The Business Rusch: Writers, Venture Capitalists, & Barnum. Oh, My.
The Business Rusch: Writers, Venture Capitalists, & Barnum. Oh, My.
Kristine Kathryn Rusch
I have a magpie brain. I pluck information from various sources, store it in some nest in a back corner of my mind, and pull out the necessary pieces when the time comes. Last December, I did a lot of driving for the estate stuff, which meant I did a lot of listening to radio news, because I never plan to drive, so I never have an audio book handy.
I heard an interview on All Things Considered with Nick Hanauer, one of the venture capitalists who was one of the first big investors in Amazon. The interview, like so many recently with extremely wealthy individuals, was political—talking about taxes, tax cuts, job creation, and the politics of all that.
Note: This blog is not political, and if you try to have a political discussion here based on the following links, your comment won’t get through. Got that? We’re talking writing here.
But in that morass of political opinion, something Hanauer said struck me so hard that it went deep into the magpie brain and I remembered it for nearly two months damn near verbatim.
So I’ll excerpt the NPR transcript. If you want to read the whole thing, click the link.
Hanauer “says business people spend their time fundamentally on two things: creating sales and cost containment. Or, as he puts it, ‘how to not create jobs.’
“‘The fewer jobs you can create, for the revenue you create, the more profit you make,’ Hanauer says. ‘The only time that businesses create jobs is when middle-class consumers essentially put a gun to our heads, in the form of orders for products that we can’t make ourselves, and then we hire people and create jobs.’”
Hanauer isn’t the only venture capitalist to say such things on NPR. As I searched for Hanauer’s quote, I also found this one from the much more conservative Bill Frezza, another venture capitalist and a fellow at the Competitive Enterprise institute (which I have never heard of and therefore do not endorse).
He said, “People run businesses because they want to satisfy their customers, they want to grow, and they want to make money. Jobs are an input. Rent is an input. The raw materials are an input. Those are the things you put into your products and services, and your goal is to have the highest quality at the lowest cost.”
He added, “Even though we are in the business of creating new companies, as venture capitalist, you know, the first question we ask in every board meeting is, what’s your head count? And we watch it like a hawk because head count is an expense that will eat you alive if the business isn’t large enough to support it.”
Got that? And you’re thinking, Why is she telling me that? Dammit, Jim, I’m a writer, not a venture capitalist.
Ah, yes, but if you’ve been reading this blog, then you realize that writers aren’t just artists. They are also small business owners.
They are small business owners who, for the most part, never learn how to run a business. Once they finish a manuscript, they ask someone what to do next, and rarely is the advice they’re given good advice.
Get an agent to market your work. How many times have you heard that myth? Well, here’s what it means, in business terms.
Hire someone. Notice that the writer hasn’t even made a dime yet, and they already have someone on the payroll.
But, you writers sputter, I don’t have to pay them up front. Only if they sell something.
Yep, and then you pay them even after you fire them, often for the life of the book’s copyright, especially if you’ve been signing some of the agency agreements I’ve seen. So not only are you hiring someone, but you’re hiring them for your life plus 70 years at 15% of all the profit.
Wow. That’s some gig. No wonder agents tell writers the first one is free.
But let’s not pick on traditional writers with agents here. I went the agent route in the beginning—although not before I’d sold anything. I’d made my living at writing for nearly a decade, and I still swallowed that myth. (Plus I hired “one of the best agents in the business” who also happened to be one of the best embezzlers in the business. Good job, Kris.)
Let’s talk about writers who want to go the indie publishing route. The first thing I hear from most writers is that they’re too busy to learn this stuff, so who can they hire to do it for them?
Again, hiring someone before the first check gets cashed.
Now let’s look at our venture capitalists. Both talk about expenses and inputs and cost containment. They talk about keeping a business in the black, about making sure the expenses don’t overwhelm the income. They do cost analysis, then they redo it, and then, each time the price of a good or a service goes up, they do it again.
Frezza said, “Your goal is to have the highest quality at the lowest cost.”
Hanauer said, “The fewer jobs you can create, for the revenue you create, the more profit you make.”
And here come writers—too artistic, too creative, to get their hands (or their brains) dirty with this new technology—hiring someone to design a cover for a percentage of the profits, hiring someone to format and upload the book for a percentage of the profits, hiring someone to design the materials for the percentage of the profits.
All of those percentages are upfront, by the way, so by the time the remainder of the profits get to the writer, there are no profits. And gosh, the writers wonder, how do other writers make money?
And then let’s talk about the successful indie writers who made tens of thousands if not millions e-publishing their books. But, those writers said, my books weren’t in real bookstores. My books can’t get to real readers on real bestseller lists. My books aren’t properly edited or properly marketed. (If you want to see what traditional publishing thinks proper marketing is, look at last week’s blog.)
These successful indie writers then hire an agent (cringe) at 15% of the potential profits, and then that agent “sells” the book to traditional publishing for six- or seven-figures up front. (Although “up front” means the payout comes in six payments over three years, decreasing the amount actually paid significantly.)
At a loss of 70-85-90% of the revenue from that book, the successful indie writer has just “hired” someone to take care of all the problems that she had with her self-published product.
That’s not how business people do it, folks. Business people always look for the best way to do something at the lowest cost. (And no, we are not going to discuss the bad behavior of megacorporations in this area on this blog, just like we’re not going to discuss politics, because that way lies madness—and again, I will not post your comment at all if you even try.) Think only of small businesses.
People who own a small business, people who run successful small businesses, begin by doing everything themselves. This is what caught in my brain when I heard the Hanauer interview. This quote:
“The only time that businesses create jobs is when middle-class consumers essentially put a gun to our heads, in the form of orders for products that we can’t make ourselves, and then we hire people and create jobs.”
Now the “can’t make ourselves” here doesn’t mean that the business owner lacks the skill to do the job. Chances are, that small business owner knows how to do everything from putting up a picture on the wall to doing the bookkeeping. But eventually, “can’t” becomes “does not have time to” or “there are too many damn orders to fill and no way one person can do everything and still eat, sleep, and say hello to the spouse.”
Does this happen to writers? Sure. I know. You may not be visual, so you don’t trust yourself to design a cover. You are dyslexic like me, so spelling is challenging at best and copyediting damn near impossible. What to do?
Not hire someone for the life of the project. Hire someone on a flat-fee basis. A contained cost. A one-time expense. As a friend of mine said the other day, it’s nice to have a child who can draw. Or another friend said to me last week, it’s great to have an anal relative who always finds the mistakes in a book. Pay that person a bit—or take it in trade—to help with one book.
If you need to pay someone professional, use a flat fee service, like Lucky Bat Books and the other flat-fee providers that have come along. Or go to a trade-for-services site. Someone can design your cover for you while you copy edit for them.
The key here is learn this new business.
Or learn the old business. Agents don’t market books. They never did. And they’ve become crappy at negotiating contracts or making deals. Hire an attorney for that. For an hourly fee on a one-time job. With an up-front estimate of how many hours it will take.
Agents are now in the business of growing their agencies. And that often means they have to do shady things like start an e-publishing arm. Recently the Association of Authors Representatives called it a conflict of interest to have agents also e-publish their clients work. Duh. We’ve been discussing that on this blog for more than a year.
So what happens this week? A bunch of agencies—big ones—hire yet another e-publishing upstart filled with Big Names to do the e-publishing for them as a theoretical wall between the agency and the client. The agency will just “recommend” the client go to the e-publishing upstart. God knows how the profit sharing works between that e-publishing upstart and the agency that recommended it. That will be for courts to decide five to ten years from now.
Why are the agencies doing this? For the same reason that agents tell successful indie writers that they should stop worrying their pretty little heads about all of this publishing stuff and leave it to the grownups—er, the professionals. That reason is: 15% of the profits for the life of the copyright of that book. Who does that benefit? Not the indie writer who had the smarts to figure out how to upload their book to Amazon, B&N, and all those other sites. That indie writer certainly has the same smarts to learn how to produce a paper book and market it herself. (See Dean Wesley Smith’s Think Like a Publisher series on his blog.)
But the indie writers get caught in the myth like we all do. And they believe that traditional publishing knows better. Traditional publishing doesn’t know better, but we writers all have to learn that the hard way.
If the indie writer goes into partnership with the traditional publisher, and stands on equal footing, well then, that’s something else. That’s expanding a business with your eyes open, taking on a partner, and sharing risk. I would hope that the contracts look different in this case.
But I can tell you this: anything negotiated by a traditional publishing agent won’t have a different contract, and the writer won’t end up as an equal partner.
The agent will, however. Agents and publishers often care more about each other than they care about writers these days.
How pervasive is this attitude in traditional publishing? Well, let me give you an example that had me rolling off my chair laughing last month. Digital Book World—designed to help traditional publishers into this new world of publishing—had a panel at its third annual convention called, “Changing Author-Publisher Relationships,” moderated by Simon Lipskar, an agent at Writers House. The write-up of the panel on Publishers Marketplace listed participants from Random House’s president of sales, operations, and digital Madeline McIntosh to Little Brown publisher Mitch Pietsch.
But nowhere in the write-up, nor on any panel list that I could find, was there any evidence of a writer on that panel. Or a representative from a writer’s organization. So a traditional publishing conference had a panel on how to improve Author-Publisher relations without consulting a single writer.
Apparently, whoever put the panel together felt that Lipskar represented writers. But he didn’t. He represented agents, who have a different agenda these days—and that agenda is doing the best they can for their own business first, and their clients second. The bigger the agency, the more likely the attitude is doing the best for the clients who earn the most money, while throwing the smaller clients under the bus. (Since I’m doing Star Trek quotes tonight, think of Spock: The good of the many outweighs the good of the few. Or the one. )
Why am I bringing all this up now, when I’ve brought some of it up before? Because, in case you missed it in all the subtext here, the people you hire are hiring people to get the work done. Agents and those percentage book publishing services are making so much money off dumb writers that they can afford to hire other people to do the work.
Agencies know business. So do these book publishing services. When they’re making enough money to hire people, they’re making boatloads of profits.
Remember what those venture capitalists said: Good business owners don’t hire anyone until someone points a gun to their head and forces them through too much work for the current staff to do alone to hire another employee. Or a group of employees.
There’s even more money than usual to be made by screwing lazy writers. Someone has always made a profit off writers who refuse to learn their business or don’t think something through. That damn agent I hired way back when made a lot of money off dumb little old me.
And frankly, if I wanted to make a lot of money fast right now, I can see about a dozen ways to do it off the backs of writers who don’t know any better. I’m not jumping onto that gravy train, but every time you look, someone else is. Publishers Marketplace has announcements daily about people moving to this “author service” platform or that “media relations” company. Every single one of those people thinks they can make a profit off some writer who gives up most of the revenue on his books because the writer believes he’s an artist who shouldn’t dirty his fingers learning how to upload his own book or figure out how to use CreateSpace.
Learn your business, people. I say that almost every week. But if you learn nothing else, learn from the venture capitalists I mentioned at the top of the post. Don’t hire someone until you are forced—by being unable to fulfill the demand for your already existing products (um, you know, books)—to get help. And even then, try to avoid hiring permanent help. See what you can do with flat-fee services and friends before you ever hire someone on a salary. And never ever hire anyone for a percentage of the profits.
That’s the old method and honestly, it never worked very well. Writers steadily saw their own incomes decrease as agents became more important. Writers are really going to see their incomes decrease if they hire these new “author service” businesses starting up all over the country (particularly in New York). Writers won’t make much money at all.
And they won’t understand why it’s their fault, not the fault of these businesses. Do I blame these companies for deciding to make this huge profit off the backs of writers? No. That’s capitalism at work. Messy, normal capitalism.
Capitalism benefits the person who understands business, and damages those who do not. Or to paraphrase P.T. Barnum, there is a sucker born every minute—and a goodly percentage of those suckers are writers.
This former sucker learned a lot of the stuff she blogs about the hard way. Did I hire employees too early? Hell, yes. That’s why Pulphouse Publishing no longer exists. We hired people before we needed them. Did I hire agents? Yes, and am still learning about some of the things that I lost because of it.
So this is a do-as-I-do-now post, not a do-as-I-did post. I want you folks to benefit from my school of hard knocks. That’s one of the many reasons I blog about the publishing business every week. I want to open your eyes to the way things can go awry, to the way real business works, and to think for yourself—and make your own choices—about your own writing business.
However, in order to do this blog, I must take time away from my fiction writing business. I was on a roll tonight before I had to turn away and compose this thing. I could easily have spent the 3,000 words on the novel I’m currently working on. So to keep me blogging, I rely on y’all to pay the rent through donations. I also appreciate the comments, the links, and the e-mails. The good words and great discussions get me through as well. So thanks, and see you next week.
“The Business Rusch: “Writers, Venture Capitalists, & Barnum. Oh, My.” copyright 2012 by Kristine Kathryn Rusch.