Deemphasis by Emphasis of Tangible Assets

Growing up on a farm I was surrounded by tangible assets… land, buildings, tractors, implements, shop tools, etc. Maintaining and building stuff gave everyone on the farm a sense of great pride. “We did that” was a palpable, daily utterance… even if only to ourselves.

The work, save, buy model of business is a fundamental building block of wealth generation. Without some discipline to spend less than one earns, the whole equation is flawed. This article is not going to try and refute the laws of math, but rather place the emphasis elsewhere… and not on the “buy” step either. Rather than piling up of stuff, why is it not better to pile up productivity? Put the emphasis on “work.”

The math of business argues that productivity enhances value the most. If one individual produces more value they tend to earn more. If they spend the same, they can save more. This is margin. What was hard for you, was easy for them. Signed, sealed, delivered.

By this emphasis, the utility of tangible assets, subjected to intangible productivity, should be emphasized. And what is the upper boundary of productivity? Can it go infinite? Millions over zero?

In my experience developing and scaling a software company the siren song of productivity looms large. And, while it can work, the risks of failure are greater than many founders realize. The fat gross margin allure comes in the idea that one can stop developing and simply run the software, extracting the profit. This is simply not true when competitors don’t stop developing. Your position erodes. Value of the business declines and you lose more value than cash gained.

The best businesses would retain their leadership position throughout continuous, competitive attack with very low spend relative to their earnings, and relative to their tangible asset demands. Furthermore, their expansion could occur systematically, and to a large final size. The pace would not overwhelm the ability to attract and retain people, nor subject the business to increasing, but decreasing risk as it grew. All of this puts people first. Again, “work” is paramount.

Within Little Engine Ventures we capture the above in regular routine by measure, report, verbalization and bonus upon return on tangible assets. The emphasis on tangible assets helps us measure our management systems, talent, and competitive position. Right in the equation is a “do more with less” attitude. And that requires creativity beyond the tangible.

Share the Post:

Related Posts