Predictions Coming True: Media Services Group Acquired by Newscycle

Among the trends noted in the predictions post this week, I touched on the expectation of some consolidation in the applications software market.  Earlier this week, Media Services Group (MSG) announced that they were being acquired by NewsCycle.

Media Services Group was established in 1972 and their application software (elan) is used by book publishers, magazines and newsletter publishers and events and conference providers.  By their count they have hundreds of customers located in North America and Europe.  These customers include AARP, Hearst Business Media, Penton and other similar companies.  Increasingly, their solutions are provided to their customers as cloud based services.  Their customer base has been large enough for them to hold a well attended annual user conference in Florida each year.

Press release here.

Newscycle was not one of the companies I covered in my technology report because they primarily serve the global newspaper marketplace.  With the acquisition of MSG that profile changes but most importantly the heft and scale of Newscycle will provide MGS with more capability to expand and compete.

In their words, Newscycle systems power more than 8,000 media sites and publications around world, including 92 of the top 100 U.S. newspaper publishers. More than 70 percent of the world’s largest news media companies use Newscycle software.  For Newscycle, the addition of MSG market knowledge and software capability will allow the company to broaden the marketplace in which they compete.

Trend implications:

In the mid-market segment of the publishing solutions market there exists 10-12 software providers which are all in the $10mm to $20 in revenue range.  At that level, it can be difficult to achieve business scale, maintain consistent software development and support even modest ROI.  This is why consolidation and/or recapitalization in this space is likely since that is more likely to enable a succeeding business to expand, take market share from others and (importantly) compete more aggressively to gain customers.  Additionally, the ability to accelerate development will widen the technology gap between themselves and others in the space and allow the software company to add features and solutions that will appeal to ancillary media markets (like newspapers for example) to broaden their competitive market.

This Newscycle acquisition may change the dynamic in the mid-market for publishing technology.

Do You Sincerely Want to Sell Your Publishing Business?

A re-post originally from June 29, 2010.

There are various approaches to selling a business and selling a publishing business is no different. The circumstances surrounding the decision to sell can greatly influence how smoothly the process goes; however, as with many things, the amount of preparation that goes into the process will ultimately determine whether there is a successful outcome.

As a seller, your immediate task is to eliminate questions, cynicism and doubt about your business in the minds of potential buyers. No matter how excited the potential purchaser seems to be about your company, they are going to be skeptical about key information. Their job is to (cynically) use anything negative to undercut a purchase price; your job is to be open and effectively back up any questions they will have with facts. (Bear in mind that adequately addressing these issues to their seeming satisfaction early in the process doesn't mean the purchaser won't raise them again during negotiations, so keep your story straight and simple).

If, as an owner, you always believed you would sell the business, then you should have a reasonable understanding when you would like this to happen. As a prelude to this event, you will want to focus on a number of key areas.

First, your financial statements: If Aunt Sally has been doing your taxes for the life of the company and you have never had periodic management accounts, then you are not in a position to achieve full value for your company. Treat Aunt Sally with respect but get yourself an accountant and a bookkeeper to put the numbers in order. At least a full year's audited financials and management accounts should be considered the basic financial reporting requirement when done by a qualified financial accountant. (They do not need to be full-time staff).

Second, if Aunt Sally is just one of several family members taking a salary in the company, you may want to think about their continued involvement in the run up to the sale. A buyer will want to know the actual operating cost of the business and you, as a seller, want to provide the best possible view of the business (that is, without extra expenses). Now, if the family member(s) has a legitimate and key role, then you may have other issues to address (such as their position with the company post-sale).

Third, many buyers will focus on future revenue growth. Do you have formal contracts or handshake deals? Is revenue dependent on one source? The buyer is going to second-guess your revenue projections; therefore, if there are any 'soft spots' it will undercut their confidence in the business overall. Saying so and so has always bought from us is not as valuable as being able to say 'we have a negotiated five-year deal' and we are currently in year two. If your revenue growth is rock solid - even if it is based on a small number of authors, commercial accounts or subscribers but supported in each case contractually - that will place you in a stronger position.

Fourth, your accountant will also create a balance sheet for the company and the key items concerning a buyer are those things that deal most immediately with cash. As a seller, you need details about your inventory turn, accounts receivable collections and accounts payable. Assuming you have prepared for the sale of the business more than twelve months in advance, you should have a clear picture of these items. Just because an item is listed as a company asset doesn’t mean a potential buyer is going to agree as to its value.

Other balance sheet items that require attention are fixed assets, which may include the building in which the company is located. Sometimes a seller wants to keep the building (if they own it) in which case you and your accountant will need to determine the best way to handle this. Bear in mind that the property could be the most valuable asset owned by the company. Similarly, the company may own patents and intellectual property that must be properly accounted for and (for the benefit of the acquirer) properly documented.

In summary, get your accounts audited, create a 'clean' income statement, deal proactively to get your revenue sources locked down and establish formal procedures to manage your cash flow and balance sheet items.

Obviously, the value of a business is stated in black and white in its financial statements but to the potential buyer they will be just as interested in the products you're selling and their future value as they are in your accounting policies. You must have clear ownership rights to any content or technology that represents a primary asset(s) of the company. If contracts aren't transferable, if certain rights are retained by content producers or if you 'collected' data to create your products without proper authority, these issues and others like them should be addressed and resolved before you market your company. If there is any doubt in the mind of a buyer that they will be able to carry the business forward, this will either scuttle a deal or significantly reduce your purchase price. And don't think they won't find out.

Sixth, your organization's human capital is important to the business for continuity reasons (if not for other reasons). Don't believe that you can keep the selling process a secret because even if your employees don't know everything, they will make up the rest. As a seller, you must maintain momentum and, for that, you need to maintain decent employee morale.

Bonuses and incentives can play a role, as can simple communication. Unfortunately, you can't control what the purchaser chooses to do with the business and placing restrictions on post-sale activities - even if you can get away with this - will only reduce your take. Key employees are important to the purchaser and they will want to know who these people are. The purchaser may want some guarantee that these key employees will remain with the business for some stated period after the sale and will be willing to pay the employees a bonus to stay.

As an owner, you may have provided equity to employees over the years, which would give them a piece of any sale. Often these deals can be 'casual' which is not what a buyer wants to hear. The last place a buyer wants to find him or herself is in the middle of an ownership dispute, so, no matter how painful this process may be, get those agreements formalized in advance of a sale.

Finally, as a seller you will want to practice speaking about your company so you are effective in communicating to potential buyers why acquiring your company represents good strategy. Your understanding of your market, your competitors' market positioning and market trends and opportunities all represent key components of your company's selling attributes - and reasons why a purchaser will see opportunity in acquiring your company. Work to prepare a briefing document of your company which you can use in presentations and discussions. Importantly, at industry events, seek out speaking and panel discussion opportunities where you can both present your company and your understanding of the market, as well as learn about what other similar companies are doing in your marketplace. Not everyone is comfortable with this type of communication; however, during a sales process the buyer is going to rely a lot on your perspective about the business, and the more comfortable you are, the better your views will come across. The only way to become a better and more effective communicator is through practice.

In summary, any hiccup in the process of acquiring your company could result in a buyer or buyers either getting cold feet or simply moving on to something else. There are lots of companies drawing acquisition attention and, having gained attention, you don't want to lose it and fall to the bottom of the pile. By the time you regain their interest, circumstances could have changed significantly and no longer exist to your advantage or worse - the opportunity maybe permanently lost to you.

Segmenting Publishing Strategy

A re-post originally from November 9, 2009:

There is a self-publishing conference in NYC this weekend which reminded me of a project I worked on several years ago. After reading an interesting article in the Harvard Business Review about defining a company's corporate strategy, I decided to use the ideas in the article to spur discussion about my client's strategy. The HBS article Charting Your Company's Future is available from the HBS site and is summarized as follows:

Few companies have a clear strategic vision. The problem, say the authors, stems from the strategic-planning process itself, which usually involves preparing a large document, culled from a mishmash of data provided by people with conflicting agendas. That kind of process almost guarantees an unfocused strategy. Instead, companies should design the strategic-planning process by drawing a picture: a strategy canvas. A strategy canvas shows the strategic profile of your industry by depicting the various factors that affect competition. And it shows the strategic profiles of your current and potential competitors as well as your own company's strategic profile--how it invests in the factors of competition and how it might in the future. The basic component of a strategy canvas--the value curve--is a tool the authors created in their consulting work and have written about in previous HBR articles. This article introduces a four-step process for actually drawing and discussing a strategy canvas. Readers will learn how one European financial services company used this process to create a distinct and easily communicable strategy.

The process begins with a visual awakening. Managers compare their business's value curve with competitors' to discover where their strategy needs to change. In the next step--visual exploration--managers do field research on customers and alternative products. At the visual strategy fair, the third step, managers draw new strategic profiles based on field observations and get feedback from customers and peers about these new proposals. Once the best strategy is created from that feedback, it's time for the last step--visual communication. Executives distribute "before" and "after" strategic profiles to the whole company, and only projects that will help move the company closer to the "after" profile are supported.

My client was a medium-sized publishing company in a rapidly growing market and we met to brainstorm about redefining the organization's business strategy. Using the HBR article as a guide, we constructed a set of 'straw-man' profiles describing our client base and key characteristics. Firstly, we constructed the following customer type segmentation as follows:

Publishing Segmentation

Professional nave either a track record of selling titles and/or have commercial interests, such as a seminar business, where the book is a component (but not the main source) of revenue. In the latter case, the author/publisher may be less concerned with the commercial success of the title but retain a strong desire to produce a quality published product in the traditional sense. This group is likely to understand the publishing business.

Amateurs may have significant misconceptions about the industry and their capacity to be successful. They will require significant education and (possibly) even motivation to complete their “product.” They may develop a personal relationship with the publisher rather than a business relationship and will become more demanding of time and effort than the Professional.

Non-Commercial versus Commercial could be a choice of the publisher as well as a representation of the commercial potential of the product. For example, to a "pragmatist", a book could be a 'give-away' that supports some other aspect of their business and is thus 'non-commercial' but to an amateur the book may be 'non-commercial' because it doesn't have a market. My client's customer base had expectations about the commercial merits of their products, which often, did not match reality and this was important for my client's management to recognize.

Most of our customers in the lower-left quadrant would place themselves much further to the right on the commercial spectrum than reality would dictate. We also recognized that placing customers into the lower right quadrant could not be planned with a degree of accuracy and depended on the willingness of the client to promote and market their title aggressively. Realistically, we felt it was next to impossible to anticipate success in this quadrant.

In the upper-right quadrant, we would most likely find established authors, professional speakers and back-in-print titles. (We didn't look at profitability in this exercise but that would be an obvious additional task).

We then selected a spectrum of key attributes that we believed the publisher's customers valued: Price, speed, contact, quality, control, product sales, community, education, ease of use, reputation. Using these attributes (which would be confirmed by research later), we attempted to plot how our customers in each quadrant valued each attribute. Importantly, we understood these drivers to be 'valued' differently by the customers in each quadrant.

The resulting chart for Pragmatists plotted for the client and one of their competitors looked like this:

The Pragmatist

Pragmatists: This draft profile suggests key areas of differentiation from one player to the other. The competitor (black line) operates at the top of the chart for the drivers that their customers view as critical and give low consideration (limit time and effort) on those that do not and which don't support their strategy. In my clients case, we believed customers valued education highly but we also knew this aspect of the business cost a lot to deliver.

The Dreamers

Dreamers:

We also looked at the 'dreamer' segment and chose a different competitor which had made a conscious decision to build sales volume with clients in that quadrant.

To support this strategy their revenue model was partially driven by unit sales (of the finished book), and they determined that many of their authors did not care about quality in the same way a traditional publisher/ author would. The competitor believed that ‘Dreamers’ were interested in receiving the end product as soon as possible.

In contrast, my client publisher sought to actively engage with the ‘dreamer’ to produce a better end product. Paradoxically, in the case of the competitor the ‘dreamer’ may remain blissfully ignorant but happy, while in the case of my client the customer may be dissatisfied because the process took longer, the interactions with staff were frustrating and the choices overwhelming. Same type of customer - "Dreamer" - but different approaches produce different customer experiences and expectations.

Strategy: As we discussed these 'straw-man' profiles we recognized that, for our business, there was a lot of revenue in delivering services to the lower left quadrant if we could get the business driver mix just right. Our challenge was to understand how to produce that revenue profitably. One obvious solution was to withdraw/eliminate costly services the author/customer is uninterested in. Over-delivering to this segment is pointless (which is a philosophy that one of our competitors practiced.)

We also recognized that classic business strategy suggests that companies endeavor to move their customers in the direction of the upper right quadrant. In the self-publishing market it would be virtually impossible to turn ‘Dreamers’ into ‘Moneyed’; however, it may be possible to move a small number into ‘lotto winners.’ The assumption would be that these authors have a product with a ‘hook’ that is somehow unique, and they are willing to work actively on the book to improve it and support it in the market. An added bonus would be one if the author was willing/able to publish additional titles. Rather than expend effort building marketing, promotion and editorial services (add-ons) for clients in the lower left, one potential strategy would be to expend this effort on the select titles/authors that showed promise in moving these titles/authors to the right along the commercial spectrum.

Using the framework we hashed out over an afternoon, our next step was to confirm the key customer drivers by segment (Professionals, Amateurs), to plot our position and our competitor's, and then identify our ideal profile. Once we defined this ideal profile, we would build a strategy focused on moving the company from the 'old' curve to the 'new' one.

In implementing this approach it is important to recognize that customers dictate and research is likely to identify a new driver and confirm that one or more suggested drivers are not important at all. Substitutions could occur and research should be tailored to uncovering these ‘unknown’ drivers not just confirming the ones the staff identifies.

Lastly, communicating the strategy internally is important and using a visual tool like this strategy map makes this easier. Once the ‘big-picture’ strategy is defined, then other tactical aspects of the strategy should be easier to define. This can be both a fun exercise and one critical to the future success of an organization.