• by February 12, 2001

By Debbi K. Swanson

Kumar Verma had to get serious a few months ago. He woke up to the reality that surrounded him and his company Digitalroot in the online ad world and realized the party was over.

"The moral of the story is to innovate and open your business model or you'll die," says Verma. "There's too much KoolAid out there. We were drinking it until about 4-1/2 months ago." The KoolAid was the industry-wide belief that the online fantasy could last, not too dissimilar from the mania during the Roaring '20s.

Verma founded the company in 1998 as a consulting agency that covered business modeling, brand management and data analysis. Digitalroot received several hundred small business client requests in the first quarter of operation, which were turned away. "We were then approached by Web-hosting giant Verio to see if we could solve the advertising needs of their small businesses which numbered in the hundreds of thousands. It was impossible, but I worked on the product specs in my spare time. After four months I decided on our 'Gold Rush' Play."

Intent on making it to IPO status or being acquired, Verma says he hired a high-profile team, developed a prototype and raised money. Then in early 2000, looked for a second round of funding. After a good reaction Verma shopped around for the highest valuation and secured several million dollars.

"A month later the market crashes, investors pull out. We kept going to meet our launch date. We couldn't match the salaries offered by competitors and so a management and senior staff exodus ensued." That, he says, was fortunate as it allowed the company, pared down to 16 employees, more flexibility to experiment.

"My brother came in as head of corporate development and developed new product lines. We were building tool technology that didn't have much traction. We created a heavy customer focused direction after brother came on. Those ideas that stuck we went with."

MediaForce, the company's media buying service division, is the real generator of revenue. However, the value proposition of the online agencies is decreasing and the power is shifting to the more traditional agencies. "Also theirs is a low barrier to entry. So what we see as being our long time survival play (including IPO and acquisition) is wholly dependent on our technology." Verma's philosophy about technology and advertising echoes what others in the industry have also discovered as they tried to introduce one new technology after another.

"Most people build technology to redefine the process. It should be used to help the existing process. Advertising isn't rocket science. There's not a high level of acceptance of new technology so when you're trying to introduce new processes there is a resistance. That's the reality. We were guilty of the same thing. So we went with something less cool, but more realistic."

Digitalroot decided to translate its success with MediaForce's internal process to other a