The Little League

Earlier this year, Dweck!, a New York shop with billings of around $30 million, was eliminated in the final round of a two-month review for the PBS documentary series Evolution. The assignment, which involved advertising the series on PBS stations and cable channels, was awarded to Mullen in Wenham, Mass., an agency with more than $400 million in billings and a staff of 350. “From what they told us, we were ahead on creative, but we were still 22 people with 22 computers,” says chairman and creative director Michael Dweck.

In June, Dweck closed the doors of his award-winning agency after nine years. He says the PBS review was a scenario that had become all too familiar: The agency’s creative had scored well in client testing, but in the end, that wasn’t enough. “We didn’t have the muscle,” he says.

Though Dweck says he chose to pull up the stakes for several reasons besides dwindling revenue and the downturn in the ad industry, he concedes that by midyear it had become increasingly difficult for a shop of his size to compete.

The competitive advantage for boutiques, their point of distinction, has always been the ability to turn out inventive creative quickly, without the cumbersome bulk and politics of larger agencies. Big and small shops co-existed successfully because boutiques usually pursued smaller accounts than large agencies were interested in. And even as multinationals came to dominate the industry in the last few years, the dot-com boom provided a boost in billings, profile and even morale for small shops.

That boom disappeared even faster than it appeared. Then came Sept. 11. With new-business opportunities now scarcer than ever, the big guys are dipping into smaller and smaller ponds in search of billings. Boutiques have had to rethink their traditional roles in order to avoid slipping off the map entirely.

“We found agencies like Young & Rubicam going after $1-2 million accounts,” says Dweck. “That wasn’t happening two or three years ago.”

“It’s been bad,” says Greg Di Noto, creative director of 4-year-old shop DiNoto Lee in New York, struggling to find an adjective to sum up the business environment. Di Noto Lee, which claims billings of $41 million, was forced to lay off 30 percent of its staff the week following the terrorist attacks as client spending came to a virtual halt.

“The biggest challenge,” DiNoto says, “has been coming off incredible growth, building the organization in accordance with that growth and then having to deal with a veritable drought. What little business was out there seemed to evaporate.”

Indeed, the niche filled by the smaller shops in recent years has shriveled. “The role of the boutique is to inject energy in categories where that’s needed,” says Nick Cohen, executive creative director of 10-year-old New York-based agency Mad Dogs & Englishmen. “We’ve thrived off people who want to get really good talent but maybe don’t have the kind of bucks that would get attention at a larger agency. A lot of the typical categories that are about innovation and new things are licking their wounds. It’s a quiet time for boutiques.”

Where does that leave agencies like Cohen’s? “What we all have to do is think through how we can be valuable,” he says, a question he’s been pondering a lot lately. “What can smallness and compactness add? How can we be greater assets than the other offerings out there?”

For some smaller shops, the solution is to become more diversified and less particular, focusing on revenue streams that aren’t quite as sexy as an attention-grabbing consumer campaign for a new dot-com.

DiNoto says his agency has been seeking out below-the-line opportunities. “Whether it’s collateral, direct or internal communication programs,” he says, “those are the things we’ve been working on as we wait out the big drought.”

Mark DiMassimo, president and creative director of 5-year-old DiMassimo Brand Advertising in New York, which handled the launch of Kozmo.com back in the boom era, admits that only recently has he been vocal about his direct-marketing aspirations for the shop. “I didn’t dare utter the ‘direct’ word. I didn’t want to scare people away,” he says. Now, however, “under-the-radar has be come our clear, explicit strategy.”

The tactic has attracted at least one new client. John Hommeyer, chief marketing officer of San Francisco-based Hotwire, had worked with Goodby, Silverstein & Partners, San Francisco, to create a campaign for the travel Web site, but agency and client eventually agreed they weren’t a good match. A direct-mail piece e-mailed by DiMassimo got Hommeyer’s attention. “We didn’t need a big TV campaign,” says Hommeyer, “we needed hard-working direct mail and hard-working direct-response-oriented radio.”

Selling the creativity of a boutique’s work isn’t enough—clients want the range of services that larger agencies provide. “Advertising has become the ‘a’ word,” says Tracy Wong, creative director of Seattle-based WongDoody, which estimates its client billings at $80 million. “It’s getting more and more complicated. Clients are asking us to do more and to have more capabilities. The price of entry is being able to be a marketing arm for them. They are demanding Web-site development, promotions, co-op programs. So much of what we do is not advertising anymore.”

Court Crandall, creative partner of Ground Zero in Marina del Rey, Calif., says the only way to survive and move forward is to make careful choices and know your limitations. “For us, the big deal is just watching your costs and not getting silly and trying to behave like a big agency when you aren’t one,” he says.

Crandall says that for the first time, he’d consider the notion of selling the 7-year-old agency, which claims billings of just under $100 million. “I’ve shied away from it in the past,” he says. “It felt like we were the Indians and they were putting shiny objects in front of us. Now it’s at least something worth hearing about.”

Both Ground Zero and WongDoody say they have been eliminated in the early stages of reviews because they can’t offer international capabilities. Along with that advantage, bigger agencies usually have dec ades of case histories and the resources of their holding companies to make a client feel confident in its choice. For agencies, perception is as much a reality as it is in the advertising they produce for their clients.

Yet there are signs of hope for smaller shops across the industry. Several big-client/ small-agency relationships show there is still a niche for boutiques. Budweiser, which has multinationals like DDB on its roster, works with small hybrid shops like Chicago’s Fusion Idea Lab on project assignments for Bud Light. Target parcels out project work to small shops like Peterson Milla Hooks, Minneapolis. The success of Boston shop Modernista!, which in less than two years has managed to snag clients like the Gap, MTV and General Motors’ Hummer, encourages those who believe creative talent will ultimately carry the day.

Beth Kachellek, director of advertising and brand management at Microsoft’s UltimateTV, yanked the $50 million account from Foote, Cone & Belding, San Francisco, and awarded it to an agency that hadn’t even formed yet, Venables, Bell & Partners, San Francisco. Kachellek, a former brand man ager at Pacific Bell, had total confidence in the creative team after working with them on Pac Bell’s “Web hog” DSL campaign. “We were looking for high-quality creative talent for a pretty good price,” she says. “We did not review the account. The decision was based on past experience, their track record and our relationship.”

Though it was risky to entrust her marketing budget to a startup agency as a charter client, Kachel lek says she was willing to take the leap of faith. So much so that her department shouldered some of the day-to-day work and planning until former Goodby staffers Paul Venables and Greg Bell got up to speed with staffing issues.

“The economy couldn’t be worse, yet we’ve been busy,” reports Venables. “If you are spending a lot of money and the economy bottoms out, it’s a natural time to look for a better approach.”

Robert Hall, vice president of brand development at Boston Beer Co., also recently chose an independent. Creative duties on his $30 million account went to C.J. Waldman, a former Lowe Lintas & Partners creative director who left the New York agency this summer to launch a directing career and be his own boss.

“I was looking for people who had beer experience, who had good experience with humor, and a shop that was unconventional and small,” says Hall. “The creative so far has met my expectations and so has the relationship, with very quick response time and a very high level of thinking.”

Waldman’s production company, Big Chair, is servicing the account as an agency, with the executive producer managing the business as an account executive, Waldman says.

Hall, who has experience working with large multinationals in previous positions at Kellogg’s and Kraft, says “I want to go somewhere where my company’s money is worth a little more.” He predicts clients will increasingly feel the same way as they look for more customized service.

Consolidations, for the most part, benefit agencies more than clients, says agency search consultant Mike Agate of Select Resources International, Los Angeles, and that will, in the end, benefit the boutiques. “It’s a particularly hard time for small to medium-sized strategically and creatively driven agencies to hang on,” he says. “But for those that are able to survive it, I think the prognosis is good for the future. I think clients will still want key principal involvement and creative resources that are doing breakthrough work.”

Andy Berlin, chairman of 4-year- old Berlin, Cameron & Partners, New York, has often been frustrated in his attempts to compete with the holding company giants. “We have indeed been limited,” he says. “All the intellectual capital was there, but the resources weren’t.”

Yet Berlin shares Agate’s optimism about the future of the small agency. While agency consolidations may work out well for some clients, others will find themselves partnered with a shop not of their choosing or liking. “There are big pendulums that move in the business,” says Berlin. “There will be normal reactions to that, and at some point the pendulum will swing back.”