Bootstrap Budgeting: In 2003, Less Is Enough

Folio: The Magazine for Magazine Management, August 1, 2003

Byline: SUSAN THEA POSNOCK AND MICHAEL LEARMONTH

The first budget projections for Tracks, a new music magazine launching in December, were pretty standard. And that's why they had to be shredded. Publisher and CEO John Rollins was planning to launch the music title with a $10 million budget, the nice, fat round number that indie entrepreneurs seem to carry around in their heads - the standard deal, at least in years past.

With money expected from three constituencies - friends and family, a magazine company partner, and the venture capital community - Rollins thought this was a realistic goal. "We carried this $10 million plan because I felt that in order to go to the publishing companies that make magazines on a regular basis, they needed to see a business plan of some weight," he says. He figured it was a hefty enough sum.

But with major magazine companies launching start-ups with budgets of $20 million to $50 million, Tracks' planned $10 million turned out to be not quite hefty enough. "The big companies don't do anything unless it's a real big deal, and they couldn't recognize our launch as a big enough thing to get into," Rollins says. And while family and friends had already put up half a million, the VC funds were not coming out to play. After all, this ain't the '90s.

But Rollins and his partners, who started Vibe in 1993, were not discouraged. They switched to Plan B. "We've been around enough that we knew we could get this thing done for $5 million," he says. So, just like that, the plan was cut in half in the fall of last year.

Rollins and his Tracks cohorts aren't the only magazine entrepreneurs to recognize the need (and the desire) to scale back to fit the new economy of start-ups. "We had the $10 million concept in our heads," notes Brett Garfinkel, publisher and founder of JAQK, a men's lifestyle title slated to launch next March. "But as we did the numbers, it came out to $6, $6.5 million and now a solid $7 million."

"The $10 million is almost folkloric," says Jane Goldman, who's bootstrapping her hip food title, Chow, and plans to launch next spring. When she calculated a multiyear, break-even budget for her new title, she always came up with a nice, serious-sounding $10 million. But then, after making the rounds of investors and speaking to other entrepreneurs with magazines on the launchpad, Goldman found $6 million far more realistic. "We all kind of reduced the standard operating budget by $4 million," she says.

Funny thing about this $6 million - it's not $10 million, but no one seems that upset about it. That's because you can do a lot more for $6 million in 2003 than you could a few years ago. The cost of commodities, rent, talent, production, and equipment necessary for putting out a magazine are all about as low as they could reasonably be, so it's easier to make the columns ad up.

Brother, Can You Lend Me a Dime...Or $6 Million?

Still, there's a catch: In this environment, even $6 million is tougher to raise than it was a few years ago. Investors are leery of funding an unproven enterprise reliant on an industry (advertising) that is enduring a long and difficult downturn. For start-ups, it has made for a dilemma: keep the doors closed until the full amount is raised, or to use a too-graphic metaphor - take a plunge off the high-dive and hope the pool fills up.

Randall Lane, who is raising money for a legal/pop-culture magazine, Justice, is taking the former approach. "We have the money to launch now, if we want, but we're waiting to get the money and do it right for several years," he says. Not a bad strategy, says Don Welsh, founder of Frommer's Budget Travel and developer of last year's most successful consumer bootstrap, Budget Living. "When we raised money, we said we wanted to get to X amount of money, and then open the doors to the business," he says. "That's the most intelligent way to do it for investors that put in seed money but have no idea if it will work."

Back in 1995, Lane and business partner Drew Massey bootstrapped young men's title POV on credit cards and personal debt. They put together the first three issues on a shoestring, and then, in 1996, Freedom Communications invested $18 million for a percentage of the company. From that investment and others, Lane and Massey ran the magazine at full strength for four years, until it folded in 2000. Lane knows that this time around the money is scarcer and smarter. Investors want to see that you're able to raise enough money to reach break-even, before they'll put in a penny. "You've got to show the investor that their money is safe, and that you'll have enough to do the job," he says.

Goldman, too, is waiting for the pool to fill before jumping, although she will launch a Web site this fall to introduce the public to Chow's take on food, and to collect e-mail addresses of potential subscribers. Goldman's projected $6 million will carry her business plan for two-and-a-half years, until she expects cumulative break-even, or to the point at which the initial investment is paid back.