Inc. and Fast Company on the Block

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Two magazines with a focus on entrepreneurship, Inc. and Fast Company, are on the selling block and five bidders are offering between $40-50 million to buy them from their current owner G+J USA Publishing. reports that this is definitely a fire sale. “G+J in 2000 acquired Bernard Goldhirsch’s Inc. for $200 million and Mort Zuckerman’s Fast Company for $350 million.” That’s right — they are being sold for less than 10 cents on the dollar of the original purchase price paid five years ago.
Entrepreneurship magazines have been a tough business. The old Venture magazine, one of my favorites, died a quiet death several years ago.
BusinessPundit has been keeping us up to date on the progress of this sale over the past few months. I agree with Rob that this is an opportunity to help get Fast Company “back the way it used to be.”
I have been a reader of Inc. for over twenty years. I would hate to see the incredible archives of this magazine get lost in this transaction. The search engine on its website is a treasure chest of ideas and information for business owners. I would not be surprised to see the search engine, which is now a free resource, become tied to subscriptions under a new owner like so many other magazines and newspapers are doing.
I have been frustrated by Inc’s editorial slant the past several years, finding it is often indistinguishable from the mainstream media on many topics. When reading about the economy or public policy issues it has sounded more like the New York Times than a magazine geared toward the foot soldiers of free enterprise.
Wouldn’t it be wonderful for one of these magazines to become a real advocate for entrepreneurs and small business? Keep the small business tips, but add consistent coverage of issues from a small business perspective, including taxes, regulation, and government policy.

Dance Band on the Titanic

Our economy is in a transition the likes of which we have not seen since the late 1800s. During that time, the businesses that dominated our economy throughout the 20th century were created and grew to dominance. Virtually all of these businesses were formed by the leading entrepreneurs of that age. Over the past twenty years the Fortune 500 companies have had a net job loss, while almost 80% of all new jobs were being created by small businesses. New business formation has exploded from about 200,000 new businesses a year in the mid-twentieth century to over 3 million new business a year in the early 21st century.
We are entering a new period of potentially major entrepreneurial economic growth. If we don’t get it right from a public policy stand point, this country will be in serious trouble within the next twenty years as entrepreneurial activity may not reach the levels we need to move the economy into its next period of long-term growth. The old base of our economy is well into its decline and cannot carry us forward.
Our future is being developed by a new generation of entrepreneurs. Not many will create companies that rival the old Fortune 500 in size, but that may not be necessary. Large public companies are not the only basis of growing an economy, and in fact, we may see a greater dominance of privately held businesses that create the foundation of the new economy. Wealth may be more broadly controlled. But unless we drastically change our approach to economic policy, the future may not be as vibrant and successful as the past 100 years.
Michael Barone has a column this week in US News and World Report that captures the negative fall-out of this transition:
“For much of the 20th century, Americans sought security in the form of guarantees from large organizations. The federal government would provide Social Security benefits for workers and their dependents. Large corporations would provide defined-benefit pension plans promising specific payments to retired employees. The assumption was that experts at the top of these big organizations could use scientifically obtained knowledge to take better care of us than we could take care of ourselves.”
The old system is failing. Defined benefits pension plans and Social Security that were both set up by the iron triangle of large public companies, large labor unions, and a big federal government will not be sustainable into the 21st century. Demographic changes are making this failure even more dramatic and more sudden as the average life span has increased to about 80 years in America. The old system was set up when the average worker lived only two years beyond retirement.
These are perilous times. The current political movement of this country is headed toward a form of socialism that is based on the duplicitous iron triangle of old 20th century big businesses, large labor unions and an ever growing federal government. The Democrats want to take us there on a dead sprint, while the Republicans are content moving in that direction at more of a gentle stroll. But they are both taking us in the same direction.
This is not a direction that will sustain a transition to a new entrepreneurial economic age. The old way has created a cozy system in which large public companies, large unions and federal government work together to shape fundamental economic policy.
If the current entrepreneurial transition is to succeed, just as the last one did over 100 years ago, we need to free up the economy from policies that set market priorities and protect favored businesses and industries. But, the current system is highly entrenched politically and culturally. It has created a complex tax system designed to favor those with power. It has created regulations that favor the status quo and stymies entrepreneurs. It knows how to use the media to scare the public about any possible changes to the old system.
The public is really not aware of these issues, and that is how those in power like it. The current debate is over how to rearrange the chairs on the deck of the Titanic. But few realize that our economic ship is in peril. In the words of the late Harry Chapin:
“Dance band on the Titanic. Sing nearer my God to thee. The iceberg’s on the starboard bow, won’t you dance with me.”

Even Gates is Paying Attention to Small Business

Fortune Small Business has a story about Microsoft hiring anthropologists to study small businesses. Why? It seems that they finally noticed that this where the growth is in our economy. Fortune 500 companies are relatively flat in their growth, while entrepreneurs continue to add jobs and spend on the capital needs of their firms, including hardware and software.
“Their fieldwork is far removed from the popular perception of the anthropologist as lantern-jawed adventurer in baggy shorts and pith helmet, canoeing up the Amazon in search of the proverbial lost tribe. But there is a certain correspondence between Microsoft’s research agenda and the work of those old-time anthropologists, many of whom were funded by colonial governments that needed to understand their native subjects in order to rule them more effectively. The modern version of this knowledge-power dynamic is Microsoft, a multinational technology colossus that hires anthropologists who study the natives in order to sell them more software.”
Be careful Bill Gates–I hear the natives are restless!

Even Declining Markets Contain Niches

Having been in the mental health industry for many years (and in business with two trained psychoanalysts), I was intrigued by this example at StartupJournal of a furniture maker finding a niche within the market of traditional psychoanalysis, which has seen significant decline since the advent of managed care. It seems that even though there are not as many analysts as there used to be, they still need couches. Entrepreneurs seem to find opportunity everywhere and anywhere!
As the old joke goes:
When the entrepreneur was a young lad growing up on the family farm, he had asked Santa for a pony one Christmas. After all the presents were opened that Christmas morning–no pony! I little while later his parents spotted him in the back yard digging in a large pile of manure.
His parents shouted, “What are you doing out there??!!”
The future entrepreneur looked up, smiled, and replied, “I just know if I dig deep enough there is a pony in here somewhere!!”

VCs and Angels Share Negative Opinions About Each Other

When you talk to angels about venture capitalists and venture capitalists about angels you can sense a certain uneasiness about their relationships with each other. Both need each other, but they have a very different way of doing business and often very different expectations from a deal.
National Dialogue on Entrepreneurship has a link to a paper that looks at the relationship between VCs and Angels. Interestingly, both respond that they have had a negative experience with the other at a rate of 58%. This is an important finding since they tend to overlap on so many deals these days. Entrepreneurs need to understand that while they may have both angels and VCs in their deal, they are likely not going to be on the same page on every issue that comes along. Through in a banker and it can get really confusing. The entrepreneur can end up trying to mediate between several differing perspectives, while at the same time needing to please all of them.

Venture Capital Fundraising Softens in US

Red Herring reports that venture capital fundraising is down 44% in the US, but up in Europe. While this may sound alarming, VC activity in the US is down for a couple of reasons.
First, Sarbanes-Oxley has put a wet blanket on public offerings and this is having an impact on venture capital financing. VCs need exit options, and IPOs have slowed way down due to the reporting requirements imposed by Sarbanes-Oxley and the costs that they create for public companies (over $500,000 a year in additional accounting costs for even small public firms). Valuations of VC funded deals in the US are up. The market has become more selective in its investments, which is a positive long-term trend.
Second, there is already a large surplus of liquid assets in US venture capital firms, so there is a reluctance to pour in more money right now. It is also important to keep in mind that the US still raises over three times as much as Europe, even with the drop in US fundraising.