It's not what you make, but how I feel about it that matters

It goes without saying that we’re living in interesting times. One of the things that I’ve noticed about living through a period of significant change in business and culture is that concepts that feel counter-intuitive one day (because they are new, unfamiliar and sometimes downright strange) can turn out to be self-evident the next day.

One such concept is the intriguing notion that value creation is less and less about the physical objects that companies make, and more and more about how those companies make people feel.

Let me explain why I think this is the case.

We live in a world where almost any product can be deconstructed and imitated the moment it is introduced to the market. New products, even those with seemingly unassailable advantages in design, patent protection and complex technology are often challenged by rivals almost as soon as they are introduced.

Think of Apple’s iPhone. Just a few short years after its launch, this highly complex and truly revolutionary product is being effectively challenged by imitators and alternatives from around the world. Of course, most products don’t have nearly the level of complexity and sophistication of the iPhone and many of those products can be copied in a matter of days, not years.

For manufacturers, the situation is only getting tougher. When I was a student of industrial design, we marveled at rapid prototyping machines that cost millions of dollars. Just 15 years later, companies like Makerbot have brought the cost of this technology down to just a few thousand dollars and made them safe for use in your living room. Companies like Kickstarter take it one step further, helping individuals to secure funding to “scale up their dreams” in just 30 days. No banks, No VC presentations, just “crowdsourced funding”.

We are entering an era when, if you can imagine it, you can make it. In a world where almost any arrangement of atoms can be imitated, the heart of value creation is no longer the physical configuration of the atoms.

While its true that companies need to get faster at innovating and faster at introducing new products to the marketplace in order to compete in a world filled with copy-cats and knockoffs, even that does tell the whole story. With so many new products and brands doomed to failure, getting faster without getting better at new product development could put some companies out of business, and quickly.

In our view, the critical insight here is that value creation within our economy is migrating, consistently and inexorably, from the “tangibles”, the things you can see, touch, feel and taste to the “intangibles”, things like aesthetics, purpose, meaning and culture. We believe that this shift is both a profound opportunity and a profound challenge. It’s an opportunity because our economy is able to extend its reach in order to meet a new class of needs and to make people genuinely happier in their lives; it’s a challenge because industrial era principles of management and production are being turned on their head with profound implications for how companies are run.

There are two compelling pieces of evidence for value migration from “tangible” hard assets to the “intangibles”.

The first is the rise of the Silicon Valley software giants. Today, a large percentage of our economy is accounted for by companies that did not exist just 20 years ago. Companies like Google, Facebook, Yahoo and AOL are companies with very few tangible assets on the books relative to the industrial giants that went before them.

The second piece of evidence is the inexorable rise of brand value as a % of total value at the world’s largest companies. In their 2012 brand valuation study, global research company Millward Brown noted that even in a soft global economy, brand value continues to take a larger and larger slice of the overall valuation pie. In other words, even in “traditional” businesses that still make physical products, an ever-growing proportion of the valuation of those businesses is accounted for by the value of their brand: their name recognition, their emotional associations, their relationships with customers, in other words, their “intangibles”.

In our view, this marks the entry point into a precarious period for many companies. So much management theory and practice is focused finding more efficient ways to arrange the atoms. Notions like “culture” and “purpose”, critical concepts in building powerful brands, are seen by many as quaint curiosities, best handled by a small team of dedicated marketers. Marketers, in their turn, often hand off these more ephemeral components of their responsibilities to a small group of creative directors at advertising agencies.

The result of this chain of events is often a false equation between “intangible” and “disposable”. Many companies are still attempting to build their intangible value through disposable ad-units with a typical shelf-life of just a couple of months. While advertising has a role to play in building awareness about a company and it’s brand(s), it is just one of many critical components. An over-reliance on advertising as the primary source of brand development can be indicative of an assumption that brand-building is an expense to be borne, rather than an investment to be made. And yet, successful companies like Ikea and Zappos don’t treat their intangible brand assets as “disposable” expenses. These companies build brand value from the inside-out, starting with a powerful internal culture and a sense that everyone in the organization bears responsibility for developing the intangibles.

To find out more about Fabric Branding’s unique approach to helping our clients build their brands into powerful, valuable, assets for their business, feel free to get in touch.

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