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Silicon Alley UpdateLosing the Niche: HeyThereNegro.com

By Paul Ford

What's the news from New York's hottest economic zone?

Silicon Alley, 11 Dec. -- The last few days have been particularly hard on Manhattan's Internet-related businesses, with over 1429 firms announcing they were downsizing, closing their doors, or looking for buyers between 8:30 am, Dec. 8 and 4:30 pm, Dec. 11. Among the many casualties were small content play HeyThereNegro.com, which is halting operations, and large Web consultant Ruminant, which is drastically cutting its workforce.

HeyThereNegro, an “urban demographic” portal, was co-founded by CEO Jack England and CTO Prajit Singh, who met at Harvard Business School in 1998. The portal was forced to cease operations after only 400 minutes of operation.

“What happened,“ said England, ”was that our demographic research told us the place to be was the urban Black market, which represents several billion dollars annually, so I came up with the name and wrote the business plan while still at Harvard, where I attended business school.” At this point, Mr. England spelled out “Harvard Business School,” taking pains to indicate capital letters.

England continued, “in retrospect, it seems clear we should have involved actual urban Blacks in the development of our site; neither myself nor Prajit had ever met any Blacks, although I did enjoy Prince's album Thriller, and Prajit is a big fan of the films of Ang Lee. I should state that we have recently heard from some individuals, mostly graduates of non-private universities, who know Black people themselves, and they've told us that the name of our site could be construed as offensive by highly sensitive people of African heritage, and that the 'hip, in-the-know' feel I'd aimed for had missed the mark. This is unfortunate, and also shows us that holding fourteen focus groups, at $10,000 each, without making sure that at least one member of our target demographic would participate, was a possible mistake. We have reconsidered the name of our sister site, 'WhatsUpCracker', aimed at southern Whites, as well.”

Like many firms trying to break into an unfamiliar market, HeyThereNegro hired a Web strategy and consulting firm, KnowledgeTonic Zconsulting (NASDAQ:KTZC). “They had a great PowerPoint, and we followed their scope document to the letter,” England said, “although their initial fee of $19.5 million seemed steep.”

The goal of the firm was to create a virtual economy, called “the Company Store,” where young African-American urbanites would be able to buy consumer goods at extremely inflated prices, using a virtual currency called “scrip.”

“The concept of the company store and scrip goes back to progressive management-labor relations in tight-knit mining communities during the early part of the century,” said England. “Basically, the relationship appears in some form wherever you have a lower-income market demanding an uninterrupted supply of goods and that market requires capital; you can create an economy for these people, with a range of economic options, from credit cards with rates twice the normal rate, to rent-to-own stores, to lottery tickets, and now, we were hoping, scrip. We had already set up relationships with Chase and Citibank where the entire paycheck of HeyThereNegro members would be converted to scrip automatically by their employers and could only be used to buy products on our site.”

These plans were changed when reviewed by KnowledgeTonic, and those changes, according to England, damaged his firm's business model irrevocably. According to legal documents filed by HeyThereNegro, KnowledgeTonic advised the firm that their target market would be “highly receptive” to a web site branded with “Hello Kitty” properties, from the Japanese Sanrio corporation. “We trusted them implicitly, much to our detriment,” said England.

KnowledgeTonic went on to create a completely Hello Kitty-branded Web site for HeyThereNegro, called “Buenos dias, los Gatitos!” because, also according to KnowledgeTonic, “Black people only speak Spanish,” information which Mr. England later found was untrue. At KnowledgeTonic's suggestion, HeyThereNegro gave away over $600,000 in Hello Kitty products during a site launch party, mostly to “white girls in their 20's and early 30's, many of whom were friends of the KnowledgeTonic consultants, and who were given shopping bags when they entered the party and told it was a 'Hello Kitty fire sale',” said England, “which we feel was in bad faith.”

To use the Hello Kitty, Keroppi the Frog, and Bad-Batz Maru properties from Sanrio, the portal paid $340 million in licensing, negotiated by KnowledgeTonic, which collected 1/3 above that amount as a “relationship management” fee. Finally, after launch, according to the same legal documents quoted previously, “it was revealed that KnowledgeTonic had provided the firm with an analysis, scope document, and branding plan originally intended for BigPinkLink.com, a Web site that sells makeup and clothing to middle-class suburban teenage girls; that KnowledgeTonic had used a search-and-replace to place [HeyThereNegro]'s brand name into the document, and that KnowledgeTonic had willfully ignored its error with the intent to defraud HeyThereNegro, leading HeyThereNegro and our investors into a spiraling series of deceptions.”

When asked how he assessed KnowledgeTonic's abilities prior to hiring the consultancy, England replied, “they seemed really smart, and they all listened to rap music, and one of the lessons I got out of HBS was that culture is essentially a commodity; KnowledgeTonic represented themselves as understanding this simple fact, and capitalized on our lack of knowledge about the marketspace to deliver a completely 'Hello Kitty'-based plan.”

After HeyThereNegro filed suit with KnowledgeTonic over the allegedly mistaken report, KnowledgeTonic dissolved as an American corporation and reincorporated in the Cayman Islands, and recently, several KnowledgeTonic consultants who expressed willingness to testify on behalf of HeyThereNegro have been found in the East River between Manhattan, Brooklyn, and Queens, missing arms and feet. “We came to this with honest, well-intentioned desire to build a high-profile firm that realized on the revenue potential of ethnic urbanites and that would trade at 80-90 dollars a share and perhaps 150 times earnings, so that we could quickly sell off our controlling interest and retire on our riches before 2001,” said England, “and we were treated like rubes.”

Losing the Battle: Ruminant.com
Across the Alley, at 129 5th Avenue, Ruminant i-Consulting (NASDAQ:RMXT), a “vendor integrator enabling e-commerce consumer relationship connections,” is also feeling the market tighten. “To put it simply, I am choking on white-hot VC cock, yards of which which has been shoved down my throat” said Stuart Wool, CEO and founder of Ruminant, who over the last 4 years built the firm from Wool Consulting, a scrappy 9-person startup, into a well-funded 16,000-employee strategic powerhouse. “I pretty much said, come over here, Mr. Moneybags, and make me rich, and here's my pink asshole for your purposes. So now I'm getting fucked, fucked, fucked.” Recently, in response to Ruminant's stock price falling to $0.335 per share (from a 52-week high of $565.85) Wool sent a 48,000 word email to his investors and employees, which read in part:

Following the success of our Initial Public Offering, at the insistence of our main investor, Avaris Capital, we changed our name from Wool Consulting to Ruminant Consulting and purchased the Web address RuminantConsultingGroup.com from Avaris Namebank, a subsidiary of Avaris Capital which specializes in naming and branding, for a total of $48 million.

This outlay caused initial cash flow problems, from which it was difficult to recover. During the same period, the development of our logo, the familiar brown cow made of binary digits now posted on billboards in downtown Manhattan as part of our $26 million promotional campaign, required a dedicated staff of 295 and over $6,000,000 to develop, in a project managed by Avaris Creative Development Group, an Avaris Capital Company.

This development process indirectly created cash flow problems, as Avaris "strongly recommends against" its portfolio companies, even those which are publicly traded, marketing their products until a complete identity has been created and approved by the board, which consists of 8 Avaris representatives, each paid $400,000 yearly for their counsel, and myself, the founder, paid $8,000 and charged for the bagels and cream cheese I eat during board meetings. Unfortunately, because of conflicting schedules, it was impossible to assemble the board to approve the logo before a 4-month "seed" period was finished, at which point the remaining 15% of the shares in the firm not publicly traded or owned by Avaris, including the 9% of the firm which was owned by myself, were ceded to Avaris in exchange for further investment in the form of “services.”

Despite this renewed investment, and despite the prior uninterrupted profitability of Wool consulting during the last 16 quarters, prior to the IPO and re-launching as Ruminant, given the current business climate, it is necessary, in order to increase shareholder value, to reduce redundancy in our infrastructure.

This outlay caused initial cash flow problems, from which it was difficult to recover. During the same period, the development of our logo, the familiar brown cow made of binary digits now posted on billboards in downtown Manhattan as part of our $26 million promotional campaign, required a dedicated staff of 295 and over $6,000,000 to develop, in a project managed by Avaris Creative Development Group, an Avaris Capital Company.

This development process indirectly created cash flow problems, as Avaris "strongly recommends against" its portfolio companies, even those which are publicly traded, marketing their products until a complete identity has been created and approved by the board, which consists of 8 Avaris representatives, each paid $400,000 yearly for their counsel, and myself, the founder, paid $8,000 and charged for the bagels and cream cheese I eat during board meetings. Unfortunately, because of conflicting schedules, it was impossible to assemble the board to approve the logo before a 4-month "seed" period was finished, at which point the remaining 15% of the shares in the firm not publicly traded or owned by Avaris, including the 9% of the firm which was owned by myself, were ceded to Avaris in exchange for further investment in the form of “services.”

Despite this renewed investment, and despite the prior uninterrupted profitability of Wool consulting during the last 16 quarters, prior to the IPO and re-launching as Ruminant, given the current business climate, it is necessary, in order to increase shareholder value, to reduce redundancy in our infrastructure.

“Redundancy” David Sharnk, a Java programmer whose employment was terminated by Ruminant 23 seconds after Wool's email was released, sees it differently. “I immediately got really drunk on the beer in the fridge which we usually use for our Friday-night Thought Leaders planning meeting, and went into the CEO's office and took a piss on his white carpet while looking him in the eye,” said Sharnk via email. “I told him I was going to go to his house and kill his wife and rape his daughter. He started laughing and said I couldn't do any worse than Avaris was already doing to him. Several guys dragged me out but I'd already emailed the entire contents of the company Intranet to nine other e-consultancies, including the password-protected areas, after the recently fired systems administrator sent the password list company-wide. I hope that does wonders for their fucking shareholder value.”

According to industry analyst Christel Terwillegar, of the BreathStone Analysis Group, Ruminant has “experienced difficulty interesting clients in their intellectual capital”, and will probably fire between 12,000 and 14,000 employees in the next three months. “Their main asset is a patented, proprietary, 4230-step methodology for creating “customer-enabled e-business,” called iXN235/0O5, but clients aren't biting,” she said. “In general, I am advising workers in the tech sector to train as career counselors. Career counseling has become a major New York growth industry. And biotech, which is the next big thing.”

Tense Times Alleywide
While the stories of HeyThereNegro and Ruminant are emblematic, other companies face complex issues of fundraising and workforce reduction. JobRim.com, a resume-posting site for job seekers, recently “released” 98% of its employees, reducing staff to a single cocker spaniel named Marc Andreesen. It was this cocker spaniel, listed in the firm's business plan as CTO and technical consultant, which was the subject of a class action lawsuit by stockholders, who claim to have been misled into believing that the cocker spaniel was the same Marc Andreesen who co-founded the Netscape corporation.

Other firms are changing their business strategies in order to stay afloat. Chevril Collar, CEO of Blessed-Lamb-of-God.com, a 200-person “Christian E-commerce Vortal to Heaven” with offices near Wall Street, said that, after selling a custom database of email addresses to 164 different marketers, he registered the domain name “SiliconAlleyCourtesans.com.” “Our business plan calls for us to provide service-added aggregation within a digitally enabled buyer-seller marketplace, regardless of product. While I remain optimistic about our future options, it was prohibitively difficult to maintain a strictly Christian online selling environment, and now we must make use of the resources at hand. To that end, we have several attractive women on staff who have talents far beyond information architecture and content development, and we feel that SiliconAlleyCourtesans.com will give them opportunities to stay tapped into the corporate revenue stream while connecting in new ways with customers and venture capital representatives. Alternatively, they can try to keep the door from hitting them in the ass on the way back to their $2900/month Soho lofts.”

Even while he is forcing his staff into prostitution, Collar's attitude about the future of Silicon Alley is generally positive. Many others see the downturn in a similar bright light. “I think we can safely start taking away health care and retirement benefits and slashing the salaries, while blaming the economy,” said Carlsen Weissbridge of Geld, Covet, and Partners, an investment banking firm and Internet incubator, “or else give 'em shoeshine rags and show 'em the pavement.” Mr. Weissbridge then went on to spell the words "Stanford Business School," carefully pointing out which words should be capitalized.