Archive for 'Investing in intangible assets.'
Michael D. Moberly December 26, 2015 – ‘A business blog where attention span really matters’!
Any decision maker today, on behalf of their business or organization is obliged to recognize IA’s (intangible assets) are just that, they are indeed intangible, i.e., intellectual, structural, competitive, and relationship capital. The individual and/or collaborative ways IA’s contribute to value, revenue, and competitiveness when effectively captured (exploited and utilized) are non-physical, thus not amenable to many of the conventional (human) senses.
It is here, I wish to convey an example which emerged earlier this week through a locally produced NPR (National Public Radio) program wherein a panel of city marketing specialists discussed findings of a recent study that measured, compared, and contrasted specific categories of what I refer to as ‘competitive economics’ among comparably sized U.S. cities, one of which of course is St. Louis. One aspect of this study calculated ‘average daily commute times’ (to-from work) among the respective cities.
This panel touted lower average commute times for St. Louis as constituting as an attractive – enticing differentiator to prospective companies and their labor force. Interestingly, the panelists articulated ‘commute time’, somewhat mistakenly in my view, in a tangible (physical) asset context. To be sure commute times are important, for some, more than others when narrowly conveyed in minutes of actual – daily windshield time.
One’s commute time is an intangible (asset), because it is quite personal, i.e., relative to each driver-passenger in an auto, bus, or light rail, and dependent on the presence-absence of countless variables which variously affect one’s perspective of specific commutes of which few can be (tangibly) mitigated aside from experience and familiarity with a locale, and inclination/willingness to execute alternatives. Otherwise, ‘average commute times’ are, in my view, akin to presumptive aspirations.
The point I wish to make here may be interpreted by some as being superfluous minutia which has little or no relevance to commute times. Oh, but it does! Any business management teams’ inability to distinguish tangible (physical) assets from intangible (non-physical) assets and dismissing – trivializing the latter’s contributory role and value is a sure path to missed opportunities.
Mr. Moberly is an intangible asset strategist and risk specialist and author of ‘Safeguarding Intangible Assets’ published by Elsevier in 2014.
Michael D. Moberly May 4, 2015 ‘A blog where attention span really matters.!
I am confident an experienced business person who possesses an operational familiarity with intangible assets…could devise a viable and mutually receptive strategy to ‘monetize’ un-used, under-used, or ineffectively used IA’s (intangible assets) emanating from public service – policing cultures.
This suggestion is not a poorly disguised twist for continuing to utilize traffic citations as sustaining a revenue pipeline for municipalities…Instead, when it comes to policing and the variously nuanced operational cultures that quite naturally, yet invariably evolve, there remain a percentage whose mission statement and culture emanates from a conventional – time honored ‘protect and serve’ model or some variation. Unfortunately, the ugly realities of some police cultures have surfaced in Ferguson, Cleveland, Baltimore, and other cities over the past 9-12 months. Citizens have witnessed the rudderless ambiguity of such presumptive branding that is, at minimum we find to have become irreconcilably disconnected from its citizen consumers.
The ‘protect and serve’ models have their origins in another period of U.S. law enforcement reformation which commenced in the early 1970’s following the deeply rooted tensions embedded in urban areas throughout the U.S. which sparked hard and tragic lessons which it is certainly not rocket science to draw valid comparisons to what has been witnessed of late. To suggest otherwise is to ensure repetition is just another generation away.
The objective here is to not ‘naval gaze’ on the actions of a few, remove them and quickly, but translate the principled actions of the vast majority…into policing intangible assets that deliver – generate value to citizens and their communities and neighborhoods on many levels. In most instances the assets, intangible as they are, can be individually or collectively ‘monetized’ as internal pride and external responsibility – attractivity for infrastructure investments.
Let’s not delude ourselves that policing ‘brand’ which has been revealed in such public ways, particularly since August, 2014, will not be ‘re-branded’ easily or quickly. Citizens are far to realistic and savvy for that. Here, time and constructive and affirmative action and behaviors are the predicates to effective and meaningful (culture) re-branding.
Now please, bear with me while I explain what I mean by ‘monetizing’ police culture…yes, I am an advocate of genuinely exploring strategies for ‘monetizing’ communities’ IA’s produced by normative cultures, but, such initiatives have two key components, i.e., they require…
- leadership and foresight to recognize the intangible economic – competitive advantage benefits that will accrue to communities that execute well defined and normative (public service and public safety) cultures, and
- understanding about how to effectively exploit those assets for their value-add features, i.e., community-neighborhood reputation, goodwill, image, and existing and prospective user attractivity, etc.
Specifically, public safety departmental cultures can be legitimate and exploitable (IA) catalysts to illustrate a community – neighborhood record of consistently safe, receptive, inclusive, and an otherwise attractive locale worthy of investment(s) in business, education, property value, and the critical symbolism framed by ‘we care what happens’!
A starting point is recognizing that in most instances, an organization’s culture is a verb, not a noun…in other words culture development and maintenance requires action, leadership, and consistent monitoring in order for a normative (police) culture to materialize and become self- sustaining.
Public safety department cultures are nothing particularly new…they have existed for generations. In the present context however, once a culture of like-minded individuals (employees) band together for reasons other than professional camaraderie, problems and challenges are all but sure to follow!
For a myriad of reasons and rationales, some individuals are compelled to seek out and band together with other like-minded individuals for defense, mutual support, or to accommodate a felt or acquired personal need which in turn, may manifest into an accumulation of very personalized IA’s, i.e., reputation, image, perceptions, affiliations, intellect, capabilities, fears, etc. In these circumstances, a cultures’ rationale sometimes intensifies prejudice and xenophobic attitudes antagonistic toward particular groups of citizens, i.e., racial, ethnicity, etc.
Organizational cultures, and the sub-cultures either can spring are often intertwined collections of IA’s embedded in individual – group sociology and psychology…the product and presence of which may be the product of perception or direct observation, i.e., as sets of actions or inactions which either adhere to or disregard social norms, departmental policies, or the law.
Long before there is evidence that an organization’s culture has gone ‘off its rails’ by deviating from its core, police leadership have an obligation to take action to modify it, ensure its return to a true state, and then monitor it…which are, in essence, fiduciary duties – responsibilities for taking the necessary steps to re-direct that subcultures’ rationale and monitor it for assurance and compliance.
Of course, when a (sub-) culture of negativity becomes rooted in – receives its spirit from higher echelons of a departmental or city administration, the positive actions and interactions of an individual officers can seldom sufficient to favorably influence the whole or quickly reverse what individual ‘bad actors’ may have already done.
In those instances, my counsel to good officers is to resign yesterday and seek employment in departments with leaders who recognize the all important but often unrecognized IA’s officers bring and deliver to each shift.
Integral to any prescription for reclamation – reversal of an already adverse (police) culture, is recognizing…that police are routinely the quintessential first responders to community and neighborhood challenges, particularly where there has already been multi-generational neglect and dismissiveness which can cascade into adjacent areas. It’s reasonable to conclude then, adverse police cultures are often products of a generation of mutual disintegration of trust which spark persistent antagonism and tension.
Ironically, circumstances like this and become entrées and rationales for collaborative culture leadership…by putting in place (oversight, monitoring, and assessment) practices which respect a community’s socio-economic circumstances.
But, cultivating a normative organizational culture for policing and public safety…requires principled and thoughtful leadership, wisdom, time, and the intellectual curiosity to recognize factors that influence culture development and sustainability. There are ample (anecdotal) indicators that ‘good to great’ leaders are concerned about it, pay attention to it, endeavor to achieve it, and realize it’s important to monitor it. After all, there is no one-size-fits-all or snap-shot-in-time methodology to repair or develop a proper organizational culture that fully matures overnight.
Seldom can positive organizational cultures be wholly replicated elsewhere by a competitive organization…admittedly the term competitor may appear more relevant to private – for profit sectors rather than police – public safety departments
Through my lens however, the community wide competitive advantage deliverable by public sector (policing) entities particularly those serving urban, lower socio-economic communities and/or neighborhoods experiencing gentrification.
Again, as a long time intangible asset strategist and risk specialist, I am confident, city administrators would find it beneficial to explore how their public service and public safety cultures’ can materialize to produce valuable and sustainable competitive advantages.
Michael D. Moberly January 2, 2013
An often overlooked or dismissed requisite to acquiring a complete picture of a company’s financial health is recognizing the intangible assets a company produces, possesses, and their contributory value. As readers know, balance sheets are financial reports, steeped in tradition as being (perceived) as the primary, sometimes sole, descriptors of ‘the health’ of a business or company in terms of constituting a quick sound bite of the value of its (a.) assets, and (b.) liabilities, along with describing equity positions of owners or stockholders.
As an intangible asset advocate and strategist though, seldom do I become engaged in a discussion about the propriety or usefulness of disclosing – reporting intangibles on balance sheets or financial statements, that it’s not necessary, at some point, to respectfully introduce a challenger to three irreversible economic facts and business realities…
- intangible assets are just that, they’re intangible, i.e., non-physical. Translated, this means intangibles are not necessarily subject to the five (physiological) senses of touch, smell, hearing, sight, or taste as tangible (physical) assets are, but, nevertheless are relevant and valuable properties and assets which take many forms, i.e., reputation, competitive advantages, intellectual property, brand, etc., for which there is no argument, nonetheless…
- a growing percentage of businesses, regardless of size or sector function – operate in a knowledge (intangible asset) based global economy in which, at minimum, 65+% of their value, sources of revenue, and ‘building blocks’ underpinning their growth, sustainability, and profitability evolve directly from intangible assets. This represents an acknowledgment that…
- examining a company’s balance sheets and/or financial statements alone, particularly those that do not address (report) intangible assets, do not convey a sufficiently deep or comprehensive picture of a company’s real financial health which are critical components/factors to making sustainably lucrative (business) decisions!
Businesses/companies own different types of property or assets, a lesser portion of which are physical-tangible in nature, while a growing percentage are intangible – non-physical, the latter being seldom, if ever, distinguished by category and reported as such. The reasons are numerous, with most rooted in accounting methodologies and regulatory agency rules.
Interestingly, Craig Woodman a writer for eHow, points out that, in practice, a balance sheet is usually presented in a list format, with assets at the top, then liabilities, followed by owners’ equity.
Conventionally speaking, Woodman reports, accounting rules stipulate that assets be differentiated into classes or categories, i.e.,
- current assets are business assets that are the most liquid which means they can be reasonably and readily converted to cash in a relatively short amount of time, typically within one year. Examples of current assets are cash of course and accounts receivable, both of which are assets that fund the day-to-day operations of a business.
- fixed assets, on the other hand, are such things as real estate or equipment. In other words, they’re physical or tangible assets and are typically less liquid, i.e., take longer to convert to cash.
- interestingly, Woodman does not place intangible assets into a separate category, and instead, considers them to be fixed assets, because, Woodman claims, like ‘current assets’ they are more difficult to covert to cash.
To Woodman’s credit, and I agree fully, any member of a management team, c-suite, or board who genuinely wants to determine/assess the ‘real’ health and/or condition of a business or company, absolutely must identify, unravel, and assess the contributory value of the intangible assets (the company) has developed, nurtured, produced, and possesses. But, here is where I disagree with Woodman, it does not have to be that difficult to establish/determine the value of intangible assets, providing one understands and can unravel their ‘contributory value’, and conclude intangibles do not routinely constitute an inaccurate or inflated valuation.
But, in business transaction circumstances in which my counsel is requested, I consistently argue that decision makers, relative to their buy-don’t buy, invest-don’t invest decision, are obligated, in a fiduciary context, to do much more than merely ‘kick the tires’, which through my admittedly biased lens, translates as looking deeper and more comprehensively beyond balance sheets and financial statements to determine a company’s real (financial) health.
That’s why, if I was inclined to purchase a pre-owned or otherwise used automobile, my buy – don’t buy decision would be only partially based on the presence of a service/maintenance record that indicated the previous owner had the motor oil changed at prescribed intervals. A wiser buyer, in my view, should look for and investigate the countless ‘intangibles’ related to motor vehicle operation, care, and maintenance that can, and usually do, favorably or adversely impact a vehicle’s sustainability and reliability.
Again, intangible assets are ‘things’ which a business owns, but, of course, are neither tangible nor physical (property) as some still persist on framing them. Nevertheless, these assets have value, and should be investigated and assessed, or otherwise accounted for in any business transaction. In other words, intangible assets are, in one sense, comparable to the purchase of a pre-owned automobile, in which a buyer presumably calculates benefits will be realized because of the lower purchase price, but without a thorough and knowledgeable investigation may translate as frustration-based expensive repairs.
So, in my view, to purposely exclude intangible assets from a company’s – businesses’ net worth calculations, will not provide prospective investors or buyers with a ‘real or complete’ picture of a (a.) company’s value, (b.) it’s status among sector competitors, and equally important, (c.) its ‘internal building blocks’ to achieve and sustain competitive advantages, sustainability, profitability, and foundations for future wealth creation, etc.
My blog posts are researched and written with the intent they serve as a worthy and respectful venue to elevate awareness and appreciation, throughout the global business community, regarding the identification, use, contributory value, and measuring the performance of intangible assets. My blog posts are not intended to be quick bites of information, unsubstantiated commentary, or single paragraph-based platforms to reference other media.
Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any of my posts, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance or business transaction. I always welcome your inquiry at 314-440-3593 or firstname.lastname@example.org.
Michael D. Moberly August 28, 2012
The difference between a patent and intangible assets is that an issued patent can be framed, while intangible assets are non-physical and are the real enablers of most every patent. Frequently, much to the chagrin of intangible asset strategists, intellectual property, i.e., patents particularly, are the presumptive ‘brass ring’ which a significant percentage of technology transfer managers, researchers, inventors, and legal counsel set their sights, sometimes for obvious reasons, and sometimes because quite simply, there is no intangible asset specialist -strategist in place to articulate alternatives.
I suspect, somewhat respectfully, that deference is routinely attached to patent (only) strategies based on the time honored perspective that an issued patent conveys ownership, certain rights, and is defensible under law, all of which it does. However, the costs associated with obtaining, maintaining, and defending a patent are escalating, making that tract increasingly out-of-reach for many inventors and innovation regimes, absent a fairly deep pocket of investment resources.
In today’s increasingly aggressive, predatorial, and winner-take-all global business transaction and R&D environment, patents, in my view, are in a fairly constant state of risk. Too, I might add, there is the widely held, but never-the-less mistaken assumption that an issued patent constitutes a deterrent to, or safe harbor from would be infringers, which it certainly does not.
Yes, it still remains very true that prospective investors, venture capitalists, and to be sure, large multi-nationals who may express interest in an inventor’s research, truly believe the proverbial ‘what is your IP position’ question is both relevant and important. At the 30,000 foot level, the answers to IP questions like that, can become deal breakers or constitute a significant duty of sorts levied against the inventor. But, in a large percentage of circumstances, and I say this with the utmost respect, there are comparatively few researchers – inventors working at the 30,000 foot level, rather most are working at the 4,000 foot level, with the ‘gatorade invention and royalties’ (University of Florida, 1965) few and far between.
Patents are expensive to obtain, to maintain, and to defend. And, even if the entire patenting process goes smoothly for an inventor, company, or institution, the patent still remains at risk and the inventor along with any number of individuals associated with the research and/or patenting process could stumble. That is, the research product could become entangled-ensnared in various legal disputes and challenges, fail to be effectively marketed, and/or resources being withdrawn to maintain the patent.
In far too many instances, I find the intangible asset offspring (enablers) of IP are being overlooked, dismissed, or overshadowed by the assumption that the time honored practice – strategy of pursuing conventional intellectual property, i.e., patent applications, provisionals, licensing, etc., are perceived as either the best or only option. Of course, I disagree.
To that point, an analogy may be in order. When one seeks the guidance of SEO (search engine optimization) firms to promote their website and/or blog, the business development – marketing officers’ lead statement will consistently be some variation of ‘we’ll get you on page one of Google’. The reality is, there is no guarantee that getting a website or blog post on page one of Google will produce the all-important conversions that many assume will come naturally. Yes, entrepreneurs can rationalize that all it takes is one good (the right) ‘conversion’ to kick start a company down the path to riches. But, reaching ‘page one of Google’ may not be all that a startup company really needs to achieve sustainable financial success. Instead, they are likely to be in need of a well-coordinated, focused, and specific strategy that effectively utilizes an array of internet resources and social media that presents many different options for exposure and conversion, not merely one!
So, for 2012 and beyond, inventors, researchers, companies, and institutions who engage in R&D, perhaps their initial call should not be to legal counsel, rather to an intangible asset specialists-strategist who can identify, unravel, and assess the enabling intangible assets and offer a variety of options and strategies that ‘fit best and work best’!
Michael D. Moberly August 8, 2012
Throughout my former residency in Memphis, I listened to a weekly program on the local NPR station titled ‘Smart Cities’, then hosted by Carol Coletta (CEO’s for Cities).
Of the many takeaways I consistently received from Coletta’s program and her varied guests were the not so subtle references to missed opportunities of various U.S. cities which I come to characterize as overlooked, neglected, deserted, abandoned, and otherwise ignored and undeveloped intangible assets.
In a ‘smart cities’ context, intangible assets are embedded in community’s often rich historical, cultural, architectural, and/or epicurean presence.
To demonstrate this, I engaged a gentleman at an outdoor high school sporting event in St. Louis (my current residence) last year because he was wearing a t-shirt emblazoned with the name of a small, non-descript bar-b-que restaurant located in mid-town Memphis which I had frequented many times. I asked the gentleman, whom I learned had a son attending a Memphis university, if he had actually eaten at this restaurant. My question sparked a very spirited, albeit one-way exchange, in which he described this restaurant’s bar-b-que cuisine as the best Memphis had to offer and even compared it to other well-known Memphis competitors. The gentleman went on to describe how he had come to personally know the owner, and that he and his family ate there each time they visited Memphis. Our discussion concluded with him saying that he routinely had this restaurant’s bar-b-que FedEx’ to his St. Louis residence
An interesting twist to this is, having been a former resident of Memphis, I can say, quite objectively, there are easily 100+ good bar-b-que ‘joints’ throughout Memphis, some of course are the ‘weekend pop-up on a street corner’ variety where one can find very good bar-b-que if they willing to venture away from the mainstream and into the various neighborhoods of Memphis.
Many city’s intangible assets, even though they may be what I refer to as the ‘in your face, seen’em a thousand times’ variety, remain as conveyed above, neglected, deserted, abandoned, ignored and, perhaps worse, overlooked and unrecognized. Regardless, those embedded assets may well have the potential for being re-captured, re-conceived, re-invested, re-incarnated, and ultimately re-branded to produce and deliver powerful, attractive, and broadly dispersed value to a city, providing, that is, when community leaders genuinely recognize, understand, and initiate viable strategies to effectively exploit existing intangible assets!
Of course, this entails, among other things, identifying them, unraveling them, investing in them, positioning them, leveraging them, managing them, and putting best practices in place to sustain them along with monitoring their contributory value.
All that said, there are, in my view, analogies to be drawn between the bar-b-que scenario and the development of ‘motivational umbrellas’ in cities to form so-called bio-tech corridors and/or re-vitalize commercial areas and art districts, etc. Colleta may know different, but I have no knowledge of any such initiative being successful absent a foundational starting point in which certain recognizable intangible assets were already in place and embedded within a community’s culture.
When commencing such well-intended endeavors however, those charged with its leadership and execution must include strategies to sustain the foundational (intangible asset) underpinnings necessary for project vibrancy and sustainability.
So, in today’s increasingly competitive municipal governance environments, the viability and sustainability of city projects does not lie solely in the production of patents and other intellectual property centric practices that tend to be quite vertical. In a ‘smart cities’ context, it’s the consistent production, exploitation, and delivery of competitive advantage driving intangible assets and their contributory value to a community. Intangible assets, when addressed early and managed effectively, can deliver long term strategic value in the form of multipliers and spillovers that spread throughout a community!
Michael D. Moberly June 13, 2012
On many occasions I certainly wish I could be the proverbial ‘fly on the boardroom and c-suite walls’, but not necessarily in the Bob Woodward (realistic fiction) sense.
I think about the countless conversations which generally I have only third or fourth hand or anecdotal knowledge, but never-the-less, I’m very confident occurred, like the ones that occurred not that many years ago in the boardrooms, c-suites, and R&D laboratories of Toyota, Hyundai, Nissan, Honda, and Kia when they were conceiving their respective ‘prius’ automobiles.
I’m equally confident that during these same approximate time periods, GM, Ford, and Chrysler were likely having discussions in their respective boardrooms, c-suites, and R&D labs, but little had to do with the development of their ‘prius’, rather it was likely those discussions dealt with focus group analysis about what to name their newest and ever-the-more-larger SUV or pick-up truck and development of promotional – marketing campaigns to influence buyers ‘bigger is better’ and churn them out at a pace to accommodate demand.
Of course, we all know now how this story ends. In 2008, prompted by legislative and politically motivated inquiries along with some public rancor about flying into Reagan National on corporate ‘fuel guzzling jets’. But, it all laid the groundwork for the massive bailout for GM and Chrysler. So, the ‘big three’ began re-tooling and re-designing vehicle power systems to quell the outcries and accommodate demands for higher MPG vehicles, but not before laying-off thousands of workers.
In the meantime, the ‘prius’ brand, was already becoming solidly entrenched with the car-buying public to the point that the Korean and Japanese ‘big five’ literally owned that market space!
So my point is this, today is the perfect time, as was last week, the week before, and even last year, for company management teams, boards, and c-suites in all sectors to consider ‘taking a page from the ‘prius’ playbook’ and think about their equivalent to the prius, which are, in my view, intangible assets!
After all, it is an economic fact that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth today evolve directly from intangible assets, i.e., intellectual, structural, and relationship capital, brand, reputation, etc.
But those management teams, c-suites, and boards must be inquisitive and frame the right questions. For starters, they should be think about their intangible assets in this way…
- the effective stewardship, oversight, and management of intangible assets can be the difference between looking ahead (real strategic planning) and looking through a rearview mirror!
- stewardship, oversight, and management of a company’s intangible assets is truly an investment that will produce revenue, add value, elevate reputation, and be a strong source of competitive advantages, in other words, ‘the prius effect’!
This post was inspired by a 8-17-08 ’Smart City Radio’ program titled ‘Veolia Survey and The Vine’
Michael D. Moberly May 17, 2012
Want to elevate investor confidence? Start by ensuring your intangible (IP) asset house is in order! One consequence of management teams, c-suites, and boards of emerging growth firms not recognizing and exploiting the intangible assets their company produces and possesses is that it will have a bearing, usually adverse, relative to prospective investor’s ‘invest, don’t invest’ decision criteria.
The conventional assumption that investors are, by their nature, more accepting of risk is, in my view, much overplayed. I have yet to meet an investor who does not have a fully developed internal ‘smell test’ to gauge a prospective transaction’s risk and return potential. Too, I see increasing numbers of seasoned investors…
- requiring a target’s intangible asset and IP house be in order as a requisite to investment consideration.
- recognizing intangible assets are crucial contributors to a target’s profit potential, share price, market position, and competitive advantage.
- assigning more weight to differentiating intangible assets from tangible (physical) assets.
- recognizing that transaction due diligence must include pre and post components for monitoring any fluctuations in asset value, control, or ownership.
To emphasize these realities, I refer to a previous ‘Howery Survey of Investor Attitudes on IP Protection’ in which a significant number of respondents reported that companies which lack an effective IP (intangible asset) strategy has a detrimental effect on company performance. In fact, one in four of the Howery Survey respondents reported they had actually turned down investment opportunities due to the target company’s inadequate approach to IP and other intangible assets.
Fully 95% of the Howery survey respondents report that it is no longer sufficient, in the context of their investment decision, for a target company to merely own IP with no (aligned, integrated) protection, managerial, or competitive advantage peripherals.
So, in my view, the proverbial bottom line (in conjunction with the Howery Survey’s findings) is this:
companies that presume conventional IP issuances and enforcement protections are sufficient, standing alone, to attract investors are finding instead that an increasingly important requisite to attracting and satisfying the demands of serious investors relative to their invest – don’t invest decision criteria, is the existence of comprehensive plans, practices, and procedures which…
- demonstrate the about-to-be-purchased/invested assets, have effectively safeguarded from their inception.
- reflect today’s increasingly aggressive, predatorial, and winner-take-all business transaction environment.
- are seamlessly aligned with – integrated into a viable and strategically competitive business strategy that encompasses (intangible) asset development, acquisition and utilization, and exploitation.
(Adapted by Michael D. Moberly from the work of Howery, Simon, Arnold & White’s Survey Of Investor Attitudes on IP Protection)
Michael D. Moberly April 10, 2012
It’s time prospective investor’s and VC’s get serious! In my judgment, an important, but all too often overlooked aspect to achieving favorable terms and outcomes to venture capital-backed projects, is balancing (a,) the understandable requisite for putting an experienced management team in place, with (b.) ensuring control, use, ownership, value and materiality of the about-to-be invested intangible assets are sustainable.
A starting point for achieving such a balance is conducting a comprehensive due diligence and assessment of the targeted intangible assets designed to provide prospective investors (VC’s) with an objective and over-the-horizon analysis of the assets’ status. A equally worthy product of the due diligence and assessment is that it can serve as the foundation for:
- making the all-important invest – don’t invest decision, or
- consummating a more secure, profitable, and sustainable outcome for investors.
This level of due diligence and asset assessment must extend well beyond the conventional ’snap-shot-in-time’ or amateurish ‘check the box’ approach. It must include…
- unraveling the assets to identify any/all under-the-radar risks and vulnerabilities that could…
- impair and/or entangle particular (intangible) assets and adversely affect investor’s ability to sustain their control, use, ownership, and value
- serve as preludes to costly, time consuming, and investment stifling legal disputes and challenges.
- identifying all centers of internal and/or stakeholder intangible asset generation, value, and revenue production beyond what is already publicly available.
- identifying – assessing existing (intangible) asset production, protection, and value preservation measures and determine if they are effectively aligned with the:
a. investors’ objectives
b. company’s strategic business plan, and
c. functional (life, value) cycle of the about-to-be invested assets.
Preferably, depending on the due diligence – asset assessment team’s operational familiarity with intangibles, they would determine if the identified risks can be prevented or mitigated to a (risk) tolerance level acceptable to the investing party so the transaction can proceed.
For start-ups and early stage firms, it is not uncommon for 75% to 90+% of their value, sustainability, projected sources of revenue, and building blocks for growth to directly evolve from intangible (IP-based) assets. This makes intangible asset due diligence and assessments all-the-more essential and potentially revelatory insofar as serving as a foundation, again for invest – don’t invest decisions, relative to distinguishing assets that are suspect, impaired, or have already been compromised.
In these circumstances, while it may not be necessary to wholly abandon a particular investment opportunity, it can prompt prospective investors to include specific (risk mitigation – transfer) covenants that are applicable on both the pre and post transaction side.
It’s unlikely, in my judgment, when an intangible asset due diligence – assessment revels significant risks, merely putting an experienced management team in place would, standing alone, be able to overcome or reverse such transgressions absent costly, time consuming, and momentum stifling legal challenges! Therefore, having experienced and sophisticated intangible asset specialists conduct the due diligence will reap strategic returns for prospective investors.
Michael D. Moberly February 18, 2011
In my view, it’s just rather straightforward. In today’s knowledge (intangible asset) based economy conventional intellectual property (IP) audits – assessments are no longer sufficient to provide company management teams and boards with the necessary depth, type, and level of strategic information and business insight to meet the needs of the current fast-paced, aggressive, and increasingly competitive business (global transaction) environment.
Traditionally, intellectual property (IP) audits and/or assessments endeavor to identify, often through hand-me-down templates and check-lists, the status and (legal) defensibility of a company’s intellectual property. And, if an auditor, usually an attorney, is experienced and so inclined, their work may also include ascertaining whether evidence exists that the IP (subject of the audit) may be hemorrhaging, i.e., in some state (all, or in part) of mis-appropriation, infringement, or compromise, in other words, whether the asset is hemorrhaging value and competitive advantages.
Most traditional approaches to auditing intellectual property tend to be, in my view, time bound descriptions of a specific IP’s status, or, what I often refer to as ‘snapshots-in-time’. However, in today’s increasingly competititive, predatorial, legacy free, and ‘winner-take-all’ global business environment, the status (stability, value, defensibility) of IP and its complimentary – supportive intangible assets can change quite rapidly. That is, the assets’ competitive advantages and value can be undermined, entangled in legal challenges, or experience substantial erosion through misappropriation, infringement, or compromise.
Consequently a snap-shot-in-time approach to an IP audit/assessment seldom reflects or projects the very real possibility the asset(s) will experience changes in (a.) value, stability, and sustainability at some point during the life, value, and functionality cycle of the asset, and/or (b.) the assets’ economic-competitive advantage linkages or contributions to other current or future projects, product development or relevance to a company’s strategic planning, stakeholders, and its value – supply chain.
So, I frame the rationale and methodology for conducting IP audits and assessments through a different lens and with different objectives, that is, to bring relevant, actionable, tactical, and strategic insights to management team and boards about their intangible (IP) assets. Such insights constitute essential information that should be readily available to management teams and boards whose companies operate in economies and business environments dominated by intangible assets of which IP is an element.
The end goal of course, is for companies to be (a.) well positioned to utilize their IP (and other intangible assets) as effectively, efficiently, and profitably as possible, (b.) well informed about current and horizonal risks relative to their business environment and types of transactions their company is routinely engaged in which intangibles and IP are almost always in play or part of the deal.
In short, conventional ‘snap-shot-in-time’ IP focused audits/assessments are ill-suited, in my view, to ‘bring to light’ assets’ vulnerability to – probability of infringement, compromise, or misappropriation, each of which constitute ever present, yet evolving risks and threats.
Too, from an IP holders’ perspective, the windows and/or time frames to commercialize IP or position (leverage) other such (intangible) assets to begin reaping the economic – competitive advantage benefits due, are narrowing, somewhat analogous to the rapid pace of today’s cable network and on-line news cycles, wherein certain events can literally ‘go viral’ in a manner of minutes, but they also can, with equal downward speed, be relegated to inconsequential historial blips on our respective radar screens.
So, a 2011 version of an IP audit and assessment should, again, include objective and strategic insights, not just about a company’s registered IP, but also about – address the complimentary and supportive intangible assets that contributed to bringing that IP to the forefront.
So, in this highly charged, competitive, and evolving global business (consumer) environment, the notion ‘that everyone get’s their 15 minutes of fame’ seems quite relevant to today’s IP arena. That is, the best business strategy, insofar as IP is concerned, is to take full advantage of that proverbial ’15 minutes’ but also try to extend that time frame for as long as is feasible. And, that, in my view, is how the 2011 version of IP audits and assessments should be framed and executed, i.e., include an objective determination if sufficient asset management, stewardship, and oversight have been (are) in place to sustain the necessary control, use, ownership, and monitor (the assets’) value and materiality.
So, the notion that one can hold onto their IP, much as if it were a bank ‘certificate of deposit’ in the 1980’s, in which there was, at the time, some certainty CD’s would mature, draw interest, and increase in value over time with virtually little risk, is no longer a reality relevant to today’s business IP – intangible asset dominated environment.
Some would correctly make the case, as I would, that trying to hold onto one’s IP for indeterminate periods actually increases its vulnerability – probability to compromise, infringement, circumvention, becoming ‘boxed in’, being at the mercy of ‘trolls’, or simply becoming irrelevant. Any one of those calamaties, should they materialize, can significantly undermine-erode the IP’s value, demand, and attractivity, particularly in the eyes of would-be investors, buyers, and/or alliance partners.
A harsh reality in those instances, should certain risks materialize, is that a governments’ issuance of a patent may become little more than a handsomely framed document hanging on one’s wall, behind which, there are some ill-fated thoughts of ‘I wish I had done something differently’!
Too, it is a very costly and lengthy undertaking to mount and prosecute a legal defense of one’s IP if misappropriation, infringement, or compromise is suspected. In other words, to do so, requires not only some ‘very deep economic pockets’, but the holder must be sure their IP protection ‘house is in good order’ before seriously contemplating such a strategy, otherwise, the odds of being on the losing end of the litigation and/or losing the rights to one’s IP altogether are poor. And, if the holder is a start-up, early stage firm, or even a mature small or mid-size company, such costs frequently serve to deter them from intitiating such processes and ultimately pursuing what is (was) rightfully theirs.
As a holder of IP, it will always serve a company’s near and longer term interests to be able to demonstrate that the asset (subject of an audit, assessment) retaining its projected value, and that its demand and usefulness, in the marketplace, remain stable and sustainable.
So, re-framing or re-formatting conventional intellectual property audits/assessments to focus more on the value and sustainability of IP and identifying the key intangible assets that support and compliment that IP, its value, and its sustainability, in my view, would provide all parties, be they holders of intellectual property, would be investors, prospective buyers, or stakeholders, with a more objective and strategic perspective regarding the IP’s current and future ‘state of affairs’. A key benefit of this latter approach of course, is that management teams and boards would achieve a higher level of confidence (about the IP and intangible assets their company produces and possesses) from which they could engage in more sound strategic planning and significantly less risky business decisions .
Another underlying rationale for this post is that company value has literally shifted from collections of physical (tangible) assets to combinations and collections of intangible (non-physical) assets of which intellectual property is one element. This makes it all-the-more necessary then, that decision makers, would-be investors, buyers and stakeholders of companies with relatively intensive bundles – portfolios of IP and intangible assets should receive far superior insights and guidance about those assets than what is typically reported in conventional template-check list types of audits-assessments.
This level of information, for example, would have more relevance to (a.) buy, don’t buy, or (c.) invest, don’t invest decisions. And, if the assessment (audit) includes not merely the IP’s legal status and defensibility, but also, (a.) information about the assets projected life, value, and functionality cycle, (b.) pre and post transaction contexts, and (c.) criticality assessments (i.e., adverse affects) to prospective buyer’s – investor’s mission should certain risks materialize, all parties stand to benefit. Presented in this context then, the conventional IP audit and assessment would assume many ‘due diligence’ characteristics which again, in today’s hyper-competitive and predatorial business transaction environment are not just helpful, they’re necessary and a fiduciary responsibility!
Additional perspective worthy of introducing to the conventional IP audit/assessment equation is a comprehensive (strategic) understanding and appreciation for the ‘demand’ of the IP (intangible) assets, i.e., somewhat synonymous with its commercialization opportunities. In this context, an IP audit – assessment should include a relevant, but exhaustive characterization of a company’s current and projected business and competitive landscape to provide management teams and boards with insightful perspectives about ‘demand’ (for that specific IP) emanating from the global business-competitor intelligence industry.
Ultimately, what’s needed is a much more forward looking approach that literally alters the conventional precepts of IP audits-assessments to include much needed due diligence features conducted by experienced practitioners who are well versed in a range of issues that can adversely affect – jeopardize the anticipated (projected) benefits of a transaction in which IP (intangible assets) are key.
So, while I recognize and respect the need for speed and confidentiality in executing business transactions, and by extension, (offensive, defensive) IP audits and assessments, it has come time, in my view, for parties to convey less concern about the speed in which a transaction (deal) can be formulated and more attention towards ensuring the the IP and complimentary-supportive intangible assets that will inevitably be in play remain intact and sustainable relative to their value and revenue producing capabilities, in addition, of course to their legal defensibility in both pre and post transaction contexts. That’s something that a conventional ‘snap-shot-in-time’ audit seldom provides.
So I advocate (practice) the inclusion of virtual and perptetual elements to IP audit and assessment processes. By that I mean, inserting mechanisms to continually monitor and objectively assess (measure) changes in asset value relative to the original (business) objective and/or purpose for conducting the audit/assessment. By doing so, prospective investors, buyers, and alliance partners, and stakeholders can be provided with much needed asset tracking (monitoring) capabilities relative to the (IP, intangible) assets they’re about to purchase and/or make investment and adjust-leverage their decisions accordingly, should it be necessary.
It’s my view and practice then, to, at minimum, re-phrase some of the key questions posed in conventional IP audits and assessments, e.g., ‘is the intellectual property protected’ (presumably by a patent)? Instead, replace such conventional questions with I view as being more important preceeding questions, that literally go to the heart of the matter, such as, ‘has the know how – intellectual capital on which the intellectual property value-use is premised, been adequately safeguarded and managed from its inception’?
Again, to fully appreciate the relevance of re-phrasing those traditional ‘IP audit questions’, it’s important to recognize that conventional IP protections/enforcements, i.e., patents, trademarks, copyrights, etc., should not be presumed to have any deterrent effect on would-be infringers and/or misappropriators globally. In many, if not a majority of instances today, conventional IP protections are routinely disregarded, outpaced, and/or circumvented by a growing global body of sophisticated entities that routinely materialize as well organized economic and competitive advantage adversaries.
Business Investments Include Intangible Assets: Make Sure Your Investment Strategy Fully Addresses Them…
Michael D. Moberly June 14, 2010
Because 65+% of most company’s value, sources of revenue, building blocks for growth, future wealth creation and sustainability today lie in – evolve directly from intangible assets, its increasingly likely that business investments will include intangibles.
An effective way for business investors to increase the probability that the desired – projected returns will be achieved is to ensure that investment planning and due diligence not be solely balance sheet oriented or focused on current assessments of the intangible assets’ value. Rather, invest – don’t invest decisions should include the question, are the assets’ value and materiality sustainable?
In other words, investment due diligence today must include an assessment of the assets’ fragility, their vulnerability, and the probability that value erosion or undermining will occur and/or assets will become impaired prior to, or immediately following, deal closure which, in either instance, will adversely affect projected returns.
A good starting point, in my view, is for investors to examine a survey produced by U.K.’s Department of Trade and Industry titled ‘Creating Value From Your Intangible Assets: Unlocking Your True Potential’ and consider integrating the findings into their overall investment strategies, i.e., to manage and maintain:
1. Relationships with key (internal, external) stakeholders.
2. Use of internal stakeholders’ knowledge, expertise, skills, and competencies which serve as facilitators -enablers for company growth.
3. Communication channels to bring clarity of purpose to internal stakeholders (employees of the business being invested in) relative to their role in – contribution to on-going company success.
4. Continuation of (or building) a company culture that is prepared to adapt to – exploit new/changing market developments and opportunities.
5. Reputation with consumers, customers, clients, and/or suppliers.
6. The right (existing) processes and systems to build market position and competitive advantages.
Of course, a percentage of business investments do not produce the desired or projected returns. The reasons are as varied as the investments themselves. Often overlooked causes of an investments’ failure is not having effective strategies in place to manage and maintain the ‘intangible asset’ factors noted above.
(This post was inspired by a report – survey produced by U.K.’s Department of Trade and Industry titled ‘Creating Value From Your Intangible Assets: Unlocking Your True Potential’.)
The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets. I welcome and respect your comments and perspectives at email@example.com.