By Paul Latham
Do your business owner clients understand the importance of “intangibles”?
You have a fiduciary duty of care to help your clients to maximize business potential. Consequently, you should think about taking your clients through the history of competitive advantage – and why it matters to their business.
That history lesson will lead your clients to understand the importance of “intangibles” – as 21st Century business owners.
Once upon a time – in the mid 19th Century – business location really mattered. If your business was a pub/bar and it was located next to the “Klondike” then your pub did really well. If your pub was located 50 miles away it did really badly.
Today business location is of low importance to your business competitive advantage.
By the late 19th Century the world was in a period of rapid innovation. If you were Thomas Edison and invented the light bulb then your business did really well.
Today we are all “innovators” – which is another way of saying that very few businesses (outside IT) are truly innovative.
By the early 20th Century we were in the era of mechanization. If you were Henry Ford and were able to produce “x” Model T Fords per day relatively cheaply then your business did very well.
Today, being mechanized is not a competitive advantage.
By the mid 20th Century businesses were really focused on leveraging people/management structures. If you were IBM you gained a strong competitive advantage from leveraging vast armies of people through effective deployment of the organization chart.
Today seeking to grow a business via the organization chart and leveraging more employees does not offer a competitive advantage (in fact, probably quite the reverse in the virtual employee age).
By the early 1980’s – when I was first entering the workplace – we were in an era of “management fads”. In those days lots of new ideas were emerging – like – “just-in-time”, “total quality management”, “management by walking about” – a personal favorite :). The winner was quality.
By the late 1980’s / early 1990’s quality was a clear area of competitive advantage.
The likes of Japanese car manufacturers were building cars that actually worked (and lasted). Previous to that, whilst you were annoyed when your car didn’t start in the morning, it was hardly a shock.
Today, quality is no longer a competitive advantage. Quality is a very important, but EXPECTED item.
A business will not be able to sell anything today by claiming “buy X – it’s built with quality and works well”. Quality is an expect not a value item (for example, today you would be really unhappy if your car didn’t start in the morning – rather than delighted if it did!)
Today we have left the “Industrial Era” and moved into the early stages of the “Knowledge Era”.
Your client’s competitive advantage will almost certainly be built around something “intangible”.
Your client will concentrate on using words like – “creativity”, “design”, “brand”, “knowledge”, “coaching”, “expertise”, “solutions”, “systems”, “technology” when they are building their value proposition.
These words all have one thing in common – they are very difficult to touch. They are “intangible” words.
However, there are 3 types of business intangibles
“Gases” – when the intangible idea is just in your head.
“Fluids” – when the business uses intangibles to solve individual problems – “one at a time”. “Fluids” are great for creating revenue but not good for building long-term capital value.
“Solids” – when business intangibles “become more tangible” and “repeatable” – e.g. a strong brand or replicable process embedded in the business fabric. “Solid intangibles” create long-term capital value for the business owner.
If you are advising a 21st Century business owner they need to recognize 2 key things:
- They need to ensure that their competitive advantage (“value proposition”) is positioned for the 21st Century and built around intangibles rather than still rooted in the quality/expect words of the late 20th Century.
- They will need to work on “solidifying their intangibles” if they are planning to build a business with long-term capital value.
If you are a 21st Century CPA you have a fiduciary duty to help your business owner clients to maximize business potential and you should be making sure that your best clients understand the importance of “intangibles” – and we can show you HOW.