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Unleashing the Power of Intangible Assets: A Practical Guide for Entrepreneurs with Andrew Sherman


Unleashing the Power of Intangible Assets: A Practical Guide for Entrepreneurs with Andrew Sherman

By , June 23, 2023



Andrew Sherman is a seasoned transactional attorney with a wealth of experience in various aspects of business law, including mergers and acquisitions, valuations, and intellectual property. Over the years, he has become a well-known figure in guiding business owners through successful M&A deals and helping them maximise the value of their businesses. Not only has Andrew been featured in numerous well-received TED Talks, but he’s also an accomplished author of several books on these topics, a testament to his expertise in this field. His insights into the importance of intangible assets in determining a company’s worth have proved invaluable to many entrepreneurs, and his teachings on the subject are considered industry milestones.

The world of business valuation and M&A deals was forever changed for Andrew Sherman when he recognised the true power of intangible assets. As a lawyer practicing in transactional and business growth, he was no stranger to the world of business deals and acquisitions. However, it was only when Andrew began to analyse the importance of intangible assets in company valuations that he truly understood their impact. As he investigated further, it became clear to him that intangible assets such as brands, relationships, and processes were often the secret sauce behind the success of some of the world’s biggest companies. This revelation sparked a passion in Andrew to help entrepreneurs uncover the hidden value within their businesses, positioning them for success in an increasingly intangible-driven economy.

In this episode, you will be able to:

  • Gain insight into the crucial role of intangible assets in business valuation and M&A transactions.
  • Explore the effects of shifting from goods-based to service-based economies on intangible assets.
  • Recognise the hidden worth in seemingly simple elements, like customer relationships and routing strategies.
  • Examine the unique challenges and opportunities of the pandemic-era workforce in the context of intangible assets.
  • Embrace the stewardship mindset and long-term perspectives for enhancing overall value.

If you’re seeking invaluable knowledge, we highly recommend purchasing Andrew Sherman’s book, “Harvesting Intangible Assets” to uncover valuable opportunities that will drive your business forward.


Welcome to the podcast that’s dedicated to helping business owners prepare for exit so they can maximise value and exit on their terms. This is the exit insights podcast presented by Succession Plus I’m Darryl Bates-Brownsword, and today I’m talking to Andrew Sherman. Andrew is a transactional lawyer, and I first came across Andrew when I found his Ted Talk. It’s a 2014 Ted Talk, but it just captured my interest and my imagination, and I just had to reach out to Andrew and go, look, I’d like to take this conversation further. So welcome, Andrew. Thanks for joining me on the show.

I’m so glad to be here. I’m so glad that you saw the Ted Talk. It’s almost ten years old now, but it was really designed to be timeless, as many Ted Talks are, and we have a lot to talk about just from the Ted Talk and how it relates to what’s going on in today’s economy.

Absolutely. So, Andrew, look, why don’t you, I guess, bridge the gap and give us a little bit of background about yourself and I guess, set the scene because today where I really want to pick your brains, if I may, is about how businesses are valued and specifically linking to the change, I guess, from what I call the goods economy through to the modern service economy. And a lot of value is tied up on things that aren’t even in our balance sheets and which are just lumped into this goodwill or intangible assets.

Yeah, we’ll definitely unpack that a lot further over the course of the next 30 to 45 minutes.

My background is pretty straightforward. Came out of law school in the early 80’s. I had dropped out of college to be an entrepreneur, so I had a little taste of business growth and things from the entrepreneur’s perspective. Have spent 35 years of my life practicing law as a transactional and business growth attorney. A very big chunk of my practice is in the MNA field.

I’ve written several books on MNA, and you saw my Ted Talk. I teach at the University of Maryland in the MBA program. I happen to be wearing my Maryland shirt today and also at Georgetown Law School. Thank you for the Shameless Book plug. I will always accept the Shameless Book plug.

I will never do it myself, but I will be okay with the host doing it. I always hate it when the guest just is basically trying to spend 30 minutes selling their book. I promise you that won’t happen this time. I should note that Brown Rudnick is a very entrepreneurial, business minded firm. We have offices across the United States and a very prominent office in London where I will be next week for our summer party. So I welcome all of your European listeners.

Wonderful. Andrew. Look, I really appreciate that. And yeah, look, it is a shameless plug, and I think regular listeners will know that I’m a fan of intangible assets and helping business owners promote their valuation by working and promoting the intangible assets. So Harvesting Intangible Assets by Andrew Sherman.

If you look at the theme and mission of your show and your consultancy practice, I mean, we look at everything that you’ve done. Not to turn the tables on you and become the host, but this is among the more important subjects you’ve probably ever encountered because if it really is about the seller selling on their own terms and maximizing their value, then one of our themes today is understanding taking inventory of your assets. And most importantly, taking inventory of your assets from the eyes of the buyer. Right?

I mean, I could have a beautiful desk that was made in Africa that’s worth $25,000. And the desk means something to me. This was my first safari and all that. But if that desk means nothing to you as a buyer, the desk is worth a dollar. And they’re not going to pay more than a dollar.

But if you’ve got software and systems and processes and channels and relationships and best practices and know how and show how and other things we’ll be talking about, those are the assets most interested right now to buyers. And if you don’t take inventory of those assets, some pretty bad things can happen. And we’ll talk about those things through the course of the show.

Yeah. So why don’t we start with, I guess, a bit of history? Because, look, I’m just a simple engineer is my background. So logic and sort of got into business side of valuing businesses later in my career after a stack of years consulting. But what I started to become aware of is in terms of valuing businesses. We had a look. We evolved from the goods economy. And if you look at the goods economy, it was manufacturing and building things. And we needed a whole lot of tools and a whole lot of people on our hands on date, using tools, physical, tangible tools and equipment to make stuff. And we’d buy this stuff. And organisations needed to protect their investment in this machinery because there’s high capital cost in machinery and they need to protect their investment. So they’d create some IP and patents around that.

So to me, historical. IP I capture when I’m talking with clients to get the concept across. I call it KFC IP. Why? Because I’m not too bright and I just simple it down And KFC IP refers to the special the secret formula that we had move forward to post 2000 where a lot of our economy is now in the services world. We’ve evolved into services and very little businesses. A much lower percentage of businesses in the western world is manufacturing and product based. And the IP has evolved to I call it Subway IP. Why? Because it’s Subway.

You’re just buying a salad sandwich or some sort of sandwich. It’s just a sandwich. There’s not a lot special about it. Subway franchise owner might get upset with me, but if you have a look at why people go to Subway, it’s because they know what they’re going to get. And it’s all about building the process of building and preparing that salad roll for them down to the point where the server looks our pathway through the process. And I’m sure there’s a sign behind the counter that says, look at the customer and smile at this point. And they look up, and you get an absolute consistent experience of them built. What meat do you want? What protein? Then? What do you want? This. And do you want this? Do you want lettuce?  And then write down, do you want dressing? And it’s a consistent process, and it’s reliable. So there’s your Subway IP, which is all about the process.

And to your point exactly, it’s been well, first of all, Fred DeLuca was a friend and client of mine, may he rest in peace. So you are forgiven for the Subway analogy.

But if you think of, you know, when you have real intellectual capital, is when your system is copied. I mean, Subway, arguably among the most successful franchise systems in the United States, filled with this intangible capital that we’ll be talking about, has been mimicked by Chipotle, which hasn’t done half bad either. I mean the line process and allowing the customer to visualise the food as it’s being made and influence the outcome. Those things may not sound like valuable intellectual property, but how many people listening to this podcast wouldn’t like to own Subway? Which, by the way, is being sold by Fred’s estate right now.

And they’re talking about eight to 10 billion in purchase price or more. Chipotle was one of the most successful spin offs of McDonald’s ever. So these aren’t assets to be taken lightly. These are assets to be taken very seriously. And smaller and mid-sized companies listening to today’s podcast need to take a page out of that playbook.

I will bet all of my 401K retirement money that there is not a single listener who owns a business, not a single one that doesn’t have unharvested embedded intellectual capital in their company. I can’t promise you how much it’s worth. I can’t promise you it’s worth 10 billion. But I’ve never, ever encountered a company that did not have some form of intangible assets. Yeah, I couldn’t agree more.

And if you don’t identify it, if you don’t talk about it, if you don’t bring it to the forefront, there’s no way you’re going to get any value from it.

It’s even worse than that. Imagine Darryl, just hypothetical, imagine, Darryl, that you have decided to sell your home, okay? And in the attic are a series of gold bars, but you don’t know because you’ve never been in your attic, right? And you prepare to sell your house, and you sell the house and all of its contents, and the buyer robustly goes up to the attic a week later and finds hundreds of gold bars.

What do you think the chances are the buyer is going to call you and say, Darryl, you forgot your gold bars up in the attic. I’m sure you want to come pick up your millions and millions of dollars of gold bars. If you were foolish enough not to explore the contents of your attic, then no buyer that I know of is either under any ethical, moral, or legal obligation to call you weeks later and say, I have the gold bars. In fact, they may not even be yours. They might be the previous seller that also didn’t know that there were gold bars treasure up there.

So that’s the concept of selling a business. Imagine your business has these pockets of intangible value hidden in places that you don’t go very often, like your attic or your basement. I mean, go with the business metaphor. They could be your accounting department, your inventory, your operations, whatever it may be. And if you don’t identify those assets and that’s the real reason the buyer is buying your company and pays a low price for it.

Because they see things that you don’t see for yourself. It’s only your fault. And that’s really the strategic essence of this podcast series, as I understand it from Darryl, is to make sure that no seller no seller leaves money on the table for things that they themselves have contributed in building. And I can’t more succinctly summarise it than that. If you agree, Darryl.

That’s it in a nutshell. And so many business owners, I think they take for granted they’ve been doing it. It becomes their day job. They they forget how much time they invested in getting the process, the brand, whatever it is to where it is. It just becomes their norm. And when something is our norm in our everyday, we underestimate how valuable it is to others because it’s not their normal. As soon as they see it, they. Go, wow!

It’s two things they take it for granted. Three things, really, they’re skeptical about the concept, and third, they become jaded. They become jaded in their own businesses. I remember in Philadelphia once giving a speech to a group and a guy stands up and he says, you’re full of blank, blank, blank.

It was Philadelphia. So you can only imagine what the blanks were. Even though I was born and raised there. He says, I own a landscaping business. We cut laws.

What kind of intangible assets could we possibly have? I said, okay, you forced my hand. Let’s go through the checklist. I said, do you have customer relationships? Yeah, we’ve got those.

I said, do you have a couple of different pricing plans for customers to consider? Yeah, we’ve got those. I said, do you have routing strategies? Do you know that Darryl’s grass is growing at a faster rate because he’s in more sun and other customers are in shade, and it’s growing slower. And he said, oh, yeah, we’ve got that all figured out in a database.

I said, do you have landscaping preferences in that database? Oh, yeah. Darryl likes his extra short, so we have him on a different cycle. I said, do you have crew processes as to how many people to send to a particular home or commercial facility? Oh, yeah, we’ve got that.

And of course, I don’t want to use up all of our time, but we got to about 17 elements of intangible assets. And he finally sat himself down because he was threatening to leave and said, you’re right. I’m the one that needs to be taking inventory of my intangibles. And every single one of those were indicia of value. Every single one of those were things that a buyer would want.

And that’s before we get to things like employee loyalty, employee engagement, how happy are people? And look at what’s going on in our larger society. I mean, you have high, high levels of disengagement. You have tons of people working from home, which put a challenge on building corporate culture and governance and leadership and mentoring and coaching and succession planning. We’re not exactly in an era where you can afford to not take your intangible assets seriously, particularly what you said at the beginning of the podcast, that we’ve shifted to an information based economy.

And if you need any more evidence of that than Darryl and I are already presenting to you, why don’t you just take a look at what happened in the stock market last week? Look at the impact of AI and what it had on the prices of Nvidia and Microsoft. Last week was a week where if you were a CEO of a publicly held company and you just uttered the letters AI, all you had to do was say the two letters, your stock went up 20%, let alone if you were actually making products or services supporting AI.

We can’t touch and feel, except in a very small number of industries, the assets that drive the values of our business.

Yeah. So, Andrew, why don’t we start with what is an intangible asset? How do you identify them in a business? If you’re a business owner listening to this going, heck, these guys are making a lot of sense. I need to start taking stock. Maybe I’ve got some intangible assets that I’ve just totally undervalued or underestimated or just walk by every day and don’t see them as such.

Well, the list is quite long, and we could go for a couple of hours. And yes, there is a list or list in the book, but it evolves every day. If you’re a services oriented business and you’ve got 72.3% of your people coming into work every day and a competitor wants to buy you, and they’ve got 41.3% of their people coming to work every day, they might be buying you just to figure out how to get more of their people to come to work.

The list evolves as market conditions evolve. AI might not have been on my list ten years ago or even five years ago, but if I were making a new list, it would very much be there, but just for a primer. Brands, processes, relationships, customer loyalty, employee loyalty, distribution channels, channel, relationship, loyalty, supplier, supply chain processes, best practices, channels, relationships. I mean, all of these trade secrets, proprietary processes. Darryl, you mentioned a couple of fast food examples.

Fast food chains are actually a very good example of a business model rooted in intangible assets, brands, processes, systems, channels, relationships that have leveraged into some quite impressive companies. I mean, when I think about McDonald’s, I think about the big mac being made millions of times a day in 90 different countries, and yet somehow you get a consistent taste profile. Only an engineer like yourself could appreciate how amazing of a feat that is every day, day in, day out, to make the same product millions of times over, mostly by teenage kids, and still get a consistently tasting product 99.99% of the time. I mean, that’s an engineering feat of epic proportion if you really think about it philosophically.

And I was one of those teenagers in 1980. That was my first job at Macas. Exactly. Special source, you name it, right? You’re literally rattling through the intangible assets. The reason I asked is just, I guess as a sense check, we’ve got a tool that we use.

We call it the seven levers, and it’s all about the intangible assets. And they’re kind of big headings because you were going into all of the next layers under it. And the first one is we go, let’s have a look at your revenue. How does your revenue come in? Is it cost?

Exactly. Then I go, the durability of that revenue, the predictability of the revenue. And remember, numbers follow. They don’t lead. Revenue doesn’t just come from the sky. Revenue comes from brands, processes, relationships, customer loyalty. That’s where revenue comes from. I mean, if you have none of those other four things, you will have zero revenue. So a lot of times, it’s just looking at the intangibles in their order of priority rather than looking at them as an afterthought.

Yeah, so the order of priority we look at is we go, let’s analyse the revenue. How can we make that revenue more predictable, more reliable, stronger, more profitable? Then we look at the people you talked about, people and culture and loyalty and how long the employees stay with us, and do they work the whole career and do they come into the office? So people is the second lever we go as to leverage the valuation. Then we look at process. Is everything done the same way consistently?

Systemised like McDonald’s, like Subway, do we have reliable process, and is it fine tuned and improved, then we start looking at product and IP. Do people come to us because we have a methodology that we’re known for, or a brand or even a proprietary product? So we’ve now got this Subway IP. And after product, we now talk about distribution and suppliers. Who takes our product to market?

Do we have to market, or does the market chase us? And then we’ll go, okay, so now we’ve got all of that. What about our brand, our position? What are we known for? Is that also drawing people to us?

Do we have a brand that we’re known? And if we’ve got those six leaders in place, the second one is, do we have that plug and play business model that will just allow us to scale? And I know they’re just simple headings. But we use no but.

They’re very important. One point of clarification around IP, because a lot of times listeners and business owners get confused. You don’t have to have a lot of hardcore IP to have intangible assets. They’re not the same. IP are four boxes trademarks, patents, copyrights, trade secrets. There are ways for lawyers to organise what categories of things might be protected by the law, but you take something like corporate reputation.

Corporate reputation, okay, arguably is a first cousin to their brand. Brand is related to trademarks, but you can have things that are proprietary to you without them independently qualifying as a trade secret or a patent or a trademark. So please think of this category of intangible assets as being much broader than just the four boxes of intellectual property law.

Yeah, well, that’s interesting, the intellectual property law, because when we have the conversations with our clients, I don’t have a legal background, but we talk about IP as in, do you have the intellectual product property? And then we go, now, is this protectable? Which is kind of the next layer of going?

There’s one very key area that we haven’t touched on that you and I talked about in preparation for the podcast, and that’s this historical notion of goodwill. I don’t know if this would be a good time to jump into that. Absolutely. There’s a company called Ocean Tomo I recommend anyone interested in this area to read some of their reports. Ocean Tomo in the 1980s began looking at the ratios of tangible to intangible assets in the Fortune 500, and I think a slightly broader group as well. And what they found was that back in the 80s, when Darryl and I first began our careers, the ratio was as you would expect it, 85% to 90%. In most industry, verticals were tangible assets inventory, equipment, items of manufacture. Companies would buy other companies for real estate and for hard assets that you could put your hands on. We are now in a period by 2023 where that 85% to 90% ratio has completely flip flopped.

So in half a lifetime, I mean, basically, in the time of our professional careers. We have completely seen a shift. That shift is going to continue to happen. It’s not going to end. And there are some small startup companies that are coming right out of the gate at a 99 to one ratio of intangible to tangible.

I mean, no one’s interested in your desks and chairs. They’re not even interested in your cell phones and laptops. These are commodities. If you don’t have intangible assets, you’re going to be left behind. And if we look at companies like Facebook and Google and Apple Nvidia just hit a trillion dollar market cap.

Apple’s got, I think, a $2 trillion market cap. You say to yourself, okay, $2 trillion in market cap. What percentage of that are hard assets on their balance sheet? 5%? 10%?

I mean, 10% would be what, $200 billion in hard assets? I mean, that’s a lot of hard assets, even if you have the biggest server farms ever.

Yeah, I mean, we’re at a period where even some of the most successful companies on the planet barely have 10% of their market cap reflective intangible assets. So here we have this accounting problem now, because back in the this term, goodwill was used as kind of a rounding error, and now it’s 95% of the market value of companies, but we still don’t have the right terms to define these assets. And if we have time, Darryl, I’d love to tell a funny story about this.

Yeah. So I come out of law school in the mid eighty s, and I’m working on this very small deal. It was actually you’ll appreciate this, Darryl. It was a chimney sweep company, and they were old school chimney sweeps with trucks and equipment and chemicals and mostly tangible assets. And the purchase price of the business was a whopping $500,000.

So I’m working on the documents as a young associate, and I get in early that morning for the closing, and I keep adding up the assets in Exhibit A to the asset purchase agreement, and they keep adding up to only $490,000. And I start sweating profusely. And the partner that I was working for hadn’t come in yet, and I’m like, in my desk, I don’t know what I’m going to do. I mean, the deal is at 500,000, but the assets only add up to 490. And I don’t know what is going to happen.

Am I going to get fired? I keep checking my math over and over and over. So finally he comes in. His name was Scott. And I said, Scott, we’ve got a crisis.

I said that we’re selling assets for 500,000. The assets only add up to 490. This is a fraud. We can’t commit fraud. I’m like thinking like a first year associate.

He says, Just write down $10,000 goodwill. I said goodwill. Like Goodwill Industries the charity?

He said, no, there’s this counting concept called Goodwill. You can use it as a rounding error to make 490 into 500. I said, yeah, but it sounds sketchy to me. What is this thing called goodwill? And he said, well, it’s like your brand and your customer relationships.

And this was a 1985 exposure to the concept of goodwill. And I thought it was like defense to fraud. Look at how this concept has evolved in four decades, and it’s going to continue to evolve. But we do need better accounting standards and more precise terms to describe these intangibles. We’re well past the point where goodwill can be a catch all or rounding error or be that last $10,000 in the sale of a chimney sweep company.

Well, I know I wouldn’t have got away with anything in my engineering exams if I had a rounding error of 90%.

Right? Exactly. But now, if you really study some of the world’s most successful companies, the rounding error is the tangible assets. That’s what’s so crazy. I don’t want to ever lose sight of this because it’s been a very strong strategic guidepost of my career. And back to the gold bars example. I don’t want to be the lawyer that ever works on a deal that left all those gold bars in the attic.

I want to be the opposite. Imagine how happy you’d be if I was your real estate agent and I did a thorough inspection of your house before the sale. And I said, Darryl, before we sell this home, you might want to go up to your attic because there’s millions of dollars of gold bars up there. And that’s how I feel about this issue in the context of M and A, particularly for small and mid-sized companies. Because let’s face it, their inventory management systems are weak.

Their inventory management systems of their intangible assets are even weaker, and buyers can take advantage.

And extending that metaphor somewhat, the real estate agent says, look, go and check out your attic. You’re going to handy one of those gold bars, aren’t you? You’re going to say, hey.

And by the way, in this field of business, it’s gold bars, it’s collectible baseball cards. It’s all kinds of valuable assets that you never took inventory of, and the buyer is now going to take inventory for you. But after closing and I’ve seen very few situations where a buyer says, well, this thing’s a lot more valuable. Let’s make an upward adjustment to the purchase price that rarely never happens.

So we’ve got these intangible assets, or we’ve got a sense that we might have some intangible assets, and we’re looking at what you’re sharing with us, and you’re going, hey, look, 90% near enough of business valuation is in intangible assets.

It’s locked away. So intangible means you can’t touch them, feel them, which means sometimes you can’t see them, therefore they’re invisible. So whose responsibility is it? And obviously, the answer is obvious to bring those intangible assets to the surface and make them visible and present them and show them to potential buyers?

Well, two things. Number one, they’re often invisible, as you say, but they’re also often embedded. So they’re embedded. You have to unpeel the onion a few layers to get to them. So imagine an invisible onion. You finally figure out that it’s an onion, but then you only opened up the first layer of the onion.

And so you feel like you accomplished something because you found the onion even though it was invisible, but you didn’t really open it up. So take patents. Many patents have claims that are written properly and broadly enough that they have applications outside your core industry. But of course, you’re a busy entrepreneur, so you’re so busy just looking at making products within the patent claims that you have in your core business, you’re not thinking about ten other businesses that might license your technology in their industry verticals. Well, if you don’t figure that out sometime prior to the sale and the patents convey, guess who’s getting the benefit of that?

The buyer. And you’ll be pretty upset when you’re down in Florida golfing and you find out that the buyer is engaged in active licensing of your patents into ten other verticals, making millions and millions of dollars of high margin revenue streams. So I think the answer to your question to be succinct, Darryl, is, number one, it’s your responsibility as the owner of the business. You owe a fiduciary obligation to your minority shareholders or investors, and you owe it to yourself and to your family to maximise value, which is the point of Darryl’s podcast.

The second is, if you don’t have those skill sets, don’t be pennywise and pound foolish. Hire some consultants and lawyers. I’m sure Darryl and I would be happy to help you unearth these assets, unpeel the assets, and to see the things that people can’t see for themselves. I don’t want to get too personal or too metaphysical, but I was born with a congenital cataract in my left eye. I have no vision from here over, and I’m very proud to make a career out of seeing things for people that they don’t see for themselves, because I myself am half blind, and it’s motivated everything that I do in my life. And I get very excited to help companies unearth these assets, because it is an opportunity to have vision beyond ocular vision to really help unearth the assets.

Now, I do want to say one very important thing. I also represent buyers. I mean, I’m not a seller only attorney. I’m an M and A lawyer, which means you can be on the buy side or the sell side. When I’m on the buy side, it’s my job to find those hidden onions. It’s my job to look at the due diligence differently than the typical lawyer might and identify those intangible assets that can be post closing drivers of value for our buyer clients. So basically trying to say, Darryl, if you the seller don’t line up these resources, don’t be surprised if the buyer’s got his or her lineup of resources.

Yeah. So you’re the one going snooping around in the roof and saying to your client, I don’t think they’re selling those, but the roof’s loaded with gold.

Yes, exactly. Talk about very happy clients. Imagine 30 to 60 days after closing when you can sit down with the client and say, now let’s sort out here what we really bought. Let’s sort out what we paid for it and what its value might be. And this happens a lot in large to medium-sized transactions companies end up with some assets that they really weren’t planning on having, but now they’re taking full advantage of because that’s the job of buyers.

Yeah. So our job as business owners, as entrepreneurs, is to identify and uncover all of the hidden, or the not so hidden, the buried, perhaps intangible assets in our business and see what they’re worth through a buyer’s lens and where they can potentially be valuable elsewhere. And this came out. I remember in some of my early business studies where we talked about the whole concept of best practice was having a look what’s happening in other industries just as some of your internal processes so that you can see how a best in class process system what have you may operate and can you borrow from other industries and apply to your own?


Similar thinking, I guess.

Now, two quick footnotes. Footnote number one, once you take this inventory, you might carve out a few assets and keep them for yourselves as your next project. We had a client recently that sold some tech services to the government. He also had this little innovation lab where he had developed some interesting body armor and other products. And he decided when he was thinking of selling his business, to carve out the innovation lab because he wasn’t sure what he had in there, but he knew that he didn’t want to sell it. So that’s one consideration. The second is this question gets asked of me a lot. What if I’ve got some intangible assets, but they really haven’t been harvested yet, they haven’t turned themselves into revenue yet? How does that get value?

And my answer is always the same. You’re probably not going to get 100%. No buyer is going to say, oh, Darryl, you’ve got potentially gold bars, but they also might be fake or stolen or whatever. They’re not going to give you maximum value per gold bar. But what they will do is at least acknowledge the existence, and then you negotiate accordingly.

And that’s where deferred considerations such as earn outs or royalties or other contingent payments come up, is to say, hey, the buyer might say, all right, we acknowledge the existence of these intangibles. We’re not going to pay you 100% market value for them because they’ve not been tested. But if we do roll them out, you’ll get a royalty or an earn out or some type of deferred payment for them. So I don’t want to create the thought that every seller has a gazillion dollars in embedded value. But if you don’t take inventory, the buyer is certainly going to take inventory for you with no obligation to tell you what they found.

Well, exactly. And therefore it’s up to us to do that complete audit on our business. And we really need an outside set of eyes to look at it through a fresh view because we’re conditioned to it. We’re not seeing what’s valuable to someone else. So have a look.

Do that stock take of the way we run our business. And then if we’ve got time, if we’re not looking to exit too quickly, we can then start to leverage that and use that and bring it to the front of our business so that it’s more obvious and visible, so that we can start generating cash and revenue from it before.

Sometimes without getting too hokey here. Sometimes it’s a mindset. Business owners are often entrepreneurs. They have mild to a severe add. They’re busy putting out fires all day long. And I make this point in the harvesting intangible assets book. I know you’ve got a fire hose, but do you have an irrigation hose? The irrigation hose spreads water much more softly and gently and grows plants for the long term.

Every entrepreneur I’ve ever met is very adept with the fire hose, putting out fires every day. But do you have that long term view? We have to think of ourselves as business owners, as stewards. Even if you’re the 100% owner of the business, you’re still a steward to your family, to your employees, to your suppliers. If we embrace principles of stewardship.

It would be a moral tragedy to not take inventory of the things that you’ve developed, because not all of them necessarily belong to you. I mean, sometimes employees have contributed to these things, and if they’re going to get some bonus upon sale of the business, they’re going to want to see you maximise value. So the sooner boards of directors and business owners put themselves in a stewardship mindset, the more they start thinking, hey, it is my job to maximise value, not just to line my pockets, but to line my ecosystem’s pockets. If you sell for a lot more than you thought, you can be that much better of a philanthropist after closing than you might have been beforehand. So there’s a lot of ripple benefits to this beyond just a fatter wad of cash at closing. Even though that’s, of course, always a good thing.

Yeah, there’s nothing wrong with that. So, Andrew, where have we got to? We’ve got the valuation of the business. We’ve got a good running business. We’re not aware of the intangible assets. They just invisibly. Help us run our business. They help us generate a profit. A good year in, year out profit. And we’ve got a profitable business. So without looking at the intangible assets, we’ll get a standard sort of valuation, we’ve got a good profit, and we might get I know it’s not a great term, but a standard industry multiple applied to our profit for our valuation. If we start focusing on the intangible assets, chances are, and we bring them to the forefront and promote them and make them visible, then chances are we’re going to have an impact on the M, the multiplier of our valuation. Is that a fair conclusion?

It’s not only a fair conclusion, Darryl, it’s an elegant conclusion, and it’s an accurate conclusion. So I don’t know what else I could ask for than elegance and accuracy.

Well, the only thing I’m going to ask is to try and put you on a spot somewhat and sort of say, hey, in your experience, what sort of impact can we have on the M, the multiplier, if we really bring those intangible assets to the forefront?

Well, I’ll tell you, one of the great honors of my life, even though you don’t usually hear this, was testifying before Congress, and I was testifying on the topic of how, if US entrepreneurs could do a better job unearthing and uncovering and utilising these assets, the impact it might have on the GDP, the impact it might have on employment and innovation. And I believe that to be the case in every organised society in the planet.

I mean, every country right now, even China and India, are struggling with how to be more innovative, how to grow their GDPs, how to have people more engaged. I believe that innovation and creativity and the harvesting of innovation is one of the keys to employee engagement, to productivity, to GDP growth, maybe even to world peace. So I feel pretty strongly that there’s a lot the empowerment of people by leveraging these assets and creating income streams and profit centers and new opportunities is something that can quite literally save the world.

Brilliant. Andrew, I normally ask at the end of a conversation like this, what’s the key thing that you want listeners to take away from our conversation?

I know we’ve covered a lot of ground. We’ve both been pretty excited by the topic. But if there were just one thing that you could go, hey, listeners, here’s the message I want you to hear. What would it?

Don’t leave gold parts in your attic before you sell your house? No, I think, look, this stuff is fun. You know, it’s it’s not hard work. It’s enjoyable. It’s fun to walk through your business with some advisors and see pockets of hidden value. It’s fun for you. It’s fun for your employees. We need to bring a little bit more fun back in the business. We’re coming off the worst pandemic in the history of mankind. People want to come to work and enjoy themselves and enjoy each other. And I would say that don’t look at harvesting intangible assets as just a quantitative way to increase value.

Think of it as a qualitative way to increase culture and engagement and even better governance. So I think this topic does have a ripple effect into far greater areas of just maximising business value.

That’s a far better summary that I had lined up. So, Andrew, thank you for sharing your exit insights with us today. I’ve really enjoyed having you on the show.

Well, I’m always happy to have a part two. And look, we did our job today. If even one listener moves the needle, if even one listener thinks about their business differently and it’s been an absolute pleasure to be on the show.

About Andrew Sherman

Andrew J. Sherman is a partner in the Firm’s Corporate Practice Group and co-practice group leader of the Emerging Growth Companies & Venture Capital Group. A recognised authority on the legal and strategic aspects of business growth, Andrew’s practice is concentrated on domestic and international franchising, mergers and acquisitions, and corporate counseling.

Andrew focuses his practice on issues affecting business growth for companies at all stages, including developing strategies for licensing and leveraging intellectual property and technology assets, intellectual asset management and harvesting, as well as international corporate transactional and franchising matters.

He has served as a legal and strategic advisor to dozens of Fortune 500 companies and hundreds of emerging growth companies across a number of diverse industries, including leisure and hospitality, food & beverage, retail, financial services, energy, manufacturing, health and life sciences, sports, entertainment and music. He has represented U.S. and international clients from early stage, rapidly growing startups, to closely held franchisors and middle market companies, to multibillion-dollar international conglomerates. He also counsels on issues such as franchising, licensing, joint ventures, strategic alliances, capital formation, distribution channels, technology development, and mergers and acquisitions.

Andrew has written nearly 30 books on the legal and strategic aspects of business growth, franchising, capital formation, and the leveraging of intellectual property, most of which can be found on Amazon. He also has published many articles on similar topics and is a frequent keynote speaker at business conferences, seminars, and webinars. He has appeared as a guest commentator on CNN, NPR, and CBS News Radio, among others, and has been interviewed on legal topics by The Wall Street Journal, USA Today, Forbes, U.S. News & World Report, and other publications.

Andrew serves as an adjunct professor in the MBA programs at the University of Maryland, as well as the Georgetown University Law Center. Andrew is a multiple recipient of the University of Maryland at College Park’s Krowe Excellence in Teaching Award.


Darryl Bates-Brownsword

Darryl Bates-Brownsword

CEO | Succession Plus UK

Darryl is a dynamic, driven Business Mentor and Coach with over 20 years of experience and passion for creating successful outcomes for founder-led businesses. He is a great connector, team builder, problem solver, and inspirer – showing the way through complexity to simplicity.

He has built 2 international multi-million turnover businesses; one now operating in 16 countries. His quick and analytical approach cuts through to the core issues quickly and identifying the context. He challenges the status quo and gets consistent, repeatable and reliable business results.

Originating in Australia, Darryl’s first career was as an Engineer in the Power Industry. Building businesses bought him to the UK in 2003 where he quickly developed a reputation for combining systems thinking with great creativity to get results in challenging situations.

A keen competitive cyclist, he also has a B Eng (Mech) Engineering and an MBA.