Is There a Silver Lining for Start-Up Shops?

NEW YORK When Bartle Bogle Hegarty opened 27 years ago during a recession, the principals had just $150,000 in bank loans and no clients. But to hear John Hegarty tell it, the bad timing turned out to be a surprising ally. The worldwide cd said hard times forced the agency “to be much more aware of what you were offering and what the value of that is.”

The economic headwinds also tested BBH’s business acumen, according to worldwide CEO Simon Sherwood, the shop’s first account director. “Companies that start in recessions and succeed have a kind of inner strength to them that is borne out of those difficult first years,” Sherwood said. “You ask yourself a lot of questions, and you have to come up with answers.”

In interviews last week, leaders of four shops that launched prior or during former recessions — BBH, Lowe Howard-Spink (1981), Simons Palmer Clemmow Johnson (1988) and Venables Bell & Partners (2001) — acknowledged the myriad challenges of doing so, including pitch selection, recruiting, cost containment and establishing a distinct positioning in the marketplace. But they also cited advantages-namely, the ability to attract budget-conscious clients who needed cheaper, smarter alternatives to big agencies.

The executives reflected on the see-saw experience of starting up in a downturn as a new wave of start-ups is emerging, including People, Ideas & Culture in New York, Anomaly in London and, just last week, Baldwin& in Durham, N.C. The newcomers join an intriguing list of recession-era startups that also includes Wieden + Kennedy (1982), Fallon (1991), Ammirati & Puris (1974), TBWA (1970), Saatchi & Saatchi (1970), Mullen (1970), Deutsch (1969) and McKinney (1969). Some shops still operating today opened during the Great Depression, including Campbell Mithun (1933), Leo Burnett (1935) and Doner (1937).

“Creativity moves in a particular way. And I think it starts during a recession with, first and foremost, curiously, art,” said Frank Lowe, now the leader of The Red Brick Road in London. “Then … fashion starts to develop, photography … and I think it slowly moves forward and, in a curious sense, advertising is the last thing that changes. That’s really partly because advertising is a reflection of what creatively is happening, as opposed to the pure innovation.”

Of course, no one yearns to start an agency during a time of economic strife. When it happens, however, the typical challenges facing any start-up can turn extraordinary.

BBH and Simons Palmer were funded through loans, with, for example, Simons Palmer co-founder Carl Johnson using his mother’s home as collateral. Today, credit is even harder to come by. “The volatility of our business is quite dramatic, and lending institutions don’t quite like that,” Sherwood said.

Preparation and a clear, resolute strategy are always key to starting up, but particularly so during a sour economy. The founders of Simons Palmer met weekly for nine months before opening their doors in July 1988, 24 months before the recession of 1990-91 began. “It was not a whim. We resolved what we wanted to do” beforehand, said Johnson, now a partner at Anomaly in New York. “Because we had so much time preparing it, we sharpened our proposition” around the idea of “more creative work is more effective work.”

Simons Palmer began with seven people and no clients and landed its first account in its second month: a subsidiary of Royal Insurance. BBH’s first client, Audi, didn’t arrive until two months after the agency launched.

Similarly, Anomaly opened its first office in New York in 2004 without any business. In contrast, Johnson lined up clients such as Nike’s Umbro and Converse brands before opening the London office of Anomaly two weeks ago. And while Simons Palmer and Anomaly New York launched with full management teams, Anomaly London starts with a single executive: Paul Graham, former managing partner at London digital shop Saint. The shop will add executives as revenue allows.