What Can Media Companies Learn from Tech Startups?

Written by Hayley Grgurich

Narrated by Lillian Rachel

Photo by Burak K from Pexels

As more publishers consider venture capital backing to spark growth, they’re wise to look to a group that’s been reaping the VC rewards—and suffering setbacks—for years.

Five years ago, it seemed like every other news story about online publishing involved the announcement of venture capital backing. Buzzfeed got a cash infusion of $46 million, Vox Media—owner of Vox, SBNation, The Verge, Eater, Polygon and others—received $80 million in backing, and Business Insider accrued $30 million in VC funds by the end of the first quarter of 2014.

The publishers were pumped. They hired aggressively, expanding their content into investigative reporting, long-form stories, audio, and video content.

So were VCs. Speaking to Quartz at the time, Eric Hippeau, managing partner at Lerer Hippeau Ventures, said, “Our general view is that news is a growth business. There are many more people who are accessing and interested in and engaging with news today than ever before, thanks to technology. So we’re bullish on content and we’re bullish on news.”

Cut To: Five Years Later

On January 23, 2019, Buzzfeed announced it would lay off 15 percent of its employees after annual returns fell short of investor expectations. On the same day, Gannett cut 400 jobs and Verizon—owners of The Huffington Post, Yahoo, and AOL—cut 800.

Little more than a week after that, Vice Media, who in 2017 received a $450 million investment from private equity firm TPG, announced 250 job cuts.

Business Insider quoted an email from Vice Media CEO Nancy Dubuc to the staff about the decision: “Having finalized the 2019 budget, our focus shifts to executing our goals and hitting our marks.”

Everyone understands the need for businesses to make money, but how much money publishers need to make varies tremendously based on the growth strategies they pursue.

In the case of Buzzfeed, the company earned more than $300 million in revenue in 2018—a full 15 percent more than the previous year—but due to its significant expansion and lofty goals stemming from the VC backing, it still wasn’t profitable.

Writing about VC funding for media companies for Columbia Journalism Review, Mathew Ingram says, “One of the bets VCs made was that digital-media companies like BuzzFeed could grow at rates similar to tech startups, and could therefore justify the same kinds of valuations, but that doesn’t appear to be the case.”

Going for Broke—and Getting There

Investing in your company is a requirement for growth, but over-investing, expanding to an unsustainable scope in the name of finding what works at the expense of your workforce as you “right size” later on, is a choice.

Unfortunately, it seems to be the choice many digital publishers are making in the race to get big enough to give Facebook and Google a run for their advertising money.

Vice Media’s decisions after receiving its major cash infusion are a perfect example. Newly bankrolled, the company opted for the manifest destiny route, expanding original video programming and OTT content (“over-the-top” services, so called because it’s streaming video offered by publishers directly to their audience through the Internet rather than through traditional broadcast channels) in a bid to own more of its audience outright.

Said then-CEO Shane Smith, “Media is probably at its most dynamic, most evolutionary time in its history. With Facebook and Google taking an ever-growing piece of the online advertising pie, looming ‘skinny bundles’ and OTT/DTC offerings exploding the media status quo — networks have to be nimble, smart and fast moving.”

Learning Lessons from Tech

Media companies are newer additions to VC portfolios, but tech startups have long been a favorite of VC firms looking to multiply their investment by backing a unicorn or getting in early with a fledgling company that will appreciate in value and result in a quick sale.

Figuring out how to finance growth to be competitive is a challenge tech startups face early and often, leading many to weigh the benefits of joining an incubator or an accelerator.

Incubators, as the name implies, offer a resource-rich workspace in which budding businesses can nurture their growth over several years. Any founder or business can join an incubator, but typically must pay for access and navigate utilizing the mentors and resources it offers on their own.

Accelerators, on the other hand, stomp the gas. Small cohorts of early-stage businesses undergo an intensive period of mentorship, education, and network building culminating in a demo day of pitching to potential investors. Accelerators are competitive and because they take a stake in the startups they sponsor, are invested in the company’s rapid success.

Osa Osarenkhoe, founder of the audio-based startup Gyst Audio, says he sees parallels in the decisions startups like his face and those media publishers are facing in assessing funding options.

“One of the benefits of joining an accelerator is the immediate appreciation in value for your company when you exit,” Osarenkhoe says. That said, high valuation leads to high expectations, and Osarenkhoe recognizes that accelerators are more interested in “moonshot” companies than those whose aspirations are more modest.

He says it’s important to know what you want your business to be. Do you want to go for a billion dollar valuation and the aggressive growth requirements that come with it, or do you want to be a lifestyle business with more modest but sustainable revenue?

A huge injection of capital can pour jet fuel on a great idea, but it could also lead to mission drift if your objective suddenly changes to chasing giant returns.

Bottom Line? Don’t Go Too Big Too Fast

Raising funds for growth isn’t inherently a bad idea. But going too big too fast can backfire. Companies that suddenly find themselves with enough capital to try more than they ever imagined can stay strategic by sticking to the mission.

But that doesn’t mean you can’t try anything new.

If you’re a digital publisher interested in expanding your content offerings to audio or video, for example, you could go all-in, hiring staff, leasing studio space and buying costly equipment—all of which you might have to cut later on if the gamble doesn’t pay off. Or, you could choose to mitigate the risk by partnering with a specialized production company already set up to do that work. If the investment doesn’t pay off as you’d hoped, you’re in a better position to adjust.

You could also follow New York magazine’s lead and take a different tack; instead of expanding into new content types, it’s diversifying its offerings with an e-commerce site called “The Strategist”.

The site acts as a collection of product endorsements from the magazine’s editors and interviewees. It works because it aligns with an existing feature of the magazine—namely shopping recommendations—but breaks it out into a new hub, leveraging the voice and influence of the magazine as a whole for audience trust and traffic. When readers click through to product pages from “The Strategist”, New York gets a cut.

By keeping sight of your mission, weighing potential investments against that mission, and pursuing capital that’s commensurate with what you believe your business can realistically achieve, you’ll be on track to grow in a direction that serves you and your business.