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The skinny on e-zine ads; a lopsided partnership proposal.
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Q I'm a media consultant for companies in the pet industry and some of my clients have expressed interest in e-zine advertisements. Are e-zines just a fad, or should I try them out?

Christopher Ian Bennett
Chief Strategist
New School Media
Vancouver, British Columbia

E-zines, for the uninitiated, are magazines published regularly via e-mail. "This is not a fad," declares Marty Anderson, a senior lecturer at Babson College who helps businesses market to online communities. Unlike banner ads and other broad-brush vehicles, e-zines shoot straight to the hearts of folks who are passionate about subjects ranging from building model ships to baking bread to spotting haunted houses. Like-minded advertisers, consequently, can reach the narrowest of self-selecting audiences. "These are truly interested people," Anderson says. "These communities police themselves."

As a result, e-zine ads may be the most cost-effective way to target key demographic groups. But the landscape is confusing: There are hundreds of e-zines out there, and rates vary wildly depending on subscription base and cachet. Many charge a flat rate based on the number of people who receive the e-mails, which makes life pleasingly predictable for companies on fixed budgets. Fashion-centric DailyCandy (See How I Did It, February 2004), a six-year-old e-zine that produces 11 city-specific editions and four national editions for 2.2 million subscribers, is the In Style of the bunch. The business wants roughly $100,000 for a one-time ad in a dedicated weekly e-mail to 340,000 New York City subscribers. By contrast, $1,000 crowns you sole advertiser of the day on Bowzer.biz, a daily e-zine with more than 10,000 canine-canoodling subscribers. Bowzer also sells smaller ads for as little as $250.

But be careful--e-zines vary in quality as much as in size. Those with more advertisements than editorial content are often little better than thinly disguised spam. Publications that won't let you sample the goods without subscribing or that lack distinct Web addresses also deserve the hairy eyeball. The better e-zines go out only to subscribers, whether or not the subscriptions are free. In addition, because they place a high premium on original content, they usually employ dedicated teams of writers and editors. "We're much more like a magazine than a website because of the execution, the delivery, and our editorial content," says Pete Sheinbaum, DailyCandy's CEO. And as fashion pundits know, you can never be too niche or too thin.

Partnerships

Q I'd like to start a clothing store for snowboarders. My potential partners, who own another retail shop, want me to pay the entire start-up cost ($250,000) in exchange for a 30 percent stake. Is this fair?

Sean Gilligan
Network Ninety
Denver

Trying to put a dollar value on a new venture is like rocketing down a black diamond trail with no bindings: It's full of uncertainty. Typically, partners must weigh a host of unknowns, including cloudy sales prospects and untested managers. The good news is your question doesn't fall into one of those gray areas. You're getting screwed.

The offer of 30 percent equity for your $250,000 investment assumes that the entire company is worth $833,333 and that your partners' noncash contribution--relationships with suppliers, a point-of-sale system, and expertise--is worth $583,333. That's way too high, says James Dion, a Chicago-based retail consultant. "Sober up," he says. "You can do it on your own." Dion estimates you'll need to spend $20,000 for a point-of-sale system and $10,000 for a consultant who can help with the business plan. Chicken feed it ain't, but it's a lot closer to chicken feed than what your partners are effectively charging for the same services.

Existing supplier relationships probably have some value, but it's hard to say how much. To know a retailer isn't necessarily to love a retailer, points out Matthew Curtis, co-founder of Cadillac Mountain Sports, a chain of eight sporting goods stores based in Bar Harbor, Maine. Suppliers care less about whose shoe is in the door than about your store's location, how you display their goods, and whether you pay on time. (Since you're just starting out, that probably means cash on delivery.) Curtis recommends hitting the trade shows and trying to woo a few top brands. "If you can convince two or three of the very best, then the dominoes start to fall," he says.

Numbers aside, ask yourself what you want from this deal. Do you want to be the company owner or a store manager? By ceding 70 percent of the business at the get-go you've made yourself the latter. If you're okay with that, demand that your partners put up all the cash and give you 30 percent in sweat equity. Or agree on a consulting arrangement: You put up all the cash and keep all the equity but pay the other retailer 2 or 3 percent of gross sales over five years with an option to renew.

Even if your partners agree to better terms, are you sure you want to work with these guys? They may be savvy businesspeople, but your best interests don't seem to be one of their priorities.

Resources

To learn more about how online communities can benefit your business, read Linked: The New Science of Networks by Albert László-Barabási. For news and discussion boards related to running retail stores, go to RetailWire online.

Looking for answers? Stumped by a thorny business problem? Let Inc. help. Send your questions to askinc@inc.com.

Partnerships

Q I'd like to start a clothing store for snowboarders. My potential partners, who own another retail shop, want me to pay the entire start-up cost ($250,000) in exchange for a 30 percent stake. Is this fair?

Sean Gilligan
Network Ninety
Denver

Trying to put a dollar value on a new venture is like rocketing down a black diamond trail with no bindings: It's full of uncertainty. Typically, partners must weigh a host of unknowns, including cloudy sales prospects and untested managers. The good news is your question doesn't fall into one of those gray areas. You're getting screwed.

The offer of 30 percent equity for your $250,000 investment assumes that the entire company is worth $833,333 and that your partners' noncash contribution--relationships with suppliers, a point-of-sale system, and expertise--is worth $583,333. That's way too high, says James Dion, a Chicago-based retail consultant. "Sober up," he says. "You can do it on your own." Dion estimates you'll need to spend $20,000 for a point-of-sale system and $10,000 for a consultant who can help with the business plan. Chicken feed it ain't, but it's a lot closer to chicken feed than what your partners are effectively charging for the same services.

Existing supplier relationships probably have some value, but it's hard to say how much. To know a retailer isn't necessarily to love a retailer, points out Matthew Curtis, co-founder of Cadillac Mountain Sports, a chain of eight sporting goods stores based in Bar Harbor, Maine. Suppliers care less about whose shoe is in the door than about your store's location, how you display their goods, and whether you pay on time. (Since you're just starting out, that probably means cash on delivery.) Curtis recommends hitting the trade shows and trying to woo a few top brands. "If you can convince two or three of the very best, then the dominoes start to fall," he says.

Numbers aside, ask yourself what you want from this deal. Do you want to be the company owner or a store manager? By ceding 70 percent of the business at the get-go you've made yourself the latter. If you're okay with that, demand that your partners put up all the cash and give you 30 percent in sweat equity. Or agree on a consulting arrangement: You put up all the cash and keep all the equity but pay the other retailer 2 or 3 percent of gross sales over five years with an option to renew.

Even if your partners agree to better terms, are you sure you want to work with these guys? They may be savvy businesspeople, but your best interests don't seem to be one of their priorities.

Resources

To learn more about how online communities can benefit your business, read Linked: The New Science of Networks by Albert László-Barabási. For news and discussion boards related to running retail stores, go to RetailWire online.

Looking for answers? Stumped by a thorny business problem? Let Inc. help. Send your questions to askinc@inc.com.




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