The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
In our series on writing a business book, let’s pick up where we left off last week. I wrote that there are two ways to get your book into print: sell it to a publisher or self-publish. This week, let’s explore finding a publisher. A publisher will pay you an advance against the book’s earnings, edit and print it and distribute your work to bookstores and online booksellers.
In 2002, after two decades of conducting media training workshops, I decided to write a book that expanded on what I taught. I wanted to create a comprehensive take-away for clients that went beyond the 20- to 22-page customized workbook I create for every media training session. Also, I felt a book would validate my expertise to prospective clients and yield more business. Coincidentally, I hoped to create a modest revenue stream. Well, make that a revenue trickle because I knew publishing was growing every more parsimonious. For example, a how-to book on energy saving I co-wrote in the 1970s earned a then-generous $15,000 advance. McGraw-Hill, the nation’s largest business book publisher, bought my proposed media training book in 2003 for a $10,000 advance. Today, just seven years later, that would be considered a generous advance. An agent I interviewed said $5,000 is a typical business book advance now.
Out of the advance, your agent collects a 15 percent commission, up in recent years from the traditional ten percent. And you will need an agent because many publishers no longer accept unsolicited proposals directly from an author. Publishers used to have armies of recent college graduate readers poring through unsolicited material. Today they save money by outsourcing that job agents.)
One way to find an agent is through the web site www.publishersmarketplace.com
There are also some useful books: “2010 Guide to Literary Agents” by Chuck Sambuchino, “Jeff Herman’s Guide to Book Publishers, Editors and Literary Agents 2010” (both $20 on Amazon.com), and “Literary Marketplace, 2010” (this one costs $300 so you might want to look for it in the library). Securing an agent is tough; agents are inundated with proposals and manuscripts. The agent I interviewed requested anonymity because he doesn’t want to receive any more than the 30 proposals he receives every day.
Don’t write your whole book and then go hunting for an agent. It’s better to prepare a proposal; agents and publishers both prefer this. Your proposal should be an essay of up to eight pages explaining the premise of the book, your credentials, a survey of competing books now on the market, and a detailed chapter-by-chapter outline. Also the proposal should have one or two sample chapters; agent and publisher need to know you have the necessary writing skills. Finally describe your promotional campaign for the book: the publicist you intend to hire, the speeches you intend to make, the media you intend to do and the book signings you are going to line up.
Book promotion used to be the publisher’s job, but they’ve outsourced this job, too -- to authors. A publisher is much more disposed to buy a book from an author who pledges to hire a competent book publicist than from an author who has no promotional ideas or budget. Publishers and agents can recommend the right publicist, just be aware that a publicist will cost $1,500 to $2,500 a month.
So let’s do the math: Your advance is $5,000. Subtract the agent’s commission of $750 and two months of a publicist at $1,500/month. That leaves you with $1,250. You can’t count on future book sales to change the picture very much. Many books don’t “clear” their advance -- that is, they never sell enough copies for the author to earn any royalties over and above the initial advance.
But even with only $1,200, you’re still ahead and you do have a book to drive business to your company or to burnish your image. In effect, the publisher is financing your business promotion effort. Up to a point. It all depends on how many books you’re going to need. In my case I used close to 1,000 over the first two and a half years after publication -- some for sales promotion, others as take-aways to participants in training workshops.
Publishers don’t give you an unlimited supply of your own book -- you have to buy copies after the first 25 or 50. In my case, McGraw-Hill had a $16.95 price on my media training book and sold me copies at the discounted price of $8.00. Here is how the numbers worked out for me: Advance: $10,000, agent’s commission: $1,500, publicist:$2,000, books purchased: $8,000. I was, in theory, $1,000 in the red. In practice this wasn’t the case because the book yielded new clients and I incorporated the $8.00 book price into my media training fees.
If you have never written a book before, if you don’t really have the time to write one or if you doubt that you have the necessary skills, you may want or need a collaborator (i.e. a ghost writer). Your agent can find one for you. How much will this cost? It varies. Some collaborators take an up-front fee. Some work on a percentage of the advance, some on a percentage of all earnings. In no case should the collaborator receive more than a 50/50 split.
For my media training book, I wrote the proposal and the book myself. I called it “How to Master the Media,” but McGraw-Hill insisted that I re-title it, “How to Make the Most of Every Media Appearance” because they thought my title was too confrontational (It was, by design!). In vain I pointed out that it was impossible to work their mouthful of a title into interviews, while “How to Master the Media” was practically a soundbite in and of itself.
I had three problems with the publisher: the title, which I felt was wimpy, the inability to do running revisions (new behavioral science validated some of my training techniques and I wanted to insert that validation into the book), and the cost of buying my own book. If the book had been selling 500 to 1,000 copies a month in bookstores and on Amazon.com, I would not have been troubled by any of this. But, like most business books, my store, online and e-book sales were modest, so I researched self-publishing. When I discovered that each copy would cost me significantly less than $4.00 and that “print on demand,” meant I could make changes whenever I wanted, I decided to get the rights back from McGraw-Hill, revise the book, put its original title back on it, and self-publish. Next time I’ll write about the self-publishing option.
Under federal law, any offer of securities must either be registered under the Securities Act of 1933 (the “1933 Act”) or qualify for an exemption from such registration. A registered offering under the 1933 Act is extremely time consuming and expensive, and generally occurs only once a company is thoroughly established. A company’s first registered offering is its initial public offering, or “IPO.” Section 4(2) of the 1933 Act provides an exemption from registration for “transactions by an issuer not involving any public offering.” In order to provide clear guidance on complying with Section 4(2), the Securities and Exchange Commission passed Regulation D under the 1933 Act, which creates three “safe harbors” under Section 4(2). An offering that complies with one of these safe harbors will be deemed not to involve any public offering. Prior to an IPO, companies generally engage in smaller, private offerings using these Regulation D safe harbors.
In this post we discuss the first of the Regulation D safe harbors, Rule 504, which permits an issuer to raise up to $1 million and does not require that investors must meet any net worth or sophistication requirements (“Rule 504”). This post is not intended as legal advice. A company considering raising capital through the sale of securities must contact an attorney to seek guidance. The federal and state securities laws can create enormous liability for improperly conducted offerings, even in the absence of any fraudulent intent on the part of the offeror. The applicable laws and regulations are complicated and often seem arbitrary, so the guidance and assistance of a professional is extremely important.
Who may use Rule 504? Rule 504 is available to any company except one which either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies. The SEC does not want so-called “blank check companies” to use Rule 504.
What conditions must be met in relying on Rule 504? Offerings under Rule 504 generally are subject to very few federally-imposed conditions. The conditions applicable to an offer mainly turn on whether the offer is registered under the laws of the states in which the offering is made. As described below, State registration may give issuers additional freedom or could impose additional restrictions in conducting the offering, depending upon the law of the state(s) at issue. Again, a company must consult with an attorney prior to attempting to conduct an offering to ensure the company is not unduly hampered in its capital raising and to ensure it is complying with applicable law.
State Registered Offerings. If the offering is conducted only in states in which the offering is registered (as discussed below), then there are virtually no federal conditions imposed on the offer. If an offering is registered under state law, however, the permitted offerees and manner of conducting the capital raising activities could be subject to certain substantive limitations and filing requirements that will vary by state. In addition, state law may impose limitations on an investor’s ability to sell or pledge its shares or interests in the company. These state requirements, depending upon the state at issue, could be more onerous or less onerous than the conditions imposed under federal law by non-state registered offerings.
Non-State Registered Offerings. Most states permit a company relying on Rule 504 to conduct its offering largely exempt from state law, subject to certain notice filing requirements. If a company elects to conduct its offering without state registration, the offering of securities cannot be made in that state through any “general solicitation” or “general advertising.” This means that a company cannot seek investors in that state through newspaper or magazine advertisements, television or radio advertisements or other public communications. The best way to avoid general solicitation is to solicit investors with whom the company or its personnel have pre-existing relationships, such as personal or prior business relationships.
How often may a company raise money using Rule 504? A company is not limited to one Rule 504 offering. It can conduct many Rule 504 offerings, or can rely on Rule 504 in one instance and later rely on another Regulation D safe harbor. The general rule is that after a Rule 504 offering is complete, a company cannot begin another round of fundraising in reliance on Rule 504 for six months. A company should consult an attorney, however, to ensure that its offerings are not integrated and treated as one offering, which could cause the company to exceed the $1 million limit imposed on a single Rule 504 offering.
Can investors sell the securities purchased pursuant to a Rule 504 offering? Generally, securities purchased in a private placement are subject to restrictions or limitations on resale. If the offering is registered with one or more states, state law determines how, when and if securities purchased in a Rule 504 offering can be resold. If the offering is not state-registered, the securities are treated as “restricted” securities under the 1933 Act. Resale provisions are available for investors to sell their shares, but such resales are subject to numerous conditions. A company should restrict the ability of investors to resell its securities without the consent of the company in the documents governing the securities’ terms, given that improper resales can cause the company to lose the ability to rely on Rule 504 (or any private offering exemption) and create significant liability for the company.
Our next post will deal with Rule 505 under Regulation D, pursuant to which a company may raise up to $5 million in a single offering.
****Always consult with an attorney before attempting to raise capital.
If you are a business person with a lot of experience, fresh ideas and a desire to share your knowledge you may be thinking about writing a book. Over the next few weeks, I’ll address creating and publishing a business book. To put these entries together, I’m relying on my own experiences -- as the author or co-author of five published books -- and on interviews with an agent, two other authors and an executive at a self-publishing printing house. In addition, I’ve done some online and bookstore research.
Why would a business person with a heavy schedule consider writing a book? A book can burnish credentials, drive business to a company and generate a revenue stream. I put the revenue stream last because proceeds from most book sales are pretty modest these days.
A visit to my local Barnes & Noble gave some indication why a business author’s earnings may be modest; there’s a lot of competition. The B&N I visited stocked nearly 4,000 separate business titles. Speaking of competition, a random survey indicated that your biggest competitors may be Suze Orman and Warren Buffett. Ms. Orman had more titles on the shelves than anyone else I could find -- I counted eight of them -- and books about Mr. Buffett were equally numerous.
While B&N divided its 4,000 titles into 13 separate categories, I found the business books actually fell into three basic areas:
Reportage about business, business trends and the economy:
In this category are the many volumes about the run-up to the current recession, such as Michael Lewis’ “The Big Short: Inside the Doomsday Machine.” “Sixty to Zero,” a chronicle of the fall of General Motors, was another example of this sort of journalistic business book. I am assuming that readers of this essay are not full-time reporter/researchers so unless you are an insider in a news-making company, you’re unlikely to be writing one of these volumes.
Profiles of businessmen (either biographies or autobiographies) and histories of individual companies:
In this category I found books by outsiders, such as Ken Auletta’s “Googled, The End of the World as We Know It,” and books by insiders, such as “Delivering Happiness” by Henry Hsich, CEO of online shoe retailer Zappos, and “Only the Paranoid Survive,” by Intel’s Andy Grove. An unexpected CEO book was “The Ride of a Lifetime: Doing Business the Orange County Choppers Way,” by OC Choppers founder Paul Teutul, the star of TLC’s hit show, American Chopper. Without question Teutul is the business author with the biggest biceps and most tattoos. While you may lack the biceps and ink, perhaps you have a corporate story sufficiently interesting to warrant attempting such a book.
How to succeed in business:
This is a vast category and runs a long gamut including marketing, advertising, sales promotion, investing, employee motivation, accounting, entrepreneurship, e-commerce and personal finance. In this category we find the ubiquitous and competing “.... For Dummies” and “Complete Idiot’s Guide to.....” series. Other titles I saw included “Facebook Marketing” (I found no fewer than three titles about how to market on Facebook), “Twitter Marketing” (no, the book is not 140 characters long), and “Ignore Everybody & 39 Other Keys to Creativity.” My favorite in this section is rapper 50 Cent’s offering: “The 50th Law” which features his business wisdom from the mean streets including “Hood Economics” and “Hustler King.” Even though they lack Mr. Cent’s exciting professional background -- he is a former drug dealer who was shot nine times in an assassination attempt -- most business people write books in the how-to category.
My recommendation is to write about what you know first-hand, because it can take months to research what you don’t know first-hand. A trust attorney I met wrote a book that attempted to explain trusts to non-lawyers. I know a networking guru who wrote a book on networking. I attended a seminar by an author who wrote a book on creating seminars. And a friend who has a marketing firm wrote a book of successful marketing case histories, drawing lessons other businesses can apply. After two decades of media training, I have written two books on how to handle yourself in media encounters.
Once you’ve settled on your subject, you need to assure yourself you have enough material to fill a book. Not all ideas are book-worthy; sometimes you can capsulize what you need to communicate in a brochure or magazine article-length piece. Assess if there’s enough material by creating a full outline of your book. There is no right or wrong way to construct an outline. Personally, I start with a simple list, then expand the list into an outline and then write a paragraph for each outline point. If I feel the urge to write more than a single paragraph for each point, I know I likely have enough material to fill a volume.
How long are business books? Well, the reportage, business profiles and biographies can range upward of 500 pages. But how-to books are always shorter; typically running under 275 pages. How many words is that? It depends on the size of the type and the layout of the book. Some of the how-to’s have charts and graphs and open layouts that add many pages. My current book, “How to Master the Media” is a conventional-sized paperback, runs 235 pages, has a few illustrations (screen grabs of web pages) and stylistic flourishes (insert boxes with highlighted material), is printed in 11 point type and contains 85,000 words. So figure if you want to write a 200 page book you will need a 70,000 to 75,000-word manuscript.
If you have the time and the inclination to write a book you are now faced with a critical decision: find a publisher or self-publish. I’ve done both. To find a publisher, you will have to sell your book idea three times: to an agent, to a publisher and to the public. In the self-publishing scenario, you have to sell it only once: to the public. (Unless you’re planning on giving the book away as a promotional vehicle, as the trust attorney did. In that case no sales are involved.) If you want to go the publisher route, don’t write the book; write only an outline. As a rule publishers buy business books based on outlines not full manuscripts. If you decide to self-publish, plough ahead and write the whole book, using Microsoft Word. Publishers and printers require electronic submission and prefer Word. The software has tools you’ll find very useful like word counts, grammar checks, change tracking and comprehension level guides. If you’re like me and World’s auto-formatting drives you crazy, you can turn those features off while you write. (And if you figure out how to do it, please let me know, I’ve never had success shutting down all of them.)
Next time I’ll address selling your book idea to a publisher.
We've talked about ensuring your business is ready for an unforeseen event. Our business is also prepared for any disaster that could interrupt our service.
Today, global commerce moves at the speed of information. Yet as powerful as the engine of information is, it remains vulnerable to disasters caused by either the forces of nature or those wrought by human hands. Even a simple power failure can cause disruption and data loss if your systems are not protected with redundant backup systems.
Harvard Business Services, Inc. maintains the records of tens of thousands of business clients from across the U.S. and around the world, which makes it a vital link in the global flow of information. Early on, HBS assessed the potential of disruption from natural or man-made disasters and got out in front of the issue. Our arrangement with Agility Recovery Solutions is a farsighted hedge against unforeseen disasters. Within 48 hours of a disaster, Agility Recovery Solutions delivers a comprehensive package of equipment to the site, or an alternate site we have selected, including a fully furnished mobile office, computer equipment, Internet access, telephone capability, power and much more.
Harvard Business Services, Inc. uses a “vault” to store back-up data off site. Daily, weekly and monthly backups are stored away from HBS’s Lewes, Delaware headquarters and secured in a private storage facility.
Even a short disruption in the power supply can be damaging, and because most of our business originates outside the state of Delaware, we need to be prepared. In the event of an electrical power outage, a generator automatically starts within ten seconds. (HBS’s UPS power back-up equipment keeps the information systems online during those 10 seconds.) The generator can keep our operations running for up to fourteen business days without electricity with 500 gallons of fuel onsite.
Viewed in the context of the other back-up plans and systems in place, HBS is well ahead of the curve in tackling the issue of preparedness, so you can rest assured that your company data is safe, secure and accessible at all times. Surveys of businesses and government statistics show that only a small minority of companies have contingency plan and back-up systems in place. Rather than risk losing it all, why not plan ahead?
Capital is the life blood of any business. A business needs capital to launch and later to grow its operations by hiring additional staff, developing new products or services and expanding its marketing efforts, among other things. This is the first of a series of posts we intend to publish that will provide an overview of the laws and regulations that govern the sale of stock or debt instruments in order to raise capital.
A business can obtain capital through borrowing, such as a bank loan, or it can issue securities. These securities could be equity securities, which provide an interest in the gains and losses of the business or debt securities, which provide a fixed or variable rate of interest upon a principal amount for a fixed term, or they could be instruments that combine features of debt and equity, such as preferred stock or convertible securities.
Most small businesses raise capital through what are called private offerings. Private offerings are exempt from the registration and complex disclosure requirements of public offerings. The regulations governing private offerings, however, place various restrictions on the offer and sale, which can include limitations on the amount that can be raised, restrictions on advertising or public solicitations and/or net worth and financial sophistication requirements prospective purchasers must meet. In the coming weeks we will focus on the following exemptions, and may address related topics in the future:
Although fund raising is an integral part of growing a business, it is heavily regulated by both state securities agencies and federal agencies such as the Securities and Exchange Commission (SEC). The discussion in the coming posts addressing offerings of securities are not intended as legal advice, and a business owner considering raising capital should consult with an attorney. The penalties for failing to comply with state and federal regulations in offering and selling securities can be severe. An offering that does not comply with applicable regulations can lead to a right of rescission on the part of the buyer (meaning a return of the invested amount) as well as monetary penalties for the offeror. In addition, any material false or misleading statements or omissions made in offering securities can give rise to liability for fraud under state and federal law, with penalties ranging from civil monetary penalties to imprisonment.
So, before you go looking for angels, find out everything you can about the devils.