Digital media entrepreneurs: how much fuel is left in the tank? | What’s New in Publishing

Startups that spend for free can die one of two ways: either by cancer or by heart attack

In a recent newsletter, I discussed how misinterpreting audience metrics can mislead digital news publishers into developing ineffective business models.

Another common mistake digital media entrepreneurs make can have catastrophic consequences: losing track of cash flow and profitability. Many entrepreneurs have no idea what these terms mean or how to apply them.

Cash flow is the measure of how much you spend versus how much money you bring in each month or year. Cash flow tells you how quickly you burn the fuel (money) you have in the tank and how quickly you replace what you have burned.

And profit is simply your revenue (sometimes called “income” or “turnover”) minus your expenses. If the result is positive, you have made a profit; if it is negative, you have suffered a loss and you may need to take action to prevent the losses from becoming a trend.

Depending on the type of media business you run, you may want to measure cash flow over a month, quarter, or year. But you should measure it.

If you are accumulating debts and you are not generating enough money to pay them off, you are preparing for the financial equivalent of a heart attack. And if you don’t watch cash flow, you might not see it coming.

Lenders who gladly extended credit to you because of your brilliant sales pitch may eventually tire of your excuses when you miss multiple debt payments. They can demand 100% of the loan immediately, which often leads to bankruptcy or even liquidation – heart attack.

burn the money

Another form of financing that can be both a boon and a trap is the sale of shares to outside investors. A startup promises investors that a cash injection will help them generate growth and big profits. Thus, investors invest their money in the hope of seeing dividends and an increase in the value of their shares.

But if the startup is slowly burning through its pile of cash without showing a profit or attracting any stock buyers, it’s draining fuel from the organization. Eventually, the money runs out. There is no more fuel in the tank, and the investors decide to cut their losses. They walk away from their investment and close the doors – death from cancer.

If those investors were your family and friends, you might have a big personal problem: no Christmas dinner invites. But for most savvy investors, these types of losses are part of the deal. They expect 80% of their investments to fail.

Market validation

One such savvy investor is Francois Coronel, co-founder and managing partner of NXTPlabs in Buenos Aires, Argentina. A few years ago, NXTPlabs invested in Latin American-based digital information startups and provided them with several weeks of training on how to develop their business models. (I was one of their coaches.)

The reason so many startups fall into “Death Valley,” Coronel explained, is basically for one of two reasons: either they haven’t figured out how to generate cash from their business idea, or it costs too much to convert a potential customer into a paying customer.

Coronel is the one who gave me the cancer or heart attack metaphor for business failure. He explains it in a 2-minute video, with English subtitles (below).

Final Thoughts

Over the past decade, I’ve worked with dozens of start-up news organizations and researched many more. Their founders, as a group, have an irresistible charm and optimism. They believe so passionately in the work they do. They desperately want to serve their communities with reliable information.

It is therefore heartbreaking to see them fail. Often these journalists simply do not know how to measure the amount of fuel left in the tank, that is, to measure cash flow.

I believe some of these business failures could be avoided with early training. I’ve written a simple accounting guide with a budget template that might help beginners. Better yet, get professional help. If you can’t afford a full-time accountant, find an experienced accountant to help you track your business results.

I’ve worked with a team to provide a more comprehensive accounting guide for journalists in English and Spanish, and when it’s available I’ll update it in this space.

James Breiner

This article originally appeared on Entrepreneurial Journalism and is republished with permission.
You can connect with James Breiner on LinkedIn here.

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