LOS ANGELES A week before Valentine's Day, the dining area at Ground Zero was strewn with 30-odd liquor bottles. The creative task at hand: concocting exotic drink recipes for Pinky vodka.
Though it's a premium brand, with a rose tint and subtle violet scent, Pinky is literally Ground Zero's house vodka. In 2004, the independent agency was asked to rebrand the two-year-old Swedish vodka, and rebuilt it from the new cork on down. Gradually, according to sources, the partners -- chairman Jim Smith, president Andrew Gledhill, and chief creative Court Crandall -- bought the Pinky brand for an undisclosed sum, and housed the separate enterprise, Liquidity Inc., and its president and CEO, James Roberton, within the Los Angeles shop.
Pinky is still in the red, but on track towards black. Last year, United Spirits, India, invested in the brand. Rolling out to New York, Nevada and Florida this month, the goal is "national distribution" by year's end and eventually to make Pinky "a significant global brand," Gledhill said.
Ground Zero is not the only agency whose idea of happy hour is taking equity stakes in products. Nor is its motivation unique. Shops like MDC Partners' Crispin Porter + Bogusky and independents Omelet and Anomaly are in it for the potential profits as well as a certain pride of ownership. After years of frustration over abusive clients, fee-based compensation and lack of ownership in their ideas, these agencies are investing in brands and intellectual properties to show off their business chops and own a playground where they make the rules.
"We loved inventing a brand from scratch," said Jeff Goodby, co-chairman of Omnicom's Goodby, Silverstein & Partners, San Francisco, of his mid-'80s development and ownership of St. Ides malt liquor. "I even loved buying up St. Ides myself in Oakland so that the numbers would go up." Goodby sold his stake in the brand in 1987, and St. Ides is now owned by Pabst.
Nigel Williams, svp, marketing services at Guthy-Renker, is a former TBWA\Chiat\Day and Cimarron Group ecd who moved last summer to the infomercial company that owns or selects all of the products it promotes. The goal of agencies, he said, should be to be "treated as talent, not as vendors."
That attitude has become the foundation for entire agencies. "The quick answer to 'why?' is freedom," said Jason DeLand, partner and co-founder of Anomaly, New York. "We could work all day, every day, and come up with massive business-building ideas and only be paid a certain amount of money. We'd rather manage a profitable portfolio of intellectual properties because it's ours than do advertising or design for a client."
With the forthcoming launch of the Eos beauty line, in which Anomaly has an estimated 25 percent stake, and two more undisclosed product lines upcoming, the shop's intellectual property portfolio has grown beyond Burton luggage for Virgin America airline, Jawbone Bluetooth headsets, Eu skin care and the culinary endeavors of chef Eric Ripert. DeLand predicted the shop's revenue would be 70 percent fee-based compensation and 30 percent entrepreneurial/IP ventures by year's end. "The 10-year goal is to be solidly on the entrepreneurial side," he said.
Traditional shops also see equity ownership as a way to be taken more seriously by clients. "We see this as the opportunity to take responsibility for our recommendations, and build a portfolio of business success outside of advertising," said Gledhill of the Pinky brand. "To do it on our own dime is exhilarating."
Omelet in Los Angeles is aiming for an even split between traditional client and agency ventures within the next five years, said Mark Vega, founder and partner, and a former intellectual property and entertainment lawyer. The ratio is currently 80 percent client work versus 20 percent in-house projects. Vega said some of Omelet's innovations have been in changing contract language with clients such as Heineken and Microsoft to stipulate that even if Omelet is paid by a client to pitch, the agency owns the ideas as its intellectual property.
Founded in 2004, the agency owns Facebook applications, code, infrastructure for social networking sites, a handful of scripts and story ideas, and an interest in an unspecified "wellness" company. But Vega said the next frontier is creating original content for licensing. He foresees an explosion of small Web sites willing to pay $1,000 to $5,000 to license original content the agency is keen to provide.
None of the shops have turned a profit with its products, but several said they had noticed equity ownership has a positive influence on agency culture. "It wasn't a motivation," Crandall says, "but we got more respect and appreciation from our other clients. They say, 'Now you know what it's like in our shoes.'"