Yehong Zhu was working as a business reporter for Forbes in 2016 when she realised a glaring issue with the business model: the online user experience was being hurt by overloading webpages with ads.
"My editor told me 'we don't make enough money per ad, so we need to stuff the page full'," Zhu says on an episode of the Journalism.co.uk podcast.
"It was at that moment, especially when I dug deeper into the programmatic advertising model, that I realised most national publishers were not making enough money on ads alone to sustain an entire newsroom."
This was just one experience which led her to start her own company Zette, an online bundling subscription platform, in 2020. Realising that this was a common issue amongst digital publishers, she saw a 'Netflix for news' model as the solution and was successful in raising $1.7m in venture capital last year to get started. This helped secure more than 100 publisher deals on 50:50 revenue share agreements, mostly with US local news outlets, as well as New Scientist and her former employer Forbes.
The issue of webpage experiences should be ringing some alarm bells in the UK. This year, Reach plc announced job cuts citing an 'online attention recession', with some observing that a business model driven by clickbait content and overstuffing webpages with ads is a recipe for dwindling attention and loyalty.
The bottom line here is that there are many other well-documented issues in the news and publishing sector. Shouting about them solves little. Journalists might hold the solutions and not even know it.
Read more: The Mill founder Joshi Hermann's essential CEO skillset - "sometimes you just have to take a risk"
As worlds collide
Zhu is a case in point: "Every piece of my background I had prepared prior to starting Zette suddenly came into play."
Her mother was a journalist and this had put her on the initial career path into journalism. But she found herself developing an entrepreneurial streak at college by setting up a commissions company to help students with their applications. She then secured an internship at a venture capital company and worked for Twitter as an associate product manager.
The combined experience of the publishing world, financial sector and product development was a perfect storm for Zette. It meant Zhu had the knowledge of idea execution, pitching for investment, marketing services and recruitment.
The value of unlearning
It is a journalist's instinct to always be thorough but Zhu found writing extensive business plans counter-intuitive. One of her greatest lessons was to write summaries, not essays. Quickly document learnings and move on.
"As soon as I unlearned that everything needed to be perfect, I was able to move a lot faster and so the chances of success for the company went up dramatically," she says.
"As a startup founder, your performance depends on how well you execute, not necessarily how well you analyse."
Nowhere is this more important than at the very beginning when it is a one-person operation. Many journalists are not used to being in this position. As the company grows and expands, it is crucial to hire well.
Read more: Curio founder Govind Balakrishnan's essential CEO skillset - "break down your journalist mindset"
Know the market trends
Gaining investment of any kind is tricky. News businesses are relatively underinvested, but they do have a distinct advantage because they show what is called "anti-fragility", which means they perform well during periods of market volatility.
A good example is the spikes in news subscriptions seen during the pandemic. Recessions can also lead to increased news usage amongst professionals and specialist audiences. The downside is that these crises can limit the ordinary reader's engagement in the news or ability to pay for it.
Part of Zette's go-to-market strategy is to sell enterprise subscription bundles to companies and educational institutes.
Zhu is an angel investor herself and knows what investors want to know before handing over their cash. Two common questions are:
- what do publishers think of the product? Having secured publisher deals will offer welcome assurance.
- does this really make money? Have market research ready, your best bet being the annual Reuters Digital News Report offering broken-down country demographic data.
Solving the cold-start problem
One potential curveball question is the 'cold start problem'.
Zette has a two-sided marketplace. The supply side is the publishers providing news content. The demand side is the signed-up users paying for the product. Investors like to ask how a pre-market product intends to solve this and get the business started. It is a classic chicken-egg problem where you need one side to start in order to get the business moving. Which do you go for?
Zhu thought she could get a little bit of movement going on both sides - sign up some publishers and some users - and then scale. But she realised it was better to focus on publisher deals first, and then have an exciting product to market. You could do it the other way, but it is much harder to get users to sign-up for a news product without content.
Top tips for investment
- Be well-connected and well-capitalised prior to investment because it is a long process
- Understand the reasons for rejections and work on them
- Gain a fundraising mentor and connect with peers who can review materials
- Understand the future that investors are investing in
- Make your pitch memorable and fine-tuned - investors are also investing in you as a founder
- Keep it simple half the time with emails and pitch decks. Cut the buzzwords and explain the concept for a child or a grandparent
Now that Zette has a playbook for securing publisher deals, Zhu says she will next need to figure out the demand side and increase her user base. Once the supply and demand sides are sorted, you have a working engine.
"You’ve got horsepower," she says.
"Those are things which move markets and why entrepreneurship is exciting. Once you cross that threshold of product-market fit, and it starts moving itself, it turns into a movement. That’s how it changes user behaviour and starts shifting the way consumers access information."
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