IDEAS IN BUSINESS: INTRODUCTION
By Jason L. Peterman
Entrepreneur: a person who organizes and manages a business undertaking, assuming the risk for sake of the profit. (Webster’s New World Dictionary)
According to Webster, I am an entrepreneur. I have decided to organize and manage my own business. In a way, I seek to profit from it, but not exactly in the same ways as the traditional sense. I want to see it successful both as a business and as an ideal. Personally, I do not want to profit from the running of the business as much as I want to profit from remaining completely immersed in it, doing different tasks within the business rather than being paid to keep a seat behind a desk warm.
Let me elaborate. So many CEOs get paid millions of dollars for being desk jockeys. They sit and crunch the numbers, never realizing that the millions they get paid for being the top of the food chain should be put back into the business. No, I am not claiming that all of it should, but the vast majority should. Why? Because those millions should be for the preservation of the company, not the preservation of a decadent and showy lifestyle. Business could use with a little modesty. Modesty in top salaries. Modesty when dealing with the public.
I am not recommending that there should be enacted an austerity clause into every top management pay. But lack of profit is equal in proportion to the excess that goes into each top management salary. Let me ask a question: who suffers most from these extravagant salaries? It isn’t the people being paid the salary. No, it is the worker who ensures that the company still has products to sell or services to render.
My point? Simple. No one in business management is worth millions. No one. My solution? Cut the top salaries to sustain the business. Raise lower worker wages to encourage harder work. Supply health and retirement benefits for all, not just those at the top.
The number one reason that most businesses fail? Gluttonous misappropriation of profits. What does this mean? Simple. Each “successful” business that has either folded or who had to ask the government for bailout money during the last recession had one thing in common.
What was that one thing they had in common? Simple. Their CEOs and top management were making well over $1million in yearly salaries for mismanaging the business. In some instances, the CEO-alone-was making $4.5 million or more and was making errors in judgment where projects and/or products were concerned. These company heads had severance packages worth even more than that. Even worse, they were allowed to keep those severance packages and salaries even after they were given bailout money. And they were still paid, after their companies-if their companies- went under. This should not have been allowed, ever. They ran their companies into the ground, they should have taken the biggest hit, financially.
As an entrepreneur, I set out to figure out how best to solve this discrepancy. Even when I found an answer, I was criticized for not thinking about those who have earned their level of pay. Why? Because I expressed that a company should do one simple thing: offer a single, across the board salary set at a level that is actually $15,000 more than was expected by a CFO candidate early on in my attempts to start my business. His desire was for $100,000 a year. Ok, why not offer all a salary of $115,000 per year? No one is getting more than anyone else at this level and it offers a good incentive to work hard, no matter what position they hold.
At this point, you’re probably saying “but hold on! What about you, the owner and CEO?” As CEO, if I were to put myself under this salary, would make no more than the man or woman in distribution or in duplication/manufacturing. But I will not be on salary.
Why? For several reasons. First, I am a writer. I will be making money off books and articles. Second, I am an actor. I will be making money from roles I play or shows I am involved in. thirdly, I am a musician. I will be making money off every CD I release and every concert I perform. I could go on here, but you get the picture.
You’re probably saying now “but wait, you’ll still be making more than your employees. True, but I will also give them the same opportunities. As you have probably figured out by now, I am trying to open my own entertainment company.
So what exactly goes into an entertainment company? What do they sell? What is their market?
Let’s take time to break the company down. I suppose I should clarify that I want to build an entertainment PRODUCTION company as opposed to entertainment management, promotion, or agency. Of course, with production, there is a little of the others, but I am not simply promoting or recording…or even filming. I am also selling, distributing and finding the components that go into film, television, and music.
I simply term my company and entertainment company, since I want to do more than just produce. My company includes every aspect: the production, the distribution, the promotion, the discovery of the talent, the educating of the next generation on the industry.
This means that my products are simply stated as follows: for music, CDs and online music sales; for film, theatrical releases of movies, DVDs and online streaming; for television, the production and broadcasting of television programming as well as online streaming and marketing to other broadcasting companies; radio, production of programming, broadcast and marketing of that programming; and for publishing-publishing music and entertainment related magazines, publishing music, publishing book and comic books, and the distribution thereof both in stores and online in every possible form.
I list this because when I submitted my two-year business projections, I was told that I did not list what my products were. Granted, I did not break it down this much, but I did break down the costs and the returns. My original breakdown was this: music, television, film, publishing, radio. If a company invests funds into these sectors, what does it usually sell? Maybe I see things more simply as those who try to match numbers with traditional ideals. I am involved in the industry, so I know what I am selling under those headings. I go and buy DVDs. I go to the theater. I buy CDs. And, every now and then, I go to a concert. I know the cost of a ticket, a CD, a DVD, and even a download. Do I have to break even these costs down for a lender? I know I shouldn’t, if they have spent any time doing whatever the average consumer does, but it seems that this is what they expect. Just as it seems as if they expect a full break down of every aspect of a business so that they can understand exactly what kind of business it is.
I know, I seem to be ranting, but I am not. I explained, to the best of my ability within my simplified business plan, what I was going to be doing as a corporation. I also gave my biggest competitors: Universal Entertainment, DreamWorks, Fox, Imagine…I could have listed all of Hollywood, but only listed three or four companies. And, still, I could not get across what kind of company I am trying to start.
My projections were done with a conservative view on profits, putting them at the break-even level. Assuming that a movie, through ticket sales brings in $1million in sales weekly, and the company’s take is 10%, I multiplied this percentage (about $100,000 per film) times the number of films I intended to market to the public and distribute to the theaters. I had figured that I could easily license at least 5 films and 5 straight to DVD productions at first and build to low budget in-house productions after a certain length of time. This meant that I would also have to raise the actual budget at a certain time as well, but that was something I did not figure in right away. In the first six months, while the main facilities of the company are slated to be under construction, I intend to sign licensing agreements with producers and production companies that have market-ready films, thus cutting some of the costs of production.
Still, taking into consideration each possible mode of sales, it is easy to figure that a company can easily make back the investment they have made in a certain project or number of projects on a weekly basis and thus make a rather large profit in the end. Yet, after figuring this, and the estimates for all the other groupings (music, television, radio, and publishing) with every possible market as well, I found that it was possible to have double the profits weekly without compromising any.
In fact, I found, by the end of the projections, that I would be able to make more than I had originally projected in my less descriptive projections (I had done a standard two-year projection, but was asked to break things down more). At the end of my final projections, I included the following:
At the end of year one: repayment of investors, Iowa state tax, federal tax, benefits, community involvement funds, and family loan repayment.
At the end of year two: state taxes, federal taxes, benefits, and community involvement funds.
I did not opt for deferred taxes. If my projections are right, I didn’t need to. I did the full 60% for federal and a 7% for Iowa State. Even at this, I still came out ahead. Even with paying triple ($300,000,000 per $100,000,000 invested) what the investors would which equaled a $600,000,000 total for two investors (would rise to 900,000,000 for three, and so on.). So the full year-end totals looked like this:
Pretax total: $49,256,453,259.50
Year-end total after loans and investors paid: $48,656,258,259.50
Total after benefits: $30,656,258,259.50
Total after federal taxes (at 60%): $12,262,503,303.80
Total after Iowa State taxes (7%): $11,404,128,072.53
Total after community involvement: 304,128,072.53.
Community involvement would include such things as sponsored workshops, local and regional charities, scholarships, etc.
Pretax total: $ 207,998,700,353.10
Total after federal taxes (at 60%): $83,199,480’141.40
Total after Iowa State taxes (at 7%) $77,375,516,531.50
Total after community involvement: $7,375,516,531.50
Total after educational fund: $3,687,758,265.75
Total after benefits: $687,758,265.75
I thought this was both well estimated, even from a “break-even” stand point, and well thought out. I covered all the majors. Even the $115,000 salary per employee, which was broken down weekly, starting at the 100 employee level to start, then doubling as the projections showed I could…except in the second year projections.
But the microloan lender decided that these figures were “unbelieveable” and that they could not finance me due to this point. Perhaps they were confused as to what I was actually going to be doing. Perhaps they had thought that I was just simply opening another studio or promotions agency. I cannot begin to understand their reasoning. Whatever they were thinking, it was not a realistic view of my business or its capabilities.
Still, I am undaunted. Determined. Persistent. I am still searching for the one lender who will get the ball rolling for me.
Even though my credit is lacking, this should not stand in the way of some lender who can see the big picture instead of just the numbers. I have no credit, financially. What credit I might have had was destroyed by personal events that I have since learned from. It was also not allowed to grow due to the job market recession we just went through. I have had to endure seven years of nothingness, job-wise, and watched as countless jobs in my area have either folded or been turned into “temporary” work.
The problem with temp work is that you are only on the job for a week or less, then are without work for months. You can’t pay bills with that. You can’t build your credit on that. You can’t survive at all.
I am not whining, just telling the current status of my region and local area. When factories are not hiring, or are relying on temp services to fill jobs that won’t be there tomorrow, there is no work. There is no way to build credit.
This time, right now, to me, would be the perfect time for lenders to look for fresh and innovative business ideas and business plans. This would be the best time to start rebuilding America’s job market.
Yet, we have them still holding onto the traditional “let’s crunch the numbers according to the markets we are used to” mentality. No originality. No sense of adventure. No diversity in thinking.
Personal credit is seemingly always a key, as is equity. For someone struggling to get started, these are things they have precious little to offer. Especially someone who has had a less than stellar go of it to that point.
If your credit is bad, you lose. If you lack credit, you lose. If you don’t have enough revolving credit, you lose. Never mind what has taken place, or what the job market has been for the past six to seven years, to make your credit less than what they expect. Never mind the fact that you are trying to start a business so that you are gainfully employed.