Double-down on your strongest intangible assets first

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“Concentrate on your weaknesses” sounds like great advice, but it’s important to remember that every dollar spent on in one place is a dollar you can’t spend on anything else.

No company has infinite resources, and it is always tempting to “diversify” just in case the market changes. Spreading corporate risk by having a few fingers in different pies is the kind of advice a freshly-minted MBA might offer. But should you take this advice to turn your weak intangible assets into strengths?

It’s a question we get on a regular basis. Since there are a dozen intangible asset classes, and a company might be strong in a few of those classes (perhaps data, software and relationships), isn’t it wise to develop a few of the other intangible assets just to spread the risk?

Maybe. As with anything, the correct answer is: “it depends.” Having a long list of intangible assets is no more “diversification” than a huge pile of stones is Chartres Cathedral. Both require a deliberate design and clear strategy.

Ironically, the core problem with developing weaker intangible assets is that while it might appear to be a source of safety, it can actually be a source of danger. By focusing on too many things at once, a business can dilute its knowledge, disperse its research efforts, distract its attention and diminish its determination to act – when really needed – decisively and with determination.

Phew, how’s that for some alliteration!

The problem with investing in weaker intangible assets without a clear strategy is that it will only increase uncertainty more rapidly than it will reduce risk. A company will likely make better decisions when it concentrates on developing its stronger intangible assets, especially those that truly differentiate the business from its rivals – whatever those assets may be.

After all, when a company steps beyond its main expertise, it will necessarily be dependent upon others, relying on their research and their analyses. And the more a business is influenced by external evaluations and judgments, the less confident it will be in its own knowledge and independent judgment.

In other words, the biggest risk in developing weaker intangible assets is that the benefits of diversification may diminish a company’s ability do the best things in a very big way.

A sports analogy might help reveal the problem here.

Basketball is a team sport with a fast tempo. Each player is very tall and there are only a few ways to score. For that reason, every player must be competent in defence, shooting, driving to the basket, carrying the ball up court, passing accurately and a dozen other fundamental techniques. A good basketball player cannot have any weaknesses.

In a way, basketball can be described as an individual sport, but played in a team. If basketball was a market, and each player a company, weak intangible assets would be a liability.

But business is more like the NFL. A typical roster for an American Football team includes 53 players split into three smaller teams, depending on the situation of the game. For example, a kicker doesn’t need to know how to run fast or catch a ball. While others practise those skills, he is out every day building up that one strength until his kicking is absolutely perfect.

What makes each NFL player valuable is that the rest of the team relies on them developing their specific skills to the strongest they can be. If the kicker decides to work on his running skills or learn how to throw like a quarterback, he may not be sufficiently prepared to kick the crucial goal to win a game.

Very few businesses are like basketball where the incentive is to have strong intangible assets in a lot of different places. Most should follow the NFL philosophy instead.

(The exception might be the intangible asset of brand. Every company starts out with a weak brand, which grows in strength over time. Or course, a strong and durable brand is never guaranteed, but all companies should aspire to it.)

“Concentrate on your weaknesses” might be good advice for highly competitive, low margin areas like big-box retail or fast food. But most companies were set up to solve a specific customer problem with a specific technology or service.

For such a company, spreading the risk by focusing on weak intangible assets isn’t a good strategy unless there is a clear and obvious opportunity waiting for them. Most of the time, doubling down on a company’s strongest intangible assets and (mostly) ignoring the weaker intangible assets is probably the best strategy.

A good way to think about this is: are you playing to play, or playing to win?

Winners want to do the best things in the biggest way. That means focusing on your strongest intangible assets. After all, customers are relying on your company to metaphorically kick the ball straight through the uprights – especially in the final seconds of the Superbowl.

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