Turning bricks to clicks has made Guidance Solutions Inc. of Marina del Rey one of the fastest-growing companies in the region.
Now, armed with a fresh $47 million it raised through a private placement this month, Guidance will continue to expand its online business development division and e-business incubator.
Guidance specializes in helping traditional retail companies--often with well-known brand names--go "dot-com." The company has grown to 160 employees from 12 in 1997. Although the privately held company won't release net income figures, Guidance says it is profitable, which is unusual for a fast-growing high-tech firm.
"Much of this industry has been built with a lot of hype, but we believe in the substantive power of the Internet," said Robert H. Landes, 42, chief executive with Guidance Solutions and once the chief marketing officer for Los Angeles shoemaker L.A. Gear.
Guidance raised its private placement funds through Jefferies & Co., a Los Angeles investment bank. In a private placement, a company sells shares in the company to private investors, rather than to the public. One of Guidance's major investors is Clayton, Dubilier & Rice, a New York investment firm that manages $5 billion.
Helping to transform traditional assets into an online business is one of the hottest sectors in the Internet.
Although many companies do what Guidance does--helping companies set up Web sites and develop their online strategies--Guidance operates differently, taking an equity stake rather than a flat fee. It also acts like a venture partner, rather than a consultant, by helping to develop long-term strategies and a management team, instead of just an initial plan or site design.
"When you are developing a Web site for someone, it's a lot like having a mechanic work on your car: You never really know if you need all the stuff they are saying you do," said Joseph Tang, 32, company founder and president. "But since we are partners, they feel there is a strategic alignment of interests."
Guidance typically takes a 10% to 45% stake in the company, depending on its value at the time Guidance gets involved. Guidance enables companies to get sophisticated sites running, without a start-up having to come up with a lot of cash upfront.
"Ideas are great, but ideas unexecuted are just dreams," Landes said.
The company's portfolio consists of about 10 companies, which Guidance likes to call "venture partners." They include: RightStart.com, a partnership with baby goods retailer the Right Start Inc.; MrsBeasleys.com, with baked goods sellers Mrs. Beasley's and Miss Grace Lemon Cakes; ENutrition.com, a Woodland Hills-based partnership with Salt Lake City-based health and nutrition firm Weider Health & Fitness; and StreetZebra.com, with Los Angeles-based sports and recreation information provider Street Zebra Inc.
"Basically, we're in the baby business, we're in the nutrition business, we're in the team sports business," Landes said.
The market for Internet consulting and developing online businesses is expected to explode from $4.6 billion in 1998 to $43.7 billion in 2002, according to data tracker IDC in Framingham, Mass.
Market Is Growing for Web Consultants
While older, larger consulting firms are scurrying to get involved, the industry is already in the consolidation phase as well. Last week, Whittman-Hart Inc., the Chicago-based computer consulting company, agreed to acquire San Francisco Internet consulting firm USWeb/CKS Corp. for nearly $6 billion in stock, creating the largest Internet professional services company in the world. Other big companies in the consulting and Web design business include Atlanta-based IXL Enterprises, which has more than 2,000 employees worldwide.
"This is an extremely large market and the need for services continues to grow," said John Farina, head of IXL's Southern California division, which has more than 200 people in San Diego and Los Angeles offices. Farina said that unlike Guidance, IXL doesn't typically take an equity stake in lieu of fees, although it has a partnership with a venture fund. And unlike Guidance, IXL focuses on larger clients such as General Electric Co. Its Southland clients include EToys Inc. of Santa Monica.
"Guidance has been more of a regional competitor, but they don't have offices in other states," Farina said.
Founded in 1993, Guidance began as a computer systems integrator for Fortune 500 companies such as IBM Corp. and Wells Fargo & Co. Once Landes joined in early 1997, the company shifted gears to become an e-commerce developer. Its first effort under the new strategy was helping to develop sites for Venator Group, the former Woolworth, which sells shoes and equipment under the Foot Locker name.
This year, Guidance decided to work solely with companies in which it can take an equity stake.