Internet Strategies That Work (Maybe)

The arguments for swapping mortgages on a Web-based exchange instead of via paper and fax are as compelling as ever, Wilkes claims. Fortified with fresh capital, he sees IMX as a likely survivor in a rapid roll up of dotcom mortgage companies that spent too much to acquire customers and now need to be rescued. Indeed, figuring out how to navigate the consolidation phase of an infant industry has become Wilkes's most-pressing strategic concern. His approach is a mixture of optimism and ruthless tough-mindedness. "This industry will consolidate almost by definition, and someone is going to make this work," he says. "The question is, Do we want to be a catalyst or a bone picker? We wrestle with it, because prices for the companies that we would consider buying will be lower at the boneyard than they are now. But others may be waiting at the Chapter 11 courthouse too."

As much as anything, the deal making that Wilkes is engaged in is emblematic of the next phase of the Internet industry. "We're not going to merge with five companies in the next 90 days. It would blow us apart," he says. "But I like the idea of putting companies together, eliminating redundancies, and getting the benefits of consolidating staff. To me, that strikes a big chord."

Anatomy of a Dotcom Deal

On a recent afternoon, Richard Wilkes sat in his office on the second floor of a featureless building in San Ramon, California and fielded telephone calls. The first person was a longtime acquaintance of Wilkes's in the mortgage industry who was calling to propose a merger between IMX and the subsidiary of a new, Web-based financial-services exchange. Wilkes had just hung up when the phone rang again. This time, it was a competitor with an offer to sell his company. Wilkes listened patiently, taking notes and asking questions. He was under no illusions about the motives behind the calls, he said later: "We've got cash, and they don't."

It was getting dark outside when Wilkes gathered four members of his management team to brief them on the calls that he had received that afternoon. Glancing at the legal pad in his left hand, Wilkes began to sketch out the offers on his office whiteboard. Before he had finished explaining the offer, the team had started breaking it down, weighing what they would get that they didn't have, and what they might be saddled with. The discussion was fast paced and jocular, with nearly all of the jokes at the expense of IMX's desperate competitors.

As the meeting broke up, Wilkes said that he thought the best course was to watch and wait. On his way to dinner at a nearby restaurant, where the team would reconvene, Wilkes talked about his savvy old boss, Ronald Perelman. "When you've done this in the past, you get a feel for who's desperate and who's not, who's bluffing and who's not," he said. "It's different from the skills that used to be required to build an Internet company, but it has become critical."

Grow to Be Great

Wilkes is not his usual ebullient self when he walks into the sales meeting the next morning. He's quiet and unsmiling. Dressed in a black turtleneck sweater, houndstooth pants, and black loafers, he fills a styrofoam cup with coffee and walks to the head of the long conference table. He stands there with his mouth fixed in a small, straight line, waiting for the nine people in the room to quiet down. When they do, he gets to the point quickly. After a record month in September, October is off, and Wilkes wants to send the message that it's not business as usual. "We're spending more money than we're taking in," he says. It's the beginning of a 20-minute harangue, by turns sharply critical and rousing, that is intended to light a fire under IMX's sales team. "We've got 12 months, people."

Wilkes tells the sales team about the calls he has received from competitors who are interested in a sale or in a merger. "Why are they talking to us?" he asks. "Because unless they raise more cash, they are going to run out of money and die." Wilkes says that IMX was able to pull in another round from investors because they liked the company's strategic position at the point where the price of mortgages is established between lenders and brokers. But there's no mistaking the real point: "The only way we're going to survive is to produce more revenue, and the only way to produce more revenue is for the people around this table to go out and sell the product."

The sales team listens in silence. But there's resentment building. Some of the sales managers chafe at the new direction set by Wilkes, who is pushing an expansion into private-label software that lenders can use to suck up mortgages from brokers, as well as other products that are adapted from the pricing engine that lies at the core of IMX. That strategy takes the company down a different path than the Internet-based mortgage exchange.