Something curious happened recently when 27 advertising agencies were vying for the business of a prestigious car company. The Chrysler Group invited the agencies, most of them small shops, to compete for its "multicultural account." It was a big deal. The winner would mastermind the advertising campaign of Chrysler, Jeep, and Dodge cars and trucks to the "urban" marketplace. The company's request for proposal laid out the many requirements of the account. What if a small agency couldn't meet the RFP terms? Chrysler had three words of advice: Form an alliance.
"Seven alliances came back to us in two weeks," says Jeff Bell, Chrysler Group's vice-president of Jeep marketing. Last spring, when Chrysler announced the five semifinalists, all five were alliances. With names like "PASS Urban Powertrain," the alliances each consisted of two to four agencies. "We're not asking them to stop being individual agencies," Bell says. "But if you come together in an alliance, you don't need to open an office in Miami. It's already there."
The Chrysler competition illustrates why independent-business alliances are hot. What's striking is how adamantly Bell opposed hiring a large ad agency. He valued the creativity of the independent entrepreneurs. But he also wanted scale. Hey, customers want what they want.
Clearly, the changing face of customer needs (or make that demands) is driving more entrepreneurs to team up in groups of 5, 50, or 100 companies. It's a great hook when you can present your alliance as a single-source solution, especially in a tough economy.
Just ask soloist David Kowal. After toiling on his own for years as a public-relations professional, he recently gathered together 11 of his soloist friends. "We said if we could only harness all that talent into a single group, that would be great," he recalls. So he and another sole practitioner started a new company, called 3D-PR, an alliance of 12 soloists. Dan Cote, marketing director for nSight, a print and interactive communications company with some $10 million in sales, liked what he saw in 3D. "We were looking for veteran PR people we could afford, and they fit the bill perfectly," he says. With the alliance, Cote says, he's getting more bang for the buck. It looks as if Cote has something in common with Chrysler's Jeff Bell.
An alliance's mission is often simple: increase sales and profits. But many alliances also appeal to an entrepreneur's deep-rooted sense of identity. The people who start and join alliances believe unceasingly in the advantages of remaining independent and are willing to defend that unalienable "right." (See " Declaration of Independents," September 2001.)
But the best of the alliances are pushing the boundaries of what independent means in some very inventive ways. And by joining forces they're finding even more freedom -- truly the best of both worlds.
Wheeling and Dealing
The Alliance: YaYa Bike (www.yayabike.com)
Founded: May 2001
Members: 67 independent bike dealers
Driver: A consolidation of suppliers is creating a power imbalance in the industry
If you wander into @ The Hub Bicycles, in Athens, Ga., you'll have no trouble finding name bikes like Cannondale and Gary Fisher. But against the back wall you'll also find niche brands you've never heard of. It's that variety, says owner Chris Dupuis, that attracts both weekend riders and more serious cyclists who spend $1,500 and up on high-end road bikes.
If the top bike manufacturers had their way, however, @ The Hub wouldn't be nearly so eclectic -- or so profitable, says Dupuis, whose store had sales of $785,000 in 2001, its first year. And customers would have far fewer brands to choose from. The four "really powerful" suppliers to bike shops don't like store owners who pick and choose from their product lines, he adds. "They've got it down to a science: 'If you want our bikes, you need to take our clothes, helmets, and pumps.' Retailers jump through hoops to have the most desirable brand. But every decision has financial repercussions. I don't want any supplier to be 100% [of my business]."
As Dupuis, a 15-year veteran of the bike business, watched the big suppliers consolidating their power, he came to the conclusion that he needed to have more clout in the industry. So this year he did something radical -- he joined a new co-op alliance of independent bike dealers known as YaYa Bike. Four other Georgia bike dealers have also joined.
The expression ya-ya is baseball slang for home run. YaYa Bike has yet to hit a home run, but industry insiders say it has the potential to. "This could be really big," says Larry Carder, national sales and marketing manager for the Hawley Co., a distributor of bicycle parts and accessories in Lexington, S.C. In April, Hawley agreed to be a YaYa "preferred distributor." That means it will give YaYa members a rebate on its 12,000 products -- on top of whatever individual deals the store owners have with the distributor. What's in it for Hawley? New customers. "We've already seen an effect -- a dozen new stores in the Midwest and West," says Carder.
In one year, YaYa has recruited 67 independent bike dealers (IBDs) with 100 store locations in 23 states and aggregate sales of $75 million. It also has signed 18 preferred suppliers, who are cutting YaYa a special deal because of its 100 locations. Such progress makes Dupuis happy.
But YaYa has its detractors, too. "I'm not sure I see the usefulness of it. I already have really strong relationships with my suppliers," says Chris Zane, owner of Zane's Cycles, in Branford, Conn. But Zane is exceptional among IBDs. With revenues approaching $6 million, Zane is the exclusive dealer in his area for brands like Trek. If he joined an alliance, he says, "I know my suppliers would give me a hard time."
YaYa president Bob Friedman, who is based in San Diego, admits that in his first six months of recruiting, he struck out repeatedly. Despite hard times that saw at least 800 stores shutter their doors in 2001, many IBDs were skeptical of the new group. "They'd say, What suppliers do you have? I'd say, I don't have any yet. And the reply was, Call me back when you have big players like Giant," Friedman says. In fact, YaYa is still seeking a deal with a top-tier bike manufacturer. It may take a while.
Friedman says from the start the word among suppliers was "Don't work with YaYa and they'll go away." There was reason to fear the fledgling alliance. In Europe three bike-dealer cooperatives wield considerable power because they move so many bikes. In the United States some suppliers fear "they're going to help us get healthy, and then we're going to turn around and bite them," says Friedman. "That's happened to some extent in Europe."
But then a few suppliers broke rank, and more followed. What's more, grizzled retail veterans like Ron Kozy, owner of Kozy's Cyclery, in Chicago, decided to join, encouraging other IBDs to do the same.
Some store owners were initially skittish because they recalled a motley group of retailers that had tried to organize an alliance a few years earlier and failed miserably. But YaYa took a different tack from the start. It was organized as an official business cooperative under the direction of co-op expert David Leppert. In a cooperative every member is also a shareholder. The YaYa chairman is a bike dealer.
Now YaYa wants 1,000 members, or about 20% of the IBDs, by 2006. That's a tall order. "I'm asking a store owner to write a check for $2,000. It's not an easy check to write, especially when the payoff is downstream," Friedman says. He expects that the first rebate checks will go out to members in 2003.
Also downstream: a line of private-label bike products under the YaYa brand (or another name of members' choosing) made by the alliance's preferred suppliers and available only to members. Friedman sees a Wal-Mart-busting line of simple products like shorts and wheel tubes. "These guys sell tons of tubes, so why not their own?" he asks.
Ultimately, Friedman envisions YaYa members launching comarketing campaigns under the alliance's banner. And why not put the YaYa logo on store marquees? As Friedman talks, the alliance's mission starts to sound suspiciously like that of another co-op that started out so many years ago as a renegade group of independent stores. Those stores are now known by one name: Ace Hardware.
Agents for Change
The Alliance: Strategic Independent Agents Alliance (www.siaa.net)
Founded: November 1996
Members: 1,000 insurance agencies nationwide
Driver: The consolidation of insurance carriers is leading to increased demands on insurance agents
"In our state alone, there are probably half as many independent agents as there were 10 years ago, and that number will probably continue to be reduced annually," says Tim Hyland, president of Hyland, Block, & Hyland, in Louisville. Local insurance agents, long a fixture in small towns across the country, are struggling for survival, according to Hyland, as insurance carriers grow larger and raise the minimum premium volume they require of agents who do business with them. "The companies that we represent want more volume from fewer agents," he explains. Since 1997, Hyland has found refuge from the turbulent insurance market as a member of the Strategic Independent Agents Alliance, a national network of small and midsize independent agents.
SIAA can trace its roots back nearly 20 years. In 1983, SIAA chairman Jim Masiello, founder of the SAN Group, was running a small agency in Keene, N.H., and thinking about growth. "I didn't want to invest in branch offices," he says. Instead, Masiello joined forces with two other New Hampshire agents to aggregate their premium volume and gain clout with regional carriers. Over the years, with consolidation increasing, the lopsided relationship between independent agents and powerful insurance companies got only worse. In 1996, in response to that trend, Masiello took his partner concept and expanded it to start SIAA, which now has nearly 1,000 members in 48 states. Together, the members generate enough business to meet the premium volume minimums set by giant national insurance carriers as a prerequisite of representing them. "In the 1970s and '80s it was easy for somebody to start from scratch, find appointments, and write enough business to get a contract with a big insurance carrier," says Madelyn Flannagan of the Independent Insurance Agents & Brokers of America Inc., a trade association in Alexandria, Va. "That's virtually impossible today."
The alliance comprises 60 regional "master agencies," midsize independents like Hyland, Block, & Hyland, which aggregate the premiums of dozens of smaller agencies in their area. (In total, SIAA wrote $2.1 billion in premiums for 2001.) The master agencies also provide technical assistance, helping their smaller partners adjust to the on-line quoting and claim-processing systems now required by most carriers. In return, they receive a percentage of the smaller agents' commissions and an initial membership fee that varies depending on the region.
In addition to providing access to insurance companies, the alliance offers members other benefits, according to Mark Berset, president of Comegys Insurance Corner, a master agency in St. Petersburg, Fla. "If you're the top dog in your organization, you really have nobody to talk to," he says. "A little guy will often call me with thoughts on automation or how to handle contracts if he's hiring somebody. My issues may be bigger ones, like how to benchmark against others in the industry, and that's when I call SIAA." But it's also a lot of work for the master agencies. Hyland says the demands of serving the small agents have overwhelmed the five staff members he assigned to the task. Still, it's worth it, he says. "With the alliance, people don't feel so isolated; they don't feel so alone. What we have created is a support mechanism for all of us."
The Soloist's Solution
The Alliance: Women in Consulting (www.womeninconsulting.com)
Founded: January 1998
Members: 128 solo business consultants in Silicon Valley and the San Francisco Bay area
Driver: Successful soloists can juggle only so many clients alone
The alliance called Women in Consulting started as a high-powered group of Silicon Valley elite determined to work on their own terms. The 12 founding members had left management positions at Apple, Adobe, Silicon Graphics, and NeXT. No wallflowers, these women. They departed the corporate world to seek their fortune as solo business consultants but on a schedule that also let them watch their kids play soccer. "We're not seen as contract workers," says member Lisa Goldman, a former employee of Apple and NeXT. "Nor are we a bridge to getting back into the workforce when the kids are young. We're serious about growing our businesses." As soloists, that is.
But it didn't take the women long to see that to get good work they couldn't go it alone. They needed one another. "Many of us are in marketing, so in theory we're competitors," says Kate Purmal, president of WIC, which was officially organized as a dues-collecting nonprofit in December 2001. But more often WIC members, who now number about 128, collaborate on some level.
The most exciting development Purmal has witnessed is WIC members' pitching customers together, creating some formidable alliances in the field of integrated-marketing services. One such alliance is called Rain Maker. Another handful of WIC members took their alliance to the next level and created a company of soloists known as Indigo Partners. (See " The New Face of Self-Employment," November 2001.)
Purmal, who left a management job at Palm in 1998, exemplifies what's possible when soloists put their heads together. She recently started her own alliance, called the Driver Group, with three other WIC members who were intent on capturing more business. "My clients ask themselves, 'Can she handle the demands of a larger project?' There's value to the client in my being more than an individual -- the ability to scale and greater depth." One of her partners is a "brilliant" marketing strategist. Another is a copywriter. The third specializes in business partnerships. The partners meet once a week, and all carry Driver Group business cards. (Purmal set up the group as a limited-liability corporation to avoid having to buy additional liability insurance.)
In the past, Purmal had to turn customers away when she got too busy. Then she made a New Year's resolution: "I never want to turn down business unless I want to." The Driver Group lets the consultant take on three clients at a time, and her revenues have already increased 50% because of that. "I'm working at the highest level possible without working full-time all the time," she says. And she's making more money than she ever did at Palm. Purmal predicts that more alliances will spin out of WIC.
As it is, at least half the members use the alliance as an extension of their product line. When they see additional business opportunities with a client, they solicit fellow members from the monthly dinner-and-speaker meetings that attract upwards of 80 women. The WIC E-mail list draws replies from 500 area consultants. "The downside is you may get 40 responses," says Purmal. WIC now has a searchable database to help companies seeking consultants -- and to help consultants seeking other consultants. Hewlett-Packard reportedly uses many WIC members.
Will WIC ever recruit men? Not likely. In consulting, women are more willing to collaborate without expecting an instant payback, Purmal says. She adds: "Men expect much more reciprocity. There is a gender difference."
Battle of the Networks
The Alliance: Relo (www.relo.com)
Founded: May 1998, upon the merger of real estate brokers from three networks
Members: 700 independent brokers, both large and small
Driver: A resurgence of franchisors has the independents pulling together to win this "land grab"
Relo is an alliance that Warren Buffett would love. For one thing, the industry is salt of the earth: real estate brokerage. And Relo members have strong local brands. The famed investor is, in fact, an indirect supporter. Some 13 alliance members are also part of the Buffett empire. His real estate brokers keep their names and run their shops independently.
Independence is the driving force behind Relo's recent rise. Four years ago, after merging with brokers from two other networks, Relo became the largest alliance of independent (defined as "nonnational franchise") real estate agencies, big and small. It now represents 700 agencies with collective 2001 sales of $252 billion.
Brokers say they united out of a fierce desire to fight a looming enemy: a much larger network known as Cendant, built by some of the biggest names in franchising. At stake are not just home sales but millions and millions of dollars in corporate-relocation business. "Brokers said, 'We're concerned that if we're not part of a Cendant-like network, we'll be out of luck," says Mike Pappas, president of Keyes Co., in Miami, a Relo member with 35 offices in South Florida and home sales totaling $1.6 billion last year. "What Relo gives you is a national network for the local broker -- you can compete effectively with the franchisors."
Relo had long been a network for brokers to refer leads to when homeowners wanted to move across the state or the country. But its scope was limited. "Big brokers were in one group. Small brokers were in one of four other networks," says Jon Coile, executive vice president of Champion Realty, in Severna Park, Md., with home sales of $745 million. "Nobody had critical mass and complete coverage of the United States."
Today Relo has that coverage. It's a riveting example of how dramatically an alliance can change with the times. NRT, the large acquirer behind the Cendant network, has been snapping up independents and converting them to such franchise brands as Coldwell Banker, Century 21, and ERA. "There's so much resistance against NRT's model," says Relo president Pam O'Connor. "It's Wall Street versus Main Street, and our guys don't want to be taken over by Wall Street."
At the same time, Relo has "gone through some draconian changes," as one member puts it. Upon consolidation four years ago, the bigger and bolder Relo decided to get bad. The alliance set minimum standards for performance and dropped some 100 members. It changed its status to for-profit. Some 50 member companies became shareholders. And the newly cash-flush alliance bought a relocation company, now known as Relo Direct, which works with local Relo brokers on corporate accounts.
Relo member Abigail Jennings, president of Lake Norman Realty Inc., outside Charlotte, N.C., says Relo Direct brings her corporate clients and vice versa. And she says the Relo network "definitely" helped her two-office brokerage snag a large relocation contract. A division of a big car company moving its headquarters to nearby Huntersville needed a broker that could handle all its needs, such as helping employees to relocate from Germany and far-flung regions of the United States. "So," she says, "I used Relo members in all those places." While other Relo brokers sold the employees' old homes, Lake Norman found them new houses or rentals. Jennings also brought in Relo Direct on one aspect of the project. "It's seamless to the client," she says. She's particularly proud that her little agency with home sales of $107 million secured the contract. It's no wonder, then, that when you call her office, you hear on-hold messages plugging Relo. Jennings takes advantage of such other Relo benefits as training on relocation topics and offering clients home-warranty insurance.
Like auto dealers that no longer sell only new cars, real estate brokers need to be one-stop shops to be profitable. "Relo is really a group that helps us make money," says Pappas of Keyes Co. Relo members, who pay an annual membership fee of $1,000 to $15,000, derive about 5% to 25% of their sales from being part of the alliance.
And yet, Relo remains vulnerable. In the past year, five high-profile members have sold out to NRT. Relo's challenge is figuring out how to help its members increase cash flow -- and fast. President O'Connor says that she's seeking capital partners to take an equity stake in high-growth brokers. Warren, are you listening?
The Global Village
The Alliance: GlobalFluency, an international network of high-tech public-relations agencies (www.globalfluency.com)
Founded: August 2001
Members: More than 40 agencies in 26 countries
Driver: High-tech customers that are expanding overseas are seeking global PR firms.
John Metzger, CEO of a $3.5-million public-relations firm in Boulder, Colo., knows how to win over customers. Up to a point. "We have companies -- our own neighbors here in Colorado -- that won't hire us because we don't have offices in 65 countries," he says. Last year that stumbling block caused Metzger to join GlobalFluency, an international alliance of small to midsize technology-focused public-relations agencies.
The need for an international presence is what led GlobalFluency founder Donovan Neale-May to organize the alliance. The president of $10-million Neale-May & Partners, in Palo Alto, Calif., says that after one of his agency's European partners was gobbled up by a larger firm, Neale-May needed new overseas contacts for customers who were expanding into international markets. So, early in 2001, he started developing GlobalFluency.
Neale-May scouted out owner-run independent technology PR companies in 26 countries from Japan to Mexico and signed them up under the GlobalFluency brand. Each company pays an annual membership fee ranging from $500 to $1,500 depending on its size and region. Members have access to a GlobalFluency intranet, where they can manage collaborative projects with other members and find templates for GlobalFluency letterhead, business cards, and presentations. Start-up costs for the alliance ran about $100,000. Any agency can contact other members for any part of a project on an à la carte basis. "It gives us the flexibility to keep our boutique image," says Ben Merritt, president of $4.5-million Merritt Group, in Vienna, Va. "But if we have to go against a big boy, we can pull GlobalFluency in." If is the operative word. Because of the sagging economy and marketing cutbacks, GlobalFluency has not been fully road tested. But early results are promising. Members have been called on to pitch to midsize and large companies for both regional product launches and international campaigns.
Shawn Wolfe, director of marketing communications at McAfee.com, a $62-million software company in Sunnyvale, Calif., has spent the past year working with Neale-May's Manhattan office and GlobalFluency agencies in Germany and the U.K., two new markets for McAfee. "We do a phone call every Tuesday at 8 a.m. It's 11 a.m. New York time, 4 p.m. in London, and 5 in Munich. It's no extra work for me, and the results are far beyond what I'd get from a different style agency," he says. "Besides, I don't have the overhead of a big agency." And lower overhead allows alliance agencies to price their services as much as 20% to 30% below large competitors', says the alliance's founder.
To learn how to collaborate on a project or in an alliance with competitors, go to www.inc.com/keyword/alliance.
The Alliance: Business Alliance for Local Living Economies (www.livingeconomies.org)
Founded: October 2001
Members: 18 local networks comprising companies, individuals, and nonprofits
Driver: Local economies are increasingly dealing with globalization issues
For Judy Wicks, the socially responsible business movement didn't die when Unilever -- with hundreds of brands -- bought Ben & Jerry's Homemade Inc., in April 2000. But the movement certainly had the breath knocked out of it. The Vermont company that had served as a model of fairness to workers and an advocate for the environment had been absorbed into the sort of entity that Wicks and her ilk had been fighting: multinational behemoths that in their view transfer wealth out of local communities. It was time, says Wicks, to reevaluate where the progressive-business movement was headed. "We needed a new vision and a new model," says the president of $5-million White Dog Enterprises Inc., a restaurant and gift-shop business in Philadelphia. "And new values, really," she adds.
To explore new alternatives, Wicks joined forces with Laury Hammel, president of the $10-million Longfellow Clubs, in Wayland, Mass.; community organizer Michael Shuman in Washington, D.C.; and development consultant David Korten in Bainbridge Island, Wash.
"The solution to globalization is not to throw rocks at big businesses like Wal-Mart but to build the alternative," says Shuman, author of Going Local: Creating Self-Reliant Communities in a Global Age, the book that essentially begat the Business Alliance for Local Living Economies (BALLE). The "alternative" that Shuman is talking about includes not just businesses that are planted on Main Street but entire economies that are locally based. "The more times a dollar circulates in my community, the more jobs, income, and wealth there is in my community," says Shuman. And if that well-worn dollar must go elsewhere, let it go to another locally owned business, not to a global corporation.
BALLE is basically an alliance of alliances, a collection of organizations across the country that are dedicated to supporting locally owned businesses. Some of the alliance's 18 members, like Maine Businesses for Social Responsibility and Colorado P3 (People, Planet, Profit), have been around for a while. Others, like Responsible Business Minnesota and BALLE Northwest in Seattle, are new.
As part of BALLE's organizing effort, each member group is constructing a sourcing database of sustainable local businesses to be linked on the BALLE Web site. Say, for example, that Laury Hammel wants to offer organic peanuts in the café of his fitness club and there are no peanut farmers in the area. He enters organic peanuts in the appropriate box on the BALLE site, and a list of suppliers will pop up. "The most important function of BALLE is to create the technology for being able to do business with each other," says Wicks. "Small people finding small people -- you need some structure for it."
BALLE is so new that members aren't yet sure they'll meet their ambitious goals. But some have already experienced benefits. Doug Hammond, chairman of the Pioneer Valley Social Venture Network, in Northampton, Mass., says BALLE helped pull off a community event that attracted attendees and cosponsors who had wildly divergent ideologies. "We had the suits and the farmers," says Hammond, "the pro-development and the pro-environment. People didn't have to get over the hurdle that just one vantage point would be represented, because BALLE represents a broad coalition of businesses and organizations. Local economies is a very simple unifying theme. It's big enough to cover all of us." --Thea Singer
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