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Budgeting and Funding for a Start-up

Posted on Monday, March 30, 2015 at 11:33 PM

A reader's question: What might the cash-flow requirements be?

By William Dunkerley

Q. I want to start a monthly magazine about the provision of healthcare services in the United States. I have a background in that industry and am concerned about how things are going. I aim for this magazine to be a springboard for making fundamental changes.

The problem that I've identified is that big corporate players are successfully influencing laws to the detriment of the average users of healthcare services. They are also bullying smaller players in a way that maximizes profits for the big guys.

I'll distribute my magazine to the movers and shakers in the industry. My articles will highlight the industry problems I've identified and will let readers see what will happen to them if public outrage grows and turns against them.

Right now I have an editor and designer putting together a sample issue. With that in hand, I want to go around to a few charitable organizations and seek grants to get the magazine started. After a while, of course, I think it will be self-sustaining from advertising revenues.

So I can gauge how much money to ask for, could you tell me what the cash-flow requirements might be for this project, say, going out for the first three years?

A. This sounds like a project that really interests you, and I can tell that you want to make a difference in a major social issue of our times.

The plan that you've briefly described is quite problematic, however. Let me tell you about the things that jump out at me immediately:

1. You are rushing ahead much too quickly in exemplifying the kind of content the publication will have. At this stage you should not have crystallized the concept to the extent that you have.

2. Normally before a new publication is started, research is required to be sure that there is a need for it. Many start-up failures are a direct result of omitting this step. What then happens is that an often very talented start-up team will produce an attractive, well-written publication. The only trouble is that there is no consumer need for the spiffy publication that they've put together.

3. There is a disconnect in your thinking about your overall plan. You say you want to distribute it to the movers and shakers in the industry, and you expect that their business ethics and behavior will thereby improve. But you say it will be public outrage that will motivate them to change. Your plan is missing a mechanism for stimulating the public outrage. It seems to me that your magazine should be distributed to consumers, not insiders. In that way it can serve to inspire the alarm that you believe is justified. The magazine could also show readers convenient ways to express their outrage. That might be through making different choices in the services they sign up for and by cautioning their elected representatives that they'll lose votes if they don't stop putting special interest money ahead of serving constituents.

4. With a consumer publication out there, you could then produce a more narrowly targeted publication for the movers and shakers and the politicians with whom they collaborate. A newsletter or a series of special reports could interpret for that audience the consequences of ignoring public outrage and concern.

5. A project like this is best pursued using agility rather than a plan mapped out all in advance. For instance, you don't know which, if any, aspects of the project your hoped-for initial funders might find interesting. However, if you approach them with just your basic concept about influencing the industry, you can quickly see if there is interest. And if there is, this will give you an opportunity to invite their participation in later planning. Consider it an exploratory exercise. It will probably bring about a greater buy-in to your project if they feel they've got some ownership of the idea.

6. This looks to me like a two-step sales situation. In step one you must convince funders of the legitimacy of your analysis of industry problems and get them to share your belief that the situation can realistically be changed. Then in step two, assuming you've won them over in the previous step, you've got to convince them that your magazine (and its associated newsletter, etc.) will be a reasonable and effective way of achieving the objective of industry change.

7. I'm thinking that taking a funding prospect from the beginning of the first step to the conclusion of the second step may be stretching their minds too far all at once. This sounds like something that should be handled in two separate contacts, one for each step. That would apply whether the contact is in person, by phone, or through delivery of written material.

8. So in the first step you would get the prospect to acknowledge concern about the problem and acquire an understanding of its etiology, and then you would tell that person you are working on a plan to achieve the objective for change. For the second step the goal would be to get a funding commitment. You would introduce the overall publication concept and plan, and convince the prospect that it is the best approach for achieving the ultimate objectives.

9. Don't use a sample issue for any of this. Usually I favor producing a high-quality, closely targeted prospectus. This way you can create greater interest and positive expectancy about a proposed publication. With a sample issue people will judge the project based on what they see in the sample copy. And no sample copy can represent the total experience of reading or advertising in a monthly publication over the course of an entire year.

So, to answer your original question about the cash-flow requirements: No, I can't tell you how much you'll need. Despite your rush into producing a sample issue, your project is still in a very embryonic stage and is in need of more exploratory work on your part. Charging ahead without further research would be a bad idea. It sounds like an interesting and constructive project, and I wish you best of luck with it.

William Dunkerley is principal of William Dunkerley Publishing Consultants, www.publishinghelp.com.

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