Startup Mode: You’ve got to spend money to make money

This past Sunday the New York Times wrote a long business profile on Si Newhouse, the 80-year-old head of Condé Nast.

One thing I want to draw attention to is Newhouse’s (successful) attitude towards money in business:

Even so, spending money to make money, and focusing on premium products to attract readers and advertisers, has clearly worked for more than a decade, though its margins are thin compared with those of its competitors. Condé executives say it generates close to $5 billion in revenue, has operating margins of around 10 percent and profits of about half that.

Critics will quickly point out that Condé’s margins are “thin compared with those of its competitors.”

That’s true, and it will remain true as long as magazines are in a stable market. Because most magazines are niche-oriented and their content is less time sensitive, they haven’t yet suffered the same way that newspapers have.

When the market does begin to shift, the Condé Nast strategy is going to work a lot better than that of their competitors.

For example, NewsCorp is doing considerably better than its competitors because Rupert Murdoch is not afraid to spend money to make money.

In a shifting market, companies need to be willing to make changes and invest. Newspapers need to act like startup companies, and newspaper parent companies need to be dedicating new resources to their papers, not pulling things out.

Newspapers need to explore the new market while they can. Look for ways to take advantage of their position in the old market. Otherwise they’ll be outpaced and outgunned by new players (think craigslist) who are willing to take risks and make investments—in both people and technology—in order to see new returns.

The old model is gone. Once a newspaper accepts that, the only two choices are to die slowly or find a new one.

If your ship has sprung a leak, you don’t waste time throwing crew members overboard. You need your crew to go find the leak and patch it.