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Where's the real value in your company?

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Here’s an interesting question. Where it the real value in your business? You might be surprised by the answer.In 1975, 83% of the value of all the companies on the S&P 500, was made up of “Tangible” or “hard” assets. You know the ones; plant and equipment, buildings and land. The rest (just 17%) was put down to “good will” or that hard to measure stuff - the “11 secret herbs and spices” or that hard to define reason people were prepared to buy Dove soap, over the other brands. Today we call that the “Intangible” or “soft” asset.By 2009 the value of the tangible assets held by all the businesses in the S&P 500 had reduced to only 19% of the combined, total values of these companies.  The rest, or 81% was made up of the intangible. Not plant and equipment but processes, systems, secret recipes. patents, technology and other “magical stuff”. 

Look at Apple Inc for example the worlds biggest company. Most of their manufacturing is now done offshore. No big factories filled with plant on their balance sheets. The value is in the intangible. In their ability to launch the next iPad, or whatever.




Companies have of recent times been buying other companies to access these patents and technology and to increase their stock of “Intangible assets”. Recent examples include the likes of Google buying loss making, and market share loosing Motorola for $12.5b - mostly to access their technology, patents and designs.

This also explains why companies like Facebook pay $1 billion for Instagram. Did Instagram even have any revenue????

But what about the future? Where will the value be in the future? Intangible; Tangible; or something else?

Well based on what I’ve seen in the past few weeks, I’ve got good reason to believe it may be something else, namely, your people, your culture and your team.

One of the first things that new Yahoo! CEO Marissa Mayer did was acquired a start up called Stamped. Why?

Not for their product or their technology (Stamped will be completely shut down by the end of the year), but for their 9 employees.

Are you for real? This is one of the biggest tech companies in the world, with a workforce in excess of 13,000 people, buying a start up, just to get 9 more employees. I don’t know how big there HR department is, but it seem illogical a company that size couldn’t find and hire just 9 more employees.

And this week, one of my favorite companies HubSpot (another tech company) received $35 million in funding ahead of a planned IPO.

Their founder and CEO, Brian Halligan indicated in his remarks some of the money will be used for acquisitions, mentioning that the previous round of funding had allowed for some earlier acquisitions that “really worked out great. We retained the key people on those teams, and they were people it’d be really difficult to hire on the open market”

Both these recent examples I give are of tech firms in the US, but this trend is not new.

In 2007 for example, the labour hire company Integrated Group Limited, merged with Programmed Maintenance Services, with the Chairman sighting one of the key advantages being “Operational improvements – .... including access to a larger workforce pool...”

The number one challenge business owners and operators keep telling me they have, is finding and keeping good staff. And this is true in ANY sector, not just the booming mining and energy space.

So perhaps realising the maximum value in your business has more to do with the people you hire, than your building location, or the colour of your logo, or your secret recipe.

In fact, we already know that its the people your hire who will make the difference in the success of your business, so its logical that they would also make a difference in the ultimate value of your business when it comes time to exit, or be acquired by another.

Of course, if your going to maximise the value of your business, you really do need to maximise the value of the people you employ. And the way I see it, there really are only 3 ways to do this: 


by hiring smart, skilled people, by training and developing and creating smart skilled people by lucking out
And to be honest, I thinks the secret recipe here (happy to give it away), is actually a mix of all 3, remembering the harder I work, the luckier I get.So I guess it’s up to you. You can continue to build your business make a profit and sell it at 3 times EBITA plus SAV, or you can look at your Intangible Assets, and more importantly, develop your Human Assets, and maybe, just maybe, sell out for a billion dollars to someone who needs their skills more than you.
Connect with me - I love to chat!
Check out my other blogs at www.shaneridley.com.au

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Call me on 07 4659 9300
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Comments

Ryan Myler

Director/ Financial Planner

Optimas Financial Planning

Shane has provided me with invaluable advice, being that I am in start up phase with my business. His knowledge of business in general, along with his strong understanding of the current trend toward social media and it's influence, have provided me with insights on how to grow my company. I would strongly recommend Shane in a business mentoring role due to his depth knowledge and broad experience, along with his superior story telling ability to make the complex simple.


June 25, 2012

Indiana Forrest-Bisley

Business Development Manager Australian Exhibitions & Conferences

Shane exhibited with us at the 2012 Safety in Action trade show - Melbourne. I found him to be extremely professional and furthermore his pre employment training services were a hit at the show. We will see Shane return to the safety show Perth (August 7-9). If you're in need of ANY type of pre employment training
I would strongly reccommend OTrain to anyone within HR."


June 29, 2012