I talk all the time about growing the value of a business by increasing the value of its intangible assets such as company culture, reputation, and the company’s emotional connections with customers and prospects – to name just a few.
And it can’t be stressed enough that the STRENGTH of this good work will add to the company, when properly cultivated.
What I mean by strength is the power that valuable, identified and promoted intangible assets will bring to the negotiating table and the business development process; thereby creating endurance and sustainability, better profitability, increased growth and with less risk. That’s what a powerful and highly valuable brand can deliver.
I tell the story all the time about two companies that are being vetted for a possible acquisition by a suitor. Both company A and B have relatively the same revenues, similar tangible assets such as plant, equipment and real estate. But company A also has a strong internal culture, lower turnover of personnel, strong, committed leadership, an impressive repeat and referral sales record and a really good reputation in the industry and the trades.
The buyer is looking at multiples of revenue as a way to value both of them. However, company A, with its well-developed intangible assets, can offer something with much more value that’s over and above the balance sheet. It can enhance its value because this company can actually identify increased monetary value added because of its intangible assets.
A study of the Fortune 500 Companies, provided by CJ Patrick & Company in 2001, suggests that only 33% of a company’s book value is made up of tangible assets. 67% comes from intangible assets, such as brand, culture, reputation, customer satisfaction. Our company A has its value enhanced and can demand a higher multiple because of its intangibles – and that’s a position of real negotiating strength.
Let’s look at this from a different perspective. A recent MIT graduate with a degree in hydro-mechanical engineering and fluid control has two job offers: One is from Joe’s Ballcock and Toilet Works and the other from Kohler®. Now which will the candidate want most to go to work for and which company has the most power to recruit the best candidates? It’s obvious. Joe’s is happy to even get an MIT grad to talk to them and Kohler has the strength to attract only the brightest and the best candidates.
So how do companies who want to build strength and flex their muscles go about increasing the value of their intangible assets? They start by recognizing what intangible assets are and how to identify them and grow their value. There are many but here’s a good starting point.
- Your company “Why” – Check out Simon Sinek’s book “Start With Why.” And also take a look at his TED Talks ‘The Golden Circle’ video on YouTube®: https://youtu.be/u4ZoJKF_VuA. Both will give you a really good understanding of the value of knowing and understanding your organization’s purpose, cause and belief.
- Your company culture. Are you a “hated by everyone airline” or are you Southwest® or Jet Blue®? Get busy growing an internal culture that rewards your people for their good work and it will add strength to your ability to recruit great people and build a stronger bottom line.
- Review the emotional connection your company, its leadership and client-facing employees have with your customers. Do you have heavy turnover in these areas? If so, get to work fixing this problem.
- What’s your company’s reputation? Do you treat employees, suppliers and prospects really well? Is the company a good corporate citizen? Do you come through when there is a dispute? None of the above? Bad. Some of the above? Better. All of the above and then some? Very valuable with great strength.
I invite you to visit this website to learn much more about building value and strength to your company. Take some classes – it’ll be like a good strength-training workout for your company.