Cool Content Ideas Can Drain Profit

Internet Evolution’s David Silversmith, who has guest blogged at Big Thinking for Small Business before, has folks buzzing about his article on the estimated drain YouTube creates on Google’s profits.

Silversmith authored a study projecting YouTube drains Google profits.

Silversmith authored a study projecting YouTube drains Google profits.

Silversmith used data from Bear Stearns (yes, they still exist) and Credit Suisse to calculate that Google is losing about $1.5 million each day.

There are indeed times when market conditions dictate a product or service launch before profit is expected.  I’ve worked at more than one organization for whom speed to market was key.  In at least one case, that wager paid off handsomely.   In others, well, we got to market fast and first.

No single rule exists for product development, especially in small business, except the iron clad law that cash is king.   Beyond that, spend it if you got it, but make sure the road to profitability, not the road to revenue, is clearly mapped. Too many times, our audits of a small business conclude with a recommendation that one or more programs be shuttered.  These might be affiliate programs with big admin costs that only have a handful of super affiliates.  Or perhaps a company offers a product extension that drags down profitability in an attempt to be as vertical as possible.

Virtual organizations can work.  So too can an organization teeming with specialized knowledge workers or service technicians.  Your company may invent a better widget, but if you build it,  you may not sell the darn thing.  That is precisely what Silversmith’s analysis at Internet Evolution shows about YouTube.

In one of the worst financial environments in several decades, Google gushed cash in Q4 of 2008, able to spend $5.3 billion and still finance everything thorough operating cash flow.   The search company’s current and quick ratios are 8.7.   Remember Microsoft?  Their ratios are at 1.5.  Which company can afford to let money flow out that fast?

But should they?   Who cares.  The question here is:  should you?   Knowing when it’s time to cut and run is a critical business skill to have.  We often spend so much time developing our businesses that we forget to test the floor for when an exit strategy is necessary.  Unless your business is generating billions in cash flow each quarter, leave YouTube for the big players and break down your own business’ service and product lines to see if you’ve got a cahs leak somewhere.

Perhaps our friends in Mountain View should heed Kenny Rogers’ advice from three decades ago right before the last economic crisis of this magnitude.  Thankfully, Google’s YouTube service let us watch Kenny sing with The Muppets at no charge.    You’ve got to know when to hold ‘em…

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