Managing people

A slowdown is no time to get complacent about recruitment and retention. Take it from Moffatt/Rosenthal, an ad agency that has survived extreme turnover

In an up-and-down economy it's anybody's guess whether employees will stay put or continue hopping like bunnies from job to job. Rob Rosenthal, the 43-year-old cofounder and creative director of an advertising agency with offices in Portland, Oreg., and San Francisco, isn't taking any chances. In his computer files he keeps a long list of the names of creative talent he'd like to hire. Even if Rosenthal has no job opening to fill, he regularly reviews the portfolios that are kept in a large box behind his desk, and he keeps in touch with the people on his list. Just in case.

Rosenthal has good reason to fear the unexpected. Only two years ago employees fled the agency that he and his partner, Al Moffatt, also 43, had been building for eight years. In a span of only six months, all but one of the 13 employees left the company. Some resigned; others were let go. "It was one departure a week for a while," Moffatt, the agency's president, recalls. "Rumor was, we were dead."

Perhaps for some companies such turnover wouldn't have been such a shock. But Moffatt and Rosenthal had been considered the golden boys of Portland's ad-agency scene. After banding together in 1991, they quickly managed to snag work from such big names as ADP Dealer Services, Cellular One, Coca-Cola, and Boston Beer Co., as well as the coveted Oregon State Lottery account. The unusual customer mix attracted young talent eager to build portfolios. The joke around the agency was "We've done everything from beer to menopause," says Moffatt. And employees stuck around because it was a fun place to be. The partners thought nothing of inviting all the ad agencies in town to a rollicking bash for 400 that featured a live band, live boxing, and an unlimited supply of burritos and beer courtesy of Portland Brewing Co. (a customer at the time). Not surprisingly, turnover at the agency was virtually zero. So the staff upheaval of 1999 -- caused in part by the dot-com hiring craze, during which even the receptionist was spirited away to become marketing manager of a Web company -- was all the more stunning.

Making matters even bleaker, customers also defected, and for a variety of reasons. The agency, which had never had an unprofitable year, faced losses of $400,000. Moffatt remembers the morning he faced Rosenthal and asked, "OK, now what do we do?" When the partners set out to mend the bleeding company, "we were down to seven people, seven completely new people," says Moffatt.

The extreme turnover that happened at Moffatt/Rosenthal can happen at any company, anytime. While employee-turnover rates are hard to predict during a downturn, one thing's sure: workers have become less loyal during the past decade. It was the recession of the early 1990s that broke the back of the old social contract, says Bruce Mast, an Exeter, N.H., business consultant who has degrees in social psychology and ethics. "White-collar workers lost their jobs in droves," he says. "It was a cataclysmic event. There is no safe harbor, and people know that."

But as any successful founder has learned, it's easy to overlook signs of employee discontent when business is plentiful and life is good. And that's just what Moffatt and Rosenthal had done. As time passed, the agency's staffers had grown bored and disenchanted. "We could hear the rumblings, but we ignored them," says Moffatt ruefully. Looking back, the owners say the turnover happened because they stopped delivering enough challenging new work. By the late '90s, the company had come to rely heavily on a few big accounts. "You can get burned out on it," admits Moffatt. "There's only so many ways to sell the lottery." Moreover, the core group of employees -- most of whom had been hired six to eight years earlier -- peaked at the same time. In the ad business, most employees stay in one place for about three years. Moffatt/Rosenthal's crew had lasted at least twice as long. "We should have anticipated the need for new blood about a year earlier," Moffatt says.

Once in crisis mode, the two partners -- never ones to fear taking risks -- made bold moves to revive the company. They cut their own salaries in order to afford a new hire -- a business-development exec who could publicize the company and bring in new accounts. Looking internally, they began paying close attention to their employees' need for stimulating work. They took on interesting pro bono projects and encouraged employees to go wild crafting self-promotion pieces for the agency. Today, says Rosenthal, "if clients are not providing enough projects that are interesting, we find our own."

And for the first time the partners have defined the company's mission, a crucial step in restarting the agency's buzz. The new focus: branding projects. Moffatt and Rosenthal are now pursuing prestigious accounts that don't usually go to small agencies like theirs. The campaign's code name: the "F -- it Project." The founders figured they have nothing to lose and everything to gain. And they're right, says Mast, the social psychologist. He says setting an ambitious new mission is critical for a company after the excitement of the start-up years has subsided. "The second wave of growth is tough," says Mast. "People signed up for 'Can we create the dream together?' If there's no new dream, the result is a loss of faith."

In the company's darkest days, Moffatt worried that he had lost his own faith. He realized that it wasn't just the departing employees who were restless. He was, too. And that was another sign of trouble that he should have clued in to sooner, he says. It took a warning from other entrepreneurs to wake him up. At a peer-group meeting, 10 people confronted him with a choice: he could get his passion back, or he could lose his company. "It was a Top Gun moment -- 'Maverick, get back into it, get back into it!' That was a personal turning point," he says. "Reengage. Find out what you love about the business." Moffatt did. After a little soul-searching, he threw himself back into his first loves -- the advertising craft and spending time in the field with customers. Last year the fully staffed agency had its best year ever -- and no turnover.

Which is not to say that all the new fixes have worked. Case in point: the partners created a "Genius Award" to reward employees who did stellar work, but the program languished when the founders became too busy to hand out the awards.

The agency has been trying hard to have fun again. In an attempt to build team spirit, Moffatt/Rosenthal holds a companywide "summer Olympics" with events like the "Tanya Harding Hubcap Throw." And to celebrate its 10th anniversary, it is promising to throw a party for the record books. "We'll probably blow up something," Rosenthal says. And why not? Last year revenues hit $1.8 million, and profits climbed to their highest level ever. Gross profits exploded to 28% before taxes and owners' compensation. And the partners' salaries are back to where they were before -- and then some.

Susan Greco is a senior writer at Inc.

Six Signs that the Natives are Restless

How do you know when employees are getting ready to jump ship? Here are six tip-offs from Al Moffatt of Moffatt/ Rosenthal.

1. You see portfolios on the desktop. When employees start dusting off old projects out in the open, it's time to worry.

2. Shorter days, longer lunches. At Moffatt/Rosenthal "there was a lot of nail thumping and less enthusiasm for each project. People had topped out in responsibility," Moffatt says.

3. The sniping factor rises. Employees were becoming more critical. "There were more violent disagreements than usual and more violent outbursts against client input," the cofounder recalls.

4. Staffers sound like a fan club for the competition. "When you hear people say 'I think X company is doing things right,' that means people are interviewing," says Moffatt.

5. The owners are restless. "We had to rededicate ourselves to the business," he says.

6. It's time. Most ad agencies are lucky to retain creative staffers for more than three or four years. Moffatt/Rosenthal had topped the odds by keeping some workers as long as eight years.

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