By Richard Barnett and Ben Lenihan
Love it or hate it, the TV shows Dragon’s Den and Shark Tank gets people excited about coming up with the next big business idea.
If their idea is more than just a fleeting spurt of creative juice, they might figure out a new twist on an existing product or invent something from scratch. If the idea really sounds like an opportunity, then the budding entrepreneur could start writing up a plan and even approach an early-stage investor for some funding help.
Yet, just like those Dragons or Sharks, any curious investor with a strong track record will only have one question on their mind: is it just a good idea, or is it a business? That’s a surprisingly high bar to overcome for most pitches, and this is precisely why investors use it as a rule of thumb.
This question digs into the realities of business. An EverEdge client once came up with a new container lid that was clearly superior to anything else on the market and was well-protected. The founder was wildly enthusiastic, but our advice was that unless they had a plan to convince every major bottle manufacturer in the world to re-tool their multi-million-dollar factories to accommodate the new design, the new idea would stay just that – an idea.
Some of the best ideas in history end up inside the bottom drawer simply because they lack a clear path for commercialisation. Thus, having an intangible asset strategy is important for turning an idea into a business which is an integral part of developing any business strategy. A business strategy constructed without reference to the intangible assets is unlikely to reach its full potential.
Let’s go through each of the seven parts of this strategy.
- Competitive advantage
One might assume the first step is to check for gaps in the market. But we see things differently.
The first step for a new idea is to find its competitive advantage. If it’s commercially viable, it should do one of two things: either elevate an existing market position (make greater profits) or reduce the cost of getting something to the market (improve efficiencies). If the idea ticks either of these two boxes (or, ideally, both) then it might be a winner.
Some key questions may include: Does your company understand the intangible assets underpinning your competitive advantage? What’s truly driving the value of your products or services?
- Can it be protected?
Once a potentially winning idea has been located, it’s important not to rush into the market without a few legal protections in place.
All that glorious investment capital will likely be spent on introducing the market to the new idea, creating a customer base and making a decent pile of revenue. However, there’s always a bigger fish out there and when that big fish sees how much money an SME is making, it may choose to create its own copycat product.
At that point, the ambitious SME effectively just became a marketing department for the bigger fish as it waltzed into a warm market at almost zero marketing cost to itself.
A good example is electric bicycles. Initially, smaller specialist brands put enormous effort into creating consumer buy-in. Once electric bikes gained real traction in the market, the big players spotted an opportunity. The smaller brands had a first-mover advantage, but they couldn’t compete with the resources and reputation of the international brands which swooped in.
A good intangible asset strategy would ask: can this new idea be protected? Is the chain of title secure? Do we own all the rights? How much would it cost a third party to replicate what we have?
- Is there a market?
When these first two puzzles are solved, it will then be time to consider where the product or service might fit in the market. Only with a good business model can the marketing team come up with a decent strategy for convincing customers to part with their cash.
In many ways, marketing is the easy part (of course, professional marketers will likely protest this point). After all, in 1975 advertising executive Gary Dahl sold over one million “Pet Rocks” for $4 each and became a millionaire in only six months. He achieved this feat because he understood his competitive advantage and had a great business model.
The gag was not so much the rock itself but the way it was presented. Dahl put normal rocks on a bed of woodchips housed in a cardboard box along with a “pet manual,” which was the real product. It was a business like any other, but Dahl’s advertising skills created the market gap for a “joke” pet.
- How will it be commercialised?
The hard part of commercialisation is ensuring that the giant machine called “supply chains” and “channels to market” can accommodate a new idea for a product. The average SME may not have the manufacturing capacity or the relationships in place that are required to get a new product to market. This introduces bottlenecks into the SME’s supply chain, increasing the risk of weakly-protected intangible assets being leaked or stolen.
If the SME decides to manufacture the product and take it to market on its own, then it should plan to scale rapidly in case it discovers an impressive market success. The same advice applies to services. If no such plan exists, then the SME can only assume it will always have a ceiling on its growth. Not so good if you want to retire early.
If manufacturing a product or offering a service at scale simply isn’t viable, then the SME has other options. An EverEdge client had developed a packaging technology that enabled it to save roughly 35% of the plastic used in containers for dairy products. Rather than creating the supply chain itself, the client was advised to license its technology resulting in one billion of its packages being shipped annually, earning the client a royalty on each unit sold.
- Do you have the capital?
As anyone who has built a house knows, it always costs 10-20% more to complete the job than initially quoted by the builder. Projects suffer hiccups, supplies get delayed and even professionals make mistakes. As a general rule in business, projects often blow their budget, so it’s important to ensure there is an adequate financial buffer.
However, money isn’t the only form of capital. Keep in mind that commercialisation takes time, and unlike money every minute spent cannot be bought back. Some projects can be completed faster by hiring multiple staff. Yet, as the old saying goes, nine people carrying a baby for one month won’t speed up a pregnancy. So, be careful how everyone’s time is being spent.
Another form is human capital. Perhaps a key intangible asset of a company is one, specific superstar. Has the business captured that person’s know-how in case they leave? Is that person clear on whether the information they possess is confidential? Is that person’s employment or contractor agreement clear on who owns the valuable intangible assets they helped create?
- Always be closing
In a famous scene of the screenplay Glengarry Glen Ross, the salesmen characters are being lectured on a fundamental business concept: ABC – Always Be Closing. This “ABC” mindset is about parsing each business decision through the same filter: will this add value from the point of view of an investor/acquirer?
If the SME eventually hopes to scale it will likely need investment. If the company hasn’t maintained its books or gathered the right data, then investors may not be interested. Likewise, when the company finally hopes to sell to an acquirer, it must be as attractive as possible which means starting with this goal in mind. The “ABC” mindset helps keep an SME focused on its intangible assets.
- Realise you are creating a brand
Sometimes the only thing separating one company from another (Pespi vs Coke, Nissan vs Toyota) is the way customers feel about the brand. Even if a product is strikingly similar to a competitor’s, customers will see it almost as their favourite child if they are emotionally attached to the brand.
Brand is a key intangible asset for a reason. A good brand can let customers ignore mistakes and quality issues while a bad brand might destroy a company’s reputation. Brand power requires discipline at every level of a company as all staff keep in focus the needs of the customer and the scope of the commercialisation project.
Ultimately, the earlier an SME implements a robust intangible asset strategy, the clearer its path to commercialisation will be. Picking a winning idea is certainly important. But knowing how to ensure that a winning idea can win is about making the valuable visible.
As originally published in the Association of Small & Medium Enterprises (ASME)