He managed to finance the first year and a half out of personal savings and cash flow from a few consulting stints, but he racked up a backlog of payables. The company chalked up substantial losses on $150,000 in revenues between 1990 and 1991. Silver projects he'll lose $250,000 on sales of $450,000 this year, with $240,000 going to cover payroll and operations alone. Still, he anticipates he'll break even sometime in 1994.
Like any cash-deprived founder, he wants to raise as much as $1 million to expand. An investment of $250,000 to $500,000 would enable him to mount the direct-mail and advertising initiatives required to push into 20 new markets. His plan calls for entering nine large cities including Los Angeles and Chicago in 1993. He would add 10 more markets, representing 42% of all births, by 1994.
In 1995, when he plans to pass the 100,000-members mark, Silver would drop membership prices to $19.95, trading margin for greater volume. "We'd expect from two to three times the number of people to respond at that price," he says. By persuading one out of every two members to renew, he'd maintain gross margins above 50%.
Hurdles
Can he keep going without investment? "Not forever," Silver admits. If he faces a future of interminable bootstrapping, he'll continue to hold down overhead while growing slowly, mainly in the Mid-Atlantic region.
While shortage of capital and retarded growth might leave him vulnerable to competition, funding and accelerated growth pose equally daunting problems. Even if Silver attracts capital, expanding as rapidly as he plans could lead to chaos. Area directors alone would multiply from 9 to 63 in one year -- just about as quickly as the headaches of managing them. Pressure to control costs could compromise quality.
Quality service is, of course, the key to boosting membership. Parents may indicate interest in network benefits, but they can find most of them elsewhere. Silver will have to differentiate his services through execution. And he'll have to deliver value to members without confusing them. "At some point you can offer so many benefits that you muddle the reasons to join," he says.
Currently Silver does not segment his market. Considering mothers a unified market may prove a mistake. "The 17-year-old single mother living in a trailer park in Kansas City has little in common with the mother with an au pair and one child living on the upper East Side," cautions Judith Nolte, editor of American Baby.
No matter who his members turn out to be, the task of hitting 100,000 is urgent. To interest the sponsors and advertisers he covets, Silver needs to penetrate the market significantly. But achieving a national audience is no guarantee that marketers will buy into Silver's network. A cadre of strong and growing parents' publications aren't likely to surrender market share easily. The Mothers' Network may be hard-pressed to sell ads at a premium.
Perhaps Silver's biggest challenge lies in disciplining without stifling his toddler of a company. Running in different directions, exploring every opportunity, is perhaps quite natural at this stage. But Silver would do well to acquire the watchful eye his members must cultivate. "I think I'm learning what it's like to be a mother," he confides.
* * *
EXECUTIVE SUMMARY
Company: Mothers' Network, New York City
Concept: A national membership organization for mothers, providing seminars, publications, discounts, and other benefits, for an annual fee. Sell advertising and sponsorships to toy makers, diaper manufacturers, and other marketers eager to reach parents through a new channel
Projections: Losses of $250,000 against sales of $650,000 in 1993. Hit break-even soon after, posting profits of $866,000 when revenues reach $4.6 million, in 1994. By 1997, be a $38-million company with half a million members and pretax income of $15.4 million
Hurdles: Achieving a critical mass of members and retaining them long enough to turn a profit. Grabbing share in a fragmented market littered with local, regional, and national competitors. Persuading advertisers, insurers, and strategic partners to buy into an alternative channel. Raising the money to expand nationally
THE FOUNDER
Jonathan Silver
Age: 31
Family: Single
Personal funds invested: $250,000
Equity held: 100%
Salary: $40,000
Education: B.S., the Wharton School of Business; B.A.S. in engineering, University of Pennsylvania
Other companies started: Itemz, marketer of gift and juvenile products
Last job held: Research associate at McKinsey & Co. in Chicago
FINANCIALS
Mother's Network Income Projections ($ in thousands)
1993 1994 1995 1996 1997
Cumulative members 15,000 88,000 197,000 408,000 648,000
REVENUES
Member fees $535 $2,985 $3,533 $7,044 $10,438
Workshop fees $41 $339 $1,061 $2,112 $3,940
Ad revenues $73 $1,267 $4,283 $11,565 $23,170
Total $649 $4,591 $8,877 $20,721 $37,548
EXPENSES
Membership $205 $1,059 $1,907 $3,767 $5,098
Workshops $32 $259 $554 $760 $884
Direct mail $0 $220 $920 $2,353 $4,114
Selling $282 $1,265 $2,748 $5,797 $9,473
General and administrative $384 $922 $1,540 $2,021 $2,542
