There are those in the industry who say it takes a brave marketer to gamble his or her reputation by placing their trust in an unproven agency. Others suggest that the decision to back a start-up agency is born out of ego and a desire to be associated with a “hip and happening” young agency that produces cutting-edge work.
Whatever the motivation, Britvic Soft Drinks marketing chief Andrew Marsden this week announced that he had decided against handing Tango’s &£10m advertising business to TBWA/London – an established and proven agency – and instead plumped for Clemmow Hornby Inge (CHI), an agency that is less than a year old. Simon Clemmow and Johnny Hornby, two TBWA executives, joined Lowe Lintas creative Charles Inge last year to form CHI (MW June 7, 2001). The business was founded on &£10m worth of business from The Carphone Warehouse.
In the past few months, the advertising industry has witnessed a plethora of high-profile start-up agencies: CHI has been followed by Abbott Mead Vickers.BBDO (AMV) breakaway CDD, which picked up the &£10m Mercedes business, and most recently Vallance Carruthers Coleman Priest (VCCP), which sensationally snatched the &£45m European launch task for the mmO2 brand from AMV two weeks ago (MW January 24).
There are many reasons for creating an agency start-up, but the most common is that executives believe they are unable to further their careers at their existing agency and, spurred by the promise of business from client contacts, they decide to defect and go it alone.
AAR director of advertising Martin Jones, who is consulted by at least one potential start-up agency every fortnight, says 80 per cent of them never get off the ground because client contacts fail to honour their initial pledges of support. However, he adds that only the very cynical would accuse a marketer of trying to gain fame by sacking his company’s established agency and replacing it with a start-up: “I think the days of people making this kind of decision to boost their egos are long gone,” he says.
MmO2 vice-president of global marketing Will Harris is, ironically, a former AMV account director. He fervently denies that he handed the O2 launch to a start-up in order to further his own reputation: “This has put me through loads of private aggro and sleepless nights. It’s no easy thing to move business out of an agency that you yourself have worked at. But, ultimately, VCCP produced a better advertising idea for us.”
CHI’s Hornby says that moving business to a start-up agency has benefits for both client and agency: “The mutual agenda is that while we make a brand famous, it will also make our agency famous.”
Rupert Howell, founding partner of Howell Henry Chaldecott Lury (now HHCL & Partners), identifies several trends among start-up agencies. One is the “blockbuster breakaway”: well-known ad agency executives defect from an agency, taking business with them, as in the case of Lowe Howard-Spink, which in 1981 poached Whitbread, Birds Eye and Fiat from Collett Dickenson Pearce.
Then there are agencies, such as CHI, that set up on the back of a large, single account, or those that take the risk of setting up without any promise of work and then subsequently attract business.
Present-day employment contracts at agencies militate against the blockbuster phenomenon. This means that the much smaller group of start-up agencies that open their doors with a new major client already in place are more commonplace than the Lowe Howard-Spink model.
However, in almost every case there is a personal connection. Harris worked with VCCP founders Rooney Carruthers and Charles Vallance during his days at WCRS, where he managed the Orange advertising business. The three have stayed in close contact since. Johnny Hornby and Carphone Warehouse chief executive Charles Dunstone are also close friends who, among other things, take sailing trips to the Caribbean together.
Debenhams chairman Peter Jarvis was marketing director at Whitbread – and later chief executive – when in 1981 he took the Heineken and Stella Artois businesses away from CDP and handed it to start-up agency Lowe Howard-Spink.
Jarvis says: “As I recall, I had already worked with Frank Lowe for about ten years. I felt the relationship was essentially with Frank and the creative people who were close to him, rather than with the big agency. We had a very effective campaign for Heineken, which we had worked on for years.”
Leaving the comfort of a large agency network means new agency bosses have the added complication of having to deal with corporate financial issues for the first time in their career.
“I don’t suppose it was easy at all,” says Jarvis. “I am sure Frank [Lowe] had worries about cash flow that kept him awake at night. You just remember the good things, but I am sure there were a lot of bad things as well.”
There are inevitably testing times for an agency start-up. Leslie Butterfield, a founding partner of Butterfield Day DeVito Hockney (now Partners BDDH), remembers that when it won its first client, Honda, shortly after setting up in March 1987, the motor company sent in auditors to ensure the agency was going to be able to survive. Honda checked the backgrounds of the founders and examined the books before making the appointment. “The Honda president had not attended the pitch and needed to be reassured that the agency was financially sound,” says Butterfield.
Counting the cost
Omnicom-backed CDD founding partner Caspar Thykier says the sort of money worries experienced by Lowe and Butterfield have little relevance to today’s start-up agencies: “The biggest cost for any new agency is property. Also some of these larger agencies can be very over-staffed – we are much more lean.”
A leaner agency, Thykier says, means that these smaller start-ups often come at a cheaper price than a major full-service agency.
O2’s Harris says: “Many of these older agencies are massively overstaffed. Things like traffic departments don’t exist at start-up agencies and, given the level of technology available these days, you shouldn’t need to pay someone to run around the building getting bits of paper signed. It’s ludicrous.”
Not every agency starts with a multi-million pound advertiser. There is also the more conventional start-up, which opens its doors and then begins the hunt for business. Typically these agencies start with small projects. HHCL’s first client was Danepak, which was launching a brand. Likewise, it took a few months for Duckworth Finn Grubb Waters (now DFGW) to win the Duckhams oil and then the Melitta coffee accounts after its launch in 1989.
According to Howell, start-ups often sign a media-owner client early on, as they move in the same milieu. Agency executives get to know about new projects and have good contacts in the sector. CHI was appointed by The Daily Telegraph just five months after that agency’s launch. One of today’s most admired and talked-about agencies, Mother, opened its doors in 1997 with the launch task for Channel 5.
But the single large client – or “blockbuster” – start-up has potential dangers for a marketing director who puts all his work with that one agency, claims industry analyst Bob Willott, of Marketing Services Financial Intelligence. “There’s evidence that where the start-up is on the back of one big client, it’s hard to build up a spread of clients. While the agency puts all its efforts into serving that client, it may miss out on attracting other business and fail to build the necessary infrastructure in years to come,” he says.
MmO2’s Harris says he is not worried about being VCCP’s only client for the next few months: “We agreed that I would have the agency’s exclusive attention until after the O2 launch,” he says. “But I would certainly want, and be very happy for, VCCP to go on and win new business after that. It would be unhealthy for the agency – and for me – to be its only large-scale client.”
Words of warning
Ogilvy & Mather chairman and chief executive Paul Simons, who set up Simons Palmer Denton Clemmow Johnson in 1988, cautions that agency executives who have founded a start-up can be inflexible and idealistic. The executives, he explains, have often left their previous agencies because they have become disillusioned with the way business is conducted – they may be high-minded and passionate about advertising, but be reluctant to tow the company line.
Michael Finn, who set up DFGW in 1989, claims any negative is balanced by a positive: “Inevitably there is some risk in giving business to a relatively untried entity, but at the time of our launch many clients were frustrated with the service they were getting from big agencies. If you hire an agency early on, that agency has tremendous loyalty to you.”
Jarvis admits that when he hired Lowe Howard-Spink it was “a risk that had to be taken by the chief executive and the marketing director”. He adds: “My judgement was that the agency would be around for a while. I knew of other important clients with a similar relationship [with the founders of Lowe Howard-Spink]. I felt others were likely to make the same decision – I don’t remember it being traumatic.”
Jones at the AAR believes start-ups have few risks as the individuals behind them generally have a proven track record, often having held senior positions at established agencies. He says: “A client gets access to the top people who in a large ad agency would be overseeing as many as 20 clients at a time.”
In May the industry will watch with fascination as BT Cellnet is rebranded O2. Harris’ decision to leave the creatively acclaimed AMV and opt instead for a small start-up will no doubt imprint the adage “success has a thousand fathers, but failure is an orphan” on his mind for a while. He does, however, have a number of successful case studies of some of the UK’s top agencies to draw comfort from.
Additional reporting by David Benady