Dance of the Intangibles

Day 209 Week 29 Q3 Saturday, July 29, 2023

Whenever a creative outlier has a dream that is larger than a one-person dream, they need help to complete it or even to make significant enough progress on it to feel good about the entire thing after a point. That point could be the day you have the idea or, five years later, after you have been working on it alone. In fact, the time for stakeholders is as soon as it is reasonable, which is to say, as soon as your progress slows to a crawl. Depending on where you are in life and your background, you may elect to engage stakeholders at the very beginning just to start. You may have the assets available to get significant leverage instantly or not at all, reducing this dream back to a one-person size dream. 

No one is really an island, even if it feels that way. And if someone is truly an island, they do not have much chance is being a sustainable innovator, although they could have a long run. The issue of motivation for external stakeholders eventually comes up because to become sustainable, your innovation has to scale, which always requires a myriad of skills.

This is when the Dance of Intangibles begins.  Let us look at this from two different direct directions, first from the ideation and second from the potential stakeholder. As they are both likely to be creative outliers, they are each significantly vested in intangibles, their potential and their current reality. 

A group of teenagers starting a band always presume a partnership and an equal sharing of work and profits. This notion begins to break down when there really are profits which is why most if not all, bands break up. Sure, some continue under the same band name but with none of the original founders present. And this happens with companies as well and for the same reasons. The intangibles become tangible, and an expectation gap seemingly materializes. Oh, believe me, it was always there from the start. It just becomes more visible as soon as the work becomes real and the desire for a reward becomes real, as not everyone has the same definition of work, nor do they desire the same rewards.

In the business world, when the ideation decides to create a legal entity called a company, the question of how to pay people comes up, and the answer initially almost always involves sharing in ownership in some form or another, which is called equity.  This is when someone has to determine what the value o the enterprise is and what the value of the enterprise and the value of the stakeholders’ contribution.

Although this can be a very long and nonconvergent set of conversations, there is one very simple way to proceed.  The most real value of the enterprise is determined solely by the most recent price paid for the stock when a significant percentage of the ownership is transferred from founders to purchasers. 

If someone is willing to pay $1 for 1% of a company, that does not mean the company is worth $100. But if they are willing to pay $1M for 10% of the company, then it might be worth $10M.

Whatever agreements were made before the point of a significant investment are all subject to redefinition. This means one way all ownership and compensation agreements can be expressed is in terms of the stock’s future value.