A Web Hotshot Learns Humility

Razorfish made Jeff Dachis a star. Can his new outlook save the company?

On the Monday in early February when Internet consultant Razorfish Inc. (RAZF ) announced it was firing some 400 people, or about 20% of its staff, the bulletin board on Web site F--kedCompany.com went wild. The site cultivates a special kind of schadenfreude, encouraging visitors to place bets on which unlucky dot-com will be the next to fire employees or go under. Visitors rarely hold back when it comes to criticizing the bosses of these companies. But the comments directed at Razorfish and Chief Executive and Chairman Jeff Dachis hit a whole new level of vitriol. Within hours, there were 400 postings about Razorfish--many of them quite nasty. A sampling: "Die, die, die!," and "So long, Rottenflounder," and "We all like to see bulls----ers put in their place."

What is it about Dachis that provokes such abuse? In a word: Arrogance. In interviews and speeches, Dachis smugly proclaimed that his company was superior to its Old Guard competition because it was created with a New Economy mindset. After Razorfish went public in 1999, valuing his stake at $77 million, he claimed he was worth every penny even though Razorfish only had $15 million in revenues that quarter. "There are sheep and there are shepherds, and I fancy myself to be the latter," he told The New York Times.

Indeed, Dachis was something of a Ken Kesey for the Net generation. Kesey, the hippie novelist who came to fame in the 1960s, drove around the country with his band of Merry Pranksters in a bus painted with psychedelic designs. He served up LSD-laced Kool-Aid and declared that people were "on the bus" or "off the bus" depending on whether they drank it. Dachis' vehicle of choice is a Ducati Monster motorcycle. In his worldview, people were either "in" or "out" based on how thoroughly they swallowed the New Economy creed. Those who understood that "everything that can be digital will be" digital were with it, and everybody else was hopelessly behind the times.

Among the host of young, cocky CEOs of upstart Net companies that sprouted in the mid-1990s, Dachis was arguably the cockiest of them all. And his comeuppance holds lessons for young would-be entrepreneurs. Just because you're smart and trendy, doesn't mean you're going to succeed in business. "A lot of people don't realize how hard it is to be an entrepreneur. Most people just aren't cut out for it," says Internet analyst Mary Meeker of Morgan Stanley.

Now, Dachis is paying the price for his hubris. Talk to him today, and you'll meet a chastened 34-year-old. He has learned new ways: Don't be preachy, listen to your elders, and run a company like something bad is about to happen. He says his new mantra is: "Be humble because in success, humility will win, and in failure, humility will win." These days, Dachis is focusing on just one thing--turning his company around."It will be painful for most of the companies in the space of a year," he says. "It's heads down, think, focus, and don't let the noise get to you."

Dachis' fortunes rose and fell with shocking speed. At its zenith a year ago, the company that Dachis and pal Craig Kanarick started in 1995 was perched at the top of the Web consulting world. It was one of the so-called Fast Five, a group of young consultancies--including Viant (VIAN ), Scient (SCNT ), IXL Enterprise (IIXL ), and marchFIRST (MRCH )--that caught the first wave of the Internet. These companies promised to deliver what Corporate America needed to avoid getting bumped off by their dot-com competitors--the ability to build Web sites quickly for everything from e-commerce to managing networks of suppliers. At first, there was so much demand that Razorfish figured it only needed a tiny salesforce. The company signed up high-cachet clients, from Charles Schwab to Ford Motor to Giorgio Armani. When Razorfish's stock hit its peak of $57 last February, its market cap was $5.6 billion.

Its sharp decline started with the dot-com stock meltdown last spring. Upstarts suddenly posed less of a threat to established corporations--releasing some of the pressure on them to get with the Net. At the same time, traditional consultants such as IBM Global Services and EDS started to focus their sights on e-business. Thanks to their armies of consultants and long-standing relationships with corporations, they began winning over the blue-chip customers. Then came the economic slowdown, with its resulting delays and canceled orders.

Busy, busy. The consequences for Razorfish and Dachis have been disastrous. For the quarter ended Dec. 31, its revenues were $50.1 million, a 5% decrease from a year earlier. It suffered a net loss of $19.8 million--compared with a profit of $5.8 million the previous year. The stock is trading at about $1 per share.

To save Razorfish, Dachis is moving fast. He's cutting $70 million this year in expenses through layoffs--which total 550. He's setting up a system to track ongoing projects more closely. To boost quality, he holds each of the company's top executives responsible for three or four clients. He junked a customer-satisfaction survey that went out by mail every six months and is replacing it with a Web version that polls customers weekly--providing instant feedback.

While analysts applaud these moves, they aren't optimistic that Dachis will manage a turnaround. The company's cash is dwindling, even with the cost cuts. During the fourth quarter, cash decreased by $33 million, to $51 million, and the company is expected to spend about $20 million this quarter. Unless business picks up, that will only carry it through the third quarter. Meanwhile, large consultancies are landing most of the deals with corporations. "It's hard to know if this is too little, too late," says analyst Steve Birer of Robertson Stephens. "They're a poster child for a company that's not doing well, and that has to impact their ability to bring in new business."

It has been quite a comedown for the flamboyant Dachis. This is a guy who loves Prada suits, avant-garde art, and Soho's chic downtown scene of hard-to-get-into restaurants. He produces indie films with the likes of musician Michael Stipe, the front man for REM. Besides running Razorfish, Dachis is co-owner of a Lower East Side bar called the Slipper Room, and he runs a Razorfish offshoot called RSUB.com, for Razorfish Subnetwork, a Web site featuring hip music, art, and animations.

Considering his family, it's no wonder Dachis has his fingers in so many pies. He grew up in suburban Minneapolis, the last of seven children--all of whom have owned businesses or worked for themselves. His father, David, was an insurance salesman. The entrepreneurial gene comes from mom, Anne, who held a variety of jobs, ranging from working in a bridal shop to running a landscaping business--all while raising the kids. "She is an incredibly giving person with this reservoir of energy," says Dachis, who calls his mother every time he takes off and returns from a business trip--just so she'll know he's okay.

With mom as his role model, Dachis was all business in high school. He was head of the literary magazine, captain of the track team, the yearbook's photo editor and business manager, and an actor in about 30 plays and musicals. To make money, he bought and sold used cars with his brothers and scalped tickets at University of Minnesota football games.

Dachis always liked to be his own boss. While studying for a master's degree in performing arts administration at New York University, he started a tiny marketing outfit that handled grassroots promotional events. One example: a "Molson Girl" campaign where attractive women promoted the beer during beach volleyball tournaments. Although Dachis was lured back to Minnesota to help run his brother Gary's company, which provided cash-advance services for casinos, he lasted less than a year. He bridled at his brother's supervision. "It has been hard for us to work for other people," says Gary Dachis. "We like to do what we like to do."

Back in New York, Dachis found a way to be the boss again. He hooked up in 1994 with Kanarick, an MIT-trained programmer who introduced him to the emerging Web. Dachis immediately saw that money could be made by designing Web sites for dot-coms and established corporations. It took him only a few weeks to learn the basics of Web site design. The duo landed their first gig designing Time Warner Inc.'s Pathfinder site.

It was easy to get swept away. Downtown New York was full of smart, young, artistic types who "got" the Net. "The arrogance was unbelievable," says Mike Golden, a former executive at Organic Inc., a Razorfish competitor. "We took ourselves way too seriously and Jeff was one of the ones who took himself the most seriously."

From the start, Dachis tried to make Razorfish unique. He tirelessly promoted himself and his company--inviting journalists and clients through the downtown offices, which were outfitted with brushed-steel tables, white, red, and purple couches, and Japanese-style partitions. He encouraged employees to "Be the brand," meaning be cutting-edge, individualistic, creative. At Razorfish, employees were called "Fish," and the internal computer network was called "Mom."

To boost growth, Dachis bought other companies at a ferocious pace. In three years, he snapped up more than a dozen companies, creating a small empire of 15 offices in nine countries. He took the company public in April, 1999, to use the stock for acquisitions. Problem was, hypergrowth led to quality-control problems. Razorfish's highest-profile snafu was its work for talent-promotion site IAM.com. The startup, which has since gone out of business, filed suit last July accusing Razorfish of designing a site that was "flawed by grave technical and navigational problems." In a countersuit, Razorfish said IAM.com simply didn't want to pay because of its financial difficulties.

Even when his work wasn't questioned by clients, they sometimes recoiled at his know-it-all manner. "It was an attitude thing," says an executive who works at Instyle.com, a former Razorfish customer. "The way they spoke to us. The way meetings were conducted. It made me wonder who was working for who."

Dachis is no pushover in the boardroom, either. He butted heads with directors over his reluctance to spread stock options evenly throughout the staff. "He doesn't like to have this sense of authority over him," says Kjell Nordstrom, a former board member, who left in frustration last year when his venture capital firm, Spray Ventures, sold part of its stake in Razorfish.

During a recent lunch at the Soho Grand Hotel, two blocks from Razorfish's headquarters on Mercer Street, Dachis admits he has done plenty to set himself up for the personal and professional criticism. If he had to do it over again, Dachis says he would still have made the acquisitions, but he would have cut staff at the time of the purchases, rather than holding on to employees to meet anticipated demand. Arrogance? He'd nix that.

Homebody? He's spending more time on the road these days--trying to patch things up with customers. And, when he's in New York, he tends to hang around home, a modest, one-bedroom apartment in Soho where he has lived since 1994. Unmarried, he likes watching DVD movies with his dog, Sophie, a weimaraner. In spite of Dachis' reversals of fortune, he was recently named as one of the Net's most eligible bachelors by the Web site Women.com. He told the site he's looking for a "sexy" woman who's an "independent thinker."

While Razorfish's torments are stressful, Dachis says the end of the Hype Era actually makes him feel good. He claims to be sleeping well for the first time in years. He has never sold a share of Razorfish stock and remains convinced that the company will prevail. We'll know in a few months if he's right--or whether he's still drinking too much of his own Kool-Aid.

By Heather Green

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