DRAFT AT 20: BORN AS A DIRECT MARKETER, CHICAGO BASED SHOP FLEXES NEW FOUND MUSCLE

By Published on .

Through five name changes, four parents and two CEOs, all with fundamentally different temperaments and agendas, Chicago-based Draft Worldwide has helped change the profile of direct marketing from a junk mail and informercial business to a mainstream enterprise whose own profile includes blue-chip clients, 1,400 employees and bil-lings of $1.3 billion from 36 offices around the world.

Though Draft is marking its 20th anniversary, its forbears go back at least 15 more years. Its predecessor agency, Marshall John Advertising, was founded in 1963 on the remains of an even earlier agency, Phillips & Cherbo.

NEW LEADERSHIP EMERGES

On the other hand, it was just 20 years ago when the two defining men in what was then called Kobs & Brady entered the picture. First was Jim Kobs, who after 10 years as executive VP of Stone & Adler, was emerging as a leader in the direct industry. And second, there was Howard Draft, Mr. Kobs' bright, ambitious, fast learning protege and philosophy major fresh from Wisconsin's Ripon College, class of '77.

Mr. Kobs' concept of direct marketing had been formed in the '60s and '70s when the best friend any advertiser with a highly targeted product and a lowly budget had was the post office and a mailing list. Mr. Draft would come of age in the '80s' onslaught

of cable TV, grow to see things differently during a period in New York and change mentors in midstream. The two men would build the agency into one of the best direct marketing shops in the country, then split when faced with forces neither could control.

STARTS WITH ECCENTRIC CLIENT

The tale begins in May 1963 with Bankers Life & Casualty Co. and its eccentric owner John D. MacArthur, whose name now attaches to a famous foundation that gives money to "geniuses." Phillips & Cherbo had been one of the largest among a small group of Chicago agencies specializing in direct mail work. When it fell on tough times, one of its clients, Bankers Life, invited its staff to form an in-house ad department at Bankers and take on any outside clients it could land.

Marshall Edinger and John Egan became chairman and president respectively, and, in a curiously unorthodox gesture, put their first names rather than their last on the shingle: Marshall John Advertising.

"The agency was part of the whole MacArthur empire," recalls Tom Brady, who had been among the Phillips employees absorbed by Bankers Life and who would become Mr. Kobs' partner in a future agency.

VERTICALLY INTEGRATED MARKETING

Mr. MacArthur put together a kind of vertically integrated direct mail operation with a printing company, letter shop, list company and agency under one roof. It achieved solid success, billing $12 million-$15 million at its height by the early '70s.

By the late '70s Marshall Edinger and John Egan were looking at retirement. Tom Corcoran, who was heading MacArthur Enterprises and its various interests, began looking for a successor. The search led to Jim Kobs, an executive VP at Stone & Adler, then Chicago's leading direct marketing agency. Mr. Kobs told Mr. Corcoran he had no interest in moving to a house agency. But if Mr. MacArthur was willing to let it function as an outside business, he would consider it.

"I wanted three things," Mr. Kobs recalls. "First, change the name. Second, separate it from Bankers and move it downtown. And third, manage the PR in such a way that it would appear the start of a new agency, even though insiders would know it still had ties to Bankers and MacArthur."

UNTIMELY DEMISE

Mr. Corcoran met Mr. Kobs' demands, but before the negotiations were done, John MacArthur died. It was a particularly untimely demise that made all MacArthur assets hostage to his estate, including stock in the new agency. Mr. Corcoran asked if Mr. Kobs would still do the deal with the understanding that at some point he could acquire the whole agency. On April 1, 1978, Kobs & Brady Advertising opened at 625 N. Michigan Ave.

"After two years or so," Mr. Kobs says, "we made a formal agreement to buy the whole agency back on an earn-out basis within three years." Under the new set up Mr. Brady wore several hats under the all-purpose title of senior VP, but concentrated on the Bankers Life business. Real management authority, though, belonged to Mr. Kobs, who took the title as president.

K&B began with about a dozen people, mostly holdovers from MJ. Sandy Moltz, who remains with Draft today as chief creative officer, had already joined from the Maxwell Sroge Agency. And Mr. Kobs brought three people with him from Stone & Adler. One was Howard Draft.

SECOND-CHOICE CAREER

For most people then, direct marketing was a second-choice career, a consolation prize for those who couldn't land with a general agency. It had been for Mr. Kobs back in 1960, when he met an FCB recruiter on campus, to no avail. And it was for Mr. Draft, who had been turned down by two top agencies in Chicago before he found his way to Stone & Adler in 1977. (Ironically, years later, he would be offered the position of CEO of Saatchi & Saatchi Worldwide.)

"Howard was one of the best and brightest persons I ever worked with," says Mr. Kobs today. "He understood the direct marketing business and was a quick learner. He also had good client skills and understood the numbers end of the business."

Mr. Draft would become Mr. Kobs' prize protege and receive a basic education in traditional direct marketing. The agency was growing swiftly by any standard, even those of the fast-growing direct field. By 1982 Mr. Kobs, who had literally written the book on direct marketing ("Profitable Direct Marketing," 1979, revised 1992), had doubled K&B billings in three years to nearly $26 million.

BUYING UP DIRECT SHOPS

Little wonder major agencies were stampeding to buy up direct shops. Yet, by 1984 K&B was the only one of the top 10 direct agencies still resisting acquisition. It wasn't for lack of suitors. "During the time we were going through our earn-out with MacArthur," Mr. Kobs says, "we were approached by each of the 15 top agencies. I didn't check with my lawyer, but I didn't think it was a good idea to sell something we didn't own yet."

Technically true. The fact was, the earn-out was complete by the fall of 1982 and Mr. Kobs was the majority stockholder with freedom to do what he wished. He simply enjoyed being his own boss and was in no rush to give up the privileges of ownership. But he also recognized that as big agencies bought up direct shops, the playing field was no longer level for those who stayed independent.

LOSES SHOOTOUT

This became clear in the spring of 1982 when K&B lost a shootout against a general agency with a strong direct division because the client expected to shift its spending between direct and media as needed. The question Mr. Kobs asked himself: How do I get the resources of a big agency without submitting to its control?

He had been getting phone calls and a visit or two from a New Yorker named Don Zuckert, who was heading the acquisition committee at Ted Bates. Bates had tried to set up a direct division, watched it sputter and was now eager to buy a direct shop that could do the job right. With Bates clients such as the U.S. Navy and Prudential clamoring for direct services, the need was urgent and Bates was in a hurry. Unfortunately Mr. Zuckert was up against a man who was not. He found Mr. Kobs "lethargic." But to Mr. Kobs, it was a reluctance; he just wasn't in a marrying mood.

If he wouldn't marry, though, he was interested enough in Bates' resources for a kind of trial relationship, and on Oct. 4, 1982, K&B's New York doors opened in a section of Bates' office space at 1515 Broadway.

PICKS HOWARD DRAFT

To run the New York office, Mr. Kobs turned to Howard Draft, who was still working in the agency's account executive rank-and-file. "Howard needed new challenges," Mr. Kobs recalls. "Despite the fact he was still under 30, I thought he could handle it."

"Handle it" would prove an understatement. It changed the history of K&B. "Howard was brash and aggressive in wanting to build the agency," Mr. Zuckert recalls. "I was concerned at first that he'd come across as too strong for clients. But he was able to deliver what he promised and won my respect and the clients', too."

The Bates environment and Mr. Zuckert, who became his new mentor, fundamentally changed the perspective on direct marketing Mr. Draft had brought with him from Chicago. Within 18 months the New York office was bigger than Chicago. Plenty of the volume was spillover from the Bates roster-HBO (still a key account) and Avis. But Mr. Draft pulled in Chesebrough-Ponds and Philip Morris on his own. And when HBO moved to BBDO, it kept its direct business at K&B.

NEW YORK AN EYE OPENER

"I thought Bates was a phenomenal agency," says Mr. Draft today. "It gave me a feel for general advertising. I had come from a small 60-person direct agency in Chicago. When I came to New York, it opened my eyes to what advertising was really all about." What advertising was about was growth. And under its young manager, K&B New York became a juggernaut of growth.

When Mr. Draft returned to Chicago in 1986, it was as president and chief operating officer. It was much the same K&B he had left 41/2 years earlier: a mix of Fortune 500 clients with one-shot projects from clients such as Fredrick's of Hollywood. But it was not the same Howard Draft. He was no longer interested in one-time projects. He was ready to tell Mr. Kobs that times were changing; that Fortune 500 companies were recognizing the value of direct marketing; that it was no longer going to be a mom-and-pop business but a global one using all media; and that direct marketing must assimilate more with the culture of general advertising.

almost anathema

This was almost anathema to Mr. Kobs, who like many in the direct business was inclined to pitch all resumes from general agency people into the wastebasket. Traditional direct marketing was almost a secret society to those who practiced it, something apart from general advertising. Today Mr. Draft, on the other hand, says "most of my people" come from an ad agency background.

"Howard came back with a clear understanding that agency business could no longer be on a project basis," says Mr. Zuckert, "but on a contractual one with major accounts along the lines of the relationships he had seen at Bates. That's what he took back to Chicago."

But Mr. Kobs was not without major account experience himself. He had worked on Hewlett-Packard at Stone & Adler. And AT&T, Xerox and Honeywell were on the K&B roster. "That was not a new idea," he says. "The real difference between Howard and myself was that I wanted to have the small direct mail accounts as well as the some Fortune 500 business.

NEEDED TIME

"I also wanted more time. We all understood we could not continue independently forever. Our management, including Howard, had always had a strategic plan that in order to compete we would have to sell to a general agency. We were all together on that. But we wanted to build ourselves up first to command respect."

"Respect" meant billings and they came fast. Any differences that might have existed between Messrs. Kobs and Draft were overshadowed by a 35% growth spurt in 1985 that made top ad agencies salivate over the prospect of scooping up K&B. The engagement to Bates did little to stop other agencies from hitting on it. When Leo Burnett noticed several major clients diverting ad dollars into direct-and out of Burnett-it made overtures in 1985. Senior Burnett executives, including present Chairman Richard Fizdale, came to K&B for primers on direct marketing. But Mr. Kobs didn't want to see his agency disappear into the Burnett culture.

BURNETT ENTERS SCENE

Talks broke off, but not before Burnett tried to lure away Mr. Draft. "They called me on a Thursday night," he recalls, "and said they'd like me to open a direct marketing department. When I [met them] the next day they had a contract on the table." The proposal only tightened Mr. Draft's ties to K&B, with billings barreling towards $80 million.

But this minor subplot was only a prelude to the final stages of Bates negotiations, which by March 1986 were in their fourth year. There were also 11th-hour bids from McCann-Erickson and J. Walter Thompson. But on March 6, Mr. Kobs, Don Zuckert and Bates chairman Bob Jacoby worked out the last details and a deal was announced the next day for a price said to be $10 million and change.

STRAIN SHOWING

Mr. Zuckert was exhausted and showed the strain. "I had bought over a billion dollars worth of agencies for Bates at that time," he recalls. "And that was the most protracted negotiation I had ever undertaken. There was no reason for it to take that long, other than that Jim Kobs couldn't make up his mind."

Mr. Kobs saw several reasons, however. "I had a financial target in mind," he says, "and the more time I took, the more I could improve the deal with concessions." Case in point: If Bates merged or went public, Mr. Kobs and Mr. Draft feared, the incentive stock that was part of the K&B deal might be at risk.

"That was the last issue," he explained. "Bates had to raise cash to finance the retirement of a generation of senior management, and I didn't want to see our incentive stock swallowed up in some future deal."

The future came only six weeks later when Bates sold itself to Saatchi & Saatchi. "Suddenly there was a new parent company," he says, "and new people we had not chosen [to work with]. It was not what we planned, but we had to face up to it. On the other hand, it was like selling K&B a second time. We got a second hit from the same sale."

PERIOD OF STABILITY

For the next year K&B fortunes appeared stable. In the emerging Saatchi hierarchy the agency continued to report to Don Zuckert, who clearly saw a key future role for Howard Draft.

Meanwhile, the new parent sorted through its acquisitions, merging Bates with Backer & Spielvogel in July 1987 to form Backer, Spielvogel & Bates (BS&B). In Chicago K&B moved its 100 employees to new offices at 142 E. Ontario St., and on April 1, 1988, marked its 10th anniversary by changing its name to Kobs & Draft.

PROBLEM WITH ROLES

But behind the scenes the question was what Jim Kobs' role would be. Mr. Zuckert and the Saatchis wanted to move him to Europe to build an international network of K&D direct marketing agencies. Saatchi considered it a priority. But Mr. Kobs was nearing 50, wealthy and without an appetite for further empire building.

"I didn't want to do it," he says, "and suggested a number of alternatives. I proposed to buy back the Chicago office myself and let Saatchi have New York and any international operations we had. It seemed to make sense and was approved by everyone at BS&B as well as Saatchi U.S. management."

But it made no sense to the Saatchi brothers, who were selling nothing. For Mr. Zuckert it was yet another impasse with Mr. Kobs. "We negotiated with Jim for 18 months," he says, "and he kept dragging his feet. This led to a situation where the Saatchis instructed me that they'd waited long enough."

KOB TAKES LEAVE

In April 1988 Mr. Kobs began a six-month leave of absence. There was a protracted period of arbitration. During a brief non-compete period, he set up I.B.J. Consulting, which, if anyone had asked, he would have explained stood for "In Between Jobs." The following March he established Kobs Gregory Passavant as an affiliate of Bayer Bess Vanderwarker. For six years he enjoyed the distinction of seeing his name on two agency letterheads in the same city.

The path was now nearly clear for Howard Draft. The first step was to establish an international presence, a task he assigned to Dan Ginsburg. "[In 1989] we entered key markets around the world," Mr. Draft says, "started small offices and built them up. In some cases we gained clients from Bates or Saatchi. In other cases we opened offices first. We went into France, Germany, the U.K., Spain and Hong Kong and learned the ups and downs of international business and marketing." Oddly enough, one obstacle remained in Mr. Draft's path: Saatchi & Saatchi itself. "I couldn't acquire the kind of capabilities I needed to attract the business I wanted," he says. "I spent more time closing down agencies Saatchi had purchased. Our growth then was organic."

BUYBACK MOVE

To be free of Saatchi, Mr. Draft would have to buy back the agency. Cordiant, the Saatchi holding company, was no longer buying because it no longer had cash. Then when Maurice Saatchi was fired by the board in December, 1994, Mr. Draft took advantage of the panic and offered $22 million in a buy-back offer. The Cordiant board rejected the deal. Eight months of tedious, often testy negotiations followed, during which Saatchi lost 6% of its business and fired 470 employees. At one point, Cordiant even offered to make Mr. Draft the CEO of Saatchi & Saatchi Worldwide.

Finally brought to heel, Cordiant buckled, and on Aug. 1, 1995, Mr. Draft announced a deal valued at $27.2 million. Once again Draft Direct, as it was renamed six weeks later, was its own boss. Yvonne Furth, who had joined K&B in 1981 after a short stint at Maxwell Sroge, became president and chief operating officer of Draft Direct US, which put her in charge of all domestic operations.

TEMPTING TARGET

"There was no way-so soon after becoming independent-that we were ever going to sell to another multi-national network," says Mr. Draft. But no amount of Air Wick could hide the tangy scent of a $600 million direct marketing agency on the loose. Five months after going private, Mr. Draft and Dan Ginsburg, president of Draft's worldwide operations, were in New York and accepted a informal invitation from Phil Geier and Gene Beard, chairman and chief financial officer respectively of Interpublic Group (IPG), to stop by the office for lunch.

Mr. Draft made no preparations, did no research. He was never going to sell-he thought. "We knew we'd be going back into the world we'd just left," he says.FIXING WEAKNESSES

The lunch took place in February 1996. Each company, it quickly

developed, had a weakness the other could fix. A big debt from the Cordiant buy-out was a drag on Draft's ability to grow, while IPG had a significant hole in its direct services internationally. It had taken four years for K&B to consummate with Bates. It would take about four weeks for Draft to agree to become part of IPG. After buying itself back from Cordiant for $27.2 million, it now sold itself again, this time for a sum said to exceed $100 million-a 300% profit in six months! A fine return for Mr. Draft and his senior management. And a good deal for IPG, which has seen its purchase double to billings of $1.3 billion in 18 months while building specialities in the healthcare field, minority marketing, business-to-business selling and other segments.

A REAL SAVIOR

"They turned out to be a real savior," says Mr. Draft. "We couldn't be growing so fast without their ability to quickly support our acquisition strategy and even sign leases to accommodate our growth. They've turned out to be exactly what they said and what we thought they'd be."

And Draft Worldwide is growing indeed. Among its acquisitions in the last year have been: D.L. Blair, specialists in sales promotions and sweepstakes serving American Greetings, Miller Brewing and Philip Morris; Adler Boschetto Peebles & Partners, a New York general agency; Marketing Corp. of America; and promotion and general agency Lee Hill Inc. The combined acquired billings came to more than $400 million, easily putting Draft Worldwide into the billion-dollar club.

PURSUING A VISION

Beyond the billings boost, the acquisition strategy has allowed Mr. Draft to pursue a vision of what an integrated marketing company of the future should be. With newly acquired strengths in all facets of promotional marketing and brand building added to the agency's traditional direct response and research capabilities, the agency believes it can bring a unique perspective to clients.

With the diversification, Draft dropped the "Direct" from its name last fall, becoming simply Draft Worldwide. "We've acquired great people who are used to running their own shops," notes Yvonne Furth, "so it's important to include them in management if we're to be successful."

SUCCESSFUL ACQUISITION

In a November analysis of Interpublic Group, Prudential Securities called Draft "One of IPG's most successful acquisitions" and said the agency is "at the upper end of the direct marketing business, [an] arena where strategic and creative excellence are the defining factors in winning and keeping clients."

And so the agency born as Kobs & Brady turns 20 under the name Draft Worldwide. Today Jim Kobs is happy as his own boss running Kobs Gregory Passavant. Tom Brady, who will retire from Draft this year, continues to serve Bankers Life. And Don Zuckert is vice chairman of the Draft Worldwide board, valued consultant and, at 63, a kind of "father figure" to Mr. Draft.

NEW RESTAURANT

As for Howard Draft, late last year he opened 56 West, a restaurant specializing in food and jazz for the gourmet a few blocks from his new Chicago headquarters at 633 St. Clair St.

But far more important, he presides over an organization with offices from Singapore to Sao Paulo and to Hong Kong, a multi-billion-dollar operation with a client list including American Express, HBO, Sprint, the U.S. Postal Service and Primestar.

In all, a long way from the direct marketing world of the late 1970s.

In this article:
Most Popular