Small Biz: Are your numbers misleading you?
Pay attention to intangibles & IP to position for success
By Jean D. Sifleet, Esq.
While there’s no substitute for solid financial information on which to run your business, the numbers don’t always tell the whole story.
Albert Einstein’s office sign read: "Not everything that can be counted counts, and not everything that counts can be counted."
In this era of spreadsheets and lots of data analysis tools, it’s easy to focus on the quantifiable aspects (dollar volume of sales, website hits, etc.) and lose perspective on the importance of factors such as changing markets, intangibles and intellectual property.
Difficult to quantify, but critical to business success, are intangibles and intellectual property (IP) such as:• Barriers to Competitor’s Entry (legal protections)
• Brand Name (market position)
• Differentiation (unique capability)
• Cost Advantage (cheaper)
• Proprietary Systems (better, faster, more reliable)
• Customer Relationships (strong)
• Skilled Employees (retention)
Emerging new business models
General Motors certainly believed that the profitability numbers supported continued production of gas-guzzling SUVs, rather than smaller fuel-efficient models. GM failed to look at the numbers in the context of changing market conditions. GM paid a high price for clinging to an old model of profitability.
On the other hand, the current valuation methods don’t support the premium that Google paid for YouTube. Obviously, Google sees future financial benefits that the current models don’t reveal.
Don’t assume that growth, in the form of higher business volume, automatically results in higher profits. It’s possible to grow the revenue of a business - take on more projects, manage more people - and actually become LESS profitable. This happens all the time to builders who get strung out across too many houses and find they really made more money building houses one or two at a time, and certainly had fewer headaches.
With outsourcing and low-cost labor undermining many traditional business models, it’s more important than ever to focus on your company’s core value added.
Take time out - get perspective
To be positioned for success in this rapidly-changing world, you need more information than your financial numbers. To get perspective, you need to be free from the constant interruptions of the workday and to be able to gather information from sources outside of your head and your numbers.
I highly recommend reading "The World Is Flat" by Thomas Friedman (Penguin 2006). Friedman presents a big picture, integrated framework of the globalization of the world economy that is resulting from the Internet and related technologies.
In conclusion, to stay competitive, you can’t rely on your current business model and financial numbers to make decisions about your business. You need to pay more attention to the changing marketplace and your core value – your intangibles and intellectual property. To survive, your business must adapt, and to prosper, it must anticipate and initiate change.
Jean D. Sifleet, is an attorney, CPA, 3-time entrepreneur and author. As a member of Worcester-based Hassett & Donnelly’s business practice group, she counsels privately held companies on business matters that include leveraging intellectual property and successfully implementing transitions.
WBJ Web Partners
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