Small Fries

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For Mike Lescarbeau, London has nothing on Vadnais Heights, Minn. In his U.K. days he worked at the very cool Leagas Delaney, but then he was just an employee. Now he's got his own ad agency, where he's partner, creative director and-at times-chief cook and bottle washer.

It was in those latter roles that he found himself earlier this year in a cap and smock, standing behind the counter of a Culver's Frozen Custard restaurant outside Minneapolis. "The high point of the evening was a 25-minute tour of the walk-in freezer," said the former group creative director at Publicis Groupe's Fallon Worldwide. "It was 25below, and I was wearing a short-sleeved shirt."

He learned the cold truth about custard and burgers that night. But as a co-founder and principal at One And All, Minneapolis, Culver's agency of record, he was happy to be there. "That's the difference between my life now and my life then," he said. "It's about what a client at an agency this size needs and expects from you as a partner. You're not some figurehead or occasional dignitary, the once-a-month lunch guy. You're working the business every day, and they expect you to know it."

Welcome to Boutiqueville, circa 2002.

The advertising agency landscape has been reshaped by consolidation that concentrated clout at a handful of global advertising juggernauts. It is not a friendly environment for independent start-ups. But in a business grounded in creativity and boasting a long history of entrepreneurship, there are still those brave or foolhardy enough to believe that with a dollar and a dream they can open their own creative boutiques and somehow transform them into successful businesses.

rough terrain

Today's crop of start-up shops must navigate rougher terrain than their predecessors. Many are struggling to identify and carve out niches, to differentiate themselves from rivals and to attract real-world clients for whom they can solve real business problems, albeit on a smaller scale. At the same time, they now find themselves increasingly competing against much larger agencies for the types of accounts that in better economic times would have been passed over by top-tier shops.

"Prospects are looking for business-building ideas, and fewer are looking for the creative one-off or the big hit" that boutiques specialize in, said the new-business director at a large agency in New York. "Boutiques can't compete in terms of offering integrated solutions, and don't have the resources to mount serious pitches for even the smaller pieces of business that might go to a mid-size agency. They will be forever mired in project work."

As recently as 1999, the industry's boutiques were riding high on the dot-com wave. WPP Group's Ogilvy & Mather had formed The Syndicate, a non-equity affiliation with a band of small, creatively focused agencies, which lent boutiques a new sense of status. Principals at these firms talked proudly of their "swagger factor," of how their edgy and often provocative creative and nose-thumbing autonomy helped them stand above the perceived sameness of big agencies with global clients, endless resources and lackluster reels.

But some of the same agencies that saw the dot-com boom as the key to instant visibility and credibility suffered along with the Internet market. Many of those left standing are struggling to survive.

In the creative arena, once the area where boutiques and regional agencies could truly stand out, things are not what they used to be. Creative doesn't capture the imagination of the industry the way it used to, not at a time when agency executives are concerned more about the next wave of layoffs than the next talked-about campaign.

At the same time, the general level of work from some of the industry's biggest agencies has steadily improved, lessening the bragging-rights-gap that used to exist between small fries and the supersized.

Still, there are any number of agency executives who want to do their own thing, and they are hanging out shingles despite the worst advertising recession in decades. The American Association of Advertising Agencies doesn't track start-ups, so it's not easy to determine whether their ranks are growing or thinning. But among the more prominent-and promising-newcomers are the aforementioned One And All; Union, New York; Hadrian's Wall, Chicago; Velocity, Boston; and Arnika in Richmond, Va.-the last founded by a quintet of recent VCU Ad Center grads who range in age from 25 to 32.

The agencies all reflect the trend towards generic-yet-hip corporate monikers (see sidebar story). Another example is Push in Orlando, Fla., a five-year old regional agency that hopes to achieve the same national success that Miami neighbor Crispin, Porter & Bogusky has recently enjoyed.

Not surprisingly, most boutique partners see the small shop as still relevant in an age of consolidation and multinational clients.

a good place

"Small agencies are in a pretty good place," said Kevin Lynch, a partner at Hadrian's Wall. "Assuming the work is good, which isn't always the case, the biggest challenge for clients to overcome has always been the size. But now it's normal for agencies and clients to work with outside media, research, design and interactive companies. If they're smart, small shops can sell outside partners a lot easier. Then the challenge is to avoid being seen as creative prima donnas."

Some of these agencies have actually done pretty well for themselves-at least judging by appearances. Push, which has 27 employees and claims billings of $18.5 million, built its own building a year ago, a startling mini-warehouse with a shiny steel fa‡ade and a big green "Push" button above the door. The partners say the space makes an architectural statement and has helped brand them as arty and unorthodox. At the same time, said partner John Ludwig, "We now have to live up to it. When clients see it, they expect a little more from us, so we have to work harder."

At Union, partner Daryl Elliott, who spent over 20 years at big shops, said the principals decided now was the right time to go out on their own because they want to offer marketers entree into the world of sponsored entertainment. Ms. Elliott and partners Randy Van Kleeck and Nelson Martinez (with whom she worked at WPP's Young & Rubicam, New York) and Michael O'Callaghan intend to make the creation of what they call "entertainment properties for brands" the centerpiece of their agency. That's not to say they won't handle more traditional assignments, and like most small shops they're interested in project work.

Hard as it may be to believe, most boutiques insist their smaller clients have not slashed spending at the double-digit rates of some larger marketers. Paul Venables, partner and co-creative director at Venables Bell, San Francisco, said that agency-formed by ex-staffers of Omnicom Group's Goodby, Silverstein & Partners-doubled revenue in its first seven months of operation. Venables Bell, with clients such as Microsoft Corp.'s Ultimate TV, sort of skipped the struggling start-up phase entirely, and now claims billings in the neighborhood of $65 million.

While some boutiques aim their new-business pitches at small marketers that fear getting lost in the portfolio of a large agency, others shoot for instant fame and fortune by trying to snare project work for high-profile consumer brands. Their dream is to formalize the relationship and ride it to glory.

Few start-ups fill their portfolios with work for trendy local restaurants or quirky specialty retailers. Hadrian's Wall plays up that it handles a division of Ameritech and is the agency for the Harvard Business Review. The client list at Velocity, opened in Boston last October by Lisa Hickey, a former senior creative at Arnold Worldwide, includes Just For Feet and the Bruegger's Bagels chain. Until recently, it handled Bob's Stores, a Northeast chain of clothing stores that has since taken the bulk of its work in-house.

the next big thing

Looming large on the horizon for all of these shops is the prospect of becoming the next Modernista! Formed in January 2000 by former Arnold Creative Director Lance Jensen, who played a key role in the launch of Volkswagen's New Beetle, and former Wieden & Kennedy, New York, Co-creative Director Gary Koepke, the agency has fired off a series of talked-about campaigns and attracted considerable media attention.

Small-shop rivals of Modernista!'s say the agency articulated a genuine niche-creating stylish, fashionable work for well-known brands. Given Mr. Jensen's background with VW and Mr. Koepke's background as a graphic designer, the positioning was credible. And the work paid off.

Mr. Koepke said the agency's provocative MTV print campaign from 2000-themed "People need to know about MTV"-generated enough buzz to draw the attention of Gap Inc.'s Gap, for which it created hip, minimalist TV spots laden with rockers and movie stars. The Gap is struggling, but the work helped cement the agency's reputation for glam ads with a concept.

The biggest issue for small shops is what they want to be when they grow up, said Velocity's Lisa Hickey. "There are a lot of boutiques that are all about the creative work, and that's all they want to be," she said. But project work can be limiting, and it quickly consumes resources in the form of money, time and energy. "You have to keep going back to clients to sell stuff over and over," Ms. Hickey said. "It can make it hard to get to the next step."

wrong way

One leading industry creative said the big-client strategy is the wrong way to go. "Smaller shops should stop wanting to do assignments for big brands and focus more on small-to-midsize clients for whom they can build a brand and a name from scratch," said Jeff Goodby, co-chairman of Goodby, Silverstein. "A lot of these shops spend all their time wondering how they can skip this stage and do a Bud Light ad. This is not a substantial, long-term way to look at things."

Until recently, successful creative boutiques were regularly approached with offers to sell to holding companies. But these days few are in the market for small hotshot agencies. "Mostly holding companies are looking to buy below-the-line firms, companies that work in the areas of more accountable media," said search consultant Hasan Ramusevic of Hasan & Co., Raleigh, N.C. "You don't have to buy these little agencies anymore-you can just hire them."

Indeed, many of the start-ups interviewed for this article expressed a willingness to work as sub-contractors for other agencies when the circumstances are right, which is what Ogilvy has been doing with its Syndicate for several years.

Still, the benefits of working directly with a smaller shop are not lost on some clients. Barbara Behling, marketing director for Culver Franchising System, the parent of Culver's Frozen Custard, said she hired One And All because, "We were looking for an agency where the partners would be involved."

Culver's, a 160-store Midwestern casual dining chain, plans to open an additional 50 to 60 outlets this year. "My president is Mr. Culver," said Ms. Behling. "We wanted his vision to come to life, and we wanted to do it without a lot of layers in between."

Whatever their ambitions, most boutique owners believe they can beat the odds. "I don't think the evolution of agencies is done," said Hadrian's Wall partner Mr. Lynch. "It's not that all the small ones are going to stay small and the big ones are going to stay big. An agency grows when it finds a client that's passionate about the relationship and is ready to explode."

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