Don’t Show Me the Money: Genex Lives Without VCs

By CHRISTOPHER KEOUGH

Staff Reporter

To Walter Schild it was a no-brainer: Don’t take the money.

The founder and chief executive of Genex, a Los Angeles Web design house, Schild has survived the bloody dot-com fallout on a systematic approach that’s at odds with the reckless pursuits of his competitors.

Not only has the business outlived larger and more highly capitalized companies to become the largest Web development shop in Los Angeles, Schild pulled it off without the venture capital or initial public offering on which its brethren relied to stay alive.

Not that there weren’t offers he just never saw a reason.

“It was always one of two things or both,” said the 30-year-old Schild. “We either didn’t like the management or someone involved in the deal, or it just didn’t make sense.”

No one would have blamed him if he took the offers. The money would have allowed the firm to grow to chase new business, add staff, get fancier offices. In short, to act like nearly every other developer or e-commerce site.

Now a sad joke, the mid- to late-1990s was an era in which everyone was going to become a millionaire on the Internet. And someone had to devise the Web strategy, the site and write the code that would put companies online.

Tens of thousands of geeks were hired, treated to stock options, massages and Aeron chairs. They were corralled in spacious creative offices at the beach and other prime addresses.

And then the dot-bottom fell out.

The huge national Web developers like Sapient Corp., iXL Enterprises, MarchFirst and Razorfish lopped off hundreds of jobs at a time and fled their fancy quarters in a retrenchment that saw bankruptcy, liquidation and shame.

Simple start

Schild watched it all, but stayed above the fray. When Genex’s revenues fell 3.5 percent, to $11.2 million in 2001, he only had to cut 10 full-time positions from his staff of 120.

The kid who couldn’t even read a balance sheet when he formed Genex emerged from the carnage with a business that posted record revenues of $3.5 million in the first quarter of 2002.

“It’s a very profitable business if you run it in a practical way,” said Schild, who noted that profits in 2001 were negligible but the year before the company made about $1 million. “If you have work, you hire people. If you don’t have work, you let people go.”

Schild, a 1989 graduate of Marina High School in Huntington Beach, never went to college and refers to Genex as his MBA program. Having grown up tinkering on relics like the Apple II and Commodore 64, Schild’s first real tech job was as chief technology officer at Alan Lithograph in Inglewood. The printing company brought him in to computerize the operations and take the press electric.

Schild kicked off Genex in 1995 in a spare bedroom at his Manhattan Beach house. “I got kind of bored with the print space because I felt the technology had stabilized and the problems had been solved,” he said.

Armed with a couple of computers, he plopped down $20,000 in cash and credit card debt to form Genex. (The name was inspired by a friend’s license plate.) To get accounts, Schild started networking among advertising agencies, design firms and corporate contacts he had made.

Genex’s first three clients were Porsche, the U.S. operations of Mercedes-Benz, and Salt Lake City printing company AlphaGraphics Inc. The German car companies ended up in Schild’s lap thanks to a relationship with auto marketing company Designory in Long Beach. Through Designory, Genex put together a marketing CD for Mercedes Benz and created a Web site for Porsche’s parent company.

Expanding the business

With money coming in, it was time to take another step.

“We took the profit and moved into offices and bought more computers and hired more people,” he said.

The office he took in 1995 was tiny: 2,500 square feet on Jefferson Boulevard in Culver City. After 18 months, Genex took 5,000 square feet in the 15,000-square-foot building on Washington Boulevard. The business now occupies the entire building.

In its first full year, Schild said the three-employee Genex generated $900,000 in revenues and made $300,000 in profit. By the end of 1996, it had eight full-time employees. A year later the business had grown to $2.5 million in revenues and 25 full-time employees.

For the time, 300-percent growth in personnel for an Internet business was not really considered growing. It was more like stretching.

Genex’s competition was growing at rates of 1,000 percent and higher. Scient, which ultimately was forced to merge with iXL, another overextended Web development shop, grew from zero to 2,000 people in 18 months, Schild said.

In 2000, Genex doubled its payroll, from 60 to 120. Business dictated the growth, Schild said, but it’s still a pretty big number.

“I would not be comfortable doubling again, according to our current size,” he said. “I’d rather say we’re growing healthy, we’re adding good business and good people.”

The growth was funded almost entirely from within. The only outside investor is Kevin Wendle, chief executive and co-founder of iFilm Corp., who was brought in by Genex’s former financial officer. Wendle’s 7 percent stake in the business came in exchange for an investment of “a few million dollars,” according to Wendle.

The company also has a $1 million line of credit with Comerica Bank, which Schild said was first tapped during the dog days of 2001. While it might seem brilliant strategy for Schild to have been conservative in growing the business, he acknowledges that the lack of cash kept him in line.

“That can be a very dangerous drug,” Schild said. “It can be addicting to have that safety net. If you don’t have cash laying around, you can’t spend it.”

Sound strategy

Seth Alpert, managing director of New York-based M & A; advisory firm Ad Media Partners Inc., said Schild’s disciplined approach kept Genex within itself. “Some of the guys who did take in the outside money were advised to so some things that were geared toward an IPO or successful funding,” Alpert said.

Unwarranted investment is not the only thing that can buoy an ultimately losing proposition. So can a false customer base, which was easy to accumulate in the dot-com craze.

“If you build a big building on very shaky footing and you begin to lose customers, you have nothing to hold it up,” Schild said.

Today, Genex’s Internet business is divided into four areas: project management, engineering, creative and strategic. The company assembles a team from each of the disciplines, which develops a strategy for a site, builds and then manages the site. The product could be an Internet site or internal corporate site.

The average billing rate is $175 per hour and Schild’s ideal project size is $500,000.

Schild has been known to turn down work in order to focus on the needs of his loyal customers. That philosophy resulted in increased business from core clients in 2001 when all new sources of business had dried up. “A lot of companies foolishly accepted clients with no visible business plan, and ended up having to eat the cost of their own work,” Wendell said.

Schild is not immune to growth temptations. In 2000, he opened an office in Atlanta so he could be bi-coastal and last year launched a division to solicit work creating movie sites.

Liz Jones, director of Internet marketing for 20th Century Fox, is working on her fourth site with Genex. Jones said Genex has a knack for getting to creative places she doesn’t think they can.






For the “Ice Age” Web site, Fox and Genex tackled the issue of creating a place that would appeal to kids and also amuse their parents. Through a mixture of interactivity and alternately passive choices, the site ended up wildly successful and kept visitors for 10 to 12 minutes, more than double the typical four- or five-minute stay at a movie site.

For all the accolades, though, Schild continues to run the place one year at a time because, the way he does things, the whole business might end one day, just as it started.

“If it gets too boring, we’ll sell the company,” he said.

Founder: Walter Schild – Genex


Year founded: 1995

Headquarters: Los Angeles

Core business: Internet development and consulting

Chief executive: Walter Schild

Revenues 2001: $11.2 million

Employees: 110

Sites Developed: American Honda/Acura, Apple Computer, CitiStreet, E! Entertainment Television, Porsche Cars North America