Last week we asked our Advisor community which Intangible Capital they think is the most important to a business. Here are the results:
74% said Human Capital
4% said Structural Capital
19% said Customer Capital
2% said Social Capital
EPI Vice President, Scott Snider, provides a deeper look into this question:
Well, this is kind of loaded question. I don’t quite know if there is a most important. What I can tell you is that likely 80% of your company’s value lies within these four intangible capitals or 4Cs. I will give you my take on the 4Cs as the management of them is essential my role at EPI today.
People are everything. I don’t care how good your product or processes are, if you don’t have the right people – you’re screwed. So for me, I may argue that the people component or “human capital” is one the most difficult to navigate and one of the most important. Yet these folks need to exist inside of a culture or “social capital”.
This culture embraces the people, how they communicate, what they believe in, and how they operate internally and externally. It’s the heartbeat of the organization and is what pulls people together and draws them to the organization as an employee or a customer. I also think it is the hardest to transition. For example, if you have a “Google-like” culture of slides in the lobby, sleeping stations, stand up desks, whiteboard walls, and cafes – it wouldn’t necessarily transition well into what I would consider the traditional bank culture of suit and ties, cubicles, formalities, and restrictions. Though your culture may fit your business, does it fit the business of the organization acquiring you?
Without customers you have no business, for obvious reasons. As small to lower middle market companies, we face the dreaded customer concentration factor. But I think the biggest challenge here is moving our customers from engaged to entangled. What I mean by that is, we do what we do so well with our customers that they couldn’t possibly think about doing business without us. We are indispensable to them. That is entanglement.
Finally, the most robust of all the capitals – “structural capital”. It encompasses all the things that make your company work efficiently. The process, documentation, training programs, technology, tools, equipment, and real estate. Bottom line is, I don’t think there is a most important intangible capital than the processes that make your business.
The most important thing an advisor can do for an owner and their teams is to actively evaluate and manage these 4Cs daily, quarterly, and annually. As we strengthen these 4Cs, not only are we going to drive happier people, but more profits and higher valuation.
Are you interested in learning more about the Intangible Capitals? Join us for our Free Webinar Series, “Rapidly Accelerate Value: The 4 Cs”.
