How secure is your new media money?

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A funny thing happens when there’s excess liquidity in a financial market, as has been the cases in the past 6 years due to housing. First, a quick primer. Liquidity is any asset that can be converted to cash quickly and with minimal loss of value. A blue chip stock – like Coca Cola – is a good example of a liquid asset. Barring a complete collapse of the stock market, you can sell your Coca Cola stock relatively quickly with minimal friction. If you had a doctor’s bill you had to pay, you could sell your Coke stock today and have cash to pay with tomorrow.

An illiquid asset is something like a house – you can’t really trade it quickly or easily. It’d take weeks, if not months, to sell that house and get the proceeds to pay off a doctor’s bill.

Excess liquidity is when there are too many dollars chasing too few goods or services. A nation’s central bank can print more money, and when they do, those dollars have to go somewhere. The same is true on Wall Street for investors. A sudden influx of money means they have all this extra money to play with and nowhere to invest it. This creates great investment opportunities, but it also creates a bubble that will eventually burst.

Enter new media. Investors looking for the Next Big Thing have been dumping tons of money into new media companies. Podshow, for example, received 8.8 million in round 1 of its financing and15 million in round 2. Plenty of other companies and web properties have been funded partly through all the play money generated by the excess liquidity on the market.

The market, however, is being called. People are cashing out and it’s causing both a liquidity squeeze and a credit crunch – loans at absurdly low interest rates aren’t available any more, investors aren’t buying portfolios where the value is just a guess, and available cash to play with is going away fast.

What does this mean for you? If you’re working at or running any kind of new media or Web 2.0 company – or a company that relies on them for cash flow – it’s time to bootstrap. Forget VC money, forget private equity, dismiss thoughts of being bought out and everyone getting a fat chunk of investor proceeds, and get down to business. Get cash positive, nuke your debt, and build the business. Not only does your survival depend on it, but so does new media’s.

If you’re a member or a part of a new media company, for example a podcaster at a podcasting network (pick any one), you’d better have a Plan B. Make sure you have archived copies of all your shows on a few data DVDs or an external hard drive. Back up your blog, show notes, and site. Make sure you have copies of everything, including emails, because Plan B assumes that one day, you’ll go to upload your show or edit your blog and there will be a big 404 there – and nothing else.

I’m not saying it’s going to happen like that, but for a couple hours’ work, it doesn’t hurt to plan for it. Anything less than that and you’ll feel smugly overprepared.

What are YOUR plans for Bubble 2.0’s bursting?


Comments

15 responses to “How secure is your new media money?”

  1. I was thinking just last night that I would rather pay a service to host my podcast media files than completely rely on a free service for this exact reason. What happens if they can’t pay the bills and have to turn out the lights? And as we saw less than 10 years ago that can happen.

    At times during the process with RawVoice I’ve felt like we were less fortunate not to have the VC money. Of late I have reversed that belief. We don’t have the pressure from a board. And we don’t have to worry about being liquidated when investors want their money back. We also can build this thing right. Might even be a good idea to change our logo from a carrot to a tortoise.

  2. I always tell other entrepreneurs, always bootstrap if and when you can. If you ever want to raise money, then do it when you are in a stronger position. Its much easier to raise money when you have a business thats proven, is cash flow positive and ideally profitable.

    If you can pull that off on your own, you’ve already told the investment community you are on the right track. Generally, at this stage you would only be taking money on to advance or speed your growth.

    Great post – and yes, watch that bubble and bootstrap it!

  3. Chris I hate to say but I terribly disagree. Being a displaced real estate agent from the Boston housing market decline I don’t feel the signs are at all close to a bubble bursting. Now selling advertising for SLNN – you wouldn’t believe the diversity of interest we’re getting from companies to advertise with us.

    Yes I agree there is an influx of activity in the New Media commercialism, but that happens with anything new and trendy. There may soon be a slight correction to weed out the men from the boys from the quality service angle. But this is merely natural selection.

    The age of radio, tv, and print media is coming to an end – New Media isn’t a bubble but more evolution. Compared to the assets still being poured into those past traditional methods we are very far from the bloat the housing and stock market hit.
    Just my two cents.
    ~Carlie

  4. I’ve always been of the mindset that bootstrapping is the way to go. We’ve done so from day one with our new media company, and don’t want VC because (a) we don’t want someone else telling us how to do things; and (b) we don’t owe anyone anything, aside from our small credit card debt. In fact, we will be in the black and completely cash flow positive in about a month. The beginning is harder this way, but it is much easier to sustain financial and/or market shocks. Fast easy money always comes with a lot of strings.

  5. I was thinking just last night that I would rather pay a service to host my podcast media files than completely rely on a free service for this exact reason. What happens if they can’t pay the bills and have to turn out the lights? And as we saw less than 10 years ago that can happen.

    At times during the process with RawVoice I’ve felt like we were less fortunate not to have the VC money. Of late I have reversed that belief. We don’t have the pressure from a board. And we don’t have to worry about being liquidated when investors want their money back. We also can build this thing right. Might even be a good idea to change our logo from a carrot to a tortoise.

  6. I always tell other entrepreneurs, always bootstrap if and when you can. If you ever want to raise money, then do it when you are in a stronger position. Its much easier to raise money when you have a business thats proven, is cash flow positive and ideally profitable.

    If you can pull that off on your own, you’ve already told the investment community you are on the right track. Generally, at this stage you would only be taking money on to advance or speed your growth.

    Great post – and yes, watch that bubble and bootstrap it!

  7. Chris I hate to say but I terribly disagree. Being a displaced real estate agent from the Boston housing market decline I don’t feel the signs are at all close to a bubble bursting. Now selling advertising for SLNN – you wouldn’t believe the diversity of interest we’re getting from companies to advertise with us.

    Yes I agree there is an influx of activity in the New Media commercialism, but that happens with anything new and trendy. There may soon be a slight correction to weed out the men from the boys from the quality service angle. But this is merely natural selection.

    The age of radio, tv, and print media is coming to an end – New Media isn’t a bubble but more evolution. Compared to the assets still being poured into those past traditional methods we are very far from the bloat the housing and stock market hit.
    Just my two cents.
    ~Carlie

  8. I’ve always been of the mindset that bootstrapping is the way to go. We’ve done so from day one with our new media company, and don’t want VC because (a) we don’t want someone else telling us how to do things; and (b) we don’t owe anyone anything, aside from our small credit card debt. In fact, we will be in the black and completely cash flow positive in about a month. The beginning is harder this way, but it is much easier to sustain financial and/or market shocks. Fast easy money always comes with a lot of strings.

  9. I’m always advocating one thing above all else: Actually create something worth talking about. Economic tides will rise and fall, but if your product is of superior quality, you’ll rise to the top when the competition is stiffer.

    At least, that’s what I’m hoping.

  10. I’m always advocating one thing above all else: Actually create something worth talking about. Economic tides will rise and fall, but if your product is of superior quality, you’ll rise to the top when the competition is stiffer.

    At least, that’s what I’m hoping.

  11. This is great advice. A business must focus first on producing value to society, and only then on its credit raising prospects.

    Without that focus, many companies lose sight of the reason they got into business in the first place. They had an idea, and then let it get diluted by other voices – VC’s who have an exit strategy and ideas of their own, and bankers who focus on financials instead of how well the business is doing in its chosen niche.

    Maybe the cash crunch is a blessing in disguise — it makes us get back to basics.

  12. This is great advice. A business must focus first on producing value to society, and only then on its credit raising prospects.

    Without that focus, many companies lose sight of the reason they got into business in the first place. They had an idea, and then let it get diluted by other voices – VC’s who have an exit strategy and ideas of their own, and bankers who focus on financials instead of how well the business is doing in its chosen niche.

    Maybe the cash crunch is a blessing in disguise — it makes us get back to basics.

  13. It’s sad to say, but you have a valuable point here. As someone who is launching a project right now I’m focusing on making things run as smoothly as possible and controlling the flow of traffic into the project. If I’m too positive on the growth side and don’t control it, I could easily exceed budget and not have cash accessible… I suppose control will have to be the key word until the market rebounds.

  14. It’s sad to say, but you have a valuable point here. As someone who is launching a project right now I’m focusing on making things run as smoothly as possible and controlling the flow of traffic into the project. If I’m too positive on the growth side and don’t control it, I could easily exceed budget and not have cash accessible… I suppose control will have to be the key word until the market rebounds.

  15. Usually when there is an excess of liquidity people prefer to invest it to generate more profits and what better way to immediately see the results of your investments than investing in stock markets? I know I would do that, I see mani business perspectves in stock markets.
    http://www.onecfd.com/web/guest/OneFinancial

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