Deutsch, Inc.

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Deutsch, Inc.

111 Eighth Avenue
New York, New York 10011
U.S.A.
Telephone (212) 981-7600
Fax: (212) 981-7525
Web site: http://www.deutschinc.com

Wholly Owned Subsidiary of Interpublic Group
Incorporated: 1969 as David Deutsch Associates
Employees: 880
Gross Billings: $1.8 billion (2001 est.)
NAIC: 541810 Advertising Agencies

Deutsch, Inc. is a New York-based boutique advertising agency that was bought in December 2000 by Interpublic Group, one of the world’s largest advertising conglomerates. After taking over a small shop that his father founded, CEO Donny Deutsch has transformed the reputation of the agency from conservative and staid to hip and edgy, in the process building up a client list with approximately $1.8 billion worth of billings. Outspoken and irreverent, Donny Deutsch has gained a mixed reputation in Madison Avenue circles. All too often he has been characterized as brash, a term which Deutsch openly dislikes, as well as egomaniacal and grandstanding. Critics also dismiss his reputation for producing cutting edge work as overstated. Deutsch has mellowed with age and made attempts to dispel the notion that Deutsch, Inc. is a one-man shop by granting equity stakes to several top executives and making a concerted effort to couch comments in terms of “we” rather than “I.” Recognition by major trade publications has provided some vindication of his style, and the generous deal with Interpublic has brought respect, however begrudging, from his industry critics, who recognize that he has achieved what few others have, establishing his own agency as a formidable brand. Imbued with the personality of Donny Deutsch, Deutsch, Inc. has name value that rivals can only envy.

David Deutsch Associates: 1969

Donny Deutsch’s father, David, was a longtime New York adman, working at established agencies such as Ogilvy & Mather and McCann-Erickson. In 1969 he struck out on his own, establishing David Deutsch Associates. The company specialized in print advertising and became known for distinctive photography. Clients included Oneida, Louis Vuitton, and Crouch & Fitzgerald. By the time Donny joined the firm, billings totaled a modest $12 million.

Donny Deutsch graduated cum laude from the University of Pennsylvania’s well-regarded Wharton School of Business. He took his first job in advertising at Ogilvy & Mather in 1979, but was quickly bored with his role as an assistant account executive on the Maxwell House Coffee account. He made an impromptu trip to Los Angeles, became a contestant on The Match Game, and won $5,000. He then quit his job and traveled on his winnings, which according to lore was supplemented by selling blue jeans at flea markets. He returned to New York in 1983, applied to law schools, and in the meantime took a job at his father’s firm as an account executive. After six months David Deutsch fired his son because, as he would later say, Donny “was slacking off.”

Donny Deutsch convinced his father to take him back, but this time in a different role: a rainmaker. He soon landed the agency’s largest account, the $3 million Tri-State Pontiac Dealers business, and expanded the agency into television advertising. Law school was forgotten, Donny continued to drum up new business, and he became increasingly more involved in the creative side of the agency. In 1986 he was named creative director. By 1989 billings increased to $75 million, then his father stepped aside, selling out to him in 1990. Donny changed the company name to Deutsch, Inc. and quickly moved to reinvent the agency’s reputation and culture.

Deutsch developed a notable style for its television commercials. Its in-your-face, sometimes insulting edge was not new, but Deutsch was relentless in its application. One of its Tri-State Pontiac commercials gained a bit of notoriety, not unwanted, when it engaged in what was perceived as Japan bashing by referring to Rockefeller Center as “Mitsubishi Center” at a time when the Japanese economy was soaring and many Japanese companies were buying up Manhattan real estate. Deutsch commercials also tried to be non-commercials by casting real people over actors. In addition, the agency became known for its wacky office culture, one that anticipated the environments of the Internet start-ups several years later. A 1992 New York Times profile of the shop describes the atmosphere: “Everyday is a circus at Deutsch Advertising. The office is more like a set of Saturday Night Live than a New York advertising agency…. Rock music blares from an office at one end of the hall. In another, several executives are singing theme songs from vintage television programs like The Patty Duke Show. People are running down the hall, shouting. One young man seems to be practicing a stand-up comedy routine, to which no one pays the slightest attention.” Employees essentially dressed any way they liked. Deutsch himself was known for his jeans and cowboy boots and rarely wore a tie. The office layout was open, designed to foster creative exchange, another feature that predated Internet companies. Deutsch also hired a lot of young people who traveled the local club scene in order to keep abreast of rising trends. Taken altogether, Deutsch was perceived as a hot, creative ad agency and Donny Deutsch, despite reaching his mid-30s, remained something of an enfant terrible.

Dworin and Deutsch: 1991

Although a reputation for being particularly creative was generally a plus for Deutsch, which resulted in the agency landing the highly coveted business of Ikea (and earning the Advertising Age Retail Marketing Campaign of the year), most corporate executives who decided on what agency to contract were wary about its reliability. Donny Deutsch wanted to take his agency to another level; already he was talking about opening an office in Los Angeles. To alleviate concerns about the business, Deutsch in 1991 hired a seasoned executive, Steve Dworin, formerly a senior vice-president and director of account management at J. Walter Thompson, as its new president. Although little known in the advertising world, Dworin was a solid veteran of the business. Deutsch met Dworin during his brief stint at Ogilvy & Mather, where Dworin was earning a reputation as an up-and-coming executive at the same time Deutsch was getting ready to appear on The Match Game. At the age of 24 Dworin became the youngest account supervisor Ogilvy ever produced. He went to work at J. Walter Thompson in 1980 and by the age of 31 was responsible for a major share of the agency’s business. He was regarded as an odds-on favorite to be named president of the New York office of the London-based agency, but the appointment never came. As early as 1987 Deutsch tried to hire Dworin, but it was not until 1991, when Deutsch Inc. was clearly an agency on the uptick and Dworin had grown weary of waiting for his promotion, that he came aboard.

Quickly the team of Deutsch and Dworin displayed what both men described as “magic.” Writing for the New York Times, Stuart Elliott explained that “their partnership worked so well because the two men had complementary skills to offer each other. As Katharine Hepburn once said on the secret of the pairing of Fred Astaire and Ginger Rodgers, he gave her class and she gave him sex. The affable, buttoned-down Mr. Dworin gave Mr. Deutsch a solid grounding in account management and the care and feeding of clients. And Mr. Deutsch, a voluble, loquacious man who is occasionally accused of over-enthusiastic self-promotion, gave Mr. Dworin the creative spark to fire up his efforts to attract clients.” Over the next two years the combination of Deutsch and Dworin added a dozen new clients with $200 million in billings, including the Hardees fast food chain, Prudential Securities, Lens Crafters, and Tanqueray Gin. To acknowledge the importance of Dworin, who held a 25 percent stake, the agency changed its name to Deutsch/Dworin in November 1992.

In 1992 Donny Deutsch gained even more attention when Bill Clinton’s presidential campaign selected him as one of a handful of advertising executives to help guide its advertising strategy. After Clinton won, Donny Deutsch was accused of attempting to reap an undue share of the credit, a charge that fed into his reputation as brash and self-centered. Nevertheless, the association with a winner was good for the agency, which continued to gain momentum in 1993. Early in 1994, however, Dworin announced he was leaving the agency, following two months of confidential talks with Deutsch. Likening their partnership to a marriage, the two men explained that they had grown apart and rather than let their strained relationship hurt the agency they agreed to a separation in which Deutsch would repurchase Dworin’s 25 percent of the business. Dworin also agreed not to take any clients with him or talk further about his reasons for leaving. As one unnamed individual who knew both men told the Wall Street Journal, “Steve probably wanted more in terms of money, power and recognition than Donny was willing to give. It is, in the end, the Deutsch candy store.”

Deutsch took on the title of chief executive officer and changed the agency’s name back to Deutsch, Inc. He expressed confidence that the business would continue to grow. He even talked about the possibility of using his in-house production facilities to produce television programming, including a real-life Seinfeld set in a diner located in the neighborhood. Although nothing came of these plans, Deutsch’s predilection for reality-based television proved to be well ahead of the curve. Deutsch did break new ground in 1994 when one of its Ikea ads featured two gay men, the first time a major television commercial broached the subject of homosexuality.

Company Perspectives:

Deutsch is a different kind of agency—we think of ourselves as leaner, meaner, smarter, and faster than others. We have a passion for the business that you don’t find at many shops: a way of working that cuts through the minutiae and gets to the essence of a brand and to the heart of the consumer more effectively than most. This approach has led to our creative philosophy “Human Spoken Here,” where we aim to engage the consumer in a dialogue that speaks directly to them about what matters most. Ultimately, this process produces a “natural conversation with the consumer.”

As Deutsch predicted, the business continued to grow despite the loss of Dworin. In 1995 Deutsch Inc. became the first midsized ad agency to help clients take advantage of new media by setting up Interactive Deutsch, later renamed iDeutsch. The company also opened a southern California office in Santa Monica, territory that many New York agencies had tried to crack but failed. What Deutsch did not have was an automotive client, which in many respects was the ultimate proof than an ad agency had become a major player. Car makers spent hundreds of millions of dollars on advertising each year; in the case of General Motors annual billings were in the $2 billion range. Deutsch spent considerable time and money, some $400,000, trying to land the Volkswagen $110 million North American account in 1994. Deutsch was one of a handful of agencies included in the final review process for VW, which had suffered through 15 lackluster years. Deutsch was confident about its presentation but in the end was not hired. The decision was a bitter pill to swallow for both Donny Deutsch and his team.

In the next couple of years the agency would pitch but fail to win the accounts for Mazda and Acura. Deutsch even created a direct marketing unit in order to bolster its chances. Despite being frustrated with landing an automaker, Deutsch continued to grow rapidly. Its billings increased in 1997 by 32 percent over the previous year, reaching $500 million. The West Coast office was well established, signing accounts worth almost $100 million, including Bank of America and retailer Old Navy. To reward his seven top executives, Deutsch gave out equity stakes in the agency, although he still retained approximately 85 percent. In 1998 the agency opened a Chicago office to service area clients. It also moved into new Manhattan offices in order to accommodate its growing staff.

Winning the Mitsubishi Account: 1998

In December 1998 Deutsch finally secured a major auto client, the $250 million Mitsubishi Motor Sales of America account. Deutsch’s earlier, unfavorable reference to Mitsubishi in one of its ads was now all but forgotten. First the agency won the contract to represent the 41 regional dealer associations, followed by the campaign to introduce the redesigned Galant sedan. Finally, it consolidated the entire account. It was a special moment for Donny Deutsch, one he compared to a sports team that finally won a championship. Nevertheless, he still had his share of critics, whose motives he was more willing than ever to attribute to simple envy. What was not open to debate were the major accounts that the agency was winning, now totaling well over $800 million in billings. Because Deutsch was privately held, financial details on the company were slight, but it was reported that the agency generated some $86 million in profits for 1998. To cap the run of success, Deutsch was honored as the agency of the year by both Adweek and Advertising Age .

In 1999 Deutsch reached $1 billion in clients’ billables, while income topped $133 million. The agency pitched and won a host of new clients, including Domino’s, Pfizer, Tommy Hilfiger, Brinks Home Security, and SunAmerica. Mitsubishi, in the meantime, enjoyed a 37 percent surge in sales, a large part of which its management attributed to Deutsch’s ad campaign. The agency opened a Boston office, headed by two area executives it lured away from New England’s largest ad agency, Arnold Communications. Deutsch also formed a joint venture agency with Rush Communications, controlled by Russell Simmons who ran a number of businesses that catered to urban youth, including Def Jam Recordings and Phat Farm Fashions. The new agency, called dRush, looked to design campaigns for young consumers between the ages of eight and 17. Donny Deutsch was also traveling to London to actively pursue the possibility of opening an office there. In addition, he was talking about opening other branches in Asia and South America.

Deutsch was now the largest U.S. independent ad agency. Clearly Donny Deutsch was looking to expand globally to keep pace with major clients such as Mitsubishi, but the resources required were massive. For some time he had been approached by suitors, and according to press accounts had been offered as much as $175 million for the business. Finally in December 2000 he agreed to sell the agency to the Interpublic Group in a stock deal worth in the neighborhood of $250 million, in what most knowledgeable observers considered an excellent deal for Donny Deutsch who stood to become the largest single Interpublic stockholder in the years to come. Although he did not gain a seat on Interpublic’s board, he remained CEO at Deutsch and was essentially granted autonomy. “It’s the right time with the right partners,” he told the New York Times,” This was a deeply thought-out decision because we’ve been independent our whole life. But it’s the natural next step, next challenge, next level for us.” For Interpublic the deal made it the world’s largest advertising company. As Deutsch began its new existence in 2001, only time would tell how the agency that prided itself on being a maverick would react to a corporate parent looking over its shoulder. Moreover, would it continue to grow and reach new levels of success, or might it actually lose the spark that made it such a desirable acquisition in the first place?

Principal Competitors

Bcom3 Group, Inc.; Chisholm-Mingo Group; Grey Global; Omnicom Group; Publicis S.A.; UniWorld Group; WPP Group plc.

Key Dates:

1969:: David Deutsch Associates is established.
1983:: Donny Deutsch joins father’s firm.
1986:: Donny Deutsch is named creative director.
1989:: Donny Deutsch succeeds father, renames company Deutsch, Inc.
1991:: Steve Dworin, a senior vice-president at J. Walter Thompson, joins company.
1992:: Agency name is changed to Deutsch/Dworin.
1994:: Dworin leaves agency and name reverts to Deutsch, Inc.
1998:: Agency lands $250 million Mitsubishi account.
2000:: Deutsch, Inc. is sold to Interpublic Group.