Doug Poretz's  Instablog

I saw news that JWT has decided to close its Chicago office.  JWT is part of the WPP (WPPGY) organization of advertising and related communications firms.  The Chicago office of JWT (originally J. Walter Thompson) has been characterized in just about every story covering this event as “storied.”  Some of the major ad campaigns of our time were created at that shop, including the Uncola campaign for 7Up, the “My bologna has a first name …” campaign for Oscar Meyer, and even “Snap, Crackle, Pop” for Rice Krispies, as just a few examples.  The office had 800 employees at one time; today it has 50 employees, most of whom will be laid-off, and four accounts.

Read the trade publications and blogs and you’ll see that there are as many theories cited for the reason the shop failed as people doing the theorizing.  I’m not going to join that game.  In fact, I do not think it matters.  When the history of the communications revolution is written, this event probably won’t qualify as a footnote.  But to those of us who have been around for a while (for me, 40 years or so in the communications industry), the loss of the JWT Chicago office is historic.  And for those of us who operate a communications firm as I do, this is also another slap of reality: the industry needs a new model. 

Disclosure:  I do not have an equity position in WPP, mentioned in this article

One of the real beneficial experiences of my life was working closely with Dwight Schar, who is best know as Chairman and former/founding CEO of NVR, Inc. (NVR), one of the nation’s largest and the most profitable homebuilding companies.  In the summer of 1986, when I went to work for him, as VP, Corporate Affairs (mostly investor relations, until 1991 when I continued the relationship for two more years on a retained basis), he had recently taken NVHomes public.  It was a small homebuilding company active in the Greater Washington area, primarily Northern Virginia.  Schar co-founded it with some friends and business associates; he was clearly the leader. 

The company went public as a Master Limited Partnership (MLP), which meant that rather than paying taxes at the corporate level, the individual equity investors (who owned membership interests rather than shares of stock) were allocated their share of the profits, and they would have to pay taxes on that.  The company paid distributions of profit that would minimally be great enough to cover investors’ tax obligations.  In addition to that, at the time, MLPs were also considered to be PIGs (Passive Income Generators).  That meant that if the NVHomes investor had passive losses (e.g., from an ownership interest in an apartment building), they could balance that against the NVHomes profit and thus as much as 100 percent of the distribution they received from NVHomes could be pocketed.

Shortly after taking the company public, Schar launched what must be the greatest ever minnow-swallowing-the-whale case history.  He made an attempt to buy Ryan Homes, which was based in Pittsburgh, and at the time either the number one or two homebuilder in the country.  The logic was that Ryan could be converted to MLP status and made into a compelling investment.  In addition, Ryan had become a tired company selling outdated models to too small a range of market segments.  So, if Ryan could extend its reach to include the market of move-up buyers, growth could be dramatic.  Schar was brilliant at marketing new homes, so that was considered a virtual “automatic.”

I was hired just after acquisition terms were agreed to.  All that was left was for NVHomes to raise the capital to fund the acquisition of the Ryan stock they had not yet acquired, and to be renamed NVRyan, which ultimately was changed to NVR.  Although I forget the exact amount of capital we needed to raise, I do remember it was a prodigious amount by any standard.  The higher the value of NVR units, the less equity would have to be sold to conclude the deal.  I was hired to build investor interest in the company with the goal of seeing that drive unit value higher.  The strategy was sound. 

The company had been basically ignored by the Street.  As soon as we brought the story to analysts, the company began to be followed by just about every major Wall Street firm.  The unit price increased from around $4.00 or so to in excess of $40.00. 

That ended with the crash of the residential real estate market starting around 1990.  Ultimately, NVR had to file for Chapter 11 protection.  At the time that happened, among our most important operating concerns was the cancellation rate.  If customers who had paid us a deposit and contracted for us to build a house for them decided to back-out of the deal, as they legally could, we would have houses under construction move out of the revenue pipeline into speculative unsold inventory.  That could have been a disaster.  We needed to reassure our customers that they could buy a house from us with confidence.  At the same time, we relied on material suppliers and construction trades subcontractors for much of the actual construction of the house – we also had to reassure them.  We had to convince REALTORS that they could bring their customers to us and the deal would close without hassle.  To say nothing about our own employees.

Sound familiar?  General Motors (GM) asserts a very similar concern.  They have said that Chapter 11 would be wrong for them because people would not buy new cars due to their concern about the loss of their car’s warranty.  In the case of NVR’s chapter 11 filing, homes last longer, cost more and buying one is an even more emotional consumer act than buying a car.  So I think the lessons learned from NVR are relevant.

The month we announced the filing of Chapter 11, we also experienced one of the lowest cancellation rates in our history.  I was intimately involved with the communications process that made that possible.  Here’s what we did – and what GM should do when they file Chapter 11.  This isn’t an extensive list.  If you see GM drifting away from this approach, you should probably start worrying about them.

1.     Treat your customers with respect.  Don’t blare at them.  Help them understand what is happening.  At NVR we said plainly that we had a financial problem, not an operating problem.  We explained that the best way to fix that problem was to file Chapter 11, and noted how at the same time that would actually provide more safety to the customers.  That’s really what the customer wants to know.  Just say it.

2.     Educate your middle management.  Our news release announcing the filing was held until late Sunday night so that the Washington Post would be first to break the story in their edition dated Monday morning.  On the preceding Friday we brought together all the middle managers from the several markets where we were then doing business.  The first thing we did was have them listen to a legal presentation about what “insider information” was and how they had to treat it, and then had them sign a statement acknowledging that they understood it.  Then we told them about the forthcoming news.  They learned about what it meant to their suppliers, and their customers and to their own jobs and the jobs of the people who worked with them.  They also were media trained so they'd know how to explain it to local reporters as well as anyone who asked them about it.  I think that was the single best thing we did.  Here’s the lesson for GM:  Your customers will not believe faceless, unknown and suspicious corporate management, but they will believe the guy at the service bay or the salesperson, especially if they exude confidence that they know what they are talking about.  That sort of knowledge gets to them over coffee during chats with their immediate boss, the middle management.  So, you have to educate middle management as a top priority.

3.     Stay on point & keep it simple.  There will be plenty of time to get across information about Chevrolet’s next new car or some new type of innovation.  When it comes time to announce Chapter 11, keep focused on just that issue.  Explain it.  Build credibility for your candor and simplicity.  Get it behind you.  Then let it die to become a non-event (which is what will happen if it’s done right) and move-on.

Oh, and know this:  you’ll get over it.  Just take a look at the NVR stock chart since it came out of Chapter 11 in 1993.

Disclosure:  I do not own equity in either GM or NVR.

I'm getting inundated with emails that somehow get through our spam mail filters.  They basically all start out by telling me that in this economy I am certainly going to want to maximize this or minimize that and these guys really do that well, and click a link to find out more. 

These campaigns are usually managed in commodity-like ways.  They are put together by people who have expertise in their own line of work rather than having marketing and communications skills.  They also have an urgent need to find customers anywhere, so launching an email campaign is a cheap and quick effort.   

It occurred to me that the increase in these emails is really a barometer of the strength of the market.  As the economy worsens, businesses are going to test a wide variety of business development efforts.  It will be a natural for businesses to turn to email campaigns.  My guess is that the trend we're seeing of more spam mail will continue for the immediate future.  By the time the urgency of the need begins to subside, so many improvements will have been made that marketing will be dramatically more web-based than it is now.  It's part of the revolution in communications.