Putting Stock in Dr. Spock
60-second business plan
THE PITCH: Douglas Lee believes he's got a billion-dollar baby doctor on his hands. The M.D.? The late child-care expert and superselling author Benjamin Spock. Lee, a former managing director of a health-care venture-capital fund, now holds the rights to the esteemed doctor's child-rearing bible and a vast store of other Spock works. And he's betting he can leverage Spock's name into a big-time multimedia brand.
The brainstorm struck Lee in summer 1999, when John Buckley, Lee's friend and soon-to-be business partner, got wind that Spock's widow was fielding offers for the intellectual-property rights to her husband's work. Buckley asked Lee if he wanted to invest, and the pair started surveying ways to capitalize on Spock's renown. They raised $14 million and in early 2000 bought up the rights to Spock's classic, The Common Sense Book of Baby and Child Care, and to the rest of Spock's articles, essays, and books. "We have the largest collection of parenting information in the marketplace," boasts Lee, CEO of the 22-month-old Dr. Spock Co., based in Menlo Park, Calif.
Lee has big plans for repackaging and repurposing Spock's work. First off, there's traditional book publishing. The 25-employee company has already teamed up with Simon & Schuster to publish three new books, including Dr. Spock's the First Two Years and Dr. Spock's the School Years. It has also launched its own Web site, Drspock.com, and it's been busy brokering partnerships with the likes of America Online and the Discovery Channel to syndicate a wide range of Spock-related content.
And that's just for starters. Lee plans to pursue custom-publishing deals to produce pamphlets about various childhood diseases for pharmaceutical-industry sales forces. He also hopes to offer custom-marketing packages for consumer products, whereby the company would create small bits of advice for, say, orange-juice cartons or cereal boxes for a fee. And down the road Lee sees big revenue potential in selling subscriptions for Dr. Spock content to health maintenance organizations and Fortune 500 human- resources departments for use on their Web sites and in their newsletters.
Of course, other entrepreneurs haven't had much success building an information business around an eminent M.D. (Think Drkoop.com, whose stock was recently trading at 9¬Ę, down from a 1999 high of $46 a share.) But Lee, who's projecting $4.5 million in revenues for 2001, remains confident. He contends the company could be profitable right now if it chose to simply sell books. But that would be a big waste of assets, he says. By building on a name that millions of parents trust, he's convinced that he can create a billion-dollar company, √ la branding maven Martha Stewart. "There's never been a category killer like this, ever," says Lee. His advice: "Don't underestimate the power of Spock."
The Quick Once-Over
Formal Projections for 2001*: $4.5 million in revenues (primarily from book sales and Web-site advertising); $5.1 million net loss
2002*: $10 million in revenues; $3.6 million net loss
2003*: $18 million in revenues; $200,000 net profit
Capital Raised: $14 million, including $12 million in institutional backing from Zesiger Capital Group and CNC Partners and $2 million from individuals
Biggest Expense: Acquisition of intellectual property of Dr. Benjamin Spock. (Lee declines to say how much the company paid.)
2001 Expenses: $9.6 million (content database, sales force, executive staff, and distribution costs)
*Based on numbers provided in the company's business plan. The Dr. Spock Co. now contends that it will break even in 2002 owing to lower-than-anticipated operating costs.
The Weigh-in: Our Expert Panel Rates the Plan
Breakthrough or Bad Medicine?
WHO: David Shore, associate dean and faculty member at Harvard University, where he teaches the course "Strategic Marketing: Gaining Competitive Advantage Through Positioning and Branding"
RATING: 7 (on a scale of 1 to 10, with 10 being the highest)
"They have enormous equity in the purchase of the Dr. Spock name. Most people are aware of Dr. Spock, and brands that elicit such awareness have a distinct competitive advantage because, when making decisions, consumers automatically place those brands on their shortlist of buying options. In health care, especially, consumers want products and services that are comfortable and familiar to them, and in terms of business customers, no one ever got fired for selecting a power brand. But they still have to assess how the marketplace perceives that brand. Does the market know Dr. Spock like it did a generation ago? Is the equity of the brand lessening in light of all the immigration and population changes we've seen?"
WHO: Joan P. Neuscheler, principal at Tullis-Dickerson & Co., a venture-capital firm in Greenwich, Conn., and board member of AmericasDoctor, which (among other things) offers a health-information Web site for consumers
"I think they have strong management and a good board of directors -- and that's usually the first place I look for flaws. They have a strong brand, and they certainly have the content covered. They also seem to have strong deals in place, with AOL and some others. But the financial terms and conditions of those deals are not in the business plan. And that's a big omission. I know many so-called anchor tenants on AOL who pay for placement on the AOL home page. Are they getting paid or paying? Because they don't mention anything, I'm inclined to suspect it's the latter. This may seem like a little thing. But it's extremely important in terms of knowing whether the Dr. Spock Co. has any real value to such big-name partners."
WHO: Scott Davis, managing partner at Prophet, an international branding consultancy based in San Francisco, and author of Brand Asset Management: Driving Profitable Growth Through Your Brands
"First off, most companies would die to be able to start with a brand as powerful as Dr. Spock. Many companies have the elements of a big business but no brand. This company has the brand -- now they just have to figure out how to leverage it. Second, I applaud their mix of revenue sources. It's healthy in today's climate to have diversified offerings, as long as they are all connected back to the brand's promises and stay true to the essence of what the brand stands for. But therein lies an issue. Most generations connect Spock to child raising, not to teen years. They're making a major assumption that they'll be able to extend the brand to advice about older children. Moreover, in that space you already have Parents, Parenting, and Child magazines and their Web sites. The Dr. Spock Co. says that the competition is mostly 'unbranded, vertical players with a single platform focus.' But that's fallacious."
WHO: Josh Fisher, health-care analyst in the San Francisco offices of Dresdner RCM Global Investors, an investment bank. Fisher previously worked for WR Hambrecht, where he followed Drkoop.com and other early-stage E-health-care companies
"Spock is certainly a great name. But can they make any money off of that? With all the child information on the Internet that's free, it might be very difficult. I would tell them -- especially in this type of market -- that they ought to go lean, tighten their belts, and try to get to cash-flow positive. In other words, get an established revenue model. These types of business plans were exciting in 1999 when they got funded. But it's a different market now."
The Best of Chimes
60-Second Business Plan
Putting Stock in Dr. Spock
Business for Sale
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