PREPARED FOR: Joe Mansueto, new owner, Fast Company
FROM: mediabistro
CC: John Byrne, editor-in-chief, Fast Company
Alan Webber, Fast Company co-founder
Tony Perkins, founder, AlwaysOn (founder, Red Herring)
Jimmy Guterman, editor-in-chief, Forrester magazine
John Battelle, founder, FM Publishing (former CEO, The Industry Standard)
Roger Black, Danilo Black
DATE: June 27, 2005

The ink is finally dry on the paperwork completing Gruner + Jahr USA's sale of Fast Company and Inc. to entrepreneur Joe Mansueto. Mansueto, the founder and CEO of the investment research firm Morningstar, will pay less than $35 million for both titles, rather than the $40 million figure that's been widely reported, according to a pair of sources with knowledge of the deal, and Mansueto will need to plow the difference and much, much more to restore their luster. Not that that's a problem for a properly motivated billionaire.

What's happened to the magazines over the past five years is a damn shame. When G+J acquired each from their founders back in December 2000 in a pair of deals totaling $550 million or so, they were visionary titles that had created new markets. Inc. became an invaluable guide for small business owners back in the 1980s, while Fast Company supplied the philosophical underpinnings of the dot.com boom a decade later, the period when working 80-hour weeks for startups was seen as a spiritual quest.

Both suffered terribly at the hands of G+J, which, in the words of Fast Company co-founder Alan Webber, "systematically disinvested" in the magazines—i.e. allowed them to starve in order to make the extraordinarily high numbers work. G+J had drastically overpaid, of course, right as the dot com bubble (and the bubble for business magazines) was bursting. "All G+J did was cut budgets, cut people, and have a continually revolving door of business types," says John Byrne, Fast Company's current editor.

Today, Inc. is bruised and battered, but still profitable, while Fast Company is a charity case. Mansueto was the only bidder prepared to continue publishing the magazine, a promise which won the auction, even though he was outbid by The Economist Group.

One has to wonder what the friends and family of Inc. think about that. Fast Company was always the problem, for Inc. as well as for G+J. Bound together by org chart sharing little other than a mutual hatred for their corporate parent, both magazines suffered from being siblings. G+J's decision to merge their respective sales staffs into one unit (and then un-merge them later) was a complete disaster. Fast Company is still rebuilding its sales staff, while Inc. suffers from an identity crisis in the minds of advertisers who have other options in the form of Entrepreneur and Fortune Small Business.

So, Fast Company lives, and Inc. isn't better off for it. It's in Mansueto's best interest to separate them operationally and let them find their respective destinies. That's not as hard for Inc., which is still making money despite the battering it took, and is more in need of resources and execution than a strategic overhaul. That's why it attracted heavyweight publishers like Time Inc., Advance Publications and The Economist Group in the first place.

But Fast Company needs a plan, and we've taken it upon ourselves to address the challenges facing the magazine and offer a few suggestions for the business plans Mansueto and Byrne are probably busy drafting. For help, we turned to a small cast of experts who were there during the Golden Age, or were battling it for ad pages: Webber, Byrne, The Industry Standard's founder John Battelle, Red Herring co-founder Tony Perkins, Forrester magazine (and Standard veteran) Jimmy Guterman, and design impresario Roger Black, who's never read a magazine he couldn't improve.

(In the interest of full disclosure, I should state here that I am a media columnist for Business 2.0, Fast Company's archrival, and that Battelle is frequent contributor to Business 2.0 as well. But the case study below is written by someone who discovered the magazine in college and credits it with having helped change his life, and who later dropped out of office life to join "Free Agent Nation." We're just trying to help.)

PART I: EDITORIAL

The Challenge:

Fast Company was conceived in the early '90s by Alan Webber and Bill Taylor as a populist extension of their mission charting the interior lives of workers and organization at the Harvard Business Review, where Webber was editorial director.

Looking back today, Webber uses the metaphor of a meeting (what else?) to emphasize Fast Company's then-revolutionary approach to business journalism. "Imagine a conference table," he says. "At a traditional business magazine," referring to the Big Three: Business Week, Fortune, and Forbes, "the editors sit on one side, and the readers sit on the other. 'We're smart, and you're not,' the editors tell the readers. 'Pay us $4.95 an issue and we'll tell you what to do.' In the case of Fast Company, we sat on the same side of the table with our readers and said 'Let's look across the table and see if we can figure out what's happening over there. How are things changing? And what you ended up with was 'The Brand Called You.'"

Not to mention "Free Agent Nation," "permission marketing," "change agents," and more than a dozen other buzz phrases that elaborated upon the manifesto printed on the cover of the first issue: "Work Is Personal. Computing Is Social. Knowledge Is Power. Break The Rules."

And, like Karl Marx, their manifesto was twisted to meet their readers' own ends. "Work Is Personal," justified the hours, weeks, months wasted in front of screens readying buggy ecommerce sites for launch. "Computing Is Social," can be blamed for Napster. "Knowledge Is Power," was a mantra chanted by megalomaniacs during the era, and "Break The Rules" was taken to heart by execs at Enron and Worldcom, among others.

Like other magazines which truly captured their Zeitgeists—and Fast Company deserves to be on the same plane as 1960s Esquire, 1970s Rolling Stone, etc.—Fast Company legacy now works against the magazine's current incarnation. High IQ workaholics—the ones who formed a cult around the magazine in the first place (a.k.a. "the Company of Friends")—are back in the closet and ashamed of some of the rhetoric they once spouted.

David Carr's recent critique in the New York Times is typical: "Fast Company may be imprisoned by a rhetorical set that cannot be used without inviting derision—spare change agents, anyone?"

Both Webber and Byrne violently disagree with Carr's rhetoric (because those are Webber's change agents he's trashing and because Byrne is already doing his best to lead a jailbreak) but convincing disillusioned critics, advertisers, and former readers that Fast Company has completed rehab is the magazine's biggest challenge. How can Fast Company stay true to itself while charting a new path?

This is Fast Company's overwhelming question. Everything else discussed below—ad sales, circulation, Web efforts, conferences, whatever—depends on the correct answer to this question. Because the magazine was born out of an editorial vision, not to serve some market niche or be packaged with other magazines in some sort of "business innovators" portfolio (which is what G+J tried to do with it.)

Readers' cultish devotion led to inexpensive, organic growth in circulation, a swell of ad pages, and packed conferences. To bring that back, Byrne needs to viscerally connect with his readers in the same way Webber and Taylor did. This is impossible to a degree, in the same way that it's impossible for Rolling Stone to matter the way it did in 1972. But as a newly independent magazine battling the bottomless pockets of Time Inc. (which once dropped $68 million for just the name and the subscription list of Business 2.0), the only area in which it could gain a competitive edge is buzz. And buzz is the pure product of the editorial.

Recommended Course of Action:

The first step is exorcising the ghosts of change agents past. Byrne argues that's a job for PR and marketing folks, because he's left the excesses of the previous administration behind since his first issue last year. "Anyone who looks at the product knows it's different," he says. "It's just about getting the word out."

No, it's about more than that. Like the Zeitgeist magazines before it, Fast Company's current (and future) incarnation will continue suffering by comparison to its former self until either enough time passes that the readership forgets and turns over or until it offers a new, equally compelling vision. (The success of Esquire under David Granger owes a little to both, for example.)

Fast Company has been a fine magazine under Byrne (and brilliant in a few instances) but it's still running with the pack. And the pack is running pretty slow. "There is virtually nothing happening in business journalism right now," Webber says witheringly. "Fortune, Forbes and BusinessWeek all seem absolutely dumbfounded about what's going on in the business world. They continue to publish the same brain-dead reporting on the same celebrity CEOs, the same reports, the same trends, and no one is doing what Fast Company did—a magazine that was driven by big ideas and big practices."

That critique should also include Fast Company itself under Byrne. While he sees the world of work through the same philosophical prism Webber and Co. did, so far he's overcompensated for the magazine's past zealotry by being a bit too conservative in his approach. His thematic packages—built around safe, familiar concepts like "Design" or "Courage"—have been popular with readers, but they haven't subverted any paradigms lately, either. Rather than inventing concepts like "tipping points," Fast Company under Byrne simply profiled Malcolm Gladwell instead.

"What this magazine needs to do to survive is identify the next thing early—after all, that's what Bill [Taylor] and Alan [Webber] did," says Jimmy Guterman, a veteran of several dot.com-era magazines who is grappling with big ideas himself these days as the editor of Forrester, the magazine arm of Forrester Research. "No one's really done that, with the possible exception of Chris Anderson," the editor of Wired who recently coined the phrase "The Long Tail," to describe the impending revolution in how media will be sold and distributed.

Anderson's original story appeared in Wired, of course, and now he's blogging about it while working on a book of the same name. The buzz phrase is already ubiquitous at digerati-frequented conferences—according to Jason Calacanis, it even inspired a drinking game at PC Forum this spring.

This is exactly what Fast Company needs to do. Again.

PART TWO: ADVERTISING

The Challenge:

Like its peers, Fast Company's advertising revenues collapsed in 2001 as the marketing dollars of dot.com flameouts disappeared, but unlike them, the magazine has neither died nor begun to recover.

Life at Gruner +Jahr was more like a living death—insulated from the forces of natural selection, it survived, but it never had access to the resources that Time Inc. made available to Business 2.0—the money, the circulation muscle, the deep roster of editors and writers recruited from dead dot.com era magazines (including yours truly, of course). That magazine may finally be turning the corner (the trend lines are unambiguously looking up), which only makes Fast Company's new life harder.

The big picture for business magazine in general isn't pretty. The number of ad pages sold by the Big Three are all down again so far this year, and the further one steps back, the worse things look—the declines at those magazine have been so severe in recent years that the boom time gains have been completely erased. Those magazines are selling an annual number of pages similar to what they sold in the mid-90s. It's as if the last decade never happened.

Things are even worse for Fast Company. The magazine sold 2,126 pages in 2000, its all-time high (as that year was for many magazines.) It lost more than half of those the next year, and the magazine has gotten progressively thinner ever since. Through May of this year, it's sold just 188 pages, a decline of 15 percent compared to last year at this time.

As noted above, G+J didn't do the magazine any favors by merging its sales staff with Inc.'s. "It was almost a death wish on the part of G+J," Webber says. "People who look at Inc. say it's healthier than Fast Company, but that's because the Inc. sales team became the Fast Company sales team, and they never understood how to sell it. So naturally, they were more inclined to try harder on behalf of Inc. You can't win without your own sales team."

Once the sales staffs were separate again, Fast Company then suffered a revolving door of publishers. "In the time I've been here, I've had four publishers, four marketing directors and four circulation directors, and that's in the past two years alone," says Byrne.

Recommended Course of Action

Rebuilding the sales staff is obviously Job One for Fast Company. "The rebuilding needs to be finished before anything else can happen," says Byrne.

While editors may occasionally delude themselves into thinking they're the ones who are irreplaceable, the truth is that a cohesive sales team—one with a history of working together and with advertisers—is ultimately more critical to a magazine's success.

By that measure, Fast Company has been a disaster, and rebuilding a sales team around the latest publisher (who has been in the job for less than four months) should lay the foundation for future growth.

After that, it's a matter of repositioning the magazine in the minds of advertisers—a task that depends on first repositioning in the minds of readers—and then executing.

Having the ability to reassure advertisers that no, the magazine isn't folding anytime soon can only help.

PART THREE: CIRCULATION

The Challenge:

Fast Company has always had the largest readership of any of the business magazines which flourished in the late '90s—bolstering Webber, et. al's contention that the magazine was never meant for, nor was just about, dot.coms.

Circulation was the magazine's biggest strength during its heyday—its healthy, organic growth and comparatively large size (it grew from approximately 300,000 readers at the start of 2000 to 500,000 by the time it was sold to G+J at year's end) allowed it to charge a premium to advertisers.

Under G+J, the circ growth continued, peaking at 750,000 in 2002, but the subscribed file has grown soft since then, and upon close inspection is beginning to show spots of mold. The warning signs include:

· The appearance, for the first time, of non-paid, bulk subscriptions in the magazine's circulation last year. These are subscriptions essentially given away for free, while G+J lost money on the postage.

· Nearly 100,000 subscriptions in Fast Company's 2004 circulation file were classified as "public place/sponsored sales." This means they were purchased by businesses (as opposed to individuals) in the names of employees or for corporate waiting rooms. While sponsored sales can be quite useful in getting a magazine's name out there, advertisers don't think they're nearly as valuable as individually paid subscriptions, and because of that, may demand a discount when purchasing ads.

· While business magazines never sell well at newsstands, the percentage of Fast Company's circulation generated by single copy sales has fallen from more than 10 percent of total circulation in 2000 to just 2.4 percent in 2004. Considering that single copy sales are seen as a measure of a magazine's overall vitality (is it luring new readers based on content and reputation alone?) this is not a good sign.

· And perhaps most damningly, the average issue of Fast Company actually missed its rate base (the guaranteed minimum number of readers promised to advertisers) in 2004 when the free subscriptions were taken away. In other words, Fast Company's readership is artificially inflated—not in a dishonest, illegal way, but from the perspective of the bottom line—and is ripe to come down.

Recommended Course of Action

Considering Fast Company's advertiser situation—there aren't many left, and the ones who are are true believers—the magazine has nothing to gain by holding onto its least loyal and least desirable readers. The incremental advertiser dollars gained from the larger circ aren't enough to offset the cost of propping up the subscriber file the way G+J did. If Fast Company isn't raking in money from advertising, perhaps taking a hard line on subscriptions and trying to generate a little cash from that is the way to go.

So: Fast Company should slash its rate base. Both Webber and John Battelle —who chased a small, select readership himself while CEO of The Industry Standard—were quick to praise the idea. "It may be necessary, in order to recover from the G+J years, to take the circ down for a while and rebuild it. And if they did, I would regard that as an act of truthfulness and honesty."

"I'd take a hard look at the circ file and take my medicine now rather than later," says Battelle. "Because the people your advertisers want to reach are the fanatical ones. This is one of those things that's counter-intuitive but the right thing to do."

How much to cut is another story. While the magazine's subscription file may be puffy, G+J also cut back drastically on the magazine's newsstand draw and promotional efforts, effectively rendering the magazine impossible to find in some places and invisible in readers' minds.

But there is no doubt that Fast Company would be better served if it stopped burning money on the junk mail necessary to convince reluctant readers to re-subscribe and started rebuilding its newsstand presence instead.

PART FOUR: INTERNET INITIATIVES

The Challenge:

While the three areas outlined above are core to Fast Company's business (if you define that business as being limited to magazines), the question of whether an Internet initiative deserve the same status is a matter up for debate.

A sensible person would argue that the magazine needs to get its house in order before charging onto the Web. A bolder one would counter that Fast Company has already fallen behind in the brave new world of light-weight publishing and media branding made possible by blogs, and that it needs to catch up desperately. A case could be made either way.

While the magazine currently has a fine, print-centric site supplemented by a blog and additional, supplemental content, Fast Company never invested in a digital version of itself the way The Industry Standard did, or Red Herring, etc. This needs to change, and will under Mansueto's stewardship (after all, he made his fortune selling investment research over the Web) but what form should these efforts take? And is there way to break even immediately, or at least establish brands with minimal investment?

Recommended Course of Action:

Without knowing exactly what resources Mansueto can make available immediately (expect to see at least a few Morningstar vets moonlighting as consultants on the digital side of both Fast Company and Inc.), there are several tempting models available to choose from.

For example, Red Herring co-founder Tony Perkins created the proto-blogger community Always On after his magazine died. "My humble opinion is that they should pursue the AO model," he wrote in an email, a model in which star bloggers—venture capitalists, technologists, etc.—post new content for all to read frequently, while every member interacts (or schmoozes, as it were) with every other member. Think of it as Fast Company crossed with Friendster. Perkins' suggestion is to create a blogging network, add the magazine, add events and TV/video arm and use them to reinvent the Fast Company and Inc. brands. (Especially Inc.'s: "The same model, but more focused on small business entrepreneurs, is actually a bigger market than AO's," says Perkins.)

John Battelle, meanwhile, is pursuing a decentralized, online-only approach with his latest venture, FM Publishing. Battelle intends to create a blogging federation that aggregates an audience around lightweight brands. "Where I see their next 700,000 readers coming from is online," he says. "BoingBoing has 2 million readers. Om Malik [a blogger and Business 2.0 editor] has over a quarter million. And the cost of building those circulations is so low."

While we're hesitant to recommend a specific course of action, one thing that seems obvious is that Fast Company shouldn't hesitate to launch niche blogs and other sub-sites to build communities of readers around new themes and concepts—assuming, of course, that they manage to track those down. (Fast Company already has an in-house staff blog called FC Now designed to "feature new ideas, address business news and current events, share useful Web resources and tools, highlight crucial conferences and news services, and otherwise shed light on the Fast Company team's perspective on the world of work.") This strategy would have the advantages of both extending the reach and the lifespan of Fast Company's stories while building new audiences around highly targeted ideas (which online advertisers love).

CONCLUSION:

Will Mansueto be the one to "fix" Fast Company? "Joe does not believe it's broken," Byrne says. "Joe believes he's buying a powerful brand, a terrific team, and a core of loyal, highly engaged readers. G+J mismanagement made it very difficult for us, but nothing is broken."

We don't quite agree and feel that Fast Company is still a shadow of its former self, but Mansueto has a lot to work with.

Greg Lindsay, a freelance writer in Brooklyn, has covered media for Inside.com and Women's Wear Daily.