By Darnell Little The past year has been bloody for the e-consulting industry. During tough economic times, consultants are typically first on the chopping block. And that's what happened in this recession as well. Several New Economy consultancies such as marchFIRST have gone belly-up, while others like DiamondCluster and Lante have been limping under quarterly losses. Formerly high-flying players like Scient and iXL have merged in an effort to stay alive. "It has been pretty dismal overall," says Marshall Cooper, president of Kennedy Information Research Group, a Fitzwilliam (N.H.) market researcher.
And then there's Inforte (INFT). The Chicago-based consulting firm has managed to stay afloat in the stormy consulting sea. Inforte maintained profitability for the first three quarters of 2001, and excluding a one-time $1.4 million charge for stock-option expenses, it was profitable in the fourth quarter and for the year, earning $1.2 million. This year, analysts expect Inforte to break even on revenues of $34 million.
No doubt, the company has swallowed water from time to time. In 2001, revenues dropped more than 25%, to $47.7 million. Its stock price has fallen more than 20% since January, to under $11. And it had to lay off or furlough around 100 employees, about a quarter of its staff. But compared to its rivals, Inforte is "a bit of an anomaly in the industry," says Cooper. "Being profitable or near-profitable for the year definitely bucked the trend."
NICHE SPOTTING. So how did a relatively unknown, midsize consultancy manage such a feat? Inforte mostly avoided the dot-com customer base and instead targeted middling and large companies like Rockwell Automation, Sprint, and Sun Microsystems. In addition, Inforte spotted a niche -- using software and Web applications to help companies electronically manage their customer relationships and predict future product demand -- that wasn't being filled by the big boys like Accenture and IBM Global Services.
"We've worked with all the Big Five consulting organizations, but the difference with Inforte is the focused knowledge base they bring," says Karen Bingham, vice-president at Toshiba, another Inforte customer and demand-management customer.
Inforte practices what it preaches. It hasn't missed a quarterly earnings forecast in two years. Laura J. Lederman, a principal with investment banking firm William Blair & Co. notes that Inforte not only predicted the tech consulting downturn sooner than its competitors did but pointed out that it would last for a significant period of time, contrary to what other consultants were saying. "They're very in touch with reality, so much more than the others," Lederman says.
DEMAND SIGNALS. Helping to predict market demand through the use of Net software is now the consultancy's bread and butter. Inforte has developed a strict process with rules that determine when an anticipated sale can be reasonably counted on or when inventory levels need to be adjusted. This method is based on a set of so-called demand signals such as marketing data, sales information, and customer communications.
These signals are fed into Inforte's custom-built software to create a model of forecasted demand. So, if a computer maker sold 1,000 PCs to a customer in one quarter, Inforte's system would look at the most current marketing and sales data, plug in other economic factors, and calculate the probability of that customer buying an equal number, fewer, or more computers in the future.
Inforte CEO Philip Bligh, who'll turn 35 on Apr. 1, likes to think of demand management as just the latest evolution of his firm. Born just outside of London, Bligh graduated with a degree in chemical engineering from University College of London. He then joined the London office of Accenture as a business analyst and later worked as a project manager for Chicago-based software provider Systems Software Associates, which was acquired in 2000 by Gores Technology.
KEY MEASURES. Itching to get out on his own, Bligh formed Inforte in 1993 to stake his claim on the information-technology landscape. The company designed and built software for mainframes and PCs.
By the late '90s, Inforte was into Web development, building e-business software for midsize companies. But Bligh quickly saw that a better niche: helping customers measure the level and performance of their e-business systems. So he worked up a proprietary measurement system to do so. The efforts led directly to the current focus on demand management.
"Nowadays, e-business is not about Web sites, it's about using Internet technologies to streamline the system," Bligh says. "We help people measure how well they're doing in those activities." Inforte has been using its own systems to manage through the downturn.
BRIGHTER FUTURE. In autumn of 2000, Bligh says he saw the consulting slump coming and knew it wasn't just a hiccup. He started adjusting budget levels in advance of the slide, cutting sales and marketing expenses by 17%, and slashing recruiting and training costs by 55% in 2001. For first-quarter 2002, Inforte is predicting another tech consulting revenue drop. However, Bligh says the pipeline is filling up with deals, pointing to a brighter future for consulting for 2002's second half. "We're fairly optimistic that the worst is over," Bligh says.
But surviving a sagging economy isn't Inforte's only challenge. Forrester Research analyst Tom Pohlmann thinks the company's niche of demand management has attracted the attention of the bigger sharks like Accenture and PricewaterhouseCoopers, and that Inforte's first-mover advantage is coming to an end. "There's a certain level of catch-up the Big Five have to do, but they are more than capable of it," Pohlmann says.
Bligh isn't too worried. He believes a midsize player like Inforte has plenty of room to thrive. And with average annual revenues per client of around $1 million, Inforte's customer base probably won't garner the Big Five's attention. Besides, if trouble were brewing, Bligh is pretty sure he could forecast it. Little covers technology for Business Week in Chicago