First in Its Class

As Clarkston enters its second decade, however, Finegan's firm is now representative of a cluster of fast-growing consultancies that after years of rapid expansion find themselves facing a daunting growth hurdle. It's a hurdle magnified by a downturn in corporate IT spending and one that has appeared increasingly more vexing as available sources of capital within the consulting sector dry up. After ten years of rapid expansion, Finegan and his management team are being put to the test — a test that requires both vision and a willingness to act, two qualities the firm's management says they continue to wield.

The Growth Hurdle

"There are a number of companies of similar size that have been doing quite well because they're well-organized and flexible," says Ted Kempf, principal analyst at Gartner Dataquest. "Clarkston's not the only one in this position. Every consultancy is looking to grow … but the capital markets are difficult right now for any company."

While Clarkston's success has proven that bigger isn't always better, it has still had its share of bumps along the road. And like other firms that feasted on the once-unyielding demand for Y2K-compliant solutions, Clarkston has not been able to escape the technology sector's post-Y2K blues. After seeing its sales leap 48 percent in 1998 and 25 percent in 1999, the firm grew only a meager 7 percent in 2000. The slowdown triggered a reorganization involving the firm's first layoff, a reduction that would clip 20 percent of its 300-person workforce. In addition, the firm began looking to outside investors to help satisfy its unyielding capital requirements. In February 2000, the firm secured $15 million from Navis Partners, a private equity firm based in Providence, Rhode Island. While this is their first investor, it likely won't be their last.

"There are reasons for us to continue to look for good strategic partners going forward," explains Finegan, Clarkston's chairman and CEO. "There's a lot of value there, beyond just money to finance growth."

Besides seeking to ease its hunger for growth capital, Clarkston management executed a series of changes in 2000 to try to cope with the firm's post-Y2K hangover. It's this responsive approach that Finegan today says is Clarkston's biggest strength.

"It's one of the things that sets us apart — it's the appropriate balance between the vision of the future and the reality of executing," he explains.

Part of that execution was achieved through promoting greater executive focus and clarity within the firm, a strategy driven in part by the creation of CEO, COO, CFO, and VP levels. In addition, Clarkston made the transition to a vertically-oriented firm — one organized in three geographic regions and focused on three specific industries: life sciences, manufacturing, and high tech.

To select the three industries, Clarkston did an in-depth study to determine within which industries the firm would likely perform strongest. Today, high tech clients account roughly for 10 to 15 percent of Clarkston's revenue, while manufacturing clients account for roughly 35 to 40 percent. But the booming vertical for Clarkston is life sciences — including pharmaceutical, medical device, and biotechnology companies — which today accounts for nearly half of the firm's revenue.

Paul Allen, vice president of life sciences at Clarkston, considers this industry stable, and one where Clarkston can offer a multitude of services.

"The life sciences world is looking at gearing itself to drive return on investment and the utilization of technology to drive shareholder value … and what we're working on right now are the issues they deal with on a daily basis," says Allen.

It's the type of technology application challenge that Clarkston loves to "bird dog" and build upon.

When the Iron was Hot

Back in 1988, while at Andersen Worldwide, future Clarkston founders Tom Finegan, Neil Nelson, James Stefan, and Ronald Gridley were working on one of the first SAP implementations in North America, at the Marriott Corporation. It was this particular job, according to Clarkston's regional managing partner, James Stefan, which opened their eyes to the untapped potential of SAP.

"SAP was a generally new product to the U.S., but had been very successful in Europe," says Stefan. "As a group, we felt that once the software gained some notoriety in the U.S., it could really take off. It was a very powerful product and we saw a unique opportunity presenting itself to us."

These four consultants pounced on the opportunity, and on December 16, 1991, their dream of starting a new consultancy became reality.

In the first few years of its existence, Clarkston (formerly Clarkston Potomac) focused on numerous practice areas ranging from sales force automation (later becoming CRM practice) and IT planning to electronic services & solutions and strategic planning & process management.

It's a company that, according to Finegan, is run similarly to a Big Five partnership model operating within a corporate environment — not unlike DiamondCluster International.

The former Big Five consultants hoped to offer a different approach to client service and career development than that of the larger firms, and planned to gain strength by focusing on the midmarket.

"What we do is clearly look at the new initiatives in the future that are going to be critical for our clients and then ensure that we've got the right skills that are matching up against those critical business issues," says Finegan.

While organizational responsiveness has helped them weather the post-Y2K slump better than most, their SAP client satisfaction track record sets them apart — and their reputation is justified, according to Finegan.

Since 1991, the company, according to its own data and client surveys, has worked with over 350 clients — boasting a 70 percent retention and 90 percent satisfaction rate — with fewer than 100 of them being SAP clients. Clarkston, an SAP partner, has also forged alliances with other enterprise applications vendors, such as JD Edwards and Oracle.

"On SAP, Clarkston is the only outfit I've ever heard of that would deliver a project on time and under budget," according to Jerry Ytzen, former chief information officer of Dow Agro Sciences (part of Dow Chemical), now serving in multiple capacities for Dow.

"Finegan did a heck of a job, and when I hear some of the horror stories of SAP and see what he did for us, the results are there."

According to Peter Lawson, vice president of IS at Pfizer, Clarkston has supplied an array of services to their Animal Health Group for the last four years.

"They have facilitated the planning activities of the IT function, and managed a variety of strategic initiatives, including e-commerce, sales force automation, and a variety of other commercial initiatives."

The Capital Crunch

Given Clarkston's attractive client portfolio and growing hunger for expansion capital, some pundits have speculated that it is ripe for sale. However, while Finegan says that he is repeatedly approached about being acquired, he's not inclined to jump.

"We're in no rush to get acquired, so we still think we're building a better company and we still think we've got a great model in place," says Finegan. "We always have conversations because I'm a big proponent of networking, but we have yet to see something that was so compelling as to get us to the next level."

But before Finegan gets sold on any offer, it needs to be the right fit, more than just in terms of dollars and cents.

"We think that the successful companies, when they do mergers and acquisitions, really look at cultural impact," he says. "There are few successes that you can point to."

According to Bernie Buonanno, managing director at Navis Partners, Clarkston approached them about investing, although Navis had been tracking the small firm for a while.

While Buonanno cites the exceptional management team at Clarkston and the fact they are well-positioned to benefit from its vertically-focused approach, he can also see the company receiving more capital from an outside source.

"At some point, we think there will be some form of liquidity event, but not right now in this weak market," says Buonanno. He believes that the company is currently performing well, growing profitably, and attracting more clients.

By so doing, Clarkston has managed to avoid the pitfalls many other consultancies have fallen victim to, and much of the credit for this, Clarkston consultants say, should go to Finegan, the 34-year-old CEO and 12-year consulting veteran who does like to strike while the iron is hot.

Sidebar: A Firm that Honors Its Commitments

As Clarkston has continued to grow over time, its commitment to its employees has never changed — giving members of the company a small-firm feel with big-firm perks.

"The one thing that makes us very unique in the benefits is that the company pays for 100% of all of them," says Carol Gillespie, vice president of human resources at Clarkston. Whether it's medical, dental, vision, life insurance, or short-term/long-term disability, their employees have all the premium costs covered by the company, according to Gillespie.

She adds that in some companies, the employee might pay up to 20 percent of the premium, giving Clarkston a decided edge over the competition. Besides their coverage, the employees are also able to participate in the company stock option plan — traded as a privately held firm — and the company will also match 50 percent of education and charitable donations up to $2,000.

"We have a high-quality group of professionals here, and Clarkston does put a high investment in our people," says Gillespie.

In an effort to bring together the once-nearly-virtual company (most employees worked off-site), they hold meetings three times a year — the last one in Las Vegas. And these meetings are valuable for the company, according to Paul Allen. "What a fabulous environment and what a wonderful meeting," he says. "There's a real feeling of teamwork and close-knit camaraderie, and that's not easy to do, because any kind of consulting organization is by and large a virtual one."

Besides the perks being offered, the company is also experiencing a great deal of interest from the outside, with 800 r