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Funding Conundrum
UK-Netmarketing Weekly Round-up - April 20, 2001

Raising money for a venture can be difficult at the best of times, but when everything related to dotcoms is out of fashion it's going to be harder than usual. Mark Johnson asked the list for some advice, "This is my first post so here goes with my posting virginity; I have a business plan to launch a dotcom. However I need £250,000 to get it live. Can't do so without the funds. We now have a company that's interested in backing us. They work in a complementary market. They have the infrastructure already to support our product (good) but say that they are already looking at our 'market' and will probably launch into it themselves soon anyway.

However they have asked us to come in and present to them, to convince them that they should invest in us rather than do it themselves. I know I've only given you a snippet of the situation but why do you think a big company that could do it themselves (which they could as it's simply some software, licensing and marketing it - in very simple terms) would want to back a start up like me?"

UKNM subscribers were happy to share reams of helpful advice, Lois Grayson replied, "... sorry to sound cynical but how sure are you that they just want to know what you're going to get up to so that they can:

plan how to position their emerging service against yours
steal all your best ideas
time their launch to ride on the back of yours or completely swamp it OR
all of the former?

If they're genuine it might be that they don't have your company's collective market knowledge in this sector and so it's knowledge and skills they're buying into."

Leslie Bunder added, "...there are a number of reasons (here's just 10), so here goes from the obvious to the cynical...but above all get yourself some sort of non-disclosure agreement (NDA) in place when you visit these people - while some can argue the value of an NDA, it does at least show you are professional and more importantly you are aware that your idea and concept is important to you. Keep your meeting to the point, don't give away too much, let them do talking as well and see where the common ground is to go forward... And now the top 10 reasons why they might be wanting to see you...

they want to support you because they can see the value your business will add to their business
they want to support you because you have a team to make it happen much more quickly they can
they want to support you because it is cheaper for you to do it for them then they can do it themselves
they want to support you because if it goes belly up, it won't impact their core business
they want to support you because they have a genuine interest in what you are doing and just like you
they want to support you because they can 'write it off' for tax purposes
they want to support you because they've always wanted to invest in a business like yours
they want to support you because they feel your business will bring them additional business
they want to support you because despite what they say, their product may not exist
they want to support you because they will say that so they can see what the potential competition is like

Mike Austin suggested, "You will need to convince them that you can do it:

quicker to market
cheaper
far, far better.

Or ideally all 3. I guess that they'll only invest in you if you convince them of all 3 and they think they haven't got the people resources to do it in-house."

Ian Thomas agreed that getting the venture money from a company rather than investment bank might be the way to go, writing:

It would arguably take longer for them to do it themselves: you're already up and running with the idea; they would have to find people, get a budget together (which would probably have to be bigger than £250k), work out what it is they want to do, worry about how to integrate it into their existing offerings, etc.
250k for you is probably cheaper for them than doing it themselves (you're gonna work for free, right? ;-) ). And if your idea turns out to suck, they can forget about it with absolutely no consequences (no people to re-deploy, no product pre-announcements to backtrack on, etc).
The £250k to fund you would probably come out of a different pot than the budget to do it themselves. If they've got a department with a chunk of money to spend on ventures like this, your chances could be good.

"There are some benefits you can try and sell, but most are double edged and their relevance will depend on the situation", wrote Martin Lloyd. He suggested considering:

"Start up culture: Being nimble, flexible and go ahead in attitude may well be a benefit at this stage, and its easier to get that if you're a start up rather than a department of something else. This extends to such practices as paying high salaries to attract talent.

People: You and your associates represent a team, which is better at this than they are likely to be. At this stage who is involved is at least as important as the actual idea. At the end of the day VC investments are made in people.

Risk management: Backing you gives them an easy way out if things don't go well.

Value: If things do go well owning a stake in a separate company may add more shareholder value than having added a profitable side business to what they've got now.

Brand exposure: Backing you protects their name is things go wrong

Brand stretch: To what extent does their current brand support the new offer, could a new brand do a better job? (both the above could be handled by having a separate in house brand)"

There are a number of other sources of funding a start-up business. It's sometimes worth considering alternatives to the well trodden path of venture capital such as the DTI's Small Firms Loan Guarantee Scheme, which can let you borrow up to £100k for a new company which needs to grow but has no material assets from which to secure credit

Leslie Bunder highlighted the importance of an NDA, emailing, "If anything an NDA today is getting more important. When you refer to investors, do you mean venture capitalists, in which case many I have dealt with are always keen to have NDA in place and will either offer you a copy of their own one or are happy to sign one that you create.

I have never witnessed anyone from either side to refuse to sign an NDA but maybe that's in the areas I have been involved in and most people I talk to are aware of the importance. But the NDA gives a starting base for both parties to begin and grow from. It makes it clear where each party is coming from and personally, I would avoid someone who made a big issue of refusing to sign an NDA, after all what have they got to hide."

Netimperative Subscription

Following hot on the heels of last week's debate about how publishers could charge for content, industry news website, Netimperative announced it was asking for pledges to keep its service up and running.

Mike Grenville commented, "Industry Standard closes and now Net Imperative can see the bottom of the pot and is appealing for pledges to sign up for £50/half year membership for searchable back content and lunchtime seminars. Out of the 8,000 members the barometer stands at about 230 so far which does not bode well. Is there a future for a paid for membership based new media content website?"

Richard Gregory justified the value in subscribing to a paid-for content service, "I subscribe to the451.com which charges members for premium content. Since the web site is very focussed and features some excellent content and commentary I had no problem arranging a £400 annual subscription.

Considering the ridiculous amount of money that is charged by research companies for access to their findings, I think it is perfectly acceptable to pay for quality content from a news site, providing that information cannot be gleamed elsewhere for free."

Rob Venes from Netimperative, replies, "As Mike Grenville has pointed out, we've launched a campaign to save our service. Feedback has been very positive so far, but we do need to know whether the industry wants this service.

We've always believed that content should be free - and the daily news and newsletters will be free for as long as we can maintain this model - but the overheads required for our service means we need to do more. We're launching a paid-for membership service, but I don't want to do a sales pitch here, so the details can be found at http://www.netimperative.com/aboutus/saveourservice.asp if you're interested."

Alastair Pinkney added, "Paid for content or indeed membership has been talked about for a long time. There are a number who could seriously consider developing such a model. FT.com is the perfect example of a site where the content is informed, influential and above anything else specialised. Quoting from an FT.com source infers a degree of gravitas when you're writing a business plan, defining an economic landscape or whatever. From some of the studies, executive summaries and so forth I've read, a number of highly paid consultants have virtually cut and pasted content.

You pay for FT Profile so why not FT.com? With the latest news of FT.com's revenue shortfalls, this piece of logic virtually screams from the rooftops. As to Netimperative £50/half year membership, what does that represent? Probably a very nice lunch for two at Pizza Express and in Netimperative's case probably better value."

No Logo

Naomi Klein's book, No Logo, is fast becoming a marketing person's 'must read'. What's all the fuss about? UKNM subscribers responded to Andrew Smith's question, "Anyone read it, have thoughts/views/opinions? I thought it was a well researched and written assessment of the rise of the global brand ethos and the social/economic fall out as a result. But would be interested to hear what others think of her arguments"

Martin Lloyd replied, "Its superb. One of the best argued and well researched books I've read in a long time. The stuff tracing the invasion of public space by private brands was particularly good and well argued. (not to mention scary) And it makes you feel guilty about everything you own and most of the clients you work for.

I'm less convinced about the attempts to claim that the many and disparate groups of activists, pressure groups and teenagers in Seattle are a coherent 'resistance' to the power of branding and globalisation, and in general terms I think globalism is a good thing. (right up to the point all the jobs in online strategy move to Timbuktu, but there you go) Still, its a well argued viewpoint. There's a decent article about her on fast company called 'A brand called Naomi'"

Ken Cowley emailed, "Agree with the verdict. Because it's largely based on American and Canadian examples, it acts as a warning on certain trends that are on the way here - 'education as product placement' for example. The most stimulating conclusion of the book is that we are in a new 'age of empire', with natural deflationary pressures owing to the shipping out of processing to low cost (and in many cases zero tax) countries. I'm not sure that central banks and others have taken this on board yet, though outsourcing is no doubt one factor in the supposed economic miracle now commonplace across Western economies of high growth/low inflation.

The biggest lacuna is the near-total exemption of the consumer from any blame for the phenomena she describes - if lots of people didn't actually buy the idea that wearing clothing with one particular brand was 'cool', then Nike Town and many of the other examples wouldn't exist. The book lacks depth in this matter of consumer behaviour - in my view 'you are what you buy' probably gained most ground in the sixties, when choice became abundant. The idea that consumerism is essentially democratising in allowing anyone to become cool/admirable etc is why a lot of early leaders in branding liked to portray themselves as counter-culture, a trend which still persists. The absence of any real discussion of just why consumers 'buy in' makes this book look one sided - marketing is something 'done' by multinationals 'to' consumers.

The book also lumps together economy of scale in manufacturing and marketing with economy of scope in branding across categories. In fact the businesses analysed principally started out benefiting from one or the other, and anyone reading it as a business manual (it makes a good one) would be wrong to conclude that 'brand' was as much a part of Wal-Mart's success as squeezing the hell out of suppliers and maximising supply-chain efficiencies. It is important to distinguish the two because the latter is a manifestation of the age-old 'winner takes all' nature of free markets, whereas global brands are relatively new."

Peter Hill shared how reading the book had affected his purchasing habits, "Personally, it's had a dual effect: I now avoid Starbucks and get my Kumquat Macchiato from an independent vendor, and there's a heightened awareness of the consequences of corporate greed (current employer exempted, natch). Superb book."

Andrew Smith emailed, "The success of companies like Nike, McDonald's, et al in building global brands, she argues, is now contributing, indeed helping, to fuel a consumer backlash against them. The book is by no means perfect - sometimes it does begin to read like a Dave Spart-style Marxist diatribe - but more often than not Klein throws in a balancing example or counter argument."

David Cabrera shared his views on the issues of globalisation raised by Klein in the book, "In the late 90's I did a lot of work marketing/promoting consumer brands across Western and Eastern Europe and Developing Nations in Africa and Asia.

What's interesting is that in the 'West' there is a small but highly vociferous group of mainly young people who are anti globalisation/global brands largely for two reasons a) these brands are seen as promoting 'Americana' at the expense of national cultures - the attacks on McDonald's in France are an example of this - and b) they believe that global brands exploit (usually young and semi educated) workers in third world countries.

I know this is a slight generalisation, but the paradox to this is that it is the young western consumer who has created a homogenous global marketing group through their consumption of media, music and fashion interests (e.g. what is MTV all about). Secondly when you research young semi educated and educated consumers in Eastern Bloc and Developing countries you will find time and again that the majority largely reject 'national brands' in favour of Coke, Marlboro, CK, McDonald's, MTV, Heineken, etc, etc because these brands say they are as 'developed' as their western counterparts The only mass exception to this are those who are involved in large often quasi political / religious movements in Developing countries such as the Muslim groups who helped overthrow the Suharto regime and now support President Wahid in Indonesia.

A senior planner at Y&R recently wrote that brands are replacing the role of religion in many western countries - he may be right"

FHM Marketing Gaffe

A well constructed email newsletter is fast becoming one of the most popular marketing techniques employed by both business and consumer brands. Unfortunately, many brands are still learning, as Darren Priest found out when he got the latest offering from FHM. He wrote, "Starts with... 'Welcome to the new look FHM.com newsletter, which - unless you are looking t the old text version due to your archaic email system - is a visual feast of colour and pictures.'

Said 'visual feast' takes about a minute to download all of the pictures. Personally, I find email far too quick, so I'm glad that someone's gone to the trouble of slowing it down to the same brain-numbing pace of your average lastminute.com download. Oh, and the text content kept re-rendering into different layouts as the pictures downloaded, making it difficult to read. Tried to unsubscribe, so followed the link to site, which took another 3 minutes to download, entered email address, but it returned a java alert saying I had to fill in the registration form above it to register (duh!) and then told me they didn't have my email address on file anyway."

Mike Austin replied, "Agreed. It sounds like a very poorly implemented HTML email - there's a lot of it about. Many people simply do not understand email, let alone HTML email. First rule of email marketing (IMHO) is 'only send your customers huge emails if they specifically ask for them'. Second rule is 'don't send them emails which contain web bugs or scripts'.

Ben Rees had a similar story, "Rings a bell. Letsbuyit.com are another offender for slow email newsletters, which also require a live connection to be read. Unsubscribing is also far too difficult (via a form on their site). I wouldn't mind but the single experience I have of them as a customer has already persuaded me never to buy from them again. Funnily enough the email hasn't changed my mind. How's that for word of mouth :-)"

And so did, Chris Heathcote, emailing, "The best are the Bananalotto ones, which make you click a link, to take you to the unsubscribe page. This page claims that my email address isn't a valid email address, so I can't unsubscribe. Doh."

As did, Ian Fenn, who wrote, "Bluecarrots is another one. I've followed their unsub instructions five times and they still keep sending me stuff."

It seems like it'll take a while for companies to harness the potential offered by email newsletters. Perhaps it's analogous to the early days of the web when many websites fell well short of their objectives.

LINKS OF NOTE:
A quick round up of interesting, funny, useful and other links gleaned from the uk-netmarketing list, office gossip and other nefarious sources...we take no responsibility should you chose to click...basically, it's not our fault. Enjoy:

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