What do you do to add value? Do you unpack complex problems and solve them? Do you convey novel ideas with impact? Do you bring people together under extraordinary circumstances? If your work encompasses any of these, you are well poised to generate wealth in today’s economy.
Non-physical assets began to overtake the valuation of physical goods and resources (like land, oil, gas or manufactured products) sometime in the 1940s.
While anyone can own intangibles, it is usually through the valuations of corporations like Microsoft, Amazon, Facebook, Johnson & Johnson, Alibaba or Nestle that we truly grasp what these assets are comparatively worth. In 2020, Ocean Tomo, the renowned trend reporter, estimated that intangibles represented 90% of market cap of S&P indexed companies; in 1975, intangibles represented only 17%.
Valuations improved as understanding of the topic grew.
And yet, corporations are not the only ones who can own intangible assets. Individuals, private companies and even countries do too. The trouble is that the owners or stewards of these valuable properties can be less skilful at leveraging them effectively to build wealth. This article will show the fundamentals of intangible assets and what you can do to begin investing in yourself and use this incredible resource class.
Grasping the concept of earning from nothing
According to Etymologists, the word ‘intangible’ has origins in France in the 1600s. It meant ‘incapable of being touched’. There is also evidence of its origin in Medieval Latin from the root word ‘tangibilis’, which meant ‘that may be touched’.
Though it wasn’t until the 1800s that understanding of the figurative sense began to grow. Back then, the definition had evolved to mean ‘that cannot be grasped by the mind’. Today’s Cambridge dictionary explains intangibles as impossible to touch, describe exactly, or give an exact value.
Given the intricacy of intangibles, it is no wonder that the commercial world finds it difficult to justify to investors.
Yet, intangible assets are responsible for enhancing the endurance of commercial activity. They are worth more than physical assets, so it is crucial to manage and monitor them. They give providers of debt or equity assurance that productivity will facilitate the repayment of a loan or return on any initial investment.
Intangible assets are responsible for the production of products and services now and well into the future. They signify greater monetary value because they represent future potential revenue.
5 Intangible fundamentals
- Understanding intangibles is relatively new. This asset class includes intellectual property, brand perception, reputation, images, goodwill, patents, licences and algorithms. Though there is a greater understanding of intangibles and corporations already use these assets to prove business continuity, the study of this subject is still relatively in its infancy. There is still a lot to figure out, like what measure might replace Gross Domestic Product (which measures the productivity of physical goods). Management innovators are still determining an agreed framework for measuring the impact of good governance on a month-by-month basis within businesses. And we are on the lookout for a way to make valuations more cost-effective; that way, companies and individuals can buy the service more frequently. Additionally, policies would possibly need to be updated so employers don’t take advantage of workers as they pursue hybrid models. Nevertheless, the newness of this area means that there is opportunity and advantage to learning more about intangibles and contributing to the shape of this space.
- The creation of intangibles is affected by organising how an individual or a group of people work. The key to economic activity today is powerfully linked to human capital. That includes our ability to learn, unlearn, think, create, communicate and collaborate. How we then organise ourselves determines the speed, quantity and quality of whatever is produced, including intangibles. A study published in the United States in 2007 revealed that updating organising models resulted in the exponential increase of net income per employee performance in the top 150 firms (up from around GH₵140 per employee to GH₵400). That update dealt with the complexity of having a large volume of people working together.
- It is the first time in commercial history that companies perform significantly better when more people are involved in their operations. Technological advancements and our improved understanding of value makes it possible. A large workforce arranged so more people provide high-value, revenue-generating outcomes and remunerated based on output is responsible for this change. You see, this structure is the opposite of the historic manufacturing one, where most employees were involved in producing the product or the delivery of a service. Those jobs, though necessary, provide lower, slower value to the operations. Continuing to trade using the outdated model is not as profitable in an economy where intangibles generate wealth.
- Companies with more than 35% of workers involved in subjective thinking and problem-solving work perform markedly better than competitors that have not modernised. Hierarchal structures restrict the workforce’s ability to innovate, share knowledge or genuinely engage with the purpose of a business. The modern organising model builds an active talent pipeline externally.
- Intangibles can solve unemployment while building wealth. Today’s organising model based on knowledge is entirely different from the models that worked during past eras. Employers that can best attract top talent and apply employee insight and resourcefulness are winning in business in this economy. However, because we cannot precisely predict where top talent will originate, by removing recruitment barriers for high-value jobs with low risk and replacing it with a system that delivers value from day one will create a steady stream of workers from which employers can identify and nurture ability.
Leveraging intangibles to build wealth
Let’s face it, intangibles have been changing everything. Intangibles are why social media influencers frequently earn more than professionals involved in business operations.
So, what can you do?
It is vital that you know that individuals, private businesses of any size and even countries own intangibles, just as corporations do. Investing in yourself and learning more on the subject is one way you can win. Understanding how valuations work is not as complicated as some would want you to believe. It is only after workers appreciate how they add value, that they can yield more from their work and build their portfolio of intangibles.
Being paid just for time is antiquated. That basis limits earning potential for both the employer and employee.
Private businesses and individuals globally are already leveraging value that can’t be touched in the same way that publicly traded companies do. So, whoever you are, regardless of the sector you belong to, your first step is to learn more about intangibles. Join the community. Build wealth from your unique abilities.