Building Value vs. Generating Sales

Most small business owners focus on generating sales. After all you need income to survive. But there is another extremely critical function only the business owner can address, and that is building the value of the company, by which I mean the company’s protected competitive advantage.

Consider potential buyers of your company. They look at current sales and wonder, What guarantees do I have that sales will remain at this level or higher? What are the potential sources of attack on this company’s current competitive advantage? How will my investment in buying this company be protected from those attacks?

If you don’t have answers to those questions, you have not built value in your company, you’ve only built sales.

Sales volume is an indicator of market acceptance of your ideas as they are embodied in the goods or services you offer. But there are many scenarios in which a currently high sales volume does not translate into a high value of the company: Government contractors who fail to commercialize a single product so live contract-to-contract; Manufacturers who fail to recognize the creeping commoditization of their products; Technology companies that are put out of business–or nearly so–by competitors that sue for idea infringement (see the history of Vonage and their patent filings).

The value stored up in your company is not found in your income statement, and probably not even your balance sheet. Your company’s value, and therefore your wealth, is largely in the intangibles: The value of your protected competitive advantage, which in the modern economy rests almost completely on protected ideas.

You cannot protect raw ideas, but the government and the court system helps you protect the proper embodiments of your ideas, through the framework of laws that establish Intellectual Property: Patents, trademarks, copyrights, and trade secrets.

Even a failed company that has a large portfolio of protected ideas can be sold for an enormous sum of money (consider but one example: Google’s purchase of Motorola’s telephony patents ). And at least one world-renown company uses a trademarked bottled shape and a well-protected trade secret as the basis of its entire corporate value (do I have to say Coca Cola^®?).

So while you are hurriedly trying to build sales of your product or service, spend some time each month thinking about how your ideas, the true source of value of your company, fit into one or more of these protected classes. Formalizing the embodiment of your ideas into these classes not only builds value that will attract buyers of your company, but it will let you engage the government to help you fend off copy-cat competitors.

And that will also help you build sales!