Magazine

The CEO of Hip-Hop


Russell Simmons lives, and very comfortably at that, at a curious intersection: He's in Corporate America but not quite of it. He is, as everyone says, the impresario of hip-hop, a self-taught, self-made 46-year-old entrepreneur who in the past two decades started two of the most successful enterprises of their kind: the hip-hop music label Def Jam and the clothing line Phat Farm. Simmons, more than anyone else, has helped bring an urban sensibility, with its bravado, its exaggerated desires, its urgent longing for the good life, to popular culture: It's the Nu American Dream.

Phat Farm, a $263 million company, sells itself as "classic American flava with a twist" and its logo is an upside-down American flag. One of Simmons' new clothing lines, Run Athletics, is featured in Sears Roebuck & Co. (S) and J.C. Penney Co. (JCP). Another, Def Jam University, will be available in Sears next year; it alone could be worth $100 million before the end of the decade. Already, Phat Farm does its best business in a chain of stores called d.e.m.o., located almost entirely in suburban malls. The word phat ("highly attractive or gratifying") has been added to the Merriam-Webster Collegiate Dictionary.

There is hardly a major consumer company around that isn't trying to cash in on hip-hop's singular popularity, if not its edgy authenticity. Hip-hop music, and its signature style, rap, emerged from mostly impoverished, largely African-American urban neighborhoods, grew into an entire way of life, and today dominates youth culture. It's not about race or place. It's an attitude, a state of mind. Marketing experts estimate that one-quarter of all discretionary spending in America today is influenced by hip-hop. Coke (K), Pepsi (PEP), Heineken, Courvoisier, McDonald's (MCD), Motorola (MOT), Gap (SE), Cover Girl -- even milk: They all use hip-hop to sell themselves. "There has been a bona fide cultural shift," says Marian Salzman, chief strategic officer at advertising agency Euro RSCG Worldwide. "This is the new mainstream," says Erin Patton, president of the Mastermind Group, marketing consultants. And, in truth, there is no easy way to fully calculate its impact on our clothes, cars, movies, music, commercials, our very language.

FLUID AND FRUGAL

Simmons is what you might call an extreme entrepreneur, and he has created a new kind of empire, one that is organic (he operates more on instinct than anything else), fluid (businesses come and go), and frugal (he usually doesn't risk much of his own money). In some ways, the company's name -- Rush Communications Inc. -- says it all. Rush, which was Simmons' childhood nickname, at once summons up the defiant, impatient, hungry stance that is hip-hop. "Any company that wants to tap into the youth market today has to pay attention to Russell," says Frank Cooper, the head of multicultural market development at Pepsi. "He is one of the principal architects of hip-hop culture. It's a market that is massive and that is global."

Simmons prefers to call himself a pioneer, and a generation of young, brash entrepreneurs has come to regard him as such. "Here's what other people's business plan is: Let Russell bash his head," he jokes, "and then we'll follow." Rush Communications has ventured into nearly every haunt of popular culture. Phat Farm has grown to include a women's line called Baby Phat as well as children's clothes, sneakers, and accessories. The entertainment group has produced two popular programs for HBO and a Tony Award-winning Broadway show. This year Simmons introduced the Rush Visa Card, a prepaid debit card for people who may or may not have a bank account. There's even a vitamin-fortified energy drink, DefCon3, that is now selling in 5,000 7-Eleven (SE) stores around the country.

Over the years, Simmons has also opened and closed an advertising agency, developed and sold a Web site, launched a bimonthly magazine, and discarded the idea of creating a chain of fast-food vegan restaurants (he long ago gave up eating "anything that runs away from me"). He has started the Rush Philanthropic Arts Foundation, which gave away about $350,000 last year to groups that introduce underprivileged kids to the arts, and the Hip-Hop Summit Action Network, which tries to persuade teenagers to become involved in politics.

Simmons himself has found favor with some of the most straitlaced companies around. He was the first person to design a series of limited-edition Motorola Inc. cell phones with his name on them. His wife, Kimora Lee Simmons, a 27-year-old former model who started the Baby Phat women's line three years ago, is the second. He also advises Motorola on how to insinuate itself further into the hip-hop community, where a cell phone has become a fashion statement. As Tamara S. Franklin, the director of strategic planning and new business development for Motorola's iDEN subscriber group, puts it: "We want to intertwine our brands."

Simmons struck a marketing agreement with Grimoldi, an Italian luxury watchmaker, as it was first entering the U.S., largely on the basis of a single phone call he made to introduce the company's young chief executive to Donald Trump. Simmons and Trump might seem an unlikely pair, but they've been friends for years. "Russell has a great ability to see where the world is going and to take advantage of it," Trump says. These days, Simmons, who invested in Grimoldi, features the oval-shaped watches in Phat Farm ads, hands out the $1,800-plus pieces to everyone from Arnold Schwarzenegger to Nike's (NKE) $90 million man, LeBron James, and offers design suggestions (yellow bands for summer and, always, more diamonds).

Recently, Pepsico, the company that Simmons once threatened to boycott after it dropped Def Jam artist Ludacris as a spokesman, has taken an interest in DefCon3. "Our goal in 2004 is to become much more ingrained in the lifestyle of the hip-hop community," says Cooper. General Motors Corp. (GM) is even considering putting out a Russell Simmons Yukon Denali. "He's an icon," says Chris Robinson, the director of diversity sales and marketing at GM. "What he touches usually turns to gold."

ULTIMATE STATUS SYMBOL

For these companies, Simmons is a guide into an unfamiliar world, one that can be coarse, raw, and violent. The songs, Simmons says, are real, if uncomfortable expressions of life on the streets. In the mid-1990s, two of the most popular rappers around, Tupac Shakur and the Notorious B.I.G., were murdered. Others have lived perilously close to disaster: Beanie Sigel, a convicted felon whose clothing line is called State Property, is facing trial for gun possession. Jay-Z, who has designed a collection of Reebok (RBK) sneakers, was a former crack dealer; 50 Cent, who soon will have his own line of sneakers too, boasts of being shot nine times. About which Micky Pant, Reebok's chief marketing officer, says: "They were brought up under extraordinarily difficult circumstances. We judge people by their actions now." There are many good reasons for this tolerance. One is that when Reebok launched the limited edition, $100 S. Carter shoe (Jay-Z's real name is Shawn Carter) on Easter weekend, it sold faster than any shoe in Reebok's history. The next day, says Pant, the S dot, as it's called, was on eBay going for $250 a pair.

The seamy side of hip-hop is what makes Simmons so valuable to mainstream marketers who want to adopt what's fresh about hip-hop without appearing to condone what's dangerous. They trust Simmons to navigate the fine line between edgy and appalling, authentic and offensive. Or, as Antonio Piredda, the 35-year-old head of Grimoldi, says: "I know that Russell can figure out what is good and what is not."

For Simmons, as much as the artists, these deals are the ultimate status symbol, a sign that hip-hop can feed off the corporate world and not just the other way around. "To us it's not selling out," he says. "We want what represents success."

Simmons is in some ways the perfect 21st-century company man: a celebrated executive who unashamedly promotes his products and political concerns, often at the same time. At some 25 store appearances this year, during dozens of television and radio interviews, at the regular talks he has with school kids in his Manhattan office, at his Hip-Hop summits around the country, at his annual Hamptons fund-raiser for his foundation, and, this spring, at the rallies he sponsored to protest New York State's harsh penalties for nonviolent drug crimes, Simmons never, ever mentions one without the other. The ads for a new line of sneakers include calls for reparations for African Americans, and the label on DefCon3 says: "Energize yourself and empower your community by drinking a healthier smart energy soda that gives back." He says that a portion of sales from both the sneakers and the soda will go to the cause.

"MISUNDERESTIMATED"

Yet when it comes to assessing the relationship between his hip-hop nation and Corporate America, Simmons is decidedly ambivalent. He has seen up close how some companies try to take advantage of the urban community's ability to detect and set cultural trends without bankrolling its entrepreneurs; yet he has benefited greatly from not being taken seriously at first, from being "misunderestimated," as it were. "I could complain about the lack of cultural sensitivity," he says, "but I also say that because of the old guys' stupidity I'm here in the first place. If the music business understood hip-hop in the beginning, I wouldn't have built Def Jam. If Hollywood knew about Chris Rock, I wouldn't have had Def Comedy Jam [an HBO show]. If the banks served these folks, I wouldn't be here with the Rush Card. I wouldn't be here without their arrogance."

"Here" in this case is an extravagantly maintained $14 million estate in suburban New Jersey, which he bought two years ago for his wife, who eagerly mentions that it is among the biggest homes on the East Coast. It includes an indoor pool, a movie theater, a gym, 11 bedrooms, furniture that Gianni Versace once owned, several Swarovski crystal chandeliers, at least one six-figure Egyptian vase. His touches include a photograph of Louis Farrakhan hanging in the dining room and, in the foyer, an old sign that says "Waiting Room for Colored People." In the garage are Kimora Lee's Bentley, which she's about to trade in for an extra-long Maybach, and what Simmons calls his Osama-mobile, a Ford (F) Expedition with a 500-channel TV.

On a July afternoon, Simmons sits on a yellow brocade couch in his living room, legs folded under him, his signature cell phone, a Motorola two-way, and a can of DefCon3 at hand. He is wearing what he always wears: Phat Farm's preppy, baggy clothes, baseball cap, and white sneakers. This is a crucial time for Simmons. After 11 years of going it alone, he's hoping to sell Phat Farm, for a couple of hundred million dollars, to one of the big apparel companies so he can "amp up" and devote more of his time to designing and marketing the clothing line. Simmons wants Phat Farm to be a multibillion dollar business, the next Polo Ralph Lauren, and only a corporation with serious resources can get him there. And Simmons knows that the allure of rap will inevitably fade; indeed, so far this year, sales of rap music have actually fallen 8%. Simmons' hip-hop empire is bigger than that, but still, he wants to make sure it is safely ensconced in the Establishment.

Simmons generally says what's on his mind, but Marcie Corbett, an energetic 54-year-old fashion veteran who is president of Phat Farm, has counseled that he's better off not naming names. So he continues: "There's been a lack of vision on the part of major clothing companies. We've been overlooked." Nothing infuriates Simmons more than someone dismissing Phat Farm as an ethnic label. Urban wear, as it's called, is a $2 billion business, according to Marshal Cohen, an analyst at NPD Group. It's the fastest-growing segment in an otherwise dreary fashion industry, and is sold around the country, often to white, suburban teenagers. It ranges from Phat Farm's casual chic to Sean Jean's more flamboyant men's wear (put out by hip-hop executive and J. Lo-ex P. Diddy). "As a retailer, you'd be blacklisted by consumers if you don't have an urban line," says Cohen. Derrick Flowers, senior buyer for young men's wear at J.C. Penney, says hip-hop labels account for half of all sales in his department.

By mid-August, Simmons is more hopeful. Ruby Azrak is a boisterous, fast-talking Brooklyn native who holds a stake in Phat Farm and serves as Simmons' alter ego in the business world. He also oversees the licenses for the company and has just worked out a deal with Kellwood Co. (KWD), a $2.6 billion clothing maker, to put out the more modestly priced Def Jam University. Hal J. Upbin, the head of Kellwood, says of his partnership with Simmons: "At first I wasn't sure what to expect. But I became increasingly comfortable with what he stands for in the hip-hop community. We would like to evolve our relationship further."

Simmons is sitting in his office, which is located in Manhattan's fashion district but looks for all the world like a men's club, with its mahogany-paneled walls, leather couch, and Oriental rug. Though he practices yoga daily and meditates in front of a shrine that includes a statue of the Hindu goddess of wealth, Laxmi, serene he is not. Simmons is hyperkinetic, uneasy with lulls, an executive whose stance is simple: Bring it on. And now that he's on the verge of making the biggest deal of his life he can't stop talking about it, even though Corbett and Azrak are signaling him to stay quiet. "You know how Wall Street wants public companies to grow?" he says. "Well, the street wants us to grow. The street is watching. The hip-hop community takes pride in growth. They love big. Not cool, small, and alternative. Hip-hop aspires to own the mainstream."

That ambition is key to understanding hip-hop's new generation of streetwise, swaggering entrepreneurs, educated, as they say, in the school of hard knocks. Indeed, almost everyone connected to hip-hop seems to have an incipient business venture or two on the side. Kevin Leong, the 25-year-old head of design at Phat Farm, has his own company, Black Bean Sauce; he created pouches for Simmons' Motorola phones. As David Mays, the 34-year-old Harvard-educated co-founder of the hip-hop magazine The Source, says: "People want to start their own businesses and think they can. It's one of the staples of our culture." Damon Dash, for example, is a 32-year-old producer who, with Jay-Z, runs Roc-a-Fella Enterprises, which at last count included a clothing line, music label, moviemaking enterprise, and a brand of vodka, Armadale. He states the hip-hop ethos with a certain crass elegance: "People exploit us, and we exploit them back. If they're going to make a buck off us, we'll make a buck off them. That's just the way it's going to be." This, for the lucky ones, is the Nu American Dream.

STRAIGHT OUT OF HOLLIS

Russell Simmons started out as a smalltime hustler in the middle-class neighborhood of Hollis, in Queens, N.Y. He was raised by parents who had both graduated from college: his father worked for the board of education, his mother for the city recreation department. As a teenager, Simmons ran with the local hoodlums, sometimes dealt drugs, mostly spent the money on clothes.

He enrolled in the City College of New York in 1975, at a time when hip-hop was just emerging from the streets of Queens and Harlem. He had an immediate entr?e right into the center of it all: His younger brother, Joey, was a rapper whose group, Run-DMC, was starting to get some attention. Russell, always enterprising, became their manager, then took on other groups, dropped out of school just short of graduation, and eventually co-founded Def Jam with another promoter, Rick Rubin, a New York University undergrad from Long Island.

Over the next decade, as hip-hop's influence spread, Russell and Joey, or Run, as he is known, lived large: They toured the world, took drugs, dated models. In those early years, though, hip-hop was still largely ignored by the major record companies. "We were left alone to incubate ourselves," says Lyor Cohen, who was born to Israeli parents, raised in Los Angeles, and started working with the Simmons brothers in the early 1980s. By 1985, hip-hop's popularity could no longer be brushed aside; Sony Corp. (SNE) signed a distribution deal with Def Jam. (When the company eventually was bought by Universal Music it was combined with a rock-and-pop label to become Island Def Jam.) Throughout this time, Cohen managed the business with varying degrees of involvement by Simmons. Now the label, last year the industry's second-largest, with sales of more than $700 million, is run solely by Cohen.

By the mid-1980s, the strangely alluring, sometimes lopsided relationship between hip-hop and the business world had begun. Run-DMC came out with a song about Adidas sneakers in 1986 and ended up with a million-dollar endorsement contract. "We weren't trying to sell Adidas at first. I wrote a song about what was in my life. We were doing what we loved, and the money followed," says Reverend Run (he was ordained by Zoe Ministries Community Congregation in New York in 1994.) Now, in a fitting reprise, he is in charge of Phat Farm Footwear.

Since those more innocent days, marketers and rappers alike have set about to exploit that potential much more systematically. When Barbara Jackson, a vice-president of marketing at Allied Domecq, (ACD), the company that sells Courvoisier, wanted to introduce the cognac to the hip-hop community, she turned to Simmons' advertising agency, dRush, for help. And what do you know? In the summer of 2002, popular rappers Busta Rhymes and P. Diddy (also known as Puff Daddy) put out a song called Pass the Courvoisier with a chorus that included the lines: "Give me some money, you can give me some cars. You can give me the bitch, but make sure you pass the Courvoisier." Jackson describes her reaction: "As a marketer, you're thrilled. You can't buy this. Well, you could, but it's more credible when you don't have to." Sales of the venerable cognac spiked 20% that year. Courvoisier didn't pay Busta Rhymes for the song. It never signed a contract with him. It did sponsor grand parties after his concerts.

Simmons, of course, has been trading on his name ever since he launched Phat Farm in 1992. Back then, Tommy Hilfiger Inc.'s (TOM) clothes had become the uniform of choice on the street, and the black-owned FUBU (For Us By Us) was starting to establish itself. Simmons figured there would be interest in an alternative if it came from him and he began putting together the pieces of a fashion company, all the while jetting back and forth to Hollywood, where he and Brian Grazer produced The Nutty Professor. Then he discovered yoga and met Kimora Lee, and both began to take hold of him. He gave up drinking, gave up smoking, gave up meat, gave up fur (much to Kimora Lee's dismay). And in 1998, he approached Ruby Azrak, who had been in the men's underwear business for three decades and whom he knew from New York fashion shows, for advice on how to run Phat Farm. "He was an absentee owner in the apparel business, and you can get destroyed that way," says Azrak. "He was looking for me to guide him."

Azrak's first suggestion was to get out of the manufacturing business and go into licensing instead. Two weeks later they closed a $75 million licensing deal on a handshake. "I knew his word was fabulous," says Azrak. "That's the way he runs his life. He doesn't walk around with a posse, or bodyguards. He's not on an ego trip." Soon Azrak, a Syrian Jew who lives on the same Brooklyn street where he was born and keeps a Hebrew prayer on his office wall, took a stake in what was then about a $15 million company. Now the apparel business is nearly 20 times that size and he, Lyor Cohen, and another investor they decline to identify own 40% of it; Russell and Kimora Lee own the rest. Azrak describes his role this way: "I do the business deals, but once the contract is signed, then everything goes to Russell. He approves all the designs, the samples, the marketing. He doesn't try to explain hip-hop to me. I leave it all up to him."

NU AMERICAN DREAM

These days, Simmons works hard at being a role model. As he says: "I manage people creatively, not really as a business. I tell the kids at Phat Farm to be honest, have integrity." He once asked them to read Deepak Chopra's The Seven Spiritual Laws of Success, and write a report. Simmons is also the cultural standard-bearer. "Everybody has to learn his philosophy," says Myorr Janha, vice-president of marketing. "The Nu American Dream means to have high aspirations in life, that it's possible to be an entrepreneur. Classic American Flava means we want to be accepted by all without forgetting we're born out of hip-hop."

This, then, is the company that Russell Simmons is trying to sell to Kellwood, to Tommy Hilfiger, to the Gap, to almost anyone who can help him become what he really wants to be: an institution. "We want to sell a bunch of jeans, suits, furniture, jewelry, lingerie. Kimora is going to sell a bunch of women's clothes," he says. "We want to be distributed in Greenwich, Connecticut." This, for Simmons, is the Nu American Dream.

By Susan Berfield

With Diane Brady and Tom Lowry in New York


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