An unexpected pile of money fell into David Sheehan’s lap seven years ago, when he had just turned 32.
It wasn’t a huge windfall. But as an employee shareholder of the privately held Campbell-Mithun-Esty ad agency, he received a healthy payout when Saatchi & Saatchi in London gobbled up CME’s parent, Ted Bates Worldwide, for $507 million cash.
Sheehan says he could have bought a bigger house or a weekend place on a lake, invested for retirement or done any of the things his friends were doing at the time. And he certainly could have held onto his job as an account manager at CME with a good salary and bonus, a fancy Michigan Avenue office and a big staff.
Instead, Sheehan waited a year, quit the company where he had gotten his start and in August 1987 used his stake to start an ad agency of his own.
It seemed as if his timing couldn’t have been worse. When Sheehan and a partner, E. James Kearney, launched Eire Partners in a dark cubicle in the River North neighborhood, runaway growth in the U.S. advertising business had come to an abrupt halt. After annual gains of 10 percent, 14 percent and almost 16 percent from 1982 to ’84, ad growth slowed to around 7.5 percent by 1987 and ’88.
Until 1988, the ad business outpaced the growth of the U.S. economy, but from 1988 to the second half of 1992, the ad industry fell behind economic growth, according to Robert J. Coen, director of forecasting for McCann-Erickson Worldwide in New York. As the ’80s turned into the ’90s, the gains became more meager-and by 1991, the ad business had its worst year since World War II, declining 2 percent overall.
Nevertheless, Eire Partners has succeeded, moving out of the cubicle and down the street into two floors of bright, sleekly decorated space above an art gallery. And other Chicago ad entrepreneurs, building new businesses while the big agencies jettisoned staff, also have thrived during the downturn.
“People with an entrepreneurial temperament operate under a different set of imperatives than a lot of traditional corporate-type businesses,” said Robert J. Killian, who started Killian & Co. in 1988. While corporations make decisions based on economic conditions, “entrepreneurs open a business regardless, because they have to. They say, `Times are bad-that’s too bad, ’cause I’m opening it anyway,’ ” said the 20-year creative veteran.
Killian and other ad agency owners believe that tough times in the general business world helped their fledgling firms more than they hurt.
“For a number of reasons, clients were reinvestigating their relationships with ad agencies,” Killian said. “The economic environment and the (ad agency) merger madness opened opportunities for guerrilla bands like ourselves.”
The event that put Eire Partners into business, Saatchi’s U.S. acquisitions binge, was part of a movement toward giant holding companies’ owning several global ad agencies, with the agencies’ profits going to debt-saddled public companies.
“Clients were saying, `I’m paying for the overhead for that entire company,’ ” said Sheehan. He believes that sentiment put smaller agencies into consideration.
While wooing a major company’s entire account away from Chicago’s biggest agencies, such as Leo Burnett Co. or Foote, Cone & Belding, may be a far-fetched dream for one of the startups, the recession gave them a chance to demonstrate their capabilities to such advertisers through individual projects or new-product assignments. Aware of the bottom-line pressures on advertisers, they pitched themselves as lower-cost alternatives.
“We say to the clients, `Give us the assignment that your agency doesn’t want,’ ” Sheehan said.
A recent new-business win by another River North agency-Arian, Travis, Lowe & Gusick-illustrates how this can work.
Zenith Electronics Corp., introducing a new line of televisions, asked its national ad agency, Foote, Cone & Belding, to bid on a package of advertising that would include a dealer program and ad materials to appear in stores. FCB declined to participate, so Glenview-based Zenith opened the project to other bids, and Arian Travis was the winner.
Started as a sales-promotion agency in 1982, the firm, now run by Daryl Travis, “redefined and refocused” itself as a full-service agency in 1989, essentially starting over with a new management team. “Some clients are more prone to take some risks when business is bad,” Travis said.
“It will cost a client a lot less money to do business with us,” said Powell Johns, executive vice president, who recently joined the firm. Johns says the agency can provide “high-profile creative at more reasonable rates.”
At the beginning of his venture, Sheehan thought the biggest problem would be attracting good people. But with most of the city’s top five agencies making deep staff cuts in the last few years-and agencies such as Stern Walters Partners shutting down-Sheehan found, instead, that there was a wealth of “good talent on the street.”
“We found we could compete with everyone else in terms of salaries and benefits,” Killian said. “There’s been a lot of downward pressure on salaries. People are affordable, and there are many more free-lancers available. When the prevailing rates aren’t going up, we don’t suffer.”
The eternally optimistic entrepreneurs can put all the positive spin they want on “lean and mean” versus “big-agency bloat,” but they’ve found it doesn’t mean a thing unless clients and prospects have confidence in the agency’s future.
Sheehan acknowledges that the first few years were a “struggle to try to make our business gain critical mass.” Attempts to get capital for expansion were met with flat denials by bankers. And in competitions for business, a more established agency-or even media companies and suppliers-would warn a prospect against putting its account with a new firm that might not be around in another year, Sheehan said.
“We’ve seen more than our fair share of hardball tactics,” he said.
Nor were the startup agencies exempt from the budget cuts hurting business at larger counterparts. “We’ve seen clients’ budgets dry up, but something has always developed to take their place,” Killian said.
“In a few cases, clients would come on board saying they were going to spend $3 million,” Travis said. “But then you’d realize that included (other costs), and the ad budget was really $200,000.”
The uncertainty of budgets “slowed us down a little bit,” Travis said. “You’d get a piece of good news, and it would be followed quickly by a piece of bad news. You couldn’t depend on anything.”
Eire Partners got its big break last year when it won the $19 million Bob Evans Farms restaurants and foods business in a competition with bigger agencies, including J. Walter Thompson/Detroit. Sheehan and another agency partner, Anne H. Cox, had managed Bob Evans while they and the account were at CME. After Eire handled projects for a small Mexican restaurant chain owned by Evans for several years, “we just kept working on them,” Sheehan said. The win gave the agency the “critical mass” it sought and boosted billings to more than $35 million.
Since its restaging in 1989, Arian Travis has grown to $37 million in capitalized billings with increased budgets from clients such as General Electric and the Beef Industry Council, Travis said. The agency handles work other than the national ad campaigns of these clients.
And Killian, now with $12 million in capitalized billings, is moving into bigger quarters in the North Pier building.
