FRANKEL AT 35: EXCEPTIONALLY RAPID GROWTH AT 4TH-BIGGEST PROMO SHOP; IPO EXPECTED WITHIN YEAR

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Bud Frankel doesn't like to talk about his compensation. "It's a little embarrassing," he says with a reasonably straight face. "Embarrassingly low. You'll have to wait for the IPO."

Wait! Frankel's going public?

Indeed so. At last. Expect it about a year from now, he discloses. That's when he'll finally have to fess up on his salary. But it will be worth the embarrassment, he says.

40% GAINS EACH OF LAST TWO YEARS

Frankel & Co. is growing like gangbusters these days-40% in each of the last two years-and cash is every CEO's preferred growth hormone.

With net revenues of more than $66 million last year and healthy projections for this year, Mr. Frankel should have very little to be embarrassed about come the first half of 1998.

This year Frankel & Co. became the fourth-largest promotion agency in the country, up from fifth last year, according to Promo. Currently it sits alone, more or less in the middle of a huge $65 million chasm that spreads between agency No. 5 at $39 million (net), and No. 3, at $104 million (net).

BY-PRODUCT OF MISSION STATEMENT

To be the largest marketing and promotion agency in America is definitely on Mr. Frankel's hit list for the future-not so much as a goal in itself, he emphasizes, but as a by-product of the agency's endlessly repeated mission statement: "to be our clients' most valuable marketing partner." The slogan often becomes a management mantra in conversation, and was dropped not-too-casually into the principal interview for this article no less than 13 times.

Thirty-five years ago, though, when Mr. Frankel opened the doors of what was then Abelson-Frankel Inc., the mantra may have been essentially the same, but the goal was more immediate: sheer survival.

BECAME A CLOTHING SALESMAN

Bud Frankel attended the University of Buffalo. Then in 1951, he went to work as a clothing salesman. A transfer brought him to Chicago in 1952, but it brought him little else. After his samples were stolen a third time, he quit.

Next he sold shirts. He did it well and was promised an early partnership. Instead, he received a $75 bonus. "It was a double insult," he says. "No partnership and a lousy bonus. I was gone from the menswear business."

WORKED WITH PROFESSOR

He had wanted to get into marketing since college, where a professor let him work on consulting projects. He was intrigued with the procedures of product strategy and planning and would play what-if-this-were-my-product games using 1949 Buick ads from Time and Look. His job searches took him to McCann-Erickson and J. Walter Thompson, as well as such long-gone shops as Edward Weiss and the Sampson Agency. But none hired him as an account executive.

So he took a job as sales manager for Concrete Publishing Co. He was ambitious enough to try to buy the magazine, but not savvy enough to include his boss in his plans. Out again.

In 1958 Mr. Frankel became promotion department manager at Kling Studios, a Chicago art and layout promo house. There he struck up a rapport with the production manager, who also enjoyed marketing games. His name: Marv Abelson.

ROBINSON MOVES ON

After a year, the man Mr. Frankel had replaced at Kling, Bill Robinson, set up a promotions agency and recruited Mr. Frankel with the assurance of a partnership in the William A. Robinson Co. From this vantage point, Mr. Frankel began to see a basic problem in the promotion business.

"Although I was doing well, our sales staff wasn't bringing in the business," he recalls. "In trying to analyze what the difficulty was, I came to a conclusion: These guys were trying to sell things-displays, brochures and stuff [while] I was becoming successful helping clients solve problems. It was a core difference in the way we approached the work.

"In 1961 I presented my partners with a whole new strategic plan of action: Go to our customers and talk about their businesses, not ours. I didn't want to sell things. I wanted to sell thinking."

The partners were impressed but wary. The fact was, Mr. Frankel says, they didn't really want to work that hard and said as much. "I was intellectually gone at that moment," he says. The only way for him to proceed was to start his own shop. He needed graphic capability, though, and couldn't make an affiliation deal. His plans were in jeopardy.

Then, while visiting a Robinson customer, his pitch was interrupted by a phone call. Marv Abelson was on the line. "I grabbed the phone," Mr. Frankel recalls, "and asked how quickly he could meet me. We met that afternoon. He said he was thinking about buying out an art and photo studio and asked if I'd like to be president. I told him my idea."

DEBT PART OF PACKAGE

Mr. Frankel knew that the studio had financial problems and pointed out that, while they might inherit some customers, a lot of debt also would be part of the package. On the other hand, starting from scratch would present them with a clean financial slate. Mr. Abelson agreed, and in the spring of 1962 the firm of Abelson-Frankel Inc. was born. Mr. Abelson's wife, Ruth, was bookkeeper and secretary.

"We had two rooms on East Ontario Street," he says. "We built a matte table, bought a couple of drawing boards, a phone and a typewriter stand. We started without a desk."

They started without clients, too. Mr. Abelson arrived on Monday with a severe case of "the what-ifs." But Mr. Frankel was optimistic, promising a half-million dollars in business within a year. He went after it, starting the first day, in the traditional way-by raiding the client roster of his previous employers. At 7 a.m. Monday Mr. Frankel walked into the office of Zenith VP Eric Isgrig and told him he'd gone into business for himself over the weekend. "Okay," said Mr. Isgrig, "here's what we have to do." The business (part of it, at least) was Mr. Frankel's before he asked for it. By the end of the year, it was "well into six figures." His next call was on Englander, which was a bit more cautious at first. But the momentum had started.

RUNNING AFOUL OF BANKS

So why, less than three months later, was the agency out of money? Phrases like cash flow were new to their vocabulary. And with no business history, the baby company elicited little sympathy from the banks.

"We were literally financed by our suppliers," Mr. Frankel gratefully acknowledges. "Printers, artists, typographers, finishers, box companies-they all deferred payment. There were no contracts. Marv and I knew them all."

The first client visit to the A-F office nearly undid the suppliers' generosity. To create the illusion of a conference table, Mr. Frankel found a discarded slab of drywall in the alley behind the building, hauled it upstairs and laid it on two typewriter tables.

"The client arrived wearing a dark suit, sat down and pulled his chair up to the plaster board," Mr. Frankel recalls with a shudder. "Twenty minutes later he left with a strip of white powder across his suit coat."

ON THE MOVE

The shop moved from Ontario Street in May 1963 and set up in the Advertising Age building at 740 N. Rush. Revenues reached about $1 million by the mid-'60s and hovered there for several years; at that time, the agency's first full-time staffers came aboard.

One who would make a big difference was designer John Forbes. "He was the conscience of the agency when it came to dealing with the staff," says Mr. Frankel. "People trusted him. He was also the fastest and most versatile designer I ever met. And he was a perfectionist."

In those days, marketers in search of promotional services had relatively few choices. The typical promo shop was small, independent and often housed in the low-rent section of town. Merchandising was the underbelly of the ad business then, its people looked upon as "trinket and trash" peddlers who, like retailers, made their money on product markup.

BUSINESS BUILDING

Mr. Frankel struggled with this problem for five years. "Finally I decided that if we wanted to be thought of as professionals," he says, "we had to do business in a businesslike way. Charging on the basis of what we manufactured was wrong. It put the incentive on our needs, not the client's. I wanted account executives who could build a relationship with a client, not salesmen worrying about commissions. So we changed our compensation policy and began to charge for our thinking on an hourly basis."

Some clients were suspicious of being billed for hours instead of key chains. Others wouldn't even talk to A-F on that basis. But the agency balanced its hourly formula by reducing markups from as much as 50% down to 5% of purchase price of promotional items.

"People said you can't do it," Mr. Frankel says. "But slowly clients began buying into it. Over the long haul, most saved money."

SHUNNED THE WORK

The major ad agencies took on promotional work only when they had to, usually to keep a fat client happy. Most viewed it as "collateral" and shunned the business.

"They were great at understanding the consumer," Mr. Frankel says. "But they had no clue how to communicate with the distribution system. You can't use consumer messages there. Distribution and retail respond to a whole different set of motivators."

Abelson-Frankel rarely was successful working through ad agencies. Mr. Frankel says they would seek to control the work and often deny the agency access to the client. Soon, however, A-F would have its chance to work with an agency serving a high-profile advertiser.

MCDONALD'S TARGET

A-F had been targeting McDonald's for nearly five years, trying to mount a coup against incumbent Rogers Merchandising. But no one would budge. However, on July 1, 1973, Rogers resigned the business to take a $1 million fee offer from Burger King. McDonald's promptly assembled a list of 55 agencies, narrowed it down, and in August split the business between A-F and Flair. Each won a $240,000 annual retainer. In May 1975 McDonald's consolidated all promotions at A-F. It was a welcome 13th birthday gift that provided credibility as well as dollars.

"In 1974 we came up with an idea for pre-packaged character meals for kids," Mr. Frankel remembers. "Characters like the Hamburgler, Ronald and so on, each with a specially designed package. But we couldn't sell the idea because the franchisees didn't want to give away the character premiums."

Meanwhile, the local Kansas City agency had a similar idea, with one variation: charge 10 cents extra for the premium. Based on that comforting adjustment, the Happy Meal was born, and A-F assisted the birth. Over the years the promotion would generate a museum's-worth of collectibles, and not just for kids. This Oct. 18, a giant floating swap meet will set sail into the Caribbean from Miami aboard the giant passenger ship S.S. Norway-the first Fast Food Collectors' Cruise.

GROSS REVENUES AT $1 MILLION

The agency had started the '70s with gross revenues of about $1 million and a handful of employees. By 1979 Abelson-Frankel had moved to 360 N. Michigan Ave. with a client list that included McDonald's, Miller Brewing, 7-Up, Abbott Labs, Armour-Dial, General Electric, International Harvester, M&M Candy and Wrigley. Net revenues passed $4.7 million, on billings of $34 million, supporting a staff of 80. One staff member soon would be departing, however. Success as a promotional agency had convinced Marv Abelson, who had built healthcare billings to a fifth of the agency's total revenue, that A-F should branch out and become a full-scale ad agency. Where Mr. Abelson saw opportunity for expansion, however, Mr. Frankel saw danger.

"As we were, we were not a threat to the major agencies, whose clients we shared," he says. "That was because the work we did was out of their field. My fear was that if they thought we threatened what they were doing, they could get very aggressive, selling us down."

SPLIT IN 1980

Unable to resolve their differences, the principals initiated a separation. In December 1980 it was announced Mr. Abelson would be concentrating entirely on his healthcare clients. In February 1981 Mr. Abelson, with account executive Dale Taylor, formed Abelson-Taylor. In 1981 Abelson-Frankel Inc. became Frankel & Co.

Marv Abelson took 23 employees and $1.2 million in net revenue with him. By the end of 1983 his new agency grew to $2.6 million in net revenue. Meanwhile, Frankel & Co. reached $8.6 million in net revenue.

Far from becoming a threat to major ad agencies, Frankel became a juicy takeover target. But the prospect of being absorbed by an industry he was convinced didn't understand his business held little appeal for Bud Frankel.

Mr. Frankel wanted no part in the promotion of smoking. To prove it, in 1972 the agency resigned its Philip Morris business after a five-year association. This action was triggered when Mr. Frankel discovered that his 14-year-old-son Matthew was smoking. "I just lost it," he recalls, even though much of the agency's efforts had been for the conglomerate's Clark Teaberry Gum unit and a pioneering fund-raising promotion for UNICEF.

The agency also became a pioneer in sports promotion. In 1976, acting for client McDonald's, Frankel bought worldwide rights to the Olympic rings for a bargain $40,000, and the agency rode the Olympics into the '80s. Entertainment tie-ins with Hollywood grew.

NEW CRISIS

By 1985, with net revenues closing in on $12 million, Frankel found itself facing a growing crisis of management precipitated by success. "We were just flying wild with no system," Mr. Frankel says. "We did two things very well at the start. We turned out a superb product, and we created an environment where people could work well together."

But poor administration was causing problems. And Mr. Frankel didn't have to look far to find the culprit. "I was the guy responsible," he says. "I needed someone who could do the things I couldn't." He turned to a Northwestern MBA named David Tridle to straighten things out.

TOO MANY JOB INTERVIEWS

"There was no operations infrastructure to support the work," says Mr. Tridle. "When I found myself spending 65% of my time interviewing job prospects, I decided that was maniacal. Other things were in a mess, too-financial reporting, tracking systems, billing, personnel, and we had few management information systems in place.

"When a company is a dozen strong, everybody knows what's going on because communication is accidental. When you're on seven floors, though, communication has to be made to happen. It has to be planned."

DIRECTED INTERNAL OPERATIONS

Mr. Tridle set up a human resources function and took over the direction of all internal agency functions, while Jim Mack, who had joined the firm in 1978, zeroed in on client service. Mr. Frankel was freed to concentrate on future strategies.

"Agencies hit a brick wall when they grow," Mr. Tridle explains. "Each stage is a barrier. If you can't adapt and start doing things on purpose, your service slips and you don't get through those barriers. Efficient infrastructure supports the business and lets you manage your way around those barriers."

By 1990 Frankel had won United Airlines' business and passed $23 million in net revenues. Mr. Mack was promoted from executive VP to president, a title he continues to share with Mr. Tridle. They, along with Brian Robinson, chief creative officer, complete the management triumvirate that is expected to take the agency into the next century and beyond.

NEW BUSINESS WINS

By the end of 1996 a series of new business wins led by Richard Thomas (accounts such as Oldsmobile and Microsoft) combined with inside growth (the U.S. Postal Service, Visa) had nearly tripled Frankel's revenues to $66 million. More than 700 employees are based in four offices: Chicago, San Francisco, Southern California and Detroit, which was added within the last year. It was named Agency of the Year this year by Promo magazine and has been ranked No. 1 for two years running by that magazine.

Soon Frankel will be rolling out new digital technologies that could well replace the printing press with live action, on-site displays from menu panels to movie posters, all transmitted nationwide electronically from a central source. The agency recently established a division, Siren Technologies, to handle digital marketing.

This and the sirens of global expansion help explain why the next chapters in Frankel's history are almost certain to be written on Wall Street.

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