Most business owners (particularly service businesses) recognize that their most important assets are their people. People are great (on the whole) – but often their most important skill is the business knowledge they carry ‘inside their heads’. While you employ your people they use that knowledge for the benefit of your business – but when they retire (or leave to go to work elsewhere) your business will generally lose that knowledge (it walks away with them – you can try cutting their heads off but it will usually be messy and doesn’t work too well!).
Business owners need to understand that they can either (a) accept the above – in which case your people will continue to generate income – but your ability to create long term capital value will always be limited (particularly in ‘people type businesses’ for the reasons above). Alternatively (b) you can decide to do things differently.
The first step to doing things differently is to understand that there are 3 types of intangible assets:
This concept applies to any type of virtual asset or intangible asset (not just people) – whether that intangible is described by words like ‘brand’, ‘knowledge’, ‘creativity’, ‘design’, ‘solutions’ or even ‘experience’ or ‘relationships’.
The concept is that ‘Gases’ are usually a necessary first step – for example, when an idea first ‘pops into your head’. That idea is an important first step – but while the idea remains only inside your head (shared with nobody else) then it is without (monetary) value.
The second step is that the ‘Gases’ become ‘Fluids’. This is actually how most businesses work. People are employed who use their skills /knowledge /creativity/ solutions /experience to help customers with their needs or problems. This is all good – except that your business doesn’t really own the clever assets – you are ‘renting’ them (by paying wages). This is a great model for generating income – but it is also a large part of the reason why many businesses are not likely to maximize the potential long term capital value for their owners.
The third step is to transform these (‘fluids’) one-off solutions etc. into something more like a product on a conveyor belt. Essentially we need to make these solutions we regularly sell into ‘Solids’. Because ‘solids’ are more tangible – they are easier to sell for a pre-determined price (e.g. fixed amount rather than based on an hourly rate). Sometimes these ‘solid’ solutions are referred to as ‘Ser-ducts’ (a blend of service and product). In many service based businesses the real skill is to package them in such a way that they are ‘solid’ enough to sell like a product – but not so solid that they look like they have been made with a ‘cookie cutter’. They usually work best when they are 80% ‘solid’ – with the other 20% remaining ‘fluid’ (personal to the particular customer circumstances and the service provider’s personal style).
By way of example, Collabor8 is full of ‘solid’ methodology (we sometimes call it ‘frozen methodology’). All our illustrations are ‘solid’ intangibles. They are all standard, pre-numbered and the copyright is owned by the business – but can all be used as consistent tools by team members.
So – a key rule of strategy – think: 1. Gases – 2. Fluids – 3. Solids
Because in strategic terms – 3 is a magic number!