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“An asset is anything that would still be valuable without you.
Your home doesn’t change in value when you walk out the door.
Shares in a blue-chip company don’t fall if a shareholder takes a holiday.
Assets such as art, wine and metals maintain value regardless of what their owners are doing.
In your own business, it’s hard to see the assets.
It’s hard to spot anything that’s happening without you.”
– Daniel Priestley

What is an asset?
Most startups begin as a team with a vision. These are exciting, but they aren’t valuable businesses until they have assets.
Some assets are physical items like inventory and equipment, or financial assets like shares and land rights.
Some assets are intangible, like a brand, patent or trade secrets.
The most important thing is that an asset is expected to create financial value in the future – a money generator.
You use them to create products and deliver services, or rent them out to other companies.
These money generators are how your business is able to grow, and what enable you to eventually sell it for a decent amount in the future.
This is a lucrative and important topic, and yet most new business owners don’t pay enough attention to their present and future assets.
The best news is that today’s tools make assets easier to create and display than ever before.
You can build your own audience, run your own sales channels, scale up your advertising and understand your customers in detail.
But that only works if your assets are any good.

Building A Job vs Building A Business
If you start a company that can’t function without you being there, you’ve built a job. This isn’t necessarily bad, it just makes you self-employed rather than an entrepreneur.
For some people, building a job is wildly inappropriate, especially if your aim needs a scalable business or a large team.
If you want a business rather than a job, then you might need to redesign your operations so that they’re not reliant on you.
This has the added bonus of allowing you to go on holiday – I’ve never heard anyone object to that.
A business needs assets to run, and in order to one day be sold (don’t freak out, you have a range of good options).
The role of the entrepreneur is to create assets that support the business, something that is often in the category of “important but not urgent”.
These assets might be tangible, such as your equipment or your inventory, or intangible like your brand and reputation.

Tangible Assets
We refer to some types of assets as “Tangible” because they can be seen or touched. When you think of assets, they’re usually the first ones that come into your head, such as:

· Equipment

· Land

· Inventory

· Shop Fitout

· Marketing Materials

· Sales Channels

These take a decent amount of time and money to establish, and they help your business attract and serve customers.

A café needs a premises, a nice fitout, a good coffee machine and a commercial kitchen.
A consultancy might not need to own their office, but they need office supplies, computers, and a good website.
A chocolate factory needs several key pieces of industrial machinery to turn cocoa beans into something delicious, along with storage facilities, trucks and a decent amount of inventory.

Intangible Assets

We refer to some types of assets as “Intangible” because they aren’t visible to the eye, yet essential to the success of a business. Anyone can make fried chicken, but only KFC have their famous secret recipe with eleven herbs and spices.

These might include:

· Brand

· Reputation

· Intellectual property

· Network

· Systems

· Methodology

· Patents

These might not look expensive to set up, but they can make or break a business.

A café needs a good reputation and a collection of regular customers, otherwise it’s an empty room with a coffee machine.
A consultancy needs to be known for their unique skillset or methodology, in order to be able to charge out their staff for a high day rate.
A chocolate factory needs a proven recipe in order to create a consistent high quality product, as well as a brand that customers find appealing.

Your Balance Sheet
Assets are listed on your balance sheet; a document that measures the value of the things your business owns.
Companies are constantly updating how much their assets are worth, in order to understand how strong they are and determine if they should be worried or excited.
Most assets do not have a fixed value, they change over time based on a wide range of factors. Land might go up in value when the neighbourhood becomes more expensive, while a house might go down in value as the pipes age and the paint starts to peel.
Some assets appreciate – they go up in value over time, while others depreciate – they go down in value over time.
I bet Blockbuster valued their collection of DVDs pretty highly, along with their brand and loyal membership. We all know how that story ended, those assets became almost worthless, but Blockbuster lost assets rather than losing cash.
On the other hand, some people in my suburb bought houses for $40,000 in 1980 that are now worth close to $2 million. That’s a huge increase, but it hasn’t given them any more cash in those 40 years.
When you invest in assets, it can be hard to spot them rising or falling in value. You’ll want some way of measuring their worth, so that we have an accurate read on how things are going.

“It always reminds me of the story about the woman who approached Picasso in a restaurant, asked him to scribble something on a napkin, and said she would be happy to pay whatever he felt it was worth.
Picasso complied and then said, “That will be $10,000.”
“But you did that in thirty seconds,” the astonished woman replied.
“No,” Picasso said.
“It has taken me forty years to do that.”
– Mark McCormack

Cost vs Value
Most people naturally think to value an asset based on what they paid for it, but this is often unhelpful.
What an asset cost you is irrelevant, what matters is what it’s worth to your customer today.
If you paid $70,000 for a truck, that doesn’t mean it will be worth $70,000 in a few years’ time.
Vice versa, you might pay thousands to file a patent which eventually becomes worth millions, depending on how useful it is.
It’s really hard to break the attachment between what we paid and what it’s worth, but it’s important to remain realistic about how much we could sell our assets for today.

“One of my books took more than a year to write, ten hours a day.
Another took three weeks.
Both sell for the same price.
The quicker one outsold the other 20 to 1.
A $200 bottle of wine costs almost exactly as much to make as a $35 bottle of wine.
The cost of something is largely irrelevant, people are paying attention to its value.
Your customers don’t care what it took for you to make something.
They care about what it does for them.”
– Seth Godin

Buy Low, Sell High
“Buy Low, Sell High” is a classic piece of general investment advice, but it’s surprisingly hard to do in practice.
Buying low is hard because it means you see something others don’t, and therefore disagree with the sentiment of the rest of the market.
For businesses with a limited amount of cash, each purchase has a fair amount of pressure on it, and you don’t want to look like you’ve spent your final pennies buying magic beans.
Selling high is hard because it means you no longer own a popular asset, again disagreeing with the broader consensus.
A business can generally sell each asset just once, and you don’t want to become the person who sold just before the price skyrocketed.
Both moves take discipline – the discipline of finding undervalued assets, and the discipline to walk away when someone makes you an offer for more than what those assets are worth to you.

Buy Paint, Sell Art
“When art critics get together they talk about form and structure and meaning.
When artists get together they talk about where you can buy cheap turpentine.”
– Pablo Picasso

The best way to buy low and sell high is to turn your knowledge and your creativity into something that can be seen, experienced and enjoyed by your customer.
The hard part isn’t philosophising or forming opinions – you’ve already done that.
The hard part is in executing on your ideas, making them real.
You’ll be standing too close to your work to see it from your audience’s perspective, so the priority is to knuckle down and get lots of first drafts out into the open.
Once you stand back, you can start making improvements, but remember that you are not your audience.
You’ll create assets whose value is totally separate from the cost of materials. The Mona Lisa isn’t renowned for the cost of its canvas, but for the design and finesse of the creator.
It may well be that your assets use less material than your competitors, but yet are worth more to your customer.

In the next post in this series, we’ll be looking at the types of assets you should be focused on creating first…