Recently I was involved in the sale of a very successful business. The owner and his management team had built it from startup to $100 million. They had teams of engineers, salespeople, and marketing people. Within two years of the sale, all of these people had been replaced.
I know these people were very important, even critical, to the success of the business, but people come and go. I suggest that if you have a business that would fail if certain people left, you have a problem. It’s nice to think and to say they’re your most valuable asset, but people are fungible. So if your people can be replaced, they aren’t your most valuable asset after all.
Both tangible and intangible assets make up your business value. The most important of these are your intangible assets. They’re primarily made-up of intellectual property rights; trademarks, copyrights, patents and trade secrets. These were the assets that were left from the sale of the business described above.
Intellectual property protects most intangible assets. They protect your brand, the names of your products and services, your content and marketing, systems you use, goodwill, and inventions.
I would argue that your brand is the most valuable asset. The brand was the most important asset of the business that was sold. The purchasers wanted the customers who were loyal to that brand and its products.
In 2020, Ocean Tomo, a respected IP valuation company, reported that intangible assets command 90% of the S&P 500 market value. Forbes Advisor quoted McKenzie and Company’s statement:
“The evidence is stacking up in an age increasingly driven by innovation and knowledge, that firms and sectors that invest most heavily in intangibles are reinforcing and deepening their competitive advantage, and achieving the highest rates of growth in gross value added.”
Forbes also reported that, “Over the past half century, we’ve witnessed a somewhat silent revolution in terms of what factors are really driving business valuations . . . enter the age of intangible asset”
What are your thoughts? Are intangible assets the most valuable asset of a company? Are they worth 90% of a company’s value? If not, what percentage are they of a business’s value?
About the Author:
Bill Honaker, “The IP Guy” is a former USPTO Examiner, a partner with Dickinson-Wright, and author of the forthcoming book, Invisible Assets – How to Maximize the Hidden Value in Your Business. To download a sample chapter, click here.
To get answers to your questionsclick here. To schedule a time to talk, you can get on his calendar by clicking here, you can email [email protected], or call him at 248-433-7381.
