Monday: 10/02/00


How Scient helped go from launch to bankruptcy in less than 60 days

By G. Beato

(Note about names: All sources who agreed to be quoted for this article requested anonymity. Why? They all continue to work in the website development industry, and were concerned that criticizing Scient publicly might negatively impact their careers. Individuals who are quoted more than once are given a pseudonym. Peek Garlington of Verde Media and Doug Morriss of Gryphon Investments did not respond to numerous interview requests. Christopher Lochhead of Scient agreed to an interview, but declined to answer specific questions about Scient's work on

"We're building the largest team ever assembled to cover green lifestyles and environmental issues," declared Verde Media founder and chairman of the board Peek Garlington in a press release issued on March 23, 2000, less than one month before the launch of the company's flagship website,

In addition to the large team, Verde Media had large ambitions: it aimed to be nothing less than the CNN of environmentalism, "an integrated media and entertainment company that provides green information, products and services for online, broadcast and print channels."

Verde Media also had large backers. Garlington is the son-in-law of Ted Turner, and the March 23rd press release counted the green-leaning billionaire, along with Island Records founder Chris Blackwell, Gryphon Investments, and Lehman Venture Capital amongst the company's initial investors.

All in all, it sounded like a solid venture, especially compared to the educational pet toy e-tailers and high-end lip gloss portals that had materialized in the manic heyday of dot-com speculation. Verde had identified an under-served market: people who wanted to help make the world a few shades greener but weren't quite ready to move into an ancient redwood tree. There were natural e-commerce tie-ins. The staff was experienced - many of them had come from CNN - and they were excited about the prospects of fulfilling Verde's idealistic mission.

But the March 23rd press release didn't tell the whole story. Like many start-ups at that time, Verde was struggling to raise its next round of funding from a capital market that had suddenly turned wary of dot-coms. Vendors who hadn't been paid by the company in months were already quitting the project, and the company was still burning through the funding it had gotten to date -- about $8 to $10 million, according to several former Verde employees. (Four former Verde employees or vendors estimated that the company's total funding was between $8 - $10 million. One felt it was a bit lower than that. Verde Media never released information about the amount of its funding.)

Of course, $10 million doesn't go as far as it once did. But Verde was still a relatively young company to be running into such trouble. Where was all the money going so rapidly?

Ironically, much of it went to Scient, the super-confident, super-successful "eBusiness systems innovator" that promises to "help clients figure out their eBusiness strategy rapidly," "build complete eBusinesses at breakneck speed," and "partner with [their] clients to keep them on the edge of innovation for life." Scient enjoys such a strong reputation in the industry that it once turned away over 100 would-be clients in a single quarter, according to Scient's Chief Marketing Officer, Christopher Lochhead. Founded in January 1998, Scient went public less than a year and a half later. Between March 1999 and March 2000, its staff grew from 260 to 1180. On March 10, 2000, its stock hit a high of $133.75.

According to several members of Verde's executive team, Verde enlisted Scient as its eBusiness integrator at the recommendation of Doug Morriss, who heads up Gryphon Investments, one of the sources of Verde's seed capital and also an investor in Scient. At that point, Verde consisted of just Peek Garlington and a few others. Soon after Scient began working on the project in mid-1999, one of its consultants recommended that Verde hire Simon Turkalj, a former Intel executive who was also exploring plans to develop a portal devoted to environmentalism. In August of that year, Turkalj joined the company as President and co-founder.

In the early days of the enterprise, Verde's founders imagined the site as a GeoCities-like environment, where non-profit organizations could create and maintain their own web presences using tools supplied by Verde. Fairly quickly, however, feedback from focus groups and other market research led Verde to change its goals for the site. "The focus moved to creating a marketplace around green consumers," says Mr. Redwood, a consultant who worked on the project.

In other words, Verde was evolving into a site where branding, marketing, and content development would ultimately determine its success. At the same time, Scient was busy designing an expensive, technologically complex back-end for the website.

"If I could go back and change something, I would have pushed them harder to reconsider web development side of business," says Mr. Redwood. "I think they spent money to build more than they needed for what they were trying to accomplish. Six or eight months before they ended up launching, I was saying we should go out and find a really scrappy web development house that could build a site for half a million rather than six or seven million. Because after a while, I started realizing that Verde was really a content company that needed to spend on marketing and content creation rather than the back-end. But once they were in bed with Scient, it's seemed hard to disconnect."

According to a former Verde employee, Simon Turkalj also questioned the cost of the site. Turkalj is said to have been a pragmatist who had an accurate view of the appropriate business strategy for Verde, especially when it started becoming clear that funding was not falling into the company's lap. In contrast, Peek Garlington and Doug Morriss were characterized by sources as being committed to the idea of building a world-class site that was "big and cool and expensive."

Ultimately, these two perspectives caused an increasing amount of friction at Verde, and in February of this year, Turkalj left the company. Turkalj's departure only increased Verde's problems. Neither Garlington, who is based in Atlanta, nor Morriss, who is based in St. Louis, assumed a hands-on role in the San Francisco-based company. This left Verde with eight vice-presidents who had their own often conflicting agendas, and no principal leader directing the company on a daily basis. So while the marketing department was making content deals with clients like Martha Stewart, the programming department was hiring news-oriented journalists with little interest in creating the sort of "feel good" service features that such deals would necessitate.

In the meantime, Scient, whose vaunted eBusiness expertise Verde was depending on to get it off on the right foot, kept forging ahead. Wasn't Scient aware of Verde's precarious financial situation? "Whether or not we knew, I don't know," says Scient's Lochhead. "It's not unusual for a client, if they're having funding troubles, to come to us and tell us that, and for us to do things to help them get funded."

Verde employees say that Scient was indeed aware of Verde's precarious financial situation, and that it knew that the services it was providing were consuming a high percentage of Verde's funding. And if it made any efforts to help Verde get more funding, they weren't successful. Instead, Scient simply kept demanding payments. And as Verde's debt to Scient grew, its ability to determine its own fate diminished quickly: any time it wanted, Scient could pull the plug on the project, so Verde basically found itself marching to Scient's orders. Until Verde could close a second round of funding and pay off its balance to Scient, Scient essentially owned the company.

And unfortunately for Verde, Scient had its own financial situation to consider. While its stock price had hit a high of 133 � on March 10, it fell rapidly over the next eleven days, closing at 91 1/8 on March 21.

"Every time we had a meeting, it was like, 'The sky is falling, the sky is falling! We've got to pay Scient or they'll shut down the whole thing," says Mr. Oak, a Verde vice-president. "It was real clear that we were marching to their need for quarterly earnings."

On March 30, a day before the quarter ended, Verde paid Scient $2,604,705.48. The money didn't help Scient's stock price much - it continued to drop steadily through mid-April - but it did help Scient post its first profitable quarter, with $3.4 million in earnings and $65.8 million in sales. In a press release celebrating that achievement and others, Verde is cited as one of the five clients whose eBusinesses Scient helped successfully launch that quarter.

Within the eBusiness integration industry, Scient is known for having its own particular lexicon, ScientSpeak, which consists of pithy phrases like "paradigm violence" and "smart mover" and cultish slogans like "It takes courage to do legendary work." So perhaps in ScientSpeak the process of building a website that consumes almost all of a start-up's funding before it goes live is defined as a "successful launch."

But from Verde's perspective, the project was hardly successful. And according to several people who worked on the project, Scient was a less-than-ideal partner. The company is known for what it calls the Scient Approach™, an intricate and comprehensive set of methodologies and deliverables that supposedly enables all of the company's employees to build world-class eBusinesses in efficient fashion. But people who worked on the project say the Scient Approach™ has its negative aspects. "They've got a huge process, and they've hired a ton of inexperienced kids," says a vendor who worked on the project. "There's some very bright people at the top who you don't get time with, and the process is really all these inexperienced kids have to rely on. And they don't always know when they're done with each step of the process."

"They were working really hard, staying up really late, and doing stuff that no one else but them really cared about," says a Verde vice-president. "We would ask a simple question, and we'd be referred to a 50-page engineering document."

According to Verde staffers, Scient's reliance upon its Approach™ made even the small changes all but impossible to implement. Eventually, they grew so fed up with Scient's mechanical adherence to its rigid apparatus of methodologies, "innovation frameworks," and "intellectual capital assets" that they confronted their Scient engagement manager. They told the engagement manager that they were spending too much time listening to him explain the Scient process, and not enough time explaining their concerns about the project to him. Instead of lectures on understanding Scient's process, they simply wanted to know what was working and what was not working, and what Scient's expectations were at that point for deliverables.

The Scient engagement manager's take on all this? In an email that another Scient employee accidentally forwarded to Verde's staff as well as Scient's, he drafted the following action plan: "This may sound weird, but it's a request. From this point forward, let's try to not use the word 'Process' when talking with any member of Verde. A number of their associates do not like the word and it has a very negative connotation with them (Please don't ask me why or how I came about this information. I would have to kill you). For example, 'Our Process dictates that....' - That's a no-no. Let's try and substitute the word 'Approach' or something similarly softer when speaking to these items. Let's review...Process = Bad. Approach = Better. Thoughts = OK. I'll sit back and enjoy the mocking now...."

Alas, Scient's shortcomings weren't just limited to poor communication skills and sloppy email management. While Scient prides itself on its staff's "deep" technical and consulting skills, the Scient employee charged with choosing community software for Verde's website was completely unfamiliar with industry-leading vendors like Talk City, Participate, and Prospero.

In addition, Scient betrayed little knowledge of the media business, even though they were acting as "strategists" for a media site. For example, Scient's team kept asking when they could get all the copy for the site -- 6 weeks before launch? 8 weeks? When a Verde employee held up a copy of The Wall Street Journal and asked them when they thought the printers had gotten all the copy for that issue, they answered, 'At least a few weeks ago.' When the Verde team pointed out that much of the news in the issue hadn't happened until the day before, the Scient team was "dumbfounded."

The content management system that Scient created for also proved to problematic. In theory, it was a state-of-the-art, incredibly powerful system that could accommodate ecommerce, offer high levels of security and privacy, and automatically repurpose content for multiple platforms and the various media outlets, like CNN and Martha Stewart, that were planning to syndicate Verde's content. But the actual product that Scient delivered was so non-intuitive it was practically unusable.

"For weeks, the editorial staff could only post two stories a day," says former Verde vice-president Mr. Oak. "There was no manual, and by that time, Scient had taken almost everyone off the project who actually knew how to build pages with the system. So we spent a long time teaching ourselves how to use it. It was just a frightening process, and there was a tremendous amount of internal frustration."

After lots of hand-to-hand combat with the inscrutable system, Verde managed to decipher most of its mysteries. On April 18, 2000, the day officially launched, at least two or three members of the Verde editorial staff knew the system well enough to publish more than two articles a day. But at that point, it didn't really matter much any more: Verde was on its last legs. On June 15, 2000, the company laid off most of its employees. A week later, it filed for bankruptcy protection. Its filing listed $3.6 million in total assets, and $7.8 million in total liabilities, including $1.8 million that it owed to Scient.

Should Scient take all the blame for Verde's demise? Of course not. It wasn't responsible for Verde's failure to raise a second round of financing, and it didn't create Verde's leadership problems either. In addition, major conflicts between client and vendor in the web development industry are practically a matter of course. Indeed, Scient apparently had troubles with too, a start-up ecommerce venture that initially hired Scient to develop its back-end infrastructure but ultimately took the project in-house before launching earlier this year. ( declined to comment about its relationship with Scient.) In July, a site called sued eBusiness integrator Razorfish for "delivering wholly inadequate deliverables and services." In turn, Razorfish countersued

So it's likely Scient has its own version of what went wrong at According to Christopher Lochhead, Scient's confidentiality agreements with Verde prevent Scient from talking directly about what happened on this project. Scient's public relations department did summarize its position on the Verde project in a brief email, however, stating "We were owed money and we were paid by a 3rd party investor. We maintained good relationships with not only the client, but their investors."

That's an optimistic assessment of the situation, but then again, Scient does have its own way of thinking. "If it's worth doing, it's worth doing wrong fast," Lochhead once said in an article about Scient's approach to eBusiness. According to another article, Scient often challenges new clients with the following declaration: "You Have More Money than Time." Obviously, that wasn't particularly true in the case of Verde.

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