26 November 2009
NEW WAYS OF MAKING MONEY – HOW TO ZAG WHEN EVERYONE’S ZIGGING

BBH’s Adam Arnold kept a packed Designer Breakfasts audience enraptured with his presentation on Zag – the international agency’s brand invention arm.

Zag, BBH’s four-year old brand invention business, is a response to the pressure client increasingly put on fees. It uses a risk and reward model to create brands and take them to market with joint venture partners. Sir John Hegary introduced the enterprise, explaining the reasons behind the start-up. “We’ve hit a perfect storm: our fees are under pressure, the value of creativity us being undermined – that’s what happens in a recession. This will be solved by us using our brainpower. As creative people, we began to think about about what we should do about it – using only our creativity. We decided to:
• Create our own assets
• Share in their success
• Form new partnerships with people who could bring ventures to market

Adam took it up from there, saying that they had lots of ideas but the problem is how to choose the right ones. “We only work with clients with brand lag. We look for trends, changes, need, in order to build brands that people want, that will survive. Our process integrates product and brand from
day one.“ Zag has the benefit of BBH‘s consumer research resources and uses these to flag up challenging problems. They needed two ideas to fly and realise that some will fail. They start with lots of small bets. Adam went on to describe two of the flyers:

Mrs O: a world famous blog that follows the fashions of First Lady Michelle Obama. It aims to be a central, ever evolving resource that chronicles Mrs O’s look, while providing fashion commentary and information. The idea came from a staff member in Zag’s New York office. The aim is to build
it, get traffic and then to sign book deals and create content. The site gets tens of thousands of hits a day and has received comments from the White House.

Ila: the first personal safety brand for women. The first product is ila Dusk, a pretty item resembling a small mobile phone that’s a personal alarm. It was the first non-M&S brand to appear in the fashion store and is a success story with stats to prove it.

Adam says they have to stick to clear roles with their partners; Zag insist their partners do the manufacturing and distribution, they themselves do the brand and marketing side that they know best. The work is soundly researched and evidence-based and the products are all consumer facing. The value is intangible, long-term and full of risks. “It’s to do with holding your nerve, he said, "it takes time to build up a business. My day job is all about selling risk.“ He went on to describe how to mitigate them.

He described the remuneration models: joint venture, equity or licence. Raising cash is very difficult. Replying to questions about contracts, he starts with heads of terms that fit on two pages and that, when it comes to the full contract, that the devil is in the detail. Most of the hour was spent answering questions.

“Do you go to new partners with formal, worked-out business plan?”
“Yes, it helps and helps make you seen in control.”

“How do you value the share split?“
He replied that you have to be specific; each party writes a scope of works and deliverables and puts a market value on them, then you compare and value the split. If your partner believes in brand value, you may get 50%, otherwise 30%. Don’t go for less than 30 because it will be diluted to 10 or 20%. It’s best to go for a smaller share of something big but don’t go for less than 10% equity as there are tax implications.

BBH is leveraging its experience, creating brand stories to improve its profitability and redefine relationships with clients. This breakfast is part of Designer Breakfast’s current series on alternative remuneration models to fees for services and becoming entrepreneurial.

Previous Designer Breakfasts on risk and reward were: Michael Peters: Small is big; Tim Ashton: Run a business business, not a design business – an antidote to recession; and Sir George Cox: future of design