Takeaways about news startups: Part 2, nonprofits

For this second  post about what we’ve learned in conducting Community Journalism Executive Training (CJET)  over the past 2 years,  I had been planning to offer a few observations about the unique challenges of nonprofit news sites.

And then on Monday, the Pew Research Center  published a report on the health of  nonprofit news sites. It’s a well-done  review of 172  sites with a deeper dive on 93. The findings reinforce many of the lessons we’ve seen at CJET. So I’ll quote from the Pew report where it found similar points,  but please note that what follows are my own thoughts, not necessarily those of  my CJET colleagues or the Pew researchers.

Nonprofit sites desperately need help on the “business” side.  (Pew: “More than half of the nonprofit news organizations  (54%) …  identified business, marketing and fundraising as the area of greatest staffing need, compared with 39% who said the top need was for more editorial employees.”)  Just as with for-profit sites, most nonprofits news sites were started by journalists with little or no business experience (see my previous post), so the gap is  both wide and deep. But  the nonprofit sites need even more help.  They  formed under the premise that foundations or individuals would support this work into the future, so  looking for new revenue sources isn’t just a business challenge – it can run counter  to boards’ and staff’s  vision of how things should be.  So the challenge for the nonprofit operator isn’t just how to rethink the business; he or she will have to persuade others to rethink it as well.

Grants are drying up.  (Pew: “Nearly three-quarters of the outlets that received significant startup grants said those grants had expired—47% before 2012 and 25% by the end of that  year.”) And that reaffirms the urgency we’ve seen among nonprofit sites to figure out a sustainability plan.

Catch-22. Grants won’t support sustainability efforts.  (Pew: Complicating that effort  is the broader nonprofit culture —including nonprofit monitoring agencies—that rewards organizations for spending money on program services instead of business and revenue development.) Grant-making foundations and individuals will fund more journalists, or more community outreach, or more training. But they won’t fund an ad salesperson. Ironically,  the best use of seed money might be  funding the base salary of an ad rep until the rep sells enough advertising to support him/herself, and to generate a sustainable revenue stream for the site.  In the CJET training, we’ve looked for ways that site operators can re-allocate grant money to jumpstart a revenue program. It’s not easy, but not impossible either.

Double-Catch-22. Grants might even undermine sustainability. Would you spend your scarce time writing  a $100,000 grant application, or out talking with a prospective $1,000 customer?  It’s a no-brainer, and it’s human nature, to go after the highest payoff. (Pew: “The terrain is uncertain and brings with it the near-constant need to replenish expiring grants and drum up new sources of funding.”) There’s no good answer for this. Those grants are drying up, and the operators know they need to develop new lines of business, but who can blame them for going after the grants? The answer is plain old time management: devote the bare minimum of time to the grant applications, and plow even more time into business development.

News coverage sometimes competes with other missions at a nonprofit.  (Pew: “Roughly half of the outlets  produced 10 or fewer pieces of original content in the two-week period studied.”)  That low volume of coverage isn’t universal, but it’s one symptom of a typical challenge. Nonprofit news sites often pursue multiple missions, driven by community needs and funders’ desires.  Training, community organizing, advocacy — these all take resources that could be devoted to news coverage.  No wonder there’s so little time left for building a sustainable enterprise. In the CJET training, we look for ways to help tighten focus on the highest impact activities, recognizing that the site operator will need to sell his/her board and staff on the idea.

The management challenges are way more complex.  If you’re a nonprofit news site operator, you have to deal with a board, with volunteers, with community organizers, and with a mission-driven staff. And they all feel they have an equal say in how the enterprise is run. That’s on top of the readers, commenters, politicians and people-on-the-street  that any news enterprise deals with. It takes a rare set of skills to herd all those cats, while also doing a great job covering the news in your chosen community.

People starting a news site sometimes ask whether it makes sense to set up as a nonprofit or for-profit. To me, the only reason to go nonprofit is if there is a guaranteed source of foundation or individual benefactor funding, where nonprofit status is required. Even then I would make sure the grant-maker is interested in funding a sustainability effort from day 1. The challenges we’ve seen in news startups are universal. The  nonprofits deal with additional layers of complexity, and sometimes it’s hard to see if the benefits outweigh those challenges.

A few takeaways about news startups

Last week was our third Community Journalism Executive Training, this one involving 20 news sites in New Jersey, hosted by the New Jersey News Commons at Montclair State University. (Credits and kudos at the end of this post)

Now that I’ve been involved in three of these programs, each very different, with about 70 journalists in total, I feel like I’ve seen enough of a sampling to identify a few patterns and trends in independent  local/regional news sites.

There’s no substitute for passion – for your local community. Being passionate about journalism isn’t enough. In fact, in CJET we’ve seen a number of people who have no journalism background develop respected, popular, ethical – and hopefully sustainable – local news operations. The key is personal engagement: being in the community, of the community, speaking for the community’s concerns. You cannot fake this. The expression “hyperlocal won’t scale” usually is spoken as a problem. It’s not a problem. It’s simply a reality that personal local engagement is critical, and you can’t “scale” that.  For these entrepreneurs, the CJET program is  about  building a local news business on that passion and engagement.

Few, if any, entrepreneurial journalists have ever run a business. In  developing the CJET program, we keep trying to understand what these startup journalists need, one by one and group by group. In some cases, they’re running the “business” out of their checkbook (positive balance? yay!). So showing them how and why to use a system like Quickbooks is a revelation. For others, the need is longer-term strategy – where  do I want to go with this? Or figuring out how to price ads or talk with a prospective customer. The gaps can be overwhelming, but we try to put them on a path to continuous learning, so that even when the program ends, they have a plan to keep building their own knowledge. The strongest prospects are those committed to personal learning and growing.

The vast majority of entrepreneurial journalists have no management experience. This is a serious gap. In my career, I have seen over and over that while some people are natural leaders,  natural managers are extremely rare. Becoming an effective manager of employees – and/or freelancers – involves two key dynamics: making painful (and sometimes expensive) mistakes, and having a support system  to minimize the impact of those mistakes, or maybe even help avoid them. In larger organizations, making or avoiding a bad hire is a learning experience for a manager. For a solo journalist making his/her first hire, a bad decision could bring the enterprise down. Some of our most important and impactful work in CJET has been coaching participants around specific management challenges and hiring decisions.

The firewall between editorial decisions and advertising interests has created a huge knowledge gap.  In most news organizations, news staff are culturally forbidden from engaging with the ad staff. Is there a written policy to this effect? No, but there might as well be, and it was a core tenet of journalism schools until very recently.  This firewall has been enforced so fanatically  that journalists have no idea how the “business side” works. Most  entrepreneurial journalists come from newspapers, and they don’t understand or value the newspaper’s traditional role as a connector of a community’s businesses and  residents.   Fortunately, most of the for-profit startup news operators are open to the concept, and open to learning how to make that happen for their operations. For these, CJET  begins filling  the knowledge gap, and helps these entrepreneurs see how their interviewing skills, for example, can help discover unmet needs among local businesses.

That same firewall leads to a fantasy that society owes journalists a living.   This sometimes leads to journalists setting up a nonprofit news site with the expectation that foundations and donors will support their work.  In many cases, these journalists consider advertising to be a necessary evil for legacy media, and an avoidable source of ethical conflict. In the CJET program, we assume there isn’t  enough foundation and donor money to support all the local journalism that’s needed in the U.S., and that local journalism will have to be funded in part, or entirely, with local advertising and related business services. So CJET focuses on helping these journalists  pursue a mix of  funding from donors and from “earned income,”  including managing the time required for both business development and grant-writing.

There’s an optimal “staff” size for a sustainable local news operation.  And it’s not “one.” Even if one person is good at everything, there’s just too much to do in a normal 80-hour workweek. The risk factor is burnout, more than finances. Two people can make it work, especially if one is strong on content and the other on sales. Two people plus some occasional backup is a model that allows weekends off and sometimes a vacation, and offsets the risk of the news site collapsing because someone gets sick. Part of our focus in CJET is to help the solo operator figure out the steps to grow beyond just him/herself. Again, a big piece of this is mapping a long-term strategy with immediate action steps to get unstuck from the daily routine.

I’ll add more observations in my next post.

*****

Huge thank you’s 

Last week’s CJET program was funded by the Patterson and Dodge foundations as part of their support of Hurricane Sandy relief, to help these critical New Jersey news sources along their path to sustainability.  (I’m not sure yet if the participants want to be publicly identified, so for now you’ll have to guess)

These CJET programs have been not only hugely impactful to those attending (from what they tell us in followup), but I personally have learned a tremendous amount from  the participants, coaches and organizers.

Janet and Rusty Coats are the creators and wranglers of CJET,   masters at navigating the waters of funders, hosts and constituencies, gathering participants and assembling us coaches.

Last week’s coaches were Emily Lowrey, Eleanor Cippel, Denise Civiletti and myself. It was hugely gratifying to me that Denise came in as a coach, since she was a member of the first CJET class (then called Supercamp) and I was her coach. Also in that class was Debbie Galant, also one of my coachees, who now is director of the NJ News Commons and pulled this program together. Very cool.

Choosing the right partner for your news startup

I put together this information as a handout for a breakout session at Block by Block 2012 on “Choosing the right partner.”  Worth sharing more widely.

A few resources on deciding whether to take on a partner, and how to choose one. Not specific to news startups, but highly transferable thinking points:

Excellent multi-part package from Inc. magazine: “Finding the Perfect Business Partner” http://www.inc.com/guides/leadership_strat/23041.html

Sample topics:

Deciding whether to partner: “Do you even need a partner in the first place? Maybe not. A potential mate should bring something substantial to the table — like deep pockets or industry connections. Be sure to choose someone who complements, rather than mirrors, your own skills.”

Vetting a partner: “Do a little dating,” suggests Peter Wylie, a Washington, D.C., psychologist. “Take on a challenge together, like meeting a deadline.” Dennis Jaffe, a San Francisco-based consultant, suggests drawing up “a statement of expectations–a charter, a constitution that can be referred to.” And not with any lawyers around: “Draw it up yourself, in your own words.”

When your partner is your spouse: “Plan no-business weekends. Go on actual dates. Make rules.”

How to Fire Your Co-Founder  “Keeping on a co-founder who is no longer adding value can really stifle progress and hurt your team’s morale. There are also ownership consequences with delaying the decision:  your co-founder’s shares will continue to vest. Dragging your feet can further dilute the rest of your team.”

Venture Hacks,How to Pick a Co-Founder” with a follow-on interview ($9 for the “pro” version)

“The ideal founding team is two individuals, with a history of working together, of similar age and financial standing, with mutual respect. One is good at building products and the other is good at selling them.”

Mark Suster, The Co-Founder Mythology” – a strong point of view about not doing 50/50 deals

“Most senior employees who join are given 2% if they join early. Maybe they get up to 10% if they joined REALLY early and were senior. Who gets 30%? Nobody. That’s who. So trust me when I tell you that you can hire incredibly talented people for 30% of your company. Or 20%. Let’s be honest – even 10%.”

Founder Space, collection of blogs, category of “Company Formation”

“Just like you don’t want to be unable to make decisions, you also don’t want to be stuck, long-term, in a private business entity with someone you can’t get along with. So you also want to provide a mechanism for separating the people if they aren’t getting along without necessarily abandoning the business. One of the more popular methods to deal with this is a “buy-sell” agreement, under which a founder proposes a price at which she is willing to buy the other founders’ stock or, if they prefer, sell hers to them. But there are a lot of possibilities.”

Steve Blank, The Startup Team – lessons learned from teaching students how to start new businesses:

“… And finding product/market fit in that chaos requires a team with a combination of skills.

What skills? Well it depends on the industry you’re in, but generallygreat technology skills (hacking/hardware/science) great hustling skills (to search for the business model, customers and market,) great user facing design (if you’re a web/mobile app,) and by having long term vision and product sense. Most people are good at one or maybe two of these, but it’s extremely rare to find someone who can wear all the hats.

It’s this combination of skills is why most startups are founded by a team, not just one person.”

Nina Kaufman,  author of “The Entrepreneurs Prenup: How to Choose a Business Partner Who Won’t [BLEEP] You.”  Interview with Small Biz Lady: 

There are three main reasons why you’d want to bring someone else into your business. First, entrepreneurship can be a lonely ride. When you share with someone else, you get the benefit of having a cheerleader, cattle prod, an extra set of eyes–all wrapped up into one. Second, there’s no way that one person can know and do everything well but a business needs to grow and succeed. By bringing someone else into the business, you expand the range of skill sets, opportunities, and possible sources for financing. Finally, where else would you get someone to work for free, if not for “sweat equity”? But it’s not a decision you want to make lightly. Sometimes, if you can get what you need by hiring an employee or consultant, you’re better off.

7 Tips on How to Choose a Business Partner: Having No Partner is Better Than Dealing With a Bad Business Partner: 

“Approach finding a business partner as you would a combination spouse/day care provider. A partnership is a long-term covenant between two (or more) people. You will spend a lot of time planning major business events with your partner and need to be able to get along with him/her.”

From La Piana Consulting.(which specializes in non-profit partnerships and restructuring).  Key Success Factors for collaboration between organizations:

1. Trust

2.  Joint Decision Making

3.  Start with Simple Collaborations

4.  Board Engagement (for nonprofits)

5.  Good Facilitation and Process

6.  Sustainable Structure

7.  Leadership, Willingness, Capacity and Culture

Why Partnerships Fail

1.  People tend to hold onto their individual cultures and fail to create a new culture

News sites as hybrid: business with social purpose

“The business model would use product sales to fund its social mission, reducing dependence on donations, grants, and subsidies, as well as to scale up the organization.”

If you run a nonprofit news site, that sentence probably resonates with you. But it’s not referring to advertising. It’s about a for-profit bakery in New York that trains low-income women to become professional bakers.

Researchers from Harvard Business School and Echoing Green found plenty of examples like that, and just issued a report through Stanford Social Innovation Review  looking at the challenges of organizations trying to do social good while also running things like a business. About that bakery:

Rather than take a nonprofit model and add a commercial revenue stream—or take a for-profit model and add a charity or service program—Hot Bread Kitchen’s integrated hybrid model produces both social value and commercial revenue through a single, unified strategy.

Here’s how the researchers describe the trend graphically:

Image

While the report doesn’t talk about nonprofit news operations, what’s interesting is that many of the challenges  are well known in nonprofit news circles:

1. The IRS may consider ad sales to be unrelated to the site’s mission. From the report:  “If the organization becomes a nonprofit, selling products or services, it may have to pay tax on revenues associated with those activities and it could also lose its tax-exempt status if the activities are sufficiently disconnected from its primary charitable purpose.” The solutions aren’t simple, but they do exist.

2. Internal culture. Journalists drawn to non-profit news operations sometimes chafe at commercial activities, even if that’s the best way to support the enterprise. Likewise, the most effective ad sellers may not be tuned in to the social purpose of the site. The researchers found two banks in Bolivia that attempted a hybrid mission.  One such purpose-driven bank had trouble “converting social workers into bankers and bankers into social workers.” Another bank with the same goal started from scratch, hiring people with no experience in either field and training them to be socially-involved bankers. The former struggled; the latter is succeeding.

3. Redefining “customer.” The report notes that nonprofits often talk about  beneficiaries, while businesses talk about customers, making the blended hybrid difficult to execute successfully.  This is a familiar point of tension even in traditional for-profit news organizations:  news coverage often is decided for purposes that aren’t measurable through readership gains or ad sales. The solution isn’t obvious, but understanding that tension is key to navigating it.

I highly recommend this report to anyone running – or thinking about starting – a nonprofit news operation. While the road to success isn’t at all clear, the researchers describe a vision of mission-driven sustainability that’s worth striving for.

Tip o’ the hat to Rusty Coats for spotting and sharing this report.

The local merchant’s view

Excellent post by Jeff Jarvis coming out of a roundtable that was held recently at CUNY with local ad sales people,  to gather insight on what local merchants need from local media. It’s called “What ad sales people hear.”

A few takeaways that resonated with me:

  • Selling a service, not just a product
  • Keeping costs low
  • The advertiser needs to see the ad in action– it’s not just data
  • Self-service doesn’t work for most local merchants. They expect service.

The whole “New Business Models for News” program, which Jarvis is heading,  seems like a great resource to keep an eye on.

Heavy-hitters in Hawaii

EBay founder Pierre Omidyar is putting the pieces together for his startup news operation in Hawaii called Peer News, according to a post on his blog. (spotted by PaidContent).  The latest piece is hiring John Temple as editor. Temple most recently was editor and publisher of the Rocky Mountain News .

I find it fascinating that an entrepreneur  who redefined “private party” advertising —  a category that newspapers owned and gave up, way before the Web — is looking to build a sustainable local news model.

Is it possible to reconnect the torn tissues  that once connected  local news and personal  commerce? These things have become so silo’ed in our lives, I wonder.

But it’s very cool that someone with Omidyar’s resources and smarts is giving it a shot.  Regardless of what this team tries, or how it turns out, the lessons will be powerful.

About SustainableNews.Biz

SustainableNews.Biz is about  creating a sustainable enterprise around local news startups.  This blog is for journalists and others starting local news sites, and hopefully will offer some insight into the interplay of local audiences, advertising, news  and community.

My particular interest here is the solo journalist starting a local news site. With tens of thousands of layoffs in traditional media in 2008-09, many journalists have used their new freedom to launch their own local news sites. Unfortunately, there was no class in J-school for how to make a local site sustainable. In fact, in J-school we were taught to stay away from the business side, weren’t we?

This is a whole new world, where the solo journalist needs to learn how to be a publisher – fast. She/he has only about a year of severance pay to figure it out.

The good news is we’ve been here before: Pioneer publishers dragged a press across the plains, set it up, wrote the news, sold the ads, ran the press,  delivered the papers, and probably dodged some bullets from angry readers and advertisers.

You can do it too. And you have it easier! No press to run, no actual bullets to dodge (hopefully).

Feel free to use this blog as a forum for connecting with other journalist/entrepreneurs, to share your successes and learnings,  to pass along items of interest. Send items my way, to joe at joemichaud dot com, or post them as comments.

For now, SustainableNews.Biz is just this blog, but in coming months the blog will connect to a larger initiative. More to come on that, but rest assured the purpose and mission of this blog won’t change.

PS:  Yes, I already have a blog at http://www.joemichaud.com (which currently is the same site as http://www.localinteractivestrategies.com). That blog is a general look at the local news business, including traditional media. SustainableNews.Biz is a much more focused look at local startups.

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