Analyzing Your Prospective Magazine’s Business Plan
It’s been said that magazines, like restaurants, are considered by newcomers to the field to be more of a lifestyle than an occupation. Those romantic notions are quickly dispelled by the realities of business, often in the intensive and frustrating effort to develop a business plan that will convince both investors and charter advertisers.
Femme Publications, created in 2004 by publisher and CEO Celine Gumbiner and publisher and president Erik Velez, publishes Bee, a lifestyle magazine targeting active, professional women between the ages of 25 and 45. The magazine debuted in 2005 and has an initial ratebase of 100,000. "It took us shy of nine months to make our business plan;we ran through 10 to 12 copies before we thought we got it right," says Velez. "We’re constantly making changes."
Outlining a magazine’s proposed mission is easy. Identifying the potential of the target market and the subsequent risk factors is harder. "Research was the hardest part;most publishing houses are private so we had a difficult time gauging potential competition," says Velez.
Femme Publications decided it needed around $1 million to launch. "We went quarterly to keep costs down," says Velez. "Our biggest concern was burning through capital too quickly. We came up with a strategy to take it slowly;the first year we will be quarterly, the second we will be bi-monthly, and we’ll go monthly in the third year." In its first year, Bee will be 70 percent sold in brick and mortar stores and 30 percent subscription-based. In the second year, Velez hopes to go 60-40, be equal in the third year, and have 30 percent going to bookstores in the fourth year with 70 percent from subscriptions.
Backing came from what Velez calls FFF: "friends, families and fools." "We sold 75 percent of the company and we held on to 25 percent in case we wanted to do a second round of financing," he says. "We didn’t want 10,000 people buying in for $100 a pop." The magazine currently has 20 investors.
"If anything was most difficult, it was the financials," says Velez. "A lot of the biggest expenses are always changing, such as paper." With its first two issues, Bee is averaging sell-through just under 50 percent. For 2006, Velez expects revenue to be more than $500,000.
From Boom to Bust and Back
BZ Media enjoyed the unique experience of launching during the dizzying highs of the dot-com explosion in summer 1999 and launching its products at the start of the recession. The plan, which many potential investors had not considered to be aggressive enough initially, was in jeopardy of being out of reach. "Plans assume everything works smoothly," says co-founder Ted Bahr. "You cannot put a figure of $150,000 in each year for ﾑmiscellaneous stuff that goes wrong.’ Fortunately, when we fell short, our investors told me they never believed our numbers anyway, they just believed in us. Entrepreneurs don’t believe their plans are aggressive. They can’t."
Bahr researched the market by checking into a motel for a week with stack of competitive magazines two feet high and hand-counting everything. "Doing so immerses you in the market and you pick up subtleties that simply looking at numerical indicators doesn’t give you," he says.
Initially, backers weren’t receptive. "We sent our plan to about 45 people we knew and got every variety of rejection you can think of," says Bahr. "We were told to rip our plan into tiny pieces and think of ourselves as a dot-com. VCs would control us and wanted to give us more money than we would need. We almost had a large publishing company invest in us but they thought the plan wasn’t aggressive enough. The people who did come in with us had known us for at least 15 years."
BZ Media closed on 80 percent of its initial budget number. Five months later it went back for more and got about one-third of the original amount heaped on top. "There was some pushback from investors," says Bahr. "After that, we started refinancing the houses;seriously." The company launched with just a bit under $1 million.
"Today there would be an increasing emphasis on online revenue in our plan but we didn’t focus on it," says Bahr. "The plan took about two months to build but then we revised it many, many times over the next six months before finally closing our investment window."
BZ Media now generates revenue in the $5 million range, with more than 40 percent growth in each of the last two years. "The smartest thing we did was go ahead and start. We announced our publication, built the media kit and Web site and just started going for it before we had any capital," says Bahr. "Our biggest mistake was thinking it would be easier. It’s an extremely humbling experience."