Business goodwill is a key intangible asset that represents the portion of the business value that cannot be attributed to other business assets.

(Btw: For a quick definition on institutional, professional, practice and practitioner goodwill, see for example here or Wikipedia.)

IA’s are according to this:

• Intangible assets can be identified and described. They must be a specific property, not an idea.
• Intangible assets are legal property. Just as tangible assets, the owners can assert their legal rights to and defend their possession of intangible assets.
• Ownership of intangible assets can be transferred. For example, the owners can sell them or give them away.
• Evidence of intangible existence. Documentation is a typical way to establish that. Examples are customer lists, blueprints, contract documents, software source code printouts.
• Intangible assets have a life span.

Why is it locked out of the definition of an intangible asset when all you have to do is follow through with this logic and place ‘idea’ in the above bullet points? So tell me, what did my last idea not do to increase business value?

I carried it around, I gave it to somebody, I wrote it down, it got me a good reputation, I was paid for it and in the end it might be a good one to keep for solving a specific problem in the organisation later on. A bit of goodwill, anyone?

Parts of the organisation traditionally dealing in ‘tangibles’ are the finance and sales departments. HR and Marketing are the domain of the intangible asset.

The process of developing a linear intangible asset chain can be described in this model. They are presented here as linear, because in my experience, setting them in random order is not creating sustainable competitive advantage in the long-term. Step 3 to 7 are intrinsically linked and are more like layers than consecutive steps as they are initiated simultaneously.

intangible asset chain

1. The process of naming the company
2. The process of trademarking
3. The process of defining the corporate identity
4. The process of inducting employees to the corporate identity and marketing strategy
5. The process of product/services development
6. The process of defining the target market and target demographics
7. The process of communicating with internal and external stakeholders
8. The process of determining brand equity

It was my observation that if the start-up company had not followed through with the linear building of this intangible asset line, sales were either stagnating or did not attract the appropriate buyers if the company tried to employ a price skimming strategy.

Premature investment in corporate identity creation before the naming process or product development before the research into target markets led in all instances to reconsideration and further financial and time investment.

Research has found that adequate financial resources help secure the tangible side of things on which intangibles can be build. Increased development funding is a start-up competitive advantage, because augmented financial resources are used to increase firm assets (Lee, Lee, and Pennings 2001, 619).

However, consider that, simply possessing resources does not translate them into value (Priem and Butler 2001). Firms achieve value creation by gaining, combining and utilizing resources (Grant 2002).

It is therefore important to map out the steps on how to create their intangible asset chain when start-up businesses of any industry enter the market. For more information and a graphic of the Consensio Intangible Asset Chain, please contact Consensio or leave a comment.