When a company lacks an asset, people become a bottleneck. The bottleneck very well could be the founder or the owner of that business. Bottleneck then becomes a cash-flow blocker and limits growth
Many of you might know me from my days at Knewron Technologies. When I sold that company five years ago, it was a mixed experience. But one critical insight that I have gotten from that transaction remains a big one to this date with me. I realised I could have gotten a better value from it, only if I had built enough assets. It wasn’t just my realisation, the buyers hinted at that too.
The point is income always follows assets. And that means, if you are intending to increase the value or valuation of your business, if you are intending to increase cash-flow in business, then having enough appropriate assets is going to be the key.
What’s an asset?
In plain simple dictionary terms, an asset is something that is owned by a business, has value, and can be used to generate income or provide future economic benefits.
Assets can be tangible, such as property, equipment, tools, inventory, etc, or intangible, such as patents, designs, trademarks, copyrights, goodwill, investments, and so on.
Tangible assets are easier to recognise, understand, and evaluate. However, intangible assets are often difficult to understand and so to evaluate. Nonetheless, many of us can recognise them easily.
Assets are important to businesses because they can be used to generate income, support operations, and provide value to the business. When it comes down to the assessment of their value or cash flow by the bank or investors, assets play a crucial role. They become a key factor in determining the right value of a business.
Especially for small businesses or startups, assets are like a lifeline. Assets being one of the most important things, founders, entrepreneurs, and business owners must pay attention to creating them.
Startups and small businesses
The obvious question you might now have is, why am I mixing startups and small businesses? Isn’t there a difference in what they do? Well, it’s not that simple.
Startups and small businesses are similar in that they are both small companies. The key difference is that startups are often focused on developing and bringing a new product or service to market and may be riskier than small businesses. Small businesses, on the other hand, are focused on providing products or services that are already in demand and may be more stable and less risky.
“When a company lacks an asset, people become a bottleneck.”
Despite these differences, startups and small businesses share some key similarities. Both are usually owned and operated by a small team or an individual, and they both have a limited budget and resources. Both startups and small businesses are also subject to the same laws and regulations as larger companies, and they both face similar challenges as they try to grow and succeed.
The key issue
When it comes to assets, both startups and small businesses are likely to fail the test. They don’t have enough assets. Their constant state of flux is indicative of the absence of assets.
A good rule of thumb is, when a company lacks an asset, people become a bottleneck. The bottleneck very well could be the founder or the owner of that business. Bottleneck then becomes a cash-flow blocker and limits growth.
So, think about your business. Does it have bottlenecks? Are they just a few or many?
Why assets are important
Having assets brings several benefits. The first and foremost thing you do with an asset is to generate income. Whether it is a piece of equipment or inventory, or goods or services that can be produced and sold to generate income for the business. These assets are necessary for the day-to-day operation of a business. Without them it becomes difficult for the business to function.
Even with intangible assets like patents, branding, and goodwill, business ideas are protected, and market share is protected. Which is important for generating sustained income.
But one of the most ignored or underestimated facts about assets is their use in valuation. Assets are a key factor in determining the value of a business. The value of a business’s assets, including tangible and intangible assets, is often included in the overall valuation of the business. In fact, this is what happened during the sale of Knewron, which brought down its valuation drastically.
Assets help a business generate income, support operations, provide value, and contribute to the overall value of the business.
If we look from the scalability perspective, assets help here too. For example, assets like property or equipment can be utilised to increase production to meet demand. If a small business or startup wants to branch out to another location or territory, its branding assets help a lot in establishing a foothold.
However, the most important benefit of having assets I can think of is to free up the founder’s or owner’s valuable time. People do not remain a bottleneck anymore. It also creates the elasticity in business and the business model grows, which then makes the business scalable.
A few things you can do today
As building several key assets is the same as building a business, it is going to take quite some time. However, there are a few urgent things you can do starting today that will help make your position much stronger over the period.
- Assess what you have or don’t have. As always, whenever you see a problem, instead of jumping to solutions, diagnosis of the problem helps better. So, assess what assets you have already. Apply one simple principle to do this assessment—ask yourself, where are my bottlenecks and how do I often solve them? Things that are not linked to your time and help you relieve are likely to be your existing assets. Of course, there are more, and we will cover them subsequently.
- Lay down the strategy to maximise what you have. In business, there are problems, and there are “good problems.” And we all know what those “good problems” are, right? Not having assets is a problem, while having that push us towards solving it is a “good problems.” So, lay down your strategy and plan how to maximise use of the existing assets.
- Create a roadmap for creating what you don’t have. But more importantly, fixing the lack of assets should be your top priority. This also means you got to have a roadmap for creating them. Once you know what is missing, create a roadmap to build it.
- Think about formalising and commercialising them. This is not something you can do immediately or in the near term. However, thinking about it now is important. As you start building business assets, tangible and intangible, you will want to formalise them as you go. Eventually, it will only be logical to commercialise them. All this should be on your to-do list today.
- Avoid being too close to your business. You know, when you stand close to the TV screen, it’s nearly impossible to see anything; you cannot appreciate the beautiful motion pictures being shown. The reason is simple, you’re too close to it. And that’s what happens when we lose perspective.
“Removing bottlenecks makes business more scalable.”
Taking a step back and seeing the bigger picture for your business often requires facilitation from an expert in a fresh new environment. You need new perspectives and creative insights. There is a difference between “working in” your business and “working on” your business. The goal should be to “work on” your business.
About the series
If you have understood the importance of building meaningful assets, it would make sense to take you on a journey and explain them further. On this journey, I will explain more about the type of assets and the key principles to build them. And to do that this series of articles is going to be the key.
I will be covering a range of topics that are essential for entrepreneurs who want to take their businesses to the next level. That is where this series is going to help you with that most needed perspective and insights.
Anand Tamboli is a serial entrepreneur, speaker, award-winning author, and an emerging-technology thought leader