Silicon Alley's Cool Fish
Feb 22 1999
NEW YORK - In choosing between fame and infamy, Jeffrey A. Dachis does not mince words. "Infamy," says the 32-year-old CEO of Razorfish, "is a hell of a lot more interesting."
While the book on Dachis is still being written, he exhibits a distinct flair for dramatics. In fact, many denizens of New York's Silicon Alley credit Dachis with orchestrating a seminal moment in Alley culture: "The Party."
The party in question was a $10,000 opening bash that Dachis threw in May 1997, four months after the company moved into its new home. A line formed outside the building on Grand Street. For the first time in memory, people were turned away from a Silicon Alley event. Inside, Brazilian music blared and belly dancers jiggled, while 2,000 Krispy Kreme donuts and 4,000 White Castle burgers were served.
Days later, partygoers told tales of strippers, excessive drinking and a visit from the NYPD. The reports were exaggerated, if not entirely made up. But it was just the kind of notoriety that attention-starved Silicon Alleyites craved. Dachis still gets testy about the postparty gossip, though he boasts that "it still goes down as one of the best parties we've ever had."
In 1997, when Razorfish moved in, renting a large lower-Manhattan office space seemed extravagant. Today, every Gotham firm with some cash in the bank wants to make a Razorfish-like impression on its neighbors.
"One thing I have to say about Razorfish: They have the panache," says Jonathan Nelson, CEO of San Francisco-based Organic Online. "When you walk into their offices, you get the vibe immediately." Razorfish rented the space four months after Madison-Avenue heavy Omnicom Group acquired a stake in the firm. Dachis swears he didn't use any of the money to open the office or throw the party.
The company has made an impression, too, with its office design. It is the original slick Soho new-media space: designer furniture, diner booths that double as demo areas and a shrine to obsolete desktop computers. The space is neatly decorated in the team colors: grays and blues. Dachis, the company's cofounder, is partial to smart, dark, designer-label suits.
What Dachis has accomplished in self-presentation, Silicon Alley is hoping he can do for the online agency business - add sex appeal to an underappreciated segment of Internet commerce.
Razorfish is under the microscope now, having filed last month for a $50 million IPO. And the company has some work to do. Just as DoubleClick in 1998 had the daunting task of explaining to investors the concept of an Internet advertising network, Dachis must educate the same community about his "digital change management" business. In its IPO filing, Dachis has positioned Razorfish as a hybrid, a tech/consulting/design shop.
Razorfish isn't alone in trying to convince the Street that it's more than an ad agency - Modem Media.Poppe Tyson , K2 Media and Think New Ideas have made similar claims. Until now, the bulk of Razorfish's business has been in interface design work for clients like Charles Schwab and Theglobe.com. But "digital change management" also includes technological innovation, such as bringing wireless, broadband and satellite technologies to hand-held devices and the Internet.
What Dachis doesn't want to do is develop advertising and orchestrate media buys.
"I don't want to be lumped in with those other companies," he says. "When I'm grouped in with blah, blah, blah, I want to make sure everyone knows why I kick blah, blah, blah's ass."
The days of the Alley as a congenial, nurturing haven for entrepreneurs have passed. Alleyites increasingly resemble their older Madison-Avenue brethren - but not completely.
"There are two types of people in this industry," says Jonathan Anastas, a VP and account director at Think New Ideas' Los Angeles division. "There are the visionaries, the ones I would call the boys with toys, and the business people. Business people take into consideration their clients' needs and draw from their considerable pre-Web experience. I would not put Razorfish into the 'business people' category."
Dachis insists he doesn't care much what his rivals think. "Unless they've been in our offices, how do they know enough to criticize us?" he asks. Nonetheless, Dachis says he's meticulous about managing his public image.
"When you get misconstrued, misbucketed or misaligned, you want to correct that. And that I've done," he says about his relationship with the media. And as for his peers? "It's fun to be awarded nice things by your peers, but if people who don't know me or my staff are saying bad things about us, I don't care."
Dachis makes a big show about the importance of his staff. "They're my family. I love them. I stick up for them every day," he says, gesturing to the bustle just outside his office. "This is our baby. I'm not in this for some roll-up play." Dachis believes the young, bright minds of the industry will be more willing to work for him than for stodgy "old-world" consulting firms. The likes of McKinsey and Gartner Group , he contends, should be fearful of Razorfish.
John Wren, president and COO of Omnicom, says he's a Dachis believer . The Razorfish IPO, he says, will be an important milestone for the nascent industry. He thinks Razorfish predecessors like Think New Ideas and K2 Design went public too early.
Wren contends that Razorfish has a head start on demonstrating the Internet's profound effect on the way multinational corporations conduct business. "Over the next 10 years," he says, "that's a direction everyone is going to have to go - big, small, traditional and nontraditional agencies. All of them."
Interestingly, this isn't the first time Dachis has taken a company public. In 1993, he and his brother did a tiny offering for their Minneapolis-based financial technology firm, Game Financial . The small deal was sold entirely in Minnesota. However, Dachis wasn't content to stay in the Twin Cities. Even before the deal was completed, he left for New York. When he got there, Dachis reunited with Craig Kanarick, a childhood friend, then a digital media consultant working for a CD-ROM magazine called Blender.
It was Kanarick who introduced Dachis to Mosaic, the predecessor to Netscape Navigator and Internet Explorer. Not long after, Dachis hit upon his next business idea. "Craig fancied himself a designer, and I wanted to run a business," Dachis says. "The idea of raising capital was exciting to me."
Dachis and Kanarick started small, doing freelance design work that eventually attracted one very large client: Time Warner 's Pathfinder. At night, Dachis waited tables at the Moondance Diner, a Tribeca eatery where he still orders takeout. In January 1995, when they were about to get their first payday from Time Warner, Dachis and Kanarick decided to incorporate so they would look more professional. Dachis dubbed the company Razorfish - after a small tropical fish with a sharp-edged head.
Today, Kanarick is the creative force behind Razorfish - the right hemisphere to Dachis' more analytical, left-brain approach. "He does the thing we do," Dachis says. "I make sure the thing we do makes money."
Or, at least, that's theoretically the thing Dachis does. At the moment, Razorfish isn't making any money. It lost $394,000 in 1998, blaming the red ink, in part, on the accounting costs associated with a wild acquisition spree.
After dishing out Razorfish shares to complete those deals, Dachis and Kanarick's stake in the company has been diluted to a combined 11 percent. Omnicom owns 37.7 percent; the former owners of Spray, a Swedish firm it merged with last year, hold 37.5 percent. Ignoring the math, Dachis insists that "control of the company rests firmly in the hands of me and Craig."
According to Razorfish's prospectus, the company had revenues of $21.8 million for the nine months that ended Sept. 30, 1998. That includes business generated by Razorfish and its recent acquisition targets, including Sunbather and CHBi, both in London; Plastic in San Francisco; Avalanche Systems in New York; and Stockholm-based Spray. At its current run-rate, its 350 employees are generating only $80,000 a year in revenue per employee. For comparison, Agency.com tallied about $120,000 in revenue per employee last year.
And therein lies the biggest knock on Dachis' business acumen. He has a reputation for targeting hip, low-margin accounts rather than duller, more profitable business. The agency's client list includes Cosmopolitan, Maverick Records, Carnegie Hall and the Smithsonian.
If it isn't cool, says one former Alley agency exec, Dachis isn't interested. "Truth is, Jeff's dream was to do sexy product design, sexy Web design, all the cool stuff. But you always lose money on the sexy jobs," the exec added. "Razorfish would love it if 10 out of 10 jobs were sexy."
The emphasis on the fashionable and the trendy pervades Razorfish's culture. The same source adds that Dachis has made it a point to surround himself with attractive designers, opting to hire the most chic geeks. Dachis dismisses that allegation. "We hire people because they're the smartest or the most talented. We do have a great-looking group of people, but that's just happenstance."
A raft of commerce-oriented client wins, including Schwab and eBay , has begun to blunt the company's reputation for having more flash than substance. Razorfish worked with Oracle to link data feeds from CBS ' news operation to CBS.com and did a similar job for Time Warner's Road Runner cable-modem service.
Janet Lecuyer, director of Schwab's electronic brokerage division, defends Razorfish's technical expertise. The firm was hired in November 1997 to redesign Schwab.com, a site with more than 1,000 pages, to attract more customer accounts. Lecuyer says Schwab picked Razorfish because of its expertise with e-commerce. "They embraced the transaction theme," Lecuyer says. "That's why they won the account."
Razorfish has always been unconventional. Dachis has a separate five-person company called Razorfish Studios, charged with creating, acquiring and distributing original content using digital media. The business is small now, but the potential is great, Dachis promises. "We own a bigger slice of the margins," he says. "We own the talent, the marketing, the distribution. If I sell at $60 a book on the Internet, I make $60."
It's this consistent focus on convergence and emerging media that interested Omnicom in Razorfish in the first place, says Felice Kincannon, who formerly served as managing director at Omnicom's Communicade Group and is now an independent consultant based in Cambridge, Mass.
"From the very beginning, Razorfish has been working on convergence," she says. "They've been working on things that go beyond just Web work."
Kincannon likes the prospects for the Razorfish IPO. Companies no longer want brochureware, she says; they want to sell products, communicate and manage daily tasks. Dachis, she says, is "absolutely accurate in calling it digital change management."
A blend of consulting, design work and communications will define the future of the online agency business, and this strange brew is at the heart of the identity crisis many firms are going through.
"Here you have an organization that has all those skills," Kincannon says. "And yet people ask, 'Are you a consulting firm?' Well, no. 'A technology firm?' No. 'How about an advertising firm?' No. 'Are you all of those?' Yeah."
Employees: 350
Offices: New York, San Francisco, Los Angeles, London, Hamburg, Stockholm, Oslo and Helsinki
Revenues: $21.8 million pro forma for the first nine months of 1998
Biggest Client: Charles Schwab, which accounts for 11.9 percent of revenue
Other Clients: Theglobe.com, eBay, Time Warner's Road Runner and IBM RS/6000
Founded: January 1995
Recent Acquisitions: Avalanche Systems, New York; Tag Media, Los Angeles; Sunbather and CHBI, both London; Plastic, San Francisco; Spray, Stockholm
Forget Web ads. The future is "digital change management."
So what the heck is digital change management, anyway? Razorfish's PR materials try to define it, without much success. The way they explain the term, it's everything from "deploying broadband communication channels for a major entertainment company" to "creating an electronic commerce solution for a leading retailer."
Despite the fuzzy definition, Razorfish is having some success getting clients to think of the company as more than just an edgy design shop.
The company's first major e-commerce client was Charles Schwab, in November 1997. At the time, the discount broker already was generating half of its daily transactions from its Web site. Still, Schwab saw greater potential.
Schwab charged Razorfish with revamping Schwab.com. What gave Razorfish a leg up, according to Janet Lecuyer, director of Schwab's electronic brokerage division, was its keen understanding of how Web commerce was changing traditional brokerage businesses. Also, Razorfish demonstrated its ability to work with Schwab long-distance, via an extranet. When questions arose during the design stage, they were resolved by conference calls.
"Doing it on the extranet proved beneficial," Lecuyer says. "Because if it's not working for the extranet user, it's not going to work for the typical Web user." The revamped site has been a success. Today, the Web accounts for 61 percent of Schwab's overall business.
- B.W.