When Taking the Check Is a Bad Idea
What happens when a company approaches you with a check to create content? Imagine you’re a young creator or a newer media company and this check, well, it’s a decent chunk of cash. Your natural inclination is to take it. Snatch it up and hold it tight.
Many creators are being offered this opportunity today the same way that many media companies over the past 5-10 years were offered it. In exchange for a lump sum of cash up front, all you have to do is build and create content on the respective platform.
The big example of that right now is Substack offering advances through its Pro & Local programs. In exchange for a lump sum of up front money, they take 85% of your subscription revenue for the first year. Say what you will about the plans, in some cases, it is a considerable amount of money that is being offered (more in Pro than in Local).
This looks identical to what happened with many large media companies partnering with platforms to roll out new features, such as Facebook’s attempts at creating video products. It promised the world to media companies, forked over chunks of cash, and nothing really came of it. “Pivot to video” has gained its reputation because of how bad things got.
It’s always nice when a major platform or company wants to give you a bunch of money, but it’s not always as simple as it sounds. In many respects, it can actually result in a negative outcome for the business.
With all this talk of the great opportunity for creators to get advances, I’m reminded of something I heard very early into building A Media Operator. During an event hosted by The Information in Fall 2019, Jon Steinberg, the founder of Cheddar, said:
Always take the check. But you are never getting another check, so you either take the check and staff it in a way that you can do it and shut it down without hurting your people, or you figure out a way to make it self-sustainable.
That stuck with me. When we think about these sorts of opportunities, we immediately gravitate toward the check, but never think about what comes after. If the addition of said revenue is going to require you to increase the number of people on the team, you’ll have two choices when that money runs out.
- You reach breakeven on the advance in said enterprise then the money was truly an investment
- You have to reallocate or, in many cases, fire people
Even if you’re fully transparent to the team you hire to do this additional work, there is always a morale hit when people are let go. Suddenly your high flying company is a company with rocky finances and the need to cut to stay afloat.
How does this translate to creators?
Platforms are going to dangle money to get you to build on their system. But if it doesn’t work out, that money isn’t going to be renewed. If a Substack or Patreon or any of these platforms give you $100,000 to build and you don’t earn them their money back, it’s highly unlikely they’re going to double down. They don’t need to.
One of two things happens. You’ve either built this thing to be somewhat sustaining for you or you have to fire people… otherwise known as yourself.
There are other scenarios where taking the check might not be smart.
A while ago, an operator reached out to me to talk about doing some agency work for a client. This media company was doing well, but the client was offering a big check (if I recall, it would’ve been the largest single check ever) to do content creation for them as well. It’s a natural extension. We create content on a regular basis and, thus, why wouldn’t we want to do it for clients too?
I told him my thoughts. I didn’t think they should do it. With the amount of money that was being offered, it was going to require pulling people from their day jobs, which would hurt the core business. Or, it was going to require bringing on new people to do the work.
The former is obviously a non-starter. We can’t suddenly stop working on the core business just because a massive client comes along. Therefore, the option was going to be the latter. They were going to have to hire other people to do this work. In the event that this client ever changed their mind, the operator would have all this cost and no revenue to cover it.
They wound up saying no to this client, which was smart because Covid hit six months later and every company went through a phase of cutting back in those early months. But they also recognized that while they could have done it, it would have distracted from their core mission.
Obviously, this doesn’t mean we should always avoid this type of business. Building content marketing services inside a media company is a standard b2b exercise. The nice thing about this business is that the deals are often tied to promotion, so you’re actually supporting your own advertising business while also creating content for your clients.
Additionally, when you decide to move into that sort of a business, you’re doing so from a position of careful planning. Rather than reacting to a check, you analyze your financial situation and decide that clients of all sizes; therefore, the risks are spread out. If one leaves, your team isn’t suddenly too expensive.
But this risk isn’t just the money (though it’s a big part). Joe Rogan is running into some problems himself for taking the check. While I, personally, don’t care for his content, he decided to take a big, exclusive cash advance from Spotify. It’s a boatload of money, but it didn’t come without consequences. Spotify has deleted over 40 of his episodes, which they are likely allowed to do. Additionally, he’s no longer publishing much on YouTube, which was a big driver for him.
With both of these moves, he’s now in a scenario where he’s cut off much of his audience from listening to him unless they’re willing to do so on Spotify. Maybe they do; however, some percentage won’t. If the deal with Spotify ever falls apart, his business will look smaller than before the deal because he took the check. Exclusivity complicates things sometimes. Easy money, but at what cost?
At the core of these scenarios is the fact that a sudden, lump sum of cash can oftentimes look very appealing, but is actually potentially very dangerous. In many respects, it can distract from what you’re trying to accomplish and lead to potentially harmful outcomes.
None of this, of course, means you can’t take the check. If you’re already planning to move into a new line of business and the platform offers you a boatload of money or you want to go solo and the platform gives you an advance, maybe it makes sense. But doing so from a position of strength where you have workshopped the outcomes versus reacting to a sudden cash infusion is always better.
At the end of the day, a second check is likely never going to come from that platform. Therefore, you need to make it last and ensure that it gets you to the finish line. Otherwise, you’re either firing people or cutting back on your own take-home pay.