Floundering news start-ups need help

Although nearly $26 million was donated to 50 non-profit journalism start-ups in recent years, most are flubbing the mission-critical task of finding ways to financially sustain their efforts for the long term. 

The casual approach at most news start-ups to the serious business of identifying next-generation models for journalism has got to stop. More on that in a moment.  First, the background: 

The scale of spending on news start-ups was captured in an unprecedentedly thorough study released today by the Pew Research Center’s Project for Excellence in Journalism. 

In surveying 178 non-profit news ventures formed since 1978, Pew learned that 57 of them started with “a major seed grant,” according to Mark Jurkowitz, the associate director of the project, who kindly responded to my request for funding details not contained in the published report. 

While only 50 of news ventures receiving major seed grants reported the amount of their  backing to Pew, those groups collectively raised “just shy of $26 million,” said Jurkowitz in an email exchange. That makes for an average or more than $500,000 per organization. 

So far, so good. But here is the problem:

Although the intentions of both donors and recipients undoubtedly were noble, Pew found that many non-profit news organizations, including bootstrap operations not benefitting from significant seed funding, “face substantial challenges to their long-term financial well-being” because they “do not have the resources or expertise necessary for the business tasks needed to broaden the funding base.” 

While most of the 178 organizations surveyed by Pew said they brought in more money than they spent in 2011 (the most recent year studied), Pew noted that the bulk of funding for most organizations came from a single foundation or donor. “That funding source may not provide long-term sustainability,” said Pew, noting that only 28% of the organizations at the time of the report said their key donor had agreed to renew the initial grant “to any degree.”  

Of the organizations whose seed funding was renewed partially or not at all, only 28% “were able to make up the entire deficit from other sources,” said Pew.  

Despite the risk of depending on a single source for long-term viability, Pew found that nearly a third of the news start-ups spent less than 10% of their staff time on business development, while more than half said such activities occupied between 10% and 24% of their time.  By contrast, 85% of the ventures said editorial tasks consumed at least half of their time. 

In other words, most start-ups are concentrating on their journalistic missions without giving due regard to the equally vital task of building financially healthy organizations to sustain their efforts over the long term. 

This has been a consistent theme among most of the news start-ups that have emerged since the wheels started coming off the traditionally profitable newspaper and newsmagazine businesses in the middle of the last decade.

Inattention or ineptitude with respect to business matters killed off such high-profile efforts as the Chicago News Cooperative, which flamed out in 2012, and the Bay Citizen, which was euthanized last month in San Francisco. 

The Pew report is not the first to identify the want of business acumen at most journalism start-ups. 

In a 2010 study of 46 news ventures that collectively received $833,000 in funding, Jan Schaffer of the J-Lab at American University reported that nearly a third of the organizations had failed and that the balance were hanging by a thread because the founders were toiling for little or no pay.  “Community news sites are not a business yet,” she concluded.  

The weight of the available evidence over the years makes it clear that small, isolated groups of journalists – regardless of their passion and talents – are not going to spontaneously discover ways to fund the news business. 

If all the nation’s newspaper publishers have been unable to arrest a 50%-plus decline in advertising revenues since 2005, how can a handful of writers and editors be expected to do better? 

For all the millions of dollars that have flowed into starting news ventures, almost no serious research has been funded to identify the business models and best practices necessary to ensure the success of those investments. 

With each news start-up left to its own devices, many have failed. Without significant help, many of the remaining ventures will succumb, too. 

These wonderfully well-intentioned people need help. Before anyone backs another journalism start-up, let’s put some time and money into figuring out how to make sure they can succeed.  

What’s your digital strategy? First, get a grip.

More often than you would think, an editor or publisher will contact me to ask, “What should my digital strategy be?”  

The inquiry is alarming on a number of levels.  First, because it has taken nearly two decades after the commercial arrival of the Internet for many newspaper executives to seriously tackle the seminal existential question facing their businesses. Second, because this question already has been addressed actively for years by businessmen ranging from the brass at Walmart to the butt-crack plumber under your kitchen sink. Third, because the question presumes there is a simplistic, one-size-fits-all answer that, once revealed, will serve for all time.  

Here’s my Yoda-like response:

The answer is there is no single answer. There are many answers. It will take many questions to find the right answers for you. And the answers for today will be challenged over time by the new questions necessary to discover the answers for tomorrow.

The reason there is no single digital strategy is that every market is different and that each business possesses a unique array of strengths, weaknesses, opportunities and threats. We’ll come back to this in a moment.  

The reason there is no enduring digital strategy is that the marketplace is kinetic. The solutions that work successfully today almost certainly will be overtaken in the not-too-distant future by new technological and competitive disruptions that we cannot imagine today.  When the iPhone was introduced six years ago and the iPad arrived three years later, each created whole new ways of getting and giving information.  The next big iThing – whether from Apple, Google or a gaggle of ramen-gobbling geeks in a garage – is bound to change things all over again.   

Successful strategic innovation in this environment isn’t easy. It requires managers to undergo the out-of-body experience of realistically and unemotionally evaluating their businesses, even if they don’t especially like what they see. As demonstrated hour by hour in Silicon Valley, this requires tireless market reconnaissance, unflinching objective analysis, rigorous self-assessment, the discipline to challenge existing assumptions and the fortitude, if necessary, to sacrifice existing lines of business to invest in potentially better ones for the future. 

The reason American newspapers failed to adapt to the digital age is because editors and publishers didn’t want to change, fighting furiously, instead, to preserve traditional revenue streams and editorial prerogatives at a time their readers and advertisers were moving on. With advertising revenues less then half today of what they were seven years ago, one can only hope the industry is ready for something new. 

For those who are, here’s how to start thinking strategically: 

∷ Get a grip. Accept that your business will be affected by three enormous forces that you can neither escape nor control:  Changes in technology, changes in consumer expectations and changes in the ways companies spend their marketing dollars.  A good strategic plan will bend those forces to your advantage, tai chi-style. 

∷ Get real.  Before you can think about articulating a plan, take a realistic look at the internal strengths and weaknesses of your legacy business, as well as the external opportunities and threats that exist (or are likely to emerge) in the marketplace around you. This is called a SWOT analysis and it seldom fails to produce an abundance of appealing, appalling and ambiguous choices.

∷ Get set to self-destruct. As you sift through the strategic possibilities, seriously consider ideas that could cannibalize your existing business, because they may, in the fullness of time, turn out to be better than the business you are in. Back in 1995, the management of the Boston Globe nixed a modest investment that would have secured a big stake in a little start-up called Monster.Com.  As subsequently reported by the Globe, the managers felt a low-priced online job site would damage their highly profitable print recruitment business.  We all know the rest of that story. 

∷ Get creative. To select the most promising paths among the many potential choices revealed by the SWOT analysis, rank them in order of their promise and feasibility.  Test the assumptions underlying each idea, asking whether the critical factors necessary for success are realistically within your grasp. Remember that the quickest way to go wrong is to substitute your intuition for unbiased market research and bottoms-up financial analysis. 

∷ Get going. Armed with solid research, develop clear product specifications and a well-conceived marketing and sales plan.  Launch as soon as possible with a good-enough product to test the market’s response.  Gather customer feedback, analyze the results and refine the product, as necessary, in successive releases.  Feed good ideas and kill the bad ones. 

∷ Repeat. Disciplined planning and execution are ongoing, iterative and forever. So, as Yoda would say, “Started, let’s get.” 

© 2013 Editor & Publisher