What Makes a Company Valuable? 11

Startups & Brand Equity Likened to Marathon Readiness

Purpose-driven companies build fast brands.

A company is a social arrangement codified in law and directed towards a purpose.

Increasingly, the largest, most profitable, and successful companies have few tangible assets. Patents are rarely enforceable outside of select industries like pharmaceuticals. Companies that relied on copyright like the music industry have shrunk to a fraction of their former size. Manufacturing has been increasingly outsourced. More workers perform their jobs from home than ever before.

Many companies consider that most of their strength comes from their brand. But traditional branding has come under criticism. It used to be possible to label a commodity like potato chips with a brand name strengthened by television, print, and radio advertising and mark up the products considerably. Generating that brand strength is no longer as easy as it used to be. And it’s impossible to measure.

Apple, for example, used to have an anemic brand. Since Steve Jobs returned to the company in 1997, it built arguably the strongest brand in the business by aggressively marketing consumer electronics, software, and computer hardware as a fashion statement. Apple products became an expression of a lifestyle, of a certain sensibility. What used to be a market dominated by hyper-masculine power comparisons – computers used to be advertised in terms of processor speed – became more driven by conventional advertising. When the iPod came out, it was technically inferior and more expensive than most other MP3 players on the market.

Because Apple told a more compelling story and offered excellent technology with a more intuitive user interface, they broke consumer electronics out of the overwhelmingly male gadget-worshiping niche.

Brand Equity

The strength of a brand is not necessarily to the benefit of a business or person. Lindsay Lohan, for example, has a very recognizable brand. Despite this, she has trouble finding high-paying work. Her name has negative connotations now. Her legal troubles make her expensive for production companies to insure her. Her brand has become more of a liability than an asset to most who would choose to work with her.

Brand equity connotates a set of beliefs and associations surrounding a company or product line that predisposes people to pay for products or services. Even tiny companies develop brand equity. Flat Rate, a relatively new moving company, has generated a powerful brand in recent years by introducing transparency to the pricing process.

Corporate Culture

Something that’s been overlooked in an outsourcing-obsessed era is corporate culture. Because it’s impossible to define on a balance sheet, many executives and managers have received inappropriate incentives. High-functioning companies inculcate a culture of mutual respect among employees. Those that tend to whither quickly accept abusive practices, fail to maintain clear standards of behavior, are indifferent to customer service, and paranoid about employees speaking with the general public.

People work better if they’re respected and properly rewarded. An inappropriate focus on short-term profits by forcing higher production from employees at the cost of employee happiness has negative long term effects. In a world in which machines and other forms of capital equipment (the tools that workers use to produce) are increasingly inexpensive, the employees are the primary means of production. Treating workers with respect is investing in the future of the company.

Corporate culture is also extremely fragile. If a manager becomes embroiled in a scandal, the negative morale effects can ripple through a company. Such an event can impact corporate productivity just as much as a factory accident.

Special Rights

Certain companies are specially privileged by legislation or directly operated by the government. Most telecommunications companies own a particular portion of spectrum or the rights to run cables through particular areas of land. Ratings agencies like Moody’s and Standard & Poor’s have a shared legal duopoly on rating bonds. Car insurance companies benefit from state mandates for all drivers to use insurance.

There are also natural advantages, like those offered by geography. A mining company owns exclusive rights to extract ore from a particular area. A retailer that owns an outlet on Times Square has a similar advantage.

Companies can also derive value from contracts. A shipping company, for example, derives much of its value from various contracts with importers, exporters, and fuel suppliers.

Why Does This Matter?

It matters because the corporate world is changing rapidly. Whether due to social movements, economic shifts, the stock market, regulatory issues, or other problems, many major corporations are suffering to a degree without recent precedent. The costs of product development, production, and distribution have been driven down relentlessly. Companies are firing workers, increasing outsourcing, and experiencing unexpected disruption from tiny upstarts.

To create meaningful companies, we need to come up with competitive advantages. We have to deal with reality as it is rather than how we would like it to be. Wishful thinking may alleviate anxiety, but it never solves problems.

As many have learned in recent years, the attractiveness of a balance sheet or the opinions of stock analysts are often no indicator of future success.

The best companies are societies dedicated to advancing the human condition. It’s imperative that we cultivate them.

About JC Hewitt

JC Hewitt is an independent copywriter and marketing consultant based in New York City. He loves innovative companies of all sizes.

  • I wholeheartedly agree with your view of what makes the “best companies”. Unfortunately, after years spent trying to educate people about the concept of fair trade, I see that those same things – treating your employees well, fair pricing, long-term growth strategies – are the not the only things that make companies succeed. You have aptly pointed this out in the latter section of your post.

    I think it's a sad reality that many consumers really don't care about where their “stuff” comes from. Look at how many people shop at Wal-Mart, even after they essentially forced Rubbermaid into liquidation. A gander at the CorpWatch website tells me that large companies are indeed succeeding, in spite of unfair labor practices, environmental and ethic breaches, etc. In order to change the system, I think it's going to take a tremendous amount of consumer education in a society that I fear is not willing to learn. It's not just corporate culture that needs to change, it's consumer culture.

  • Interesting read–a very different way to look at it compared with discounted cash flows and all the “traditional” means.

    I know it's not your entire argument here, but it's very interesting to think about the explicit merger of culture and economy. One of the more interesting things I've seen lately in this regard (though still imperfect) is http://empireavenue.org.

    How will we “value” the part of any endeavor that really matters–people's commitment to it, their belief in it? I have to think it's some process of aggregating opinion, though it's hard to see how just yet.

    In any case, looking forward to blogging alongside you! Thanks for getting my brain started this afternoon.

  • Great analysis of why the old corporate model simply won't work going forward. Credibility and transparency should not be applied to individuals so much as to corporations. The turning around of the accountability discourse from corps to annonymous users on the net (CF FB) is one of the great PR hijacks of our time. The discussion and focus needs to remain hotly centered on fail-proof corporate models that don't endanger the public treasury by being “too big to fail” and yet “too instable to succeed longterm” at the same time.

  • Thanks, Mark.

    Something that I've seen is that the companies that take the easy way out when it comes to corporate culture tend to fail in the long run.

    I remember when Dell, for example, was a company that differentiated itself by relentless customer service. Soon after they cut costs by outsourcing customer service overseas, the company became another commodity purveyor and lost its dominance.

    That's probably not the only thing that went on, but it's a solid example of what I'm talking about.

  • Human beings and culture aren't easy to value on a balance sheet. That's causing a lot of confusion these days. Apple, for example, has few real assets that you can assign objective values to. Its patents are somewhere between difficult and impossible to enforce effectively. The value comes from the marketing acumen, creativity, organizational structure, and engineering skill.

    A corporation is just another culture.

  • I'll take a somewhat controversial tack and say that how managers behave is largely dependent on the operating psychology of the organization.

    It's extraordinarily tough, for example, to get an ex-marine sergeant with a half-decade of combat experience to adopt an empathetic, two-way communication approach to his employees. It would be tough to create a microchip R&D lab in Liberia staffed by ex child soldiers.

    I think culture is far more important than technology in engendering economic activity.

    Wal-Mart does well because they're big and clever enough to take maximum advantage of the legal system and the public infrastructure. Its primary competition before it grew to mammoth size were similar big-box discounters. In many areas of the country, Wal-Mart *is* the only reasonably priced option.

    It's a complicated issue. If my neighborhood in South Brooklyn had a Wal-Mart, I'm sure it would become extremely popular. The local shops here sell similar low-end products to Wal-Mart, but at mostly lower quality and higher price.

    But Wal-Mart can be so large mainly because it can negotiate tax credits all over the country, hire an army of lawyers, raise money from the stock market, externalize tons of costs onto state and federal governments, and so on.

  • Good example!

  • gsetser

    Like your comment. Perhaps we need a consumer counter-culture. 😉

  • We do, and I think one is alive and well and hanging out in social forums, but I think it's also still lagging behind to an extent. Probably will take individual campaigns via social media to really get such initiates to take flight.Social marketing campaigns do exist and do go viral, but I think they are easily drowned out or censored by the venues themselves under big money pressures.


    Keep it up..

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