had come from the likes of Andersen Consulting, Booz Allen & Hamilton, EDS, and other top shops -- the sort of folks who could saunter comfortably into the boardrooms of AT&T or Chase Manhattan. Robert Howe, Scient's chairman and CEO, had built IBM Global Services into a consulting power and then had led Big Blue's financial-services business.

Below them, though, Scient was filled, like other Internet consultancies, with hotshot kids lured from top engineering and MBA programs. While many of them really could keep up with Silicon Valley cool, others merely carried themselves with a swagger that was meant to impress. As for Scient's marketing machine, it promised clients "the courage to be legendary," with results rooted both in bleeding-edge technology and in speed. The kids worked nonstop -- because on the Internet that was the only way to survive.

Scient bound its two spheres together with no small amount of hype -- but also with a strong, shared sense of mission. In the firm's early days, Howe and his lieutenants sold new employees on the vision of a firm that itself would become "legendary." They proposed six core values: innovation, growth, excellence, community, spirit, and urgency. And they invested in systems and programs that translated those core values into a certain organizational zing.

The package sold well. Scient muscled its way to $156 million in revenue in the fiscal year ended March 31, 2000, seven times the amount of business that it did in its first full year. By then it had expanded to 1,180 employees, and its consultants were bringing in an average revenue of $367,000 each -- a figure that put the firm at the top end of the trade. It claimed to have turned away 100 clients in a single quarter. Its stock price hit $133, which briefly put the company's value at about 30 times anticipated annual revenue; historically, consulting firms have been priced at between one and two times their annual revenue.

And then, of course, the party stopped.

It didn't stop precisely on April 14, the day that the NASDAQ famously melted down. But by May, across the consulting industry, engagements from startups began drying up: Dotcoms weren't getting new funding. Gigs with larger companies slowed too: As the startups folded, big companies had less to fear. "CEOs asked, 'Why am I spending so much money and just seeing red ink?' " says Matthew Berkeley, a cofounder of Zefer. The need for urgency had lost, well, its urgency.

By August, the layoffs and earnings shocks hit -- first at iXL, then at Viant, Razorfish, and Marchfirst Inc. Scient took some pride in having avoided the early bloodshed -- but still, its stock price plummeted to less than $10 a share. Dotcom startups, which accounted for half of its 1999 engagements, nearly disappeared from its revenue mix. What's more, a few of the dotcoms that it had helped build -- notably Living.com, a furniture e-tailer; Miadora.com, an online jeweler; and Verde Media, an environmental-news portal -- folded. Others such as MVP.com and PlanetRx.com were wobbling.

And on December 6, Scient itself finally buckled. Its revenue, it admitted, would drop by 28% to about $80 million in the quarter; bigger clients, it seemed, had been slow to pick up the dotcom slack. The company would shut down its Silicon Valley and Austin, Texas offices. More painful, it would lay off 460 employees. "This," said Christopher Lochhead, Scient's resident futurist and, normally, its most exuberant public face, "is the worst day in our history."

Scient's executives say that they had seen all of this coming, more or less. Granted, they didn't expect the slaughter to start as soon -- or as abruptly -- as it did. But toward the end of 1999, they had begun noticing subtle changes in their business. As at other consulting companies, Scient's mix of clients was shifting. Clients' demands were shifting too. The clients didn't always know it themselves, but they were headed toward a very different realization of Internet technology.

A year earlier, the Internet had been a land-grab play. Success was about getting a Web site up quickly and then about winning lots of eyeballs. Revenue -- well, that would come later. "We didn't deliberately build businesses that weren't profitable," says Howe, 56. "But profits weren't where clients were focused. It's very different today. Now it's about how you integrate a virtual and a physical business. Today, technology is the transforming agent rather than the business itself."

Nancy Dickenson was among the first at Scient to sense the market swing. A one-time professional jazz singer who had landed in Apple Computer's user-interface design department, Dickenson now heads the group within Scient that specializes in "customer experience." She thinks about how people actually use the Web, how they negotiate and interact with clients' sites. She sees what happens on the front lines.