relationship capital (2)

Dancing Around Twitter’s Intangible Capital

images?q=tbn:ANd9GcTJTodnd0e8MGLIWZ42mxILyzXLHcFwGhGZW0NQUrqelqRKPerJ&width=250Everything you read about the Twitter IPO is talking about pieces of its intangible capital. Not a big surprise—it’s a perfect example of a social technology company built almost completely of intangibles.

But as someone interested in the field, I get frustrated that the holistic view that IC brings is often lacking. In an effort to gain such a view, I've brought together some pieces of the puzzle:

  • Human Capital: Twitter has 2,000 employees. Interestingly, managers/employees own much smaller percentages than seen in comparable young tech companies (could be a good thing—see my comments on shareholders below). There’s no clear leader like Zuckerberg at Facebook or Page and Brin at Google. There’s also no woman in senior leadership (definitely a bad thing).
  • Relationship Capital: Twitter has over 100 million Daily Active Users, over 218.3 million Monthly Active Users. The NY Times article explains that the whole business depends on users posting interesting things that attract readers and other users. Other forms of relationship capital includes Advertisers, 3 million websites that integrate Twitter, 6 million Registered Twitter Apps.
  • Structural Capital: 6 patents, the platform software itself, 300 billion Tweets and related data about use of the platform
  • Strategic Capital: Revenue model is based to date 85% on advertising (65% of which is mobile—better than Facebook) and 15% sale of data. But the model still isn’t profitable. Will it be in the long run? In the S-1, management explains their purpose as follows:
    The mission we serve as Twitter, Inc. is to give everyone the power to create and share ideas and information instantly without barriers. Our business and revenue will always follow that mission in ways that improve–and do not detract from–a free and global conversation. 

(Sources are listed at the end of this post)

I assembled the above summary using the inside-out kind of data we are used to seeing from and about companies. This approach uses financial and quantitative data to describe the essentials of a company. But there’s no consolidated view, like we used to have with the tangibles-based balance sheet.

Categorizing the data by intangible type and looking at how it’s connected can be interesting. In this case, it shows that not much is understood about the people behind the company’s success. It also shows how dependent the company is on its relationship capital—the primary structural and strategic assets are directly related to the relationship capital. And, you could make the case that the relationship capital is dependent on the continuing strength of the culture (strategic capital) and the people (human capital). But if we don’t know about management,  we don’t have a complete picture

How could we get clarity? That’s where I’m left wanting an outside-in measurement. How do the company's stakeholders view it?  Maybe the number of active users is a proxy for that. But that’s going to be a lagging indicator. If I had to choose, I would want to monitor the people and the culture as leading indicators. Catching a problem there would be far preferable to waiting to see it in the user data. This is why we recommend that companies proactively measure their key intangibles through stakeholder feedback. Meeting your stakeholder needs is the path to success for just about every company.

And this begs the final question about the IPO. If Twitter puts itself in the position of being beholden to Wall Street to extract more value from its intangible capital, what happens to its power to attract those all important users? In other words, how much alignment will there be between the shareholders and the stakeholders?

This is why I continue to believe that future Twitters and Facebooks will turn to their users rather than the capital markets for liquidity. In the Slate article referenced below, Matthew Iglesias makes the point that IPO’s today aren’t about raising capital, they’re about liquidity for early investors. This IPO replaces an interested, more engaged investor group for a more fickle, demanding investor group on Wall St, not the kind of relationship capital I would choose for a company whose value is so strongly based in intangibles like people, users and partners…


NY Times: Twitter’s Biggest Risk is Losing You 

Tech Crunch: Twitter IPO by the Numbers

BusinessWeek How to Read Twitter’s IPO Filing

Slate Twitter’s S-1: Four Interesting Points

NY Times Curtain is Rising on a Tech Premiere With (As Usual) a Mostly Male Cast and story about management’s response on Twitter

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What is relationship capital?

10468394661?profile=originalRelationship Capital is one of the four cornerstones of intangible capital. It can be both an asset and/or a liability depending on how stakeholders view the performance of your relationship capital.

This includes all kinds of relationships with customers, partners, suppliers, community, government, media, institutions, groups and people who have an interest in the success of your organization. All these interactions involve the sharing of knowledge, the solving of problems and the creation of connections--and the creation of brand and reputation. If it works, you’re creating value. If it doesn’t work, you’re destroying value. Here are some examples:

  • If you have poor customer service you are hurting your relationship capital
  • If your marketing message is unclear and not attracting the right audience you are not building relationship capital
  • If your suppliers are irresponsible, you are harming your relationship capital with your community and customers
  • If you treat your suppliers as “low price” providers rather than long-term partners, you are hurting your relationship capital
  • If you violate the trust of your stakeholders, your reputation suffers and decreases your reserve of relationship capital.

None of this is particularly new. Businesses have always existed to serve customers (Drucker said that is the main purpose of a business). But the stakes are higher now. And the connections are faster and, many times, tighter than they used to be. Real-time communications mean that customers are often directly wired into your business. So are suppliers with just-in-time inventory fulfillment. And the ability to connect directly with suppliers makes it easier to outsource elements of your business that, in the past, might have stayed inside your own operation. This trend brings with it great flexibility and access to expertise. But it has big management challenges.

Indeed, real-time communications have another implication. Since the exponential uptake of social networking, the ability to assess the quality and trustworthiness of an organization has become transparent. Bad behavior is harder to hide. And companies don’t just get blamed for their own behavior, they are (rightly) held accountable for the behavior of their partners. This means that external relationship management is as important as the management of internal operations.

External relationships are one of the key drivers of wealth creation. Relationships can be evaluated as assets, no less important than physical assets or bank accounts. In ICounting, we measure the strength of relationship capital as an asset. And we also see external stakeholders as key partners (along with internal stakeholders) in performing those measurements. After all, who knows better than your stakeholders how you are doing?

This is a different perspective from traditional financial-based systems. Your Accountant can tell you whether you have profited in the past from your relationships. Intangible capital measurement can help you see whether you will be able to sustainably profit in the future.

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