Bronte Media

Scient: A Lesson in Downturns

October 22nd, 2009

I found myself trawling through SEC filings and wandered off down memory lane to Scient, a symbol of the dotcom boom and whose ad pages used to adorn Red Herring, The Standard and other periodicals whose issues swelled to phonebook proportions.

To any entrepreneur consulting seems like a great business to get started. Charging clients more than you pay to hire consultants offers an immediately satisfying cash return after which you can laugh at companies like Twitter “who have no business model”. But there is a perpetual adage to the consulting business: Times are tough during boom times as it is hard to hire people and times are tough during bad times because you have to fire people.

Firing people, especially when nothing was particularly wrong with the job they did, is probably one of the most awkward and saddening experiences a manager will do.

Now put yourself in the shoes of Scient management in the second quarter of 2001 (pre 9/11 mind you).
scient-financials

In the quarter the firm was forced to layoff 78% of its staff and soon after was acquired for pennies on the dollar.

I wonder how many of the management decided to work in consulting again?

Comments
  • The problem was, if I remember correctly, that the stock market was valuing the public digital consultancies at something like $200,000+ per employee. The cost of hiring someone (and losing money on them until they could be fully utilized) seemed to be about $100,000. It seemed like every 20-something with a royal blue shirt was getting a $100k+ offer to go work in an office facing Union Square.

    To me (I was investing in digital consultancies from 1997 until the valuations went haywire in 1999), these companies--there were four or five of them--seemed like cynical build-and-flip public market arbitrage strategies on the behalf of their funders. I remember talking to one VC at the time and saying to him "wtf? You can't build a business by hiring 1000 people in that short a time: the quality of the work will suck. Why are you investing in them?" He looked at me scornfully and said "I'm investing in them because I'm going to make money."

    And he did.
  • Hey Niki,
    Ah Scient. You really sent me back down memory lane.
    I co-founded Hotwire back in 1999 and we were one of Scient's biggest clients back in the day. At the peak of our engagement, we probably had 100 Scient people working on Hotwire. As we ramped up our full time employees, we ramped down the Scient engagement. But when all was said and done, we spent about $10 million with Scient from 1999-2000. Several of the Scient consultants ended up working at Hotwire (and some still work there, almost a decade later and 6 years after Expedia bought Hotwire). I have a lot of fond memories of Scient, and they did a great job for us, though they charged an arm and a leg. I still wear my Scient fleece vest proudly as a reminder of those early days.
  • emmaspringer
    It sounds like Scient was no different than Twitter. As you said Twitter has no real business plan and neither did most of the dotcom companies.
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