- The Washington Times - Monday, December 25, 2000

The arrival of 2000 and the quiet departure of the "millennium bug" prompted most people to flip their calendars and continue business as usual.

Not so for Patrick Litre whose goal was to take his Fairfax-based company to the edge of the frontier that consultants call "digital business."

In December 1999, the French-born Mr. Litre was head of James Martin + Co., a multinational consulting business that earned 30 percent of its revenues fixing year-2000 computer problems, especially in Asia.

One year later, the company has been renamed Headstrong, and is moving full speed into the increasingly competitive global consulting industry that uses Internet-related technologies to make existing businesses work better.

"At some points, it was both exciting and frightening," Mr. Litre says with a sigh of relief. "There were a few do-or-die moments."

The near-death experiences stemmed from situations that were both intrinsic to Headstrong, and beyond any one company's control.

For starters, James Martin in 1999 was, unusually for a privately held enterprise, a far-flung operation, making any serious change a multinational task. Moreover, Wall Street was turning a skeptical eye toward so-called "e-business" consultancies, hammering the stocks of companies that had gone public.

And James Martin's major clients, especially major multinationals, had emerged from the Internet frenzy of the past few years to take a balanced look at what they were spending on consultants, squeezing the market even further.

Today, the established names in the industry are suffering. Razorfish, a New York company, laid off 200 people in October. Scient of San Francisco has done the same, taking a substantial financial hit as it closed many offices. Viant, out of Boston, has been forced to abandoned entire industry sectors.

Reston-based Cysive has taken an especially brutal hit, seeing its stock tumble from $61 in March into the single digits this month. The company responded on Dec. 13 with layoffs, restructuring and a stock buyback plan intended to boost its share price.

Even the stock of local favorite Proxicom, based in Reston, is hovering below $5, though analysts point out that it has plenty of cash on hand and a solid base of clients.

"The market has gotten much tougher since the sense of urgency to spend on e-business has faded," says Richard Leggett, an analyst with Goldman Sachs in London.

But the best measure that Headstrong squeezed success out of a difficult year is a single, potent statistic: $191 million. That is the amount of cash that the company secured from two venture capital funds in September, nearly one year after 130 senior managers huddled in the Philippines to ponder life after 2000.

Shifting market

The passing of the millennium would coincide with a shift in the market for consultants, Mr. Litre told his troops. The days of setting up Web sites for clients had long since past, and there were not many more billable hours to be had advising them on how to reach the customers via the Internet, he added.

But the next frontier in e-business consulting is in its infancy. For example, much data collected by large companies on customers, products and market trends still goes unused in sales and marketing departments. Exploiting that data, Mr. Litre told his people, will require enormous investments in information technology especially in the emerging wireless sector and outside consulting services.

"I said: 'I know our large customers aren't buying it yet, but, hey guys, we are preparing for the next year, and the year after that,' " Mr. Litre says. "Then we pulled every employee into a one-week training session."

Standardizing a handful of approaches to "digital business" consulting was the job of Mr. Litre, before he became CEO a year ago, and Kevin Murphy, now the company's chief creative officer.

"We had to define very clearly our services, the way we deliver them, and our marketing messages," Mr. Litre says. "It needed to be something we could teach people in Japan, Australia or Europe, and that's easily understandable."

Headstrong's logo, with black silhouettes of a sleekly dressed man, a pant-suited woman, and a man in a barong, the traditional dress of the Philippines, underscores the company's international status and its large presence in Manila. Mr. Litre had to work within that context.

The company has been full of "foreigners" of all types for its entire existence: Germans, Indonesians, Japanese, Filipinos, and, yes, Americans. Mr. Litre last year actually hired a consulting firm to advise his own on how it should position itself after Dec. 31, 1999, and it highlighted the multiethnic qualities of the company.

"Initially, we thought it was cute," Mr. Litre says with a laugh. "Then we realized it was an asset."

Mr. Litre, a 16-year veteran of the company, hammered out its new profile with a team of 25 persons culled from its offices in the United States, Asia, Africa and Europe. Mr. Litre was thankful, he says, that the company had "grown up global," for it made his task much easier.

Consulting formula

Every consulting firm has its own approach that it pitches to clients, and Headstrong is no exception. It boils down to a close partnership to assess Internet-related options for upending a company's business model, implementing a new plan.

Firms frequently have software and hardware vendors whose products they introduce to clients. Headstrong's partners include computer systems manufacturer NCR and Vienna-based Microstrategy, which develops software to organize companies' raw data into usable information.

The process can start at a remarkably basic level, Mr. Litre points out. Headstrong frequently gives its clients flash cards to "give them a consistent language" to describe a company that uses the Internet in virtually every aspect of its business. Headstrong's work usually ends by measuring the effects of its own work.

The company has clients as diverse as Golf Digest, the Boy Scouts of America and Rexel, a France-based manufacturer of electrical equipment. More recently, it has won business from Chase Manhattan Bank, Compaq Computer and NEC, a major Japanese computer manufacturer.

Digital business is a far cry from Headstrong's roots in the consulting trade.

James Martin founded his firm in the United Kingdom as James Martin Associates in 1981, but moved its headquarters to the United States in 1990, after Texas Instruments purchased the company's European operations. The sale left James Martin with about 60 people in Northern Virginia and other offices around the world.

After Mr. Litre, by now CEO, had a game plan, there was the small matter of money. In 1998, executives had planned an initial public offering. The temptation was great, since many companies were busy raising money from a Wall Street that was throwing money willy-nilly at the technology field.

But Mr. Murphy says the long pre-IPO process of drafting regulatory documents that explained the company in detail to potential investors changed executives' minds.

"We felt like the company we were, not the company we wanted to be," Mr. Murphy says. "And we weren't comfortable selling that to the public."

Mr. Litre says the company also entertained overtures from competitors wanting to buy the business entirely. He refuses to name names, but notes with more than a hint of satisfaction that the capital infusion the company won in September puts Headstrong in the driver's seat.

"With their current market capitalizations, I could buy those companies with the cash we have on hand," Mr. Litre says.

Staying private

Observers who might have cheered the company's potential as a public company now rave about the freedom that Headstrong has as a private company. It can take chances that would be unacceptably risky for a company with its eye on quarterly earnings, said Christopher Penny, an analyst with Friedman, Billings, Ramsey, which helped Headstrong find funding.

"There are big advantages to being private," Mr. Penny says. "A year ago, we would have said the opposite."

Headstrong's money came primarily from Welsh, Carson, Anderson & Stowe, a New York private equity investor that became the majority owner of Headstrong when it put up $173 million of the $191 million the company received in September. Welsh, Carson had seen the plummeting stocks of other companies that were still mired in the earlier phases of e-business consulting, and found Headstrong an attractive proposition.

"The low-hanging fruit of setting up Web sites and the like was over-invested," says Rob Minicucci, a general partner with the investment firm.

Still, Mr. Litre says Headstrong has a stock offering in its future, but is cagey about when it might be. The company wants to hit "$250 million to $300 million" in annual revenue before it goes public. It took in $100 million in 1999, suggesting an IPO could be a few years off.

"To be a sustainable professional services firm, you have to be a certain size," Mr. Litre says. He adds that Headstrong's revenues grew 26 percent in the third quarter of this year, but declines to provide hard numbers.

Headstrong took a step toward becoming an IPO-ready company by acquiring Chicago-based Faber Consulting, a firm that specializes in finding new ways to exploit data that companies accumulate.

Still, there are other challenges Headstrong faces besides money and revenue, analysts say. The associations with James Martin are a double-edged sword, a reason, perhaps, that the company announces on its Web site that Headstrong was "born in the year 2000."

James Martin, 67, is still chairman emeritus of the company, and is a widely recognized name in the consulting field who still holds a chair at Oxford University. But Mr. Martin made his name as a savvy prognosticator of how technology will affect society, not in the field into which Headstrong has launched itself.

"They have to distance themselves from their history," Mr. Leggett says. "The name James Martin had connotations that were good, but in their time."

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