Update 1 (12:00 pm EST, 26 August 2012) – I have been contacted by #believeinfilm’s Gordon Boddington and he has stated that he is not a part of the @SaveKodakFilm team, though he supports their efforts. Gordon, I apologize for my error.
While @SaveKodakFilms has tweeted to me that my information about who is on the team is incorrect, with one exception, the identities of the team remain a secret. The only person who has an identity that can be publicly verified is Nadia Duchemin. Here’s Nadia’s LinkedIn profile.
In my experience, when an entity solicits funds, it is incumbent upon them to practice transparency regarding fundamental issues such as founders/executive team, sources and proposed use of funds, and accountability. This is not just ethical; it is required by US law.
On 24 August, this new Twitter handle appeared on my Twitter stream. And today, less than 48 hours later, 13,362 people are “following” @SaveKodakFilms.
There is one publicly verifiable person associated with this handle. That person is Nadia Duchemin, “a general advisor at a Manhattan art gallery” and a passionate photographer who describes herself as a “French Canadian girl living in New Jersey and working in NYC.” Nadia’s previous professional experience was working as a data entry operator in New Jersey.
As described on their page of the Indiegogo.com website, their mission is to raise enough money to “save the Kodak film division” as a way of preserving the manufacturing and sale of Kodak still film products. Their initial funding target is $150,000 but as Ms. Duchamin acknowledges on the indiegogo.com page, “We need money. I don’t know how much yet. I entered a number to get us started. We probably need a lot, but a small amount is better than nothing. What’s important is to start and get to work.” Their belief is that by using what is now known as “crowd funding,” they can raise sufficient capital to rescue the film division.
One of my Twitter acquaintances is Dan K (@ZDP189). Dan lives and works in Hong Kong and he tweeted me, “Mark, what do you think of @SaveKodakFilms? Is it a scam?” My response was “My read is that at this point @SaveKodakFilms are well intentioned but inexperienced and uninformed.” He asked me for more information and I said, “I can’t say in 140 characters so stay tuned for a blog post.” This is my response to Dan’s question. I doubt he’ll mind if you read it too.
Since that brief exchange, the @SaveKodakFilm team has put up a blog site and provided some answers to the many questions they’ve been asked. While helpful in articulating their goals and providing some answers to the many question, my opinion and conclusion is this: the @SaveKodakFilm team doesn’t have the requisite skills, experience, or resources to achieve their stated objectives. And I don’t believe they will get even close. But, I would love to be proven wrong.
Before you start angrily pelting me with boxes of film (and actually, that would be nice) and screaming “You don’t #believeinfilm!,” let me take you through what’s involved in achieving @SaveKodakFilm’s goals: “We want to buy what is related to films. We also want to make sure Kodak films won’t end up in greedy hands with people who are going to ask 50$ for a roll of film or 200$ to get it developed. We want to keep the labs alive.”
Let’s begin with a little reality check here. The entire reason Kodak has decided to shop for a buyer of their film division is because Kodak is running out of cash. The ship is sinking. It is leaking money like a sieve. And they are starting to throw overboard (via asset sales) everything they can to maintain liquidity and solvency as a going concern so that they can follow through on their CEO’s vision and business plan. So this entire exercise is about one thing and one thing only: money. Cash. Green stuff. It is not about film, it is not about analog vs digital, it is not about good versus evil, it is not a threat of nuclear war. It is an effort by a likely dying company to raise money. That’s it.
Second, though I #believeinfilm, the film industry is in its sunset years. Kodak’s own engineers recognized this in the late 1990s which is why a group of chemical scientists did the unimaginable: they filed and were awarded nearly 700 fundamental patents in the area of — dare I say it — digital photography.
Third, though I don’t know this for a fact, I will bet you my Leica MP that Kodak has retained investment banking advisors to shop the film division. These guys from Wall Street are packaging that division, putting a nice orange and yellow bow around it, and they are dialing for dollars. Their hit list includes Fujifilm, Ilford, Efke, and anyone else in the film industry. They have a second list that includes private equity funds, hedge funds, sovereign investment funds, high net worth investors,turnaround specialists, and anyone else that has a pulse and a big pile of cash. And guess what? This may shock you I know but none of these players is going to tweet, blog, publicly opine, or utter a single word to anyone who doesn’t have an absolute need to know what is going on. The bankers will have a “war room” in midtown Manhattan and at corporate headquarters in Rochester. They will coordinate every move with the bankruptcy trustee and their legal staff. And as the saying goes, they are going to “put lipstick on that pig” and sell it to the highest bidder they can find.
The “Cliff Notes” version of “Mergers, Acquisitions, and Divestitures for Dummies”
So, @SaveKodakFilms, you want to get in the game? You want to save the Kodak films division from those greedy bastards you fear are waiting in the wings? Well, I’ve looked at your backgrounds, resumes, and read your blog post. I think you would probably (though privately) welcome some guidance. What follows is a playbook. Think of it as a checklist for achieving your goals.
Job One: Due Diligence
Before you, me, or anyone would spend a nickel on anything for sale, we want to check it out. At least two of you are photographers. You’d never buy a camera sight unseen, particularly not one that might cost millions of dollars. So, you’re going to need to “look under the covers.” In the finance industry this is called due diligence. Doing this in this case will require the following people:
- A securities attorney familiar with bankruptcy law
- A contracts attorney familiar with commercial law
- A labor relations attorney familiar with union agreements and labor law
- An intellectual property attorney familiar with copyright and patent law
- An EPA regulations attorney familiar with hazardous material regulations in the US and worldwide
- An experienced manufacturing consultant who understands the details of high volume product manufacturing
- An experienced film chemist with a thorough understanding of the theory and practice of film manufacturing
- An expert in high volume product distribution
- A business consultant with a deep understanding of global product sales, marketing, and product support
- A team of financial analysts to process all of the internal revenue and cost data
And what will this cost? Well, the going rate for a good securities attorney in mid-town Manhattan in 1999 was $500 per hour (that’s the last time I had to hire one). And remember, this is a transaction that will take place in the state of New York so you have to hire attorneys licensed to practice before the New York state bar. IF you could get this due diligence done in one calendar month with a full time level of effort of a team of 15 people, the price would be $1.3 million. (Calculation: 15 people working 172 hours in one month at the rate of $500 per hour). But let’s assume that the entire team of due diligence experts #believeinfilm and would offer you a discount. Let’s bring the price down to $1 million. That would be one hell of a bargain.
But there’s one more thing: Kodak doesn’t have to answer your call for one simple reason. If they don’t believe you have the financial capacity to execute a multi-million dollar transaction, they will simply say: “Sorry. Not interested.” So before you can even get in the door, you have to have money. Lots of it. As in millions of dollars of cash. So how do you get that?
Job Two: Business Plan and Executive Management Team
Let’s deal with your crowd funding strategy first and quickly: it won’t work for two reasons. First, even though Congress just passed legislation that allows a certain level of crowd funding, the maximum amount of money you can raise is $1 million. That’s it. But let’s say that each of your 13,000 followers wrote you a check for $76 and you got your $1 million. Cool. Here’s the second problem: you’d never raise another dollar from any institutional investor because they hate, as in loathe, despise, spit-on-the-ground-in-disgust-hate small investors. Why? Because small investors complicate corporate governance, shareholder meetings, and corporate management. Especially in a transaction like this. The very last thing they want is 13,000 small shareholders who #beleiveinfilm. They only want a few really deep pocketed institutional investors who #believeinmoney.
Now, you could transform @SaveKodakFilm into a 501c3 non-profit corporation and simply solicit donations. As a non-profit, you are not raising money for an investment; you are soliciting donations for a charity. And if you follow the US tax code, you can probably pull it off. But you’d still be in a corner because the big money you need to actually buy the film division is motivated only by profit. So while you could donate your due diligence work product, that would be as far as you get. At that point, the recipient of the due diligence would say “thank you very much,” determine whether to do a deal or not, and move on. You might be able to finagle some sort of “donation” for the work but you couldn’t profit from it nor could you return the donations.
Crowd funding? Not on this deal. Dead on arrival.
That means you have to do it the old fashioned way: you have to raise the money from big dollar sources and you need two things to do that: first, you need a business plan and second you need a seasoned, experienced executive management team. Now I know you #beleiveinfilm and I #beleiveinfilm. But the investors you need #believeinmoney and here’s the first objection you’ll encounter: why in heaven’s name should we buy a dying business from Kodak? Because you like Tri-X’s grain? Because the dynamic range of T-Max approaches that of human vision? Because shooting analog is hip? Those are not full credit answers.
Let’s travel back in time to 1915 and visit Detroit, Michigan. Henry Ford has introduced the Model-T automobile, worked out the manufacturing problems, and is producing a reliable form of transportation that doesn’t require an animal. His cars are loud, smelly, and cantankerous. But they are selling like crazy. In Detroit there is another manufacturer who makes horse drawn buggies. They are works of art: gorgeous bodies, beautiful leather trim, optional silver handles, and a suspension to die for. And, these buggies are drawn through the streets of Detroit behind the most beautiful steeds imaginable. Watching a horse drawn buggy is pure eye candy. And the photographers who take pictures of them . . . well, their photos are called “buggy porn.”
But this buggy manufacturer has discovered that the sale of Model T’s has really impacted his buggy sales. So, he decides to sell his buggy division. He needs the cash because he has another division that manufacturers steam engines; that’s his survival business plan.
A group of buggy owners hears his announcement and is in deep despair: no more buggies. So, they form a group and begin putting up signs all over town that say #believeinbuggies. Then they form a coalition called @SaveBuggies. And they approach citizens in the town with a plan: let’s raise enough money to purchase the buggy plant so we can still buy buggies.
I think you get my point. If you frame your investment proposition as one that is based on saving film, you won’t raise the needed funds. You will have to reframe the investment opportunity so that saving the film division is a second order effect of the transaction. I think I know how to do that but explaining that strategy is best done to a different audience.
After you’ve figured out a business plan and model that will work, you then need to identify a team of seasoned executives that can run the division. You may get lucky: the current managers may want to go with the new venture and that might satisfy the criteria of the investors. But they may not. Or, your investors may demand “their guys” be in charge. However you get there, you’ll need deep bench strength on the management team. And with all due respect, that’s not the team of @SaveKodakFilm.
But with a credible business plan and a seasoned executive team, now you are ready for the fun part: raise the investment capital. How much? My back of the envelope assessment says the total sum will be north of $30 million. Maybe a lot more. It will be a blend of equity and debit. It’s complicated because of the bankruptcy, the trailing labor issues (retirement benefits), the likely need to move the manufacturing plant, the environmental impact issues, Kodak’s rapidly worsening cash shortfall, and the brand licensing issues. And while the first set of complications are just those that readily come to my mind, the last one is the big one: you won’t raise a nickel if you can’t be confident that you can license the use of Kodak’s brand. Saving the film division only to market it under a new brand is extraordinarily risky. But what’s Kodak’s brand worth? Well, a year ago one analyst placed its value at $1 billion. Nuts you say? Ok, make them an offer. But I guarantee that licensing that brand will likely cost a whole lot more than a few million dollars.
Job Three: Successfully Negotiate with Kodak
So, you’ve got a commitment from a deep pocketed investor (probably a group of institutional investors), a rock solid business plan, a seasoned executive team and you’re ready to rumble. But remember: it’s likely not just your team and Kodak. It’s your team, other investment teams, and Kodak. And if Kodak’s advisors on this transaction are smarter than the patent team that advised them (and that is not a high bar to cross), then get ready for some fun.
Bear this in mind: Kodak’s CFO has one imperative: get as much cash as fast as possible from the sale of that division. His team of advisors are going to be ready to deal with every objection I’ve listed (and a whole lot of others that each due diligence team will uncover). But his perfect deal is all cash. He probably won’t get that but he’ll sure as hell try.
Your investors are going to want to pay as little cash as possible. They’ll want Kodak to “tote the note” for a while, accept huge liabilities such as current payables to raw materials suppliers, make a nearly endless list of representations and warrantees regarding intellectual property, hold harmless clauses on outstanding litigation, provide all kinds of legal safety nets in terms of environmental hazards, retirement benefits, and a zillion other contingencies that are floating around. And so this hugely popular and noble effort to @SaveKodakFilm will actually involve a mind-bendingly complex negotiation that itself will cost a small fortune. And, even after all the negotiations, you may still not reach an agreement! You might lose to another investment team.
Or, you can just wait . . .
A number of analysts on Wall Street don’t think Kodak’s going to make it. If you’ve ever piloted an aircraft there are at least two conditions you want to avoid: you never want to run out of airspeed and altitude. And you want to avoid a “flat spin.” I think Kodak is running out of airspeed and altitude and maybe be getting ready to enter a flat spin. The end state of both of these aeronautical crises is very ugly. Depending on the altitude of the aircraft and the velocity of impact, all that’s left are pieces on the ground.
If Kodak runs out of cash, the bankruptcy trustee will seize control of the assets and put them on the auction block. The proceeds will go to the secured creditors first. That’s when the bottom feeders arrive. The financial vultures will perch on the buildings in Rochester and feed on the carcass that once was Kodak.
And the film division? Pennies on the dollar.
But even if you had the money to buy it for pennies on the dollar, you still have all of the trailing liabilities, you still have to run the manufacturing operation, and you still need working capital to keep the business going. It’s not pretty but my beloved T-Max would still roll off the assembly line — somewhere in some city on this planet.
So what do I know?
One of the limitations to social media is the lack of transparency about who people really are. Some people prefer to remain anonymous while others adopt multiple identities so that they can compartmentalize their lives. This is not evil or wrong. But it is a limitation. It’s one of the reasons I don’t refer to the people I interact with in the world of social media as “friends.” If I don’t know them in real life then I don’t really know them.
To the world of Flickr, I’m “LeicaMark.” On my photographic Twitter feed I’m “goodeviriginian” If you follow me on my photo Twitter feed, you know that I have a preference for Kodak’s T-Max film, that I shoot principally with a Leica MP, that I develop my film myself, scan it myself, and post it on Flickr. If you study my images closely, you’ll learn that I am part of a loving community of people whose portraits I enjoy taking, that I enjoy shooting complex architectural structures, and that when I capture an image, it often “means” something more than the patterns on the negative might indicate. In fact, I think images are often symbolic and point to larger truths. But that’s another post topic . . .
I’ve never earned a nickel as a photographer. I am not a professional photographer. My son is and he’s quite good. (Just as I have a preference for the Kodak brand and I have a preference for my children. Bias acknowledged.) But I have huge admiration for anyone that can make an honest living producing “family safe” images for a living. My hat is off to you. It is hard and it’s gotten a lot harder since digital capture technology showed up.
The way I’ve earned a living for nearly thirty five years is being a technologist, entrepreneur, and management consultant. In my career I have raised $80M in equity and debt, founded and grown three companies, and advised senior executives in business and government. The professional achievement I’m most proud of is a company you’ve probably never heard of: MobileStar Networks. My partner and I founded the company, formed the executive management team, raised nearly $60M in equity and debt, and created the industry you know today as “public WiFi.” If you believe some Internet lore, I am credited with inventing the term “hotspot” as it applies to public access network locations. I honestly don’t remember I led the team that closed the first contracts with Starbucks, American Airlines, and Hilton Hotels to deploy WiFi infrastructure in their coffee shops, in American Airline’s terminals and Admiral’s Clubs, and in Hilton’s high properties. I sealed each contract with a personal meeting and a handshake: with Howard Shultz, the founder of Starbucks, with Donald Carty, then CEO of American Airlines, and with Dieter Huckstein, the President of Hilton Hotels. MobileStar was then sold to Deutsche Telecom and today operates as T-Mobile Hotspot. So, the next time you connect to a public WiFi hotspot, you can say, “I know who made this possible.”
But that experience was grueling and far from simple. It took over four years to raise the money in multiple rounds. My financing sources came from Dallas (where we were based), NYC (midtown Manhattan private equity) and San Jose (Sandhill Road venture capitalists). I estimate that I briefed (presented) our business case to 400+ separate funding sources. The vast majority said “no”, “hell no,” “you’ve got to be kidding me,” and my favorite line of all from a then know-it-all Wall Street analyst, “No one will ever need that kind of bandwidth!” I learned how to write a business plan, present it persuasively, hire an executive team, sell a still nascent technology as the basis for an untested value proposition, successfully negotiate complex business and securities agreements, work within the SEC guidelines regarding private equity transactions, and deal with multiple competing stakeholders ranging from customers, to employees, to business partners, to shareholders, and to the media. My life was filled with attorneys, investment bankers, private equity managers, analysts, and venture capitalists.
Sometimes life is really good to you and one of the best things that ever happened to me was meeting my wife Pam. Not only does she have a heart as big as the sky and looks that will set you back a few feet, she is smarter than any woman I’ve ever met. Wicked smart. Crazy smart. You are now thinking: another bias. I got it. No, this time I’m being objective. A bit about her career: she earned a double degree from Northwestern University (economics and materials science) and paid her way through school modeling for the Ford Agency in NYC. For those of you old enough to remember, she was one of the “Velvet Girls” in the Canadian Whiskey campaigns. After she graduated from Northwestern, she landed a job at Young and Rubicam (Y&R) and “on the side” earned her masters in business administration from Harvard. One of her accounts at Y&R was Kodak where her team created the now memorable print and TV ads about “capturing the moments in your life.”
When a colleague of hers at Y&R accepted a job in the Reagan Administration, Pam was invited to join the White House as a special assistant to the Chief of Staff, James Baker. She worked for Baker for six years as he moved from Chief of Staff, to Secretary of the Treasury, and then to Secretary of State. Pam advised the White House speechwriters on Reagan’s speeches, was a key member of the “Morning in America” media team, coached the Gipper himself on how to deliver key lines, helped the press corps manage some communications crises, and is the only person I’ve ever met who was sung “Happy Birthday” to by the President of the United States and close staff members while sitting in the President’s chair at his desk on Air Force One as it flew across the country. And how many people do you know have a letter of recommendation from the President of the United States? Pam does.
But there’s more to her story. She left the White House and took a job doing mergers and acquisition work for the senior executives at Bell Atlantic (now Verizon). As her mother commented at the time, “Finally, my daughter has a real job!” <roll eyes> While at Bell Atlantic she did the analysis and wrote the business plan for Bell Atlantic to enter a new market: cell phone communications. She presented the business plan to the Board of Directors and they agreed to enter that market. If you use a Verizon cell phone today, well, now you know who wrote the business case and “made the sale.”
Pam left Bell Atlantic, moved to Dallas, and worked for one of the world’s largest advertising agencies (Hakuhodo) and then several high technology companies. While at Cisco, she was a part of the deal team that reviewed every proposal made to Cisco regarding an acquisition or investment. She reported to the SVP of M&A and had frequent meetings with John Chambers who is still Cisco’s CEO. While at Ericsson, she advised the CEO of that global firm on M&A transactions and strategic investments. You may recall that Ericsson and Sony used to jointly manufacture cell phones. They don’t anymore. While Sony uses Ericsson’s name under license, Ericsson doesn’t manufacture cell phones. You know why? Pam did the analysis and found that given the rapid commoditization of the handset business and Ericsson’s business model and profit margin targets, they needed to exit the market. So, she advised the CEO to “divest itself of the handset division” and he followed through. Even after she left the company, he contacted her to say “thank you. That was a really good piece of advice.” Smart. Wicked Smart. Crazy Smart.
Every once in a while I look at her and say, “You know. I married a female Forrest Gump. Your life has been amazing.”
If Pam and I were attending a financial conference, they’d take one look at me and say “he’s on the sell side” and one (or more) looks at her and say “she’s on the buy side.” I try to persuade people to do something new (sell) and she’s always been a part of the team that says: “Not good enough. Or no. Or you haven’t done your homework. Or here’s what’s wrong with your proposal.” That’s the way the world of finance works. It’s all about selling and buying.
So, in the past year after we’ve opened a bottle of wine for dinner and the conversation veered towards the latest news about Kodak, it’s always a lively discussion. We shoot film on the weekends. And when we do, Pam’s is often my subject. She’s my “photographic muse.” Pam’s a T-Max shooter like me (and uses her Leica M6). But I’m the “family developer and film scanner.” And like me, she loves to shoot film and loves the look of film. But when the conversation turns to Kodak, it’s all business. The sentimentality ends and her sharp business mind engages. Whether its a comment on Kodak’s latest SEC filings, her analysis of a press announcement, her views on how Kodak is handling both the traditional and social media, or her opinions about their future strategic challenges and choices, we engage in a discussion as two seasoned business professionals, each with a unique perspective, our own set of experiences, and our views of Kodak’s problems. And what I’ve just shared with you is a short summary of about 30 minutes of one of those conversations — sans wine
So what about @SaveKodakFilm?
I won’t be investing in @SaveKodakFilm. But I wish them well.
For me, I’m taking my money and buying Kodak film. Boxes of it. I’m putting it in my freezer. I hope the panic most film shooters feel now will spike the sales of film to a degree that not only will Kodak’s CFO get some much needed cash but that it will become a proof point in the business models of prospective investors that there really is a market for film. Maybe a small one. Certainly a niche. But it’s there and it’s real.
You want to save the film division? Buy the hell out of their product. Generate so much demand that they have to add another shift. Buy so much that on-line stores like B&H say “Out of stock. Waiting for delivery.”
From a business perspective, the most valuable thing individual film shooters can do who #believeinfilm is #buyfilm.
So, Dan K (@ZDP189) – that’s my answer to your question.
And if you’re an investment banker, hedge fund manager, private equity investor, or venture capitalist who wants to get in the game: reach out to Pam or myself. This deal could be great fun and you could make a whole lot of money.