I have spent years trying to explain the importance of intangible assets and their impact on a company’s value. Frankly, most people don’t even understand the basics of intangible assets. They struggle to comprehend that intangibles are the most undervalued asset in a corporation. Undoubtedly, most of the confusion is due to accounting rules that keep the value of internally grown intangible assets off the corporation’s balance sheet. Honestly, I’ve been frustrated in explaining what intangibles are and how critical they are to a business.
Then, as my wife and I were preparing to board a flight in the era of the Covid-19 pandemic to visit our grandkids, I had a revelation. “Love” is the most significant intangible. Love motivates us to spend money, take chances, travel great distances, to do all kinds of things that we would not do in the absence of love. I’m sometimes described as an old geezer, so perhaps I’m not the best person to talk about love, but I’ll give it a shot. How do you explain love? How can you value it? Most people who have experienced love know that it is priceless. You know instinctively that investments in love will provide a great return on investment. You make those investments willingly and happily, confident in the long-term value created. But, if you ignore love, it will eventually dwindle and fail.
You can also love a specific company. I have loved Apple since the beginning. Love has motivated me to be a loyal Apple consumer for decades, and love has prompted me to purchase stock shares in the company. If Apple introduced a flawed product, it puts a strain on the love bond. If the customer service is slow, you begin to question their commitment to the relationship. Real love endures many difficulties in a relationship and is difficult to damage once solidly in place. Love seldom happens at first sight, but rather it is built upon many interactions over time. Love is reliant on a solid foundation of trust.
Intangibles like love are impossible to touch, but you know they are there. Intangible assets in business are the building blocks of corporate value creation. Love and trust are built through the tools of branding, advertising, marketing, training, research, design, patents, and public relations. All contribute to the trusting relationship with both consumers and investors. Yet, the managers of these areas of expertise are often the victims of irrational company budget cuts that damage corporate value. These cuts are often based on GAAP (Generally Accepted Accounting Principles) that only look at hard assets as a value worthy of a balance sheet. It’s time to give accountants some love and maybe persuade them to think more holistically about corporate value.
A new value discussion with the executive management team is needed to explain that intangibles are the drivers of corporate growth and that intangible assets can be measured, valued, and managed like other business assets. Love isn’t free, but it is an excellent investment.
Let me know if you agree? Jgregory@tenetpartners.com
