Future success in most organizations today is a direct result of having in place the right intangible assets and knowing how to utilize them well. Tangible assets and value are fairly easy to understand and you can see them as you walk through your organization and measure the net value of them (after accounting for depreciation) on your organization’s Balance Sheet. Intangible assets are something very different but extremely important to your business success, if not the most significant assets you need to be concerned about. For those interested in transitioning your business over the next few years, this concept is likely the most important driver of the final purchase price you will receive for your business. So, given its importance, in this post I explain this concept further for you and provide some strategies you can use to ensure you are doing everything you can to protect and grow your organization’s intangible asset value.
It is best to understand what is meant by intangible assets by listing a few examples:
- Employees – their competencies, knowledge and relationships
- Leadership team and their ability to mobilize and engage your employees to continually be adding value to your customers and their ability to quickly solve problems
- Reputation and brand image
- Internal processes (ideally documented and optimized)
- Ability to innovate and turn ideas into action – solutions that provides value to customers and your shareholders
- Relationships with suppliers and key customers
- Company culture and the way your employees do business
This is not an exhaustive list but I think you will now see what is meant by this term. These are all non-physical and “fuzzy”, to say the least. And, it doesn’t matter if you are a manufacturer, distributor of goods or provide services to your customers. The high ‘fuzziness factor’ doesn’t mean these assets can be ignored – far from it, especially if you aim to increase the value of your business to get it ready for transfer or sale. It is worth noting that intangible assets produce value only when they help to deliver value to your customers. In other words, they have value if they are used within your organization to successfully fulfill your customer’s objectives and problems – both present and future.
Responsibility for Your Intangible Assets
Obviously, the business owners are ultimately responsible for these assets and will reap the rewards of growing these assets over time through an eventual sale of the business. I will boldly suggest that most of your time as business owners should be focusing in on these areas. I am sure you have heard the phrase before:
“Stop working in your business and start working on your business”….
I know, easy to suggest, hard to do. Well, in a nutshell, by working on your business, your efforts will improve the intangible value of these assets over a period of time. If you are short-term focused, and resources are limited, this is extremely difficult to do — stuff needs to get done and done well and quickly. Customers are demanding ever higher quality and speed to deliver, all at the same or lower prices. There is no time for the fuzzy stuff like the items above! “We will get around to these when things slow down a bit”. The challenge is that things never slow down … or at least you don’t want things to slow down. And, if/when your business shows signs of slowing, you and your leader team will begin kicking into “firefighting” mode and will crank up your business development efforts or other components of the business. Likely you will not default to spending more time on the intangibles, I almost guarantee it (sorry, to be be blunt here). However, I strongly encourage you to put the increased effort in some of these areas and deliberately schedule time in your weekly schedule. Your future shareholder wealth and possibly your future organizational success depends on you!
Growing Intangible Asset Value
So how do you grow your intangible value and what specific strategies can you deploy to dramatically increase success in this area? Strategies and tactics in this area are as unique as each business but below I will outline three of the more common ones that you can consider for your business. In this blog post, I will briefly dive into #1 and #2. Item #3 is a pretty large and important strategic project to undertake so I will use two future posts to explore this one further (“Purpose, Vision, Values” and “Strategic Alignment”).
- Delegate your day-to-day tasks – set milestones
- Leader and employee coaching, developing and mentoring
- Clarify your organization’s purpose, its vision, mission, values and understand how well all of your people, processes are aligned to each of these
Delegate and Take Control of Your Calendar
Here is a quick test of how well you are currently delegating. List your company’s top 10 customers by sales volume and ask yourself this question for each: “If tomorrow started without me (the owner), how many of these customers would still do business with us?”. A similar question can be asked for each member of your leader team. An over-reliance on any one person will impact the future value of your organization … its intangible value.
Ok, so how did you do with this question? If some key customers will not stick around without some significant influence, you have a problem and the Personal Goodwill of your organization is too high. Personal Goodwill refers to the owners /leaders that become the key contact for major customers, the key innovation engine of the company, etc. The idea is to spread these tasks out through documented systems, processes, empowerment and training so that your organization is not solely dependent on any one person or small group to get things done – and done well. And don’t get stressed thinking about delegating or your lack of – it is all about progress, not perfection, moving small steps at a time.
Leader / Employee Coaching Mentoring
Much has been written about this topic and its importance in any organization – whether you have 5 employees or 500 or more. For this post, I simply want to encourage you to think about what you have done in this area and what formal and informal plans you could create to better equip your leader team for future long term success. Considering this team is responsible for getting all things done and creating customer value in your organization, what are you leaving to chance or trust that your teams are being fully utilized? Are they on the same page, do they have complementary skill-sets and do they express their concerns and challenges with each other – openly without fear? How skilled are they in asking questions within their teams and how well do they really know each other? Are they working hard to understand all areas of your business? How close are they to the customers and their true needs?
In summary, understanding and relentlessly working to improve intangible asset value in your organization is really important and definitely not something for you to leave to chance. I hope I have broke the concept down into something meaningful that you will explore for your business. If anything, I encourage you have some conversations with your leader teams, other business owners and your professional advisers about this concept. Capture the insights on where things may stand in your organization. Then, become more deliberate with your time to ensure these assets are growing adequately for your organization.