Enter at Your Own Risk

Despite the formidable creative reputation of its Portland, Ore., headquarters, Wieden + Kennedy has had a tough time establishing a presence in New York since opening there in 1997. It is not alone. Some of the industry's most renowned creative shops, including Fallon, Arnold, Hal Riney & Partners, Chiat/Day and The Martin Agency, have struggled to get a foothold there. Many have merged or folded. Those that remain have generally failed to deliver. It's virtually impossible, it seems, to successfully export an agency brand, especially to the Big Apple. Big agency networks tend to have institutionalized identities that travel consistently across borders. It's the smaller shops, the ones typically associated with a founding personality or regional prowess, that struggle to thrive outside their home markets. Among the obstacles challenging agencies as they expand: adapting to local cultural nuances, branding the new offspring with the same corporate DNA as its parent and controlling costs while pursuing new-business revenue.Still, expansion is viewed by many as an imperative to growth. It gives agencies the chance to attract larger marketers and is seen as a rite of passage in the process of carving out a national or international reputation."All markets are tough, but New York City is the toughest. New York's the only place where you can pitch an account in the morning, win it by lunchtime and have to repitch it in the afternoon," says Tim Delaney, founder of Leagas Delaney. "It's got a kind of energy, competitiveness and disquiet in almost a neurotic sense that's antithetical to the more stabile relationship you're trying to build with clients. It's so much more competitive, on top of the already competitive nature of advertising—if that's not your sensibility, you're not going to make it there." Delaney would have liked to open his first U.S. office in New York, but chose San Francisco instead in order to be close to then-client Adidas, whose U.S. operations are based in Beaverton, Ore. Conversely, Miami-based Crispin Porter + Bogusky opened its first office outside its hub in Los Angeles without a client on its roster. "Importing an agency's brand is an insanely tough, complicated, expensive proposition. A rule of thumb is that even in good economic conditions, it takes well over a year for a startup to become profitable," says Sally Hogshead, creative director at the Los Angeles office of CP+B. "It requires an almost irrational selflessness on the part of the mother ship to share everything from new-business leads to top employees." Hogshead is a veteran of regional startups, having worked at Fallon New York and Wieden's former Philadelphia office. CP+B L.A., which had the misfortune of opening on Sept. 10, 2001, has yet to become a force. It took seven months to win its first account, the launch of E.W. Scripps Co.'s Fine Living Network. Since then, the shop, which claims $10 million in billings, has secured primarily pro bono accounts.Andrew Gledhill, a principal at Ground Zero in Marina del Rey, Calif., says the keys to success include not only sharing resources but also forging a link to the more ephemeral aspects of culture. Ground Zero opened in New York in late 2000, only to leave the market earlier this year. "The tricky part is translating a company into a different part of geography. Ground Zero transferred me to New York so there would be a blood connection to a different place," Gledhill says. "When we hired people, we made sure we brought them out [to Los Angeles] to spend time. I can't imagine doing it any other way." Ground Zero blames its "setback" in the Empire State on bad timing—it arrived in Manhattan just as the economy began to tank—and says it plans to return at a later date. Despite the recession, Bartle Bogle Hegarty is one of the few shops still planting its flag in new parts of the world these days. Agency chairman John Hegarty sees the current economic climate as advantageous to expansion. "It's easier to negotiate great rents and good salaries in some instances," he says. "When good times come back, you have a cost base that serves you well." The London-based company, which has outposts in New York, Singapore and Tokyo, just bought into an agency called Neogama in São Paulo, Brazil. Like BBH, Neogama is partially owned by Bcom3, and the partnership marks the first time BBH has invested in an established agency. (Previously it has expanded through startups.) The investment comes despite the fact that Brazil's ad industry, battered by the horrendous market conditions of the past few years, is in a period of retrenchment. "We like starting businesses in hard times," says Hegarty. "We started London in a recession. Singapore has gone through some tough times, and now we're going through the same thing with America. Good ideas get noticed faster in bad times." After a rough start, BBH is becoming one of the most successful Manhattan transplants. Since opening in 1998 without an account, the New York office now claims $250 million in billings from clients including Johnnie Walker, Cantor Fitzgerald's eSpeed unit, World Gold Council, Unilever's Axe men's deodorant spray and Levi's. Hegarty advises new shops in town to be realistic in the client prospects they target. "In New York we learned big brands trust big agencies," he says. "If you're starting out there, you either want a brand in trouble or one that is No. 2 or No. 3 and willing to take a risk." Some say New York presents a unique dilemma—that many clients will only choose agencies that are already on the ground in Manhattan, making it more difficult to get established in the first place. "Clearly, there are clients who will only work with New York agencies. If you're not there, you're not going to get the business," says Tony Bucci, CEO at MARC in Pittsburgh. Earlier this year, Bucci cut his losses in New York after business collapsed in the wake of Sept. 11, but he hasn't ruled out a return. Agencies that choose expansion without a client's needs as the basis do so at their own risk, particularly in Manhattan. "A lot of agencies come because of the city's allure and cachet and the attitude that 'We're not real if we're not in New York.' And that's the stupidest reason to open an office," says Allen Rosenshine, CEO of BBDO Worldwide. Rosenshine is just as hard on his employees when it comes to BBDO's branch offices. "If we open an office of any kind, we expect it to be profitable within a certain amount of time—that was the basis for opening it in the first place," he says. "The only mitigating factor is if you open an office at the client's request. You don't apply the same P&L strictures to a service office." Markets like Russia and China are unique situations, he adds. "If you go into a market like Russia, which we did 10 years ago, you don't expect it to be profitable. You know what you're getting into, you set parameters, you're in investment mode." Agencies setting up in New York also must be mindful of unique consequences. "You have to ratchet up salary levels just to get [executives] there, and that upsets people in the other offices who aren't making as much," says Pat Fallon, CEO of Minneapolis-based Fallon. Fallon's experience shows how wild the ride can be for a Manhattan upstart. The agency first came to New York in 1995 in association with what was then Berlin Cameron Doyle, becoming Fallon McElligott Berlin. Less than three years later, as that relationship ended, Fallon repositioned itself as a stand-alone operation. By last fall, in the aftermath of terrorism and the continuing decline of the economy, the office had lost much of its early gains, dropping more than $100 million in billings and shrinking its staff by more than one-third. It also became more reliant on sharing resources with Minneapolis. The office, which now claims billings of $100 million, has recently made gains, winning business from L'Oréal. "There are lots of things in New York that make it hard. It just piles on and piles on," Fallon says of expenses like car services and other perks. "We've encountered a number of challenges. We had to reinvent ourselves [in the market]. We had periods of success and struggle after 9/11. Now we're back on our feet." Any fledgling office there also has to keep control of real-estate expenditures as well as payroll. Joe O'Neill, now a partner at Euro RSCG MVBMS Partners, ran Hill, Holliday New York from 1986-89 before becoming managing director of Riney's office there in 1990. He says one of the common mistakes agency imports make is to pay too much for Manhattan real estate. Boston-based Hill, Holliday was no exception. "They wanted to enter New York in grand style, so they took a floor in the then-posh Lipstick Building—and the rent, more than the account losses, simply killed us," says O'Neill. "Out-of-town agencies see their entrance into New York as more eventful than others do, including clients. They tend to trumpet their arrival and overinvest in real estate as if to prove they are serious about the effort, serious about their growth opportunities." Expanding outside the U.S. presents another set of challenges. "As foreigners trying to set up an agency in Europe, it was pretty challenging, but not so much in terms of the ad environment as it was culturally," says Buz Sawyer, managing director at Wieden in New York, who was part of the agency's launch team in Amsterdam. "You have to be more accepting and embrace local culture. You can't sit there and do things the way you used to do them in Portland—and I mean that with no disrespect." Although the agency struggled in New York, it has thrived in the Netherlands. Since opening in 1992 to work for flagship client Nike in Europe, the office has added clients including Siemens Mobile Devices, HypoVereinsbank, Coca-Cola, Powerade, Amazon, Vodafone, Gore-Tex and Electronic Arts. Pat Fallon, whose agency now has offices in London, São Paulo, Hong Kong and Singapore, sees his network as a kind of graduate program in international studies for star employees. "Five years ago we started to get clients with global needs," he says, "but we also thought our best people would relish the chance to grow in new ways." That doesn't typically apply to agency founders. While John Hegarty and Jay Chiat did move to New York to launch offices, offering a commanding presence that helped their shops' fortunes, they've proved to be the exception, not the rule. "While [out-of-town agencies] are willing to commit money, they hardly ever commit their principals," says O'Neill. "Neither Jack Connors nor Jay Hill ever lived in New York. Nor has Dan Wieden. Nor Hal [Riney], who undoubtedly would perish or kill someone." Ultimately, though, having some distance from its larger-than-life founder may have been what allowed Riney New York to forge its own creative reputation. "[Hal's] first words to me upon hiring me were, 'Let's give this a couple of years and then sit down and see how things are going,' " O'Neill remembers. "And in that sense, he was a man of his word. No unwanted help. No foisting creative opinions upon us. Just, 'Make some smart decisions and do some good work.' And if that work wasn't done in the image of Riney San Francisco, there was no complaint—that I heard of, anyway." O'Neill hired Rochelle Klein, the award-winning copywriter who had created the Maidenform campaign at Levine, Huntley, Vick & Beaver; Kathryn Windley, who had produced Lexus' intro campaign; and John Parkinson, known for his Mercedes work at McCaffrey & McCall. O'Neill credits the team he assembled with giving the office a reel that "would measure up to most agencies, including that of our home office." The shop picked up Lehman Brothers, GE MasterCard, Sunoco and the Irish Tourism Board, which brought its business over from Hill, Holliday New York. But after O'Neill was promoted to run Riney's creative department in San Francisco, the chemistry changed in the New York office, and most of its clients disappeared. The shop was ultimately merged into Angotti, Thomas, Hedge. For some, the very concept of exporting the brand runs counter to the agency's credo. The Richards Group, for example, which won the $160 million Hyundai account this year, is setting up service offices in Irvine, Calif., Atlanta, New York and Chicago, but founder Stan Richards says Dallas will remain the heart and soul of the shop. "Within our organization, we never felt we could totally control our product if it was done out of multiple offices," he says. "We are who we are, and what we are is a place that does good, solid work out of one office." Deutsch, based in New York, is one of the few agencies to transfer its success to another U.S. market. Since opening in 1995 with an estimated $5-10 million in billings, Deutsch/LA now claims about $875 million from clients including Mitsubishi, Burger King, Coors Light and DirecTV. And its work rivals any produced by the New York office. The agency doesn't take its success in L.A. for granted, particularly in light of its unceremonious flameout in Boston during the dot-com days. "No matter how good you are in your home territory, you'll always have to prove yourself," says managing partner Linda Sawyer. "Can a Deutsch—aggressive and gritty—go over in laid-back L.A.? Our speed, efficiency and smarts proved we could." If Sawyer sounds like she's making a credentials pitch, she is. In fact, that's just what Hogshead says you have to do. "Treat [opening a new office] like the most important new-business pitch you've ever had, one that requires extraordinary focus and support every day," Hogshead says. "And before you rent a place, find out if the landlord pays for exterminators—because creatives are not good at cleaning up crumbs."

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Noreen O'Leary

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