The Four Intangible Capitals
As we talk about business succession, there is, more often than not, a bank involved and is typically working with the buyer to obtain financing. We often hear about the 5 C’s of credit and how that impacts the buyer’s ability to obtain funding. However, there is also 4’C of Capital that the business has, and this can make it more valuable and attractive to buyers. What are the 4′ Cs of Intangible Capital that a business has and moves to the best in class as it is compared to its peers?
- Human Capital: Human Capital is the value of your talent in your company. If you have a strong mixture of talent, experience, resilience, and motivation in your team, your company’s value increases. All things being equal, the stronger your human Capital, the more value the market will place your company. Strong companies believe accountability to each other is more important than to their boss or company.
- Customer Capital: Customer Capital is the measure of the strength of relationships with your best customers. Deep, integrated, tenured relationships and diversified customer bases – are all things that contribute to strong customer capital. The best in class companies regularly analyze profitability by customer and product.
- Structural Capital: Structural Capital is the back-end infrastructure of the company, such as your processes, your financials, your strategies, your information technology, your patents, and your intellectual property (IP). The documented know-how and know-what of the company positions you to be fast and flexible. Structural Capital connects people to knowledge so it can be shared to enable your business to scale.
- Social Capital: Social Capital, or company culture, embraces the people. Social Capital is what elevates a company to be best in class, as it is the optimization of the other three capitals. How they communicate, what they believe in, and how they operate internally and externally are key components of a company’s culture. It is also shown in how your company contributes to its community. Social intelligence is one of the greatest predictors of success.
All of these items are seldom thought of as Capital in the traditional sense. Still, hopefully, if you can look at things a bit differently, it is a way to begin a new conversation about building value and making a business the “Best in Class.”