Cutbacks Memo

This 2010 memo from American Independent News Network CEO David Bennahum to AINN’s staff is an example of transparency during budget-driven cutbacks. (Shared with permission.)

Date: November 17, 2010

Subject: Important changes for AINN in 2011

Dear Team Members:

In four years, we have built an extraordinary news organization.  We can proudly track 600,000 monthly readers, and cite dozens of stories that have had a demonstrable impact in the communities we serve.  Along the way, we’ve also received over 40 awards for excellence in journalism. We have pioneered a model that melds the benefits of the Internet (speed, voice, dialogue) with the discipline of serious investigative journalism.

I am proud of all we have accomplished together.

It is all the more remarkable for how we’ve done this in the worst economic climate since the Great Depression.

So I want to be transparent with you in regards to our financial position, as it will have consequences for 2011.  Here’s the arithmetic:

• In 2006, 2007, and 2008 we raised $8.3 million and spent $6.5 million.

• We ended 2008 with a surplus of $1.6 million.

• In 2009 we raised $2.7 million and spent $3.1 million, eating into our reserves by $400,000.

• In 2010 we will raise $1.9 million and spend $2.7 million; we expect this to leave us around $400,000 in reserves.

Thus we have, for two years, been self-financing from reserves accrued during better economic times.  I am grateful for these reserves, and that we could use them judiciously over 24 months. However, it is no longer possible to self-finance the gap between income and expenditures, for the simple reason that our cash reserves are too limited to do so.

Much of the shortfall in our income has to do with the larger economic climate.  But not all.  Here are some other factors that I, frankly, underestimated:

• We agreed, in the past, to open programs without multi-year commitments from supporters.  In some cases, these supporters have not renewed their commitments, yet we have kept operating the programs at close to scale.  In particular, this is the case both for The New Mexico Independent and The Washington Independent.

• We are approaching our fifth year of operations; some of our founding supporters have, understandably, felt that the time has arrived to shift their support elsewhere.  This is a relatively predictable pattern in philanthropy: 3 – 5 years of support from any given source is a safe assumption.

• Replacing this support with new support requires a 9 – 18 month development cycle.  In this economic climate, it is closer to 18 months.

The net result is that we see, in addition to a shortfall, our most conservative estimates actually coming true.  For instance, in the summer of 2009 we did a worst case scenario for 2010, with regards to income, and projected $1.9 million in revenues.  This is precisely what happened.

So going forward, we must adopt a new set of rules, to ensure our overall viability through an economic crisis that persists, and may persist for several more years:

• Institute “pay go” budgets: programs must be supported.  When they are not, they have to be either closed or operated at the level being supported.

• In the case of new programs, require multi-year commitments as a precondition for operations.  This is what we have successfully done in Florida, where the program has two year commitments.

• Be more innovative in terms of leveraging the “network effect” to help smaller programs operate with limited budgets.  We pioneered this in Minnesota, where we’ve learned to operate a robust site with one full time reporter.  The site is successful thanks, in part, to the way we can syndicate content throughout the network from our sister sites.

Using this framework, there are two programs that, unfortunately, are no longer sustainable at their current levels: The New Mexico Independent and The Washington Independent.

In the case of New Mexico, we are going to institute the Minnesota model, with the aim of working to rebuild support over time.  In the case of The Washington Independent, we are going to merge the site with The American Independent, and now have one national place (instead of two) for all our reporting.  Over time, we aim to build up our reporting capacity in Washington as support develops.

And going forward, we will be looking to a different architecture with regards to how we create new sites: more of our programs will live as “state pages” on rather than as stand alone websites.  This will provide us with more flexibility and leave us less vulnerable to sudden changes in support levels.

More details in terms of how these changes will affect you will be forthcoming shortly from the editorial team.

I know that this news is hard, and the decisions that led to this did not come easily. We have learned to work with less, and done so admirably, but I am taking the prudent course that will ensure our network and its mission can thrive.  And if things improve faster than anticipated, I look forward to having that good problem on our hands.

Please know that you can come to me with any questions about this situation.

Thank you.