When Coca-Cola acquired Vitaminwater for $4.1 billion in 2007, it wasn't for the breakthrough electrolyte-drink technology. It paid for breakthrough marketing, and that epiphany rippled through Adland. Why shouldn't agencies launch their own brands rather than solely focus on other people's prodcts? Consultancy PSFK recently invited Fast Company writer Danielle Sacks to moderate a panel featuring four creative chiefs running what PSFK calls New Idea Agencies. In this edited transcript of the conversation, they explore what it's like for ad people to go beyond branding into the messy world of product creation. Will what they learn improve advertising for the rest of us?
FAST COMPANY: Why do agencies now want to own the brands they create?
Managing partner of BBH Labs. BBH launched Zag, an offshoot of its traditional agency, to create and own products such as Mrs-O.org, a site devoted to Michelle Obama's fashion sense, and Ila, a stylish personal-security alarm for women.
BEN MALBON, managing partner, BBH Labs: BBH needed to take a greater slice of the success we were creating for clients such as Johnnie Walker and Axe. The past couple of years have shown that the swirling winds of the economy can very quickly become cruel. Something like 50% of clients are cutting ad spending, in some cases dramatically. By creating our own brands, we wanted to make ourselves recession-proof -- or at least more recession-proof than other agencies.
Cofounder of Anomaly. The New York-based agency currently has five projects in the works, including Avec Eric, building celebrity chef Eric Ripert's brand, and eos, women's shaving and skin-care products.
CARL JOHNSON, cofounder, Anomaly: If there is a client, they are in charge. That's the most fundamental difference: Who's driving the bus?
Principal of Trumpet. The New Orleans ad shop embraced entrepreneurship out of necessity after Hurricane Katrina. Trumpet's rebranding of Naked Pizza, a healthy pie joint, attracted Mark Cuban's investment capital.
ROBBIE VITRANO, principal, Trumpet: It was sort of inevitable. What an agency does -- which is essentially to determine a unique positioning and divine a go-to-market strategy -- is pretty valuable to investors and also to a startup company.
Isn't it one thing to think, "I am this branding aficionado," and another to realize that there's distribution involved and all sorts of messy, unsexy stuff?
MALBON: When we started, we needed external skills, whether it was from a design point of view or a commercial-acumen point of view. We made some mistakes. We launched a range of ready-to-eat meals in the U.K. that were called Pick Me, designed for vegetarians. We pitched it as "veg with edge." They were distributed in 800 Tesco stores. On week one, we learned that we had designed the packaging incorrectly. We hadn't put a window in the top. People were ripping open the meals in the store trying to find out what the food looked like. In the U.K., that's what we call a "schoolboy error."
JOHNSON: You have to embrace collaboration. We did some package design that we thought was really cool, but our partner fancied a different scheme. We thought their stuff was crap. I said, "If that stuff runs, I'm bloody throwing myself out the window," in the appropriately arrogant, agency-type way. So then the guy in charge of the business, who was answerable to the business, not to the agency, said, "Do some research." We said, "Yeah, right, we'll nail this; let's book the research and wait for the glow." We were so wrong it was unreal. Their stuff won by the greatest gap I've ever seen. We were so humbled.
MALBON: That's a particularly interesting point, because it's your own money on the table. When it's literally off the bottom line, the best idea must win. You have to be open to people being more expert than you, and that's an alien concept to a lot of folks.
Many of you guys are still doing agency work. Did this change how you deal with clients, now that you understand what it's like to be the client?
JOHNSON: I think it makes you better. You're much more commercially aware. When I started a million years ago, I almost didn't know money had anything to do with the advertising business. You had a meeting, took a brief, made some work. It seemed enormously detached from selling something to people.
MALBON: You get exposure to the full gory detail of how clients make and lose money. One of the reasons we like having people at BBH spend some time on Zag is that when they return to the agency, they will be able to have a much smarter conversation with a client's marketing director, or CFO.
Program manager of Fuseproject. Yves Béhar's design studio has created the Jawbone wireless headset and Y Water, a low-sugar beverage for kids in a distinctive bottle, in partnership with startups.
BART HANEY, program manager, Fuseproject: It brings us a lot more credibility. Clients start seeking us out because they absolutely know we understand the path to market and all of their challenges.
JOHNSON: One of the most amusing things is, of course, we haven't bought a single ad in support of any of our brands. Not one.
VITRANO: That is incredible.
JOHNSON: Why would we? You can do so much if you know what you're doing with product placement, sponsorship, digital PR. It's that whole "I haven't got any money, so I'll have to think." It makes you much better at grinding out media without paying.
VITRANO: The purest form of marketing is in product development, which is why I have so much respect for Fuseproject and the Ideos and Frogs of the world, designing things that fit the hand, that are ergonomic but also sort of fit the soul. People are trying to find those deep-mission ideas that have commercial appeal. It's exciting to figure out how to commercialize something that has real substance.
What's your ultimate goal?
JOHNSON: We are looking to sell these brands and make lots of money. At the moment, we've got five things out there with our money. That is very scary. But one win and that's not very scary. You're going to fail with most of them. So our game is basically work for clients, stay sharp, be good, own profit, roll the dice.
HANEY: Either our ideas will make it or they won't. And the exit is the fail. Most of the equity we put in is sweat equity. If a partner starts a business with the idea, we stay on as the creative segment of it. If it gets sold off or licensed, then we take our share.
MALBON: Take something like Mrs-O.org, as in Obama, a content play rather than a product, taking advantage of the huge interest in Michelle Obama's democratizing style. We've spent, I think, $500 on it so far, excluding the time cost. But we've just signed a six-figure book deal, and we're talking to other partners about extending beyond publishing. It's an exchange of the skills we have for a slice of the equity. Whether it is 4% or 40%, it's the same business model.
JOHNSON: We don't want to own 100% of many things because the collaboration has been enormously beneficial. We've learned a hell of a lot. What do we know about making makeup? [Anomaly has launched two cosmetics brands.] Nothing. One of the biggest dangers is to think you can do everything. We would rather have 40% of a big success than 100% of a failure.