Why Google’s Alphabet Move is a Great Lesson for Business Owners

Google Inc. is a great example of a company that keeps moving forward and reinventing itself, taking calculated risks that often pay off big down the road. Several of Google’s biggest products were questionable at the time they were introduced, including the acquisition of YouTube and the development of the Android mobile OS platform.

In retrospect, these seem like no-brainers, but no one knew at the time how big those Google offerings would grow to be. Google bought YouTube for $1.65 billion in 2006, before advertising was prevalent on the platform and YouTube was facing a $1 billion Viacom piracy lawsuit over copyrighted content. Before long, all of that was sorted out and Google was earning billions in annual revenue from YouTube advertising. It was one of many risky, smart moves Google took that paid off.

Recently, Larry Page and Sergey Brin took another risk, announcing the creation of a new holding company for Google called Alphabet. When I first heard the news, my initial reaction was, “Wait, so are we going to have start Alphabetting our searches now?” But my fears were soon allayed after I learned more about the decision. At its core, Alphabet is simply an umbrella company for Google itself, as well as the various side projects and businesses Google used to own.

Why Alphabet?

To understand why this is a good move, it helps to look behind the financial scenes. Many of Google’s business units were a long shot as far as profitability, and investors have been concerned that all these side projects — from Google Glass to self-driving cars — were muddying up the financial picture of the true cash cow at Google: search and advertising. Most of those extra projects were simply adding costs to Google’s bottom line, not revenue.

But more than just helping investors, the creation of Alphabet clarifies Google’s internal company objectives. The new Google can narrow its focus to its online and mobile businesses, including Android, Maps, Docs, Gmail, YouTube, and search — while each separate company can focus on its own specific purposes without commingling with Google. It’s hard to imagine a company being efficient when its profitable operations are getting confused with its “moonshots” — those big bets that are farfetched but could be game-changers in a few years.

Side Projects from A to Z

Google’s side projects represent everything under the sun, from human lifespan longevity (Calico) and self-driving cars (Google X) to super-fast internet (Google Fiber) and smart home technology (Nest). While the activities in each business could prove to be as profitable as Google search itself one day, they are wholly different in scope, culture, and purpose from Google — which is why it makes sense to have Alphabet as the holding company, and to have Page and Brin at Alphabet’s helm to help allocate capital and ensure every subsidiary functions optimally.

Boldly Going Forward

So, what can we learn from Google’s strategy as business owners?

There are a few key takeaways. First, don’t be afraid to take bold steps forward — the route you took to get where you are doesn’t necessarily lead to where you want to go. Google’s taking a risk creating a new brand called Alphabet when it has so much brand equity with its Google name, but it recognizes the value in this restructuring and is pushing forward anyway.

Cautious Growth

Another major takeaway here is that Google recognizes which side its bread is buttered on. Rather than continue to obfuscate the results of its primary business with a number of side businesses that aren’t likely to be profitable for a long time, Google protected its most reliable revenue sources.

This serves as a reminder not to get so caught up in your company’s growth and expansion that you neglect the business units that are profitable right now. Even if there’s a hundred enticing markets with huge growth potential, you can’t forget about the products and services you offer today that are keeping the lights on.

A Little Help for Your Business

Lastly, it’s worth recognizing that businesses sometimes grow to the point where it’s just impractical to manage everything all on your own.

Page and Brin are now heading Alphabet as CEO and President, respectively, and appointing their long-time senior VP of product Sundar Pichai as the new head of Google. This is a big change for a 17 year old company, but with so many ventures under one umbrella, it’s a necessary one.

Moving forward, Alphabet will be modeled in spirit after Berkshire Hathaway, the Warren Buffett-led investment holding company that has a controlling stake in everything from banks and insurance to newspapers and retail companies. Each business in Alphabet will act as its own company, headed by a strong CEO, and look to Alphabet for funding based on its performance.

Eventually, these businesses could become their own separate and profitable entities, which means big things for the future of technology. Of course, we can’t ignore the biggest advantage of all about this new direction for Google: Alphabet Inc’s position ahead of competitors Amazon and Apple in the alphabet! Coincidence?

It’ll be interesting to see where Google and Alphabet go in the future, but for now, I think we should learn from Google’s example. If a company as massive as Google is continuing to innovate and push itself forward, maybe we should do the same in our own careers and businesses as well!

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