Through this case study coolavenues will try to focus on the challeneges faced by a start-up.
This case follows a startup through its early stages as it confronts the challenges faced by all startups: how to raise funding, protect intellectual property, and recruit.  Zefer, is a Boston-based provider of Internet consulting services and solutions
Time of story: July 1999

It seems appropriate to begin this series with a problem encountered by many startups: how to grow the company while preserving the corporate culture that contributed to its early success. In our case, the question of how best to build Zefer's business came quickly. It had to, because ours is one of the fastest-growing sectors of the new economy -- Internet consulting services.
Zefer raised a first financing round of $2 million in March 1998 from Mosaic Venture Partners. At the time, several of the company's partners (myself included) were completing MBAs at the Harvard Business School. Now, barely a year after our graduation, the company has 50 professionals helping a clientele of Fortune 1,000 and ".com" companies with their Internet strategies. Once viewed as experimental $20,000 marketing projects, corporate Internet initiatives are now among the top priorities for CEOs with multimillion-dollar budgets. We work with our clients to answer two of today's most pressing business questions: What should I be doing on the Internet, and once I know what to do, how do I build it? The starting point for large, traditional clients is to get them thinking as .com companies. For clients that are already there, the focus is on getting to market first. In both cases, our clients want not only our insight but also solutions to their problems.

PROS AND CONSULTANTS

Increasingly, we found ourselves losing potentially huge accounts, like Delta's $50 million Internet business, to competitors. We realized that one reason was our focus on the strategic consulting side of the Internet services business. Although this was what differentiated us from competitors like USWeb/CKS and iXL , which were better known for building Web sites and custom software, for potential clients asking for bigger, better, faster Internet services, the size of our organization and the ability to handle large-scale, complex implementations turned out to be important, too.

We had to become a comprehensive Internet player, one that could offer the same services that established competitors do, and we also had to be able to acquire new talent quickly enough to sustain triple-figure growth. Our current challenge is how to meet our hiring needs and the demands of our clients while maintaining our vision and culture. Zefer's employees are proud not only of our work but also of the interdisciplinary corporate culture we are forming, which brings together business, design, and technology. For instance, when we evaluate a job applicant, we often conduct interviews rather as a consulting firm would, asking candidates about their approach to various business challenges. But we might also invite the recruit to undertake our Lego/Play-Doh test. Candidates can build anything they like with the materials, but at the end of the test period they are expected to provide a detailed rationale for what they chose to create.

The Harvard Business School recently used Zefer's growth-management quandary as a case study for a class of 200 students. When polled, the students voted in almost equal numbers for the following three growth options for Zefer: (1) raise a second venture financing round of $5 million to $10 million and continue growing in an orderly fashion as much the same company we are now, emphasizing consulting services; (2) extend our management team with seasoned talent, aggressively recruit design and technical professionals, and raise a $25 million to $100 million mezzanine round with which to acquire companies that have the right implementation services; (3) sell the company for several million dollars to an IT integrator or a larger Internet service company.

The first option was grossly mismatched to what we understood our clients wanted. The third option would mean that we would never leave our mark on the Internet space. While the second option held some risks for the Zefer culture, it was the most attractive -- if we could find an executive who wanted to work with us rather than take over our company. We were lucky enough to find Bill Seibel, a former executive vice president at Cambridge Technology Partners. With Bill on board as our CEO, we were able to secure $100 million from GTCR Golder Rauner, a Chicago-based investment firm.

CULTURAL EVOLUTION

Ironically, it is an openness to change that allows companies to protect what is core to their culture as well as make the right choices for growth. One of the most positive effects of choosing among our three options was that we, our partners, and our associates were forced to reassess -- and reaffirm -- our true hopes, desires, and fears.

We refuse to believe that fast growth necessitates a commensurate erosion of corporate culture. Inevitably, a cultural shift will occur, but it is how we embrace and direct that metamorphosis that will determine our success.
 

Source: The writer for this issue is Anthony Tjan, a cofounder and the managing partner of the company.
From Red Herring.com