An industry transitions: Twin Cities ad scene blossoms with small, independent agencies

Jason Smith came to the Twin Cities advertising industry when it was filled with giants. Today, he leads one of the small agencies that are prevailing far beyond their size.

Fresh out of school in the mid-1990s, Smith joined Carmichael Lynch, a Minneapolis agency that was churning out big campaigns for the likes of Harley-Davidson, Gibson Guitars and Schwinn Bicycles. "Real passion brands," Smith said. "For a creative art director, I loved it. It was an amazing place to be."

Two decades later, advertising agencies here and across the country look a lot different. Workers in the handful of large companies that used to dominate the Twin Cities ad industry created more than a dozen firms. And the five most prominent firms — Campbell Mithun (now McCann Minneapolis), Fallon, Carmichael Lynch, Martin Williams and Olson — all became subsidiaries of global holding companies.

The shift happened because new technology emerged and client expectations changed.

When the spunky Fallon McElligott Rice (now called Fallon) took out a full-page ad in the local papers in 1981 calling itself "a new advertising agency for companies that would rather outsmart the competition than outspend them," it marked the start of an era that brought national attention and business to Twin Cities agencies.

"Fallon's creative reputation frankly floated all boats," said Patrick Hunt, who was an account planner for Fallon in the 1980s before starting his own firm Hunt Adkins. "Martin Williams got bigger, Carmichael Lynch got bigger."

Campbell Mithun, creator of major ad campaigns like the "The Incredible, Edible Egg" for the American Egg Board, was the largest ad shop west of the Mississippi River with annual billings of $250 million a year.

In the 1980s and 1990s, it was relatively easy for ad agencies to make money, said Steve Wehrenberg, a communications professor at the University of Minnesota who served for years as the chief executive of Mithun. Local companies like 3M and General Mills were rapidly coming out with new products that needed to be launched, and agencies had high profit margins with large commissions.

"You had to be a total, absolute nincompoop to not grow as an ad agency," Wehrenberg said. "Every year media inflation went up by double digits. Your clients, if you didn't lose them, they spent 10 percent more. You got paid 10 percent more, so through the '80s everyone was just sort of on cruise control."

But two decades ago, advertising holding companies began purchasing some of the top local agencies. Interpublic Group of Cos. bought Carmichael Lynch in 1998, the same year Martin Williams became part of the Omnicom Group. In 2000, Publicis Groupe bought Fallon, which had grown to more than 600 people.

These mergers and acquisitions happened around the same time that the use of cellphones and the internet became widespread. Digital gadgets changed advertising by promising to connect sellers to buyers more directly, and marketers had to try to make sense of the new media.

William "Billy" Jurewicz was working at Fallon as a copywriter when he decided to start his own digitally focused agency Space150 in 2000. "Being an entrepreneur at heart, I wanted a stake in the game, which wasn't an option for a no-name like me. So I started something myself," Jurewicz said.

Space150 became one of the top-performing agencies in the area, with clients such as Coca-Cola, Buffalo Wild Wings and Nike.

"Digital has changed the landscape in a pretty profound way," said Mark Bubula, president of local advertising firm Friends & Neighbors. "There are just more marketing shops than there used to be."

Earlier this year, Horizontal Integration, a digital agency and marketing and IT headhunting firm in St. Louis Park, created a family tree showing the agencies that have emerged from larger firms.

"To us, the map reflects the entrepreneurial nature of the business," said Chris Staley, co-founder and executive vice president of Horizontal Integration. "People are always looking for a market need that isn't being met and coming up with a creative way to meet it."

Mobile phones and the internet changed more than how companies reached customers. They also leveled the playing field between big firms and small ones since it took fewer resources to start a firm and make it run. Before, agencies had grown by mergers or by new client accounts.

After eight years at Carmichael Lynch, Smith said he began to worry that the old model for growth was no longer sustainable. He co-founded an independent firm named Pocket Hercules, which has done work for Marvin Windows and Doors, Rapala Lures and others. "When everyone else was going big, we decided to go small," Smith said.

In 2016, copywriter Jim Wakely and several other co-workers at Mirum Minneapolis created their own agency, Folklore, which has 15 employees in Minneapolis and two in San Diego.

"You are able to pursue smaller projects and smaller companies that you really value what they are doing," said Wakely, Folklore's director of business development.

Boutique agencies aren't a new concept, said Hunt, who founded Hunt Adkins more than 20 years ago. "But what happens is, we are in the business of positioning our clients so, as a natural extension, we are in the business of positioning ourselves," Hunt said. "We are always trying to find the next thing that's different."

In recent years, ad-agency marketers and creative types have joined what some data suggests is a growing number of freelancers or "gig economy" workers."There are so many marketing opportunities in our area and a broad range of companies looking for outside help — in some cases those needs are best served by an individual and sometimes they require an integrated team of 50," said Marcus Fischer, chief executive of Carmichael Lynch. "It's a great indicator of a flourishing marketing industry."

Despite the growth in independent firms, the advertising industry still faces more changes. Long-term contracts with large advertisers have become a thing of the past and more clients are requesting temporary, project-based work. Digital work last year made up more than half of U.S. agency revenue. Agencies face growing expectations for speed and return on investment.

They also face mounting competition from Google and Facebook, which control the digital-ad market, accounting and consulting firms such as Accenture and Deloitte, which provide also marketing services, and even clients themselves, who are doing more marketing work in-house. Recent sluggish revenue growth for the industry is leading marketing experts to guess about the agency of the future.

"We all know traditional advertising is dead," Jurewicz said. "Even traditional digital is dead. But earning trust with clients and delivering thinking outside their walls will always be alive. Good ideas continue to be the root of everything."

Nicole Norfleet • 612-673-4495