John Morgan Profile
Photography: Paul Hampton, The Picture House UKIn a career littered with big decisions John Morgan, one of the best-known names in Scottish advertising, was faced with the biggest and most difficult decision of his life in December.
After losing the major client which had accounted for around 60 per cent of Morgan's billings, Hilton, he came to the conclusion that his options had become very limited indeed. In fact, he had one choice - Hobson's - as Unlimited, The Drum's sister publication, found out when it recently visited the offices which used to be home to Morgan and which, for the next six months anyway, is the new home of Morgan's phoenix company, the name of which has also posed some decisions.
"Going into voluntary liquidation was not an easy decision," says Morgan. "But in many ways the anticipation was worse than the reality - although not worse than the reality of the moment. Because you are sitting in a meeting, holding this thing in your hands, which you have had for 21 years, and you are just about to drop it. Every instinct is telling you to hang on. But you know that if you keep on going people - not least yourself - are going to get even more damaged. So you let go. And that is that."
When the news broke that Morgan had opted for voluntary liquidation the industry was both stunned and outraged. Stunned because Morgan had been in this position before, when The Morgan Partnership lost the Kwik-Fit business to Faulds two years ago, but he had somehow managed to battle through to continue trading, and outraged because his decision ultimately meant that many of his suppliers would lose the money owed to them, a particular bane for smaller freelance suppliers where a cheque for £500 is the difference between having a business meeting and having a meeting at the job centre.
In fact an online poll on The Drum's website, www.thedrum.com, asking the industry whether it was ethically right for an agency to be put into voluntary liquidation only for a new agency to be launched within days with much the same staff and clients, showed that more than 80 per cent strongly disagreed with the practise. The poll sparked some debate and e-mails began rolling in to The Drum from smaller suppliers who had been stung by this practice in the past. From their comments, it goes without saying that such a practice is universally deplored.
But, when you are backed into a corner there is often little you can do other than wave the white flag and do all you can to make it as painless as possible for all concerned.
"I have never been a big fan of phoenix companies myself," he says. "But it is different when it is your own mortality facing you and the accountant is saying there is no shame in this. I know some people have been caught, but it is not as bad as it could have been. People know that I am not doing this to be malicious; I am doing it because I haven't any trousers any more.
"One company MD who did lose money phoned me up. He said, 'I want to know why and what the background is.' I said, 'Look, I'm sorry. 'You don't need to apologise,' he said. 'I have been there and know you do not do it intentionally. I just want to know what happened.'
"So I told him and then I asked if he was still prepared to deal with us. We had a meeting and have agreed to continue trading. I am really grateful to people like that."
Morgan, who, as rumour had it at the time of losing the Kwik-Fit business, was adamant that the agency would not leave the plush Speirs Wharf premises which bore his name so eminently, also admits that the decision to liquidate the assets of the company he has headed for 21 years served as a severe dent to his own ego.
"Ego does not really matter at the end of the day, but it is a factor. You have to admit that your business has failed, and the company has gone."
The loss of the Hilton business, which Morgan picked up shortly after the departure of the massive Kwik-Fit business, and the impact it has had not only Morgan's business, but also the businesses of those unpaid creditors, again highlights the dangers of relying too heavily on one client. But the question has to be asked, should Morgan have already learned his lesson?
"We were suffering from the problem which is endemic in Scottish advertising businesses where one or two accounts comprise 50 or 60 per cent of the business. These things can grow like topsy. It is the Marks and Spencers supplier syndrome, where suddenly your largest client dominates everything you do.
"When Hilton got a new MD, he decided he wanted to do things differently. Unfortunately, we were one of the things he wanted to do differently. It was a major disappointment for the feedback we got from Hilton had been very positive and we were expecting another two years before it reviewed.
"However, we were given several months' notice, which gave us an opportunity to change tack. Rather than advertising we positioned ourselves as a communication business. We would offer planning advice and thinking resource, and our solutions may or may not include traditional advertising. We also started to look for different types of work. Rather than major accounts like Hilton, we also set out to attract fee-based project work - and with some success.
"We then got to the middle of November and realised things would still be very tight. We laid some more people off. Then came the news that some expenditure we were expecting to come through in December had been postponed to the New Year. We found ourselves looking into an abyss. Despite having reduced our creditors and actually having money in the bank, we could see nothing but a quarter of heavy losses."
Those losses may have caused Morgan, under advice from his accountants, to opt for liquidation before the situation became significantly worse, but the cracks in the faÂ?ade had been appearing for some time.
The most up-to-date information from Companies House is for the year to 31 January 2000 and show that the company had a net debt of £710,644, which included an overdraft of £644,870. This was actually an improvement on the previous year when The Morgan Partnership had an overdraft of £814,637. The company did make a net profit of £138,790 on revenues of £2m during this period. The records also show that the company had a deficit carried forward of £497,261, a fact that suggests Morgan's problems stem from way back. For instance, in the year to 31 January 1999 five directors had earned over £55,000 and in 2000 Morgan was the highest paid director with total emoluments of £142,313.
For those familiar with Morgan's colourful career, please skip the next paragraph.
Morgan went into business 21 years ago when the late John Struthers asked Morgan to launch a second-string agency for his Struthers Advertising business. Struthers maintained a majority shareholding in what was Morgan Associates, but in 1989 the two businesses were merged to form Struthers Morgan, which handled some of Scotland's biggest clients, such as the Bank of Scotland, SSEB, the Highland and Islands Tourist Board and the Milk Marketing Board. However, the departure of the Bank of Scotland and the disbanding of the Milk Marketing Board and the Highland and Islands Tourist Board three years after the merger took its toll. Struthers was deposed in an apparent boardroom coup and Morgan took the helm. Soon after, the Edinburgh-based agency Timberbush, which held the lucrative Kwik-Fit account, was in trouble after losing the Clydesdale Bank account and Morgan swooped in for the kill, taking over Timberbush, its Edinburgh base and the Kwik-Fit account. A decision from which Morgan's troubles have stemmed, perhaps?
"I don't think you can blame Kwik-Fit for our problems. In fact we were the first agency not to go out of business when they left us two years ago. There is no doubt, perhaps, we made a mistake holding on to an expensive office in Edinburgh and one in Glasgow. What we should have done was close down Glasgow. But Kwik-Fit did dominate. We were not so much seduced by them but driven by them. Because when an account of a certain size starts to demand more, because it is growing, do you say? 'I no longer want to do this? Take the 60 per cent of my revenue you represent and go away?' You can't do that. Being dominated by one client was not only something we did regularly, but consecutively, because when Kwik-Fit left we picked up Hilton. That is one thing we plan to avoid next time around."
So, looking forward, how is the next chapter of the Morgan story going to unfold and will it be a comedy or a tragedy?
Already his new agency, staffed by 20 people and still based at Speirs Wharf, has picked up the Highland Spring business from McCann-Erickson Scotland, apparently after Morgan had been introduced to marketing director Liz Breckenridge at a dinner hosted by the Entrepreneurial Exchange, which Morgan chairs, early last year, from which a few projects initially sprang. The agency also only has two directors - Morgan, who owns 80 per cent, and Diane Lurie, the managing director, who owns the remaining 20 per cent.
So, the agency has staff, clients, offices all it really needs now is a name. Initially it was to be called The Egg. However, on investigation it was discovered that another company in the Midlands already had that moniker. So, at present, Morgan and Lurie are calling their agency Take One Egg, though this is apparently until another name is found. Just a few weeks into a new venture and already Morgan is faced with problems, though this time they will no doubt be easier to sort out and prove to be an easier burden to carry.
Morgan says: "Perhaps with the benefit of hindsight I should have made this move five years ago. For now it is done I realise I do not need to fight as hard anymore. It is almost like saying goodbye to somebody who is terminally ill. You do not want them to go. But once they are gone you do not have to think about their suffering anymore. It is a real weight off your shoulders."